Hertz 2009 Annual Report Download - page 87

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
Year Ended December 31, 2007
Car Equipment
Rental Rental
Income before income taxes and noncontrolling interest ............ $468.6 $308.5
Adjustments:
Purchase accounting(1) ................................ 35.3 58.1
Non-cash debt charges(2) .............................. 66.5 11.2
Derivative gains(5) ................................... (4.1) —
Restructuring charges ................................ 64.5 4.9
Vacation accrual adjustment(7) ........................... (25.8) (8.9)
Adjusted pre-tax income ................................ $605.0 $373.8
(1) Represents the purchase accounting effects of the Acquisition on our results of operations relating to increased
depreciation and amortization of tangible and intangible assets and accretion of revalued workers’ compensation and
public liability and property damage liabilities. Also represents the purchase accounting effects of subsequent
acquisitions on our results of operations relating to increased amortization of intangible assets.
(2) Represents non-cash debt charges relating to the amortization of deferred debt financing costs and debt discounts.
For the year ended December 31, 2009, also includes $74.6 million associated with the amortization of amounts
pertaining to the de-designation of the Hertz Vehicle Financing LLC, or ‘‘HVF,’’ interest rate swaps as effective hedging
instruments. During the years ended December 31, 2008 and 2007, also includes $11.8 million and $20.4 million,
respectively, associated with the ineffectiveness of our HVF interest rate swaps. During the year ended December 31,
2008, also includes $30.0 million related to the write-off of deferred financing costs associated with those countries
outside the United States as to which take-out asset-based facilities have not been entered into. During the year ended
December 31, 2007, also includes the write-off of $16.2 million of unamortized debt costs associated with a debt
modification.
(3) Represents incremental, one-time costs incurred directly supporting our business transformation initiatives. Such costs
include transition costs incurred in connection with our business process outsourcing arrangements and incremental
costs incurred to facilitate business process re-engineering initiatives that involve significant organization redesign and
extensive operational process changes.
(4) Represents an allowance for uncollectible program car receivables related to a bankrupt European dealer affiliated with
a U.S. car manufacturer.
(5) Represents unrealized and realized gains and losses on our interest rate swaptions.
(6) Represents non-cash impairment charges related to our goodwill, other intangible assets and property and equipment.
(7) Represents decreases in the employee vacation accrual relating to a change in our U.S. vacation policy in 2007 which
provides for vacation entitlement to be earned ratably throughout the year versus the previous policy which provided
for full vesting on January 1 each year.
(d) Equipment rental and rental related revenue consists of all revenue, net of discounts, associated with the rental of equipment
including charges for delivery, loss damage waivers and fueling, but excluding revenue arising from the sale of equipment,
parts and supplies and certain other ancillary revenue. Rental and rental related revenue is adjusted in all periods to eliminate
the effect of fluctuations in foreign currency. Our management believes eliminating the effect of fluctuations in foreign
currency is appropriate so as not to affect the comparability of underlying trends. This statistic is important to our
management as it is utilized in the measurement of rental revenue generated per dollar invested in fleet on an annualized
basis and is comparable with the reporting of other industry participants. The following table reconciles our equipment rental
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