Hertz 2008 Annual Report Download - page 51

ITEM 1. BUSINESS (Continued)
Relationship with Ford
Prior to the Acquisition, Ford, through its wholly-owned subsidiary Ford Holdings, was Hertz’s only
stockholder. As a result of the Acquisition, Hertz Holdings indirectly owned all of Hertz’s outstanding
common stock. As a result of our initial public offering in 2006 and the June 2007 secondary offering,
investment funds associated with or designated by the Sponsors currently own approximately 55% of
Hertz Holdings’ outstanding common stock.
Set forth below are descriptions of certain agreements, relationships and transactions between Hertz
and Ford that survived the completion of the Acquisition.
Supply and Advertising Arrangements
On July 5, 2005, Hertz, one of its wholly-owned subsidiaries and Ford signed a Master Supply and
Advertising Agreement, effective July 5, 2005 and expiring on August 31, 2010, that covers the 2005
through 2010 vehicle model years.
The terms of the Master Supply and Advertising Agreement only apply to our fleet requirements and
advertising in the United States and to Ford, Lincoln or Mercury brand vehicles, or ‘‘Ford Vehicles.’’
Under the Master Supply and Advertising Agreement, Ford has agreed to supply to us and we have
agreed to purchase from Ford, during each of the 2005 through 2010 vehicle model years, a specific
number of Ford Vehicles. Ford has also agreed in the Master Supply and Advertising Agreement to pay
us a contribution toward the cost of our advertising of Ford Vehicles equal to one-half of our total
expenditure on such advertising, up to a specified maximum amount. To be eligible for advertising cost
contribution under the Master Supply and Advertising Agreement, the advertising must meet certain
conditions, including the condition that we feature Ford Vehicles in a manner and with a prominence that
is reasonably satisfactory to Ford. It further provides that the amounts Ford will be obligated to pay to us
for our advertising costs will be increased or reduced according to the number of Ford Vehicles acquired
by us in any model year, provided Ford will not be required to pay any amount for our advertising costs
for any year if the number of Ford Vehicles acquired by us in the corresponding model year is less than a
specified minimum except to the extent that our failure to acquire the specified minimum number of Ford
Vehicles is attributable to the availability of Ford Vehicles or Ford vehicle production is disrupted for
reasons beyond the control of Ford. To the extent we acquire less than a specified minimum number of
Ford Vehicles in any model year, we have agreed to pay Ford a specified amount per vehicle below the
minimum.
The advertising contributions paid by Ford for the year ended December 31, 2008 were similar to the
advertising contributions we received from Ford for the year ended December 31, 2007. We expect that
contributions in future years will be below levels for 2008 based upon anticipated reductions in the
number of Ford Vehicles to be acquired. We do not expect that the reductions in Ford’s advertising
contributions will have a material adverse effect on our results of operations.
Under the terms of the Master Supply and Advertising Agreement, we are able to enter into vehicle
advertising and supply agreements with other automobile manufacturers in the United States and in
other countries, and we intend to explore those opportunities. However, we cannot offer assurance that
we will be able to obtain advertising contributions from other automobile manufacturers that will mitigate
reductions in Ford’s advertising contributions.
Ford subsidiaries and affiliates also supply other brands of cars, including Volvo and Mazda cars, to us in
the United States under arrangements separate from the Master Supply and Advertising Agreement. In
addition, Ford and its subsidiaries and affiliates are significant suppliers of cars to our international
operations.
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