Hertz 2012 Annual Report Download - page 226

DEFINITIONS AND NON-GAAP RECONCILIATIONS
Definitions and Use / Importance of Non-GAAP Measures
Adjusted Pre-Tax Income
Adjusted pre-tax income is calculated as income before income taxes plus non-cash purchase
accounting charges, non-cash debt charges relating to the amortization of debt financing costs and debt
discounts and certain one-time charges and non-operational items. Adjusted pre-tax income is
important to management because it allows management to assess operational performance of our
business, exclusive of the items mentioned above. It also allows management to assess the
performance of the entire business on the same basis as the segment measure of profitability.
Management believes that it is important to investors for the same reasons it is important to management
and because it allows them to assess the operational performance of the Company on the same basis
that management uses internally.
Adjusted Net Income
Adjusted net income is calculated as adjusted pre-tax income less a provision for income taxes derived
utilizing a normalized income tax rate (34% in 2012, 2011, 2010 and 2009) and noncontrolling interest.
The normalized income tax rate is management’s estimate of our long-term tax rate. Adjusted net
income is important to management and investors because it represents our operational performance
exclusive of the effects of purchase accounting, non-cash debt charges, one-time charges and items
that are not operational in nature or comparable to those of our competitors.
Adjusted Diluted Earnings Per Share
Adjusted diluted earnings per share is calculated as adjusted net income divided by, for 2012, 2011,
2010 and 2009, 448.2 million shares, 444.8 million shares, 410.0 million shares and 407.7 million shares,
respectively, which represents the weighted average diluted shares outstanding for the period. Adjusted
diluted earnings per share is important to management and investors because it represents a measure
of our operational performance exclusive of the effects of purchase accounting adjustments, non-cash
debt charges, one-time charges and items that are not operational in nature or comparable to those of
our competitors.
Earnings Before Interest, Taxes, Depreciation and Amortization (‘‘EBITDA’’) and Corporate EBITDA
EBITDA is defined as net income before net interest expense, income taxes and depreciation (which
includes revenue earning equipment lease charges) and amortization. Corporate EBITDA, as presented
herein, represents EBITDA as adjusted for car rental fleet interest, car rental fleet depreciation and
certain other items, as described in more detail in the accompanying tables.
Management uses EBITDA and Corporate EBITDA as operating performance and liquidity metrics for
internal monitoring and planning purposes, including the preparation of our annual operating budget
and monthly operating reviews, as well as to facilitate analysis of investment decisions, profitability and
performance trends. Further, EBITDA enables management and investors to isolate the effects on
profitability of operating metrics such as revenue, operating expenses and selling, general and
administrative expenses, which enables management and investors to evaluate our two business
segments that are financed differently and have different depreciation characteristics and compare our
performance against companies with different capital structures and depreciation policies. We also
present Corporate EBITDA as a supplemental measure because such information is utilized in the
calculation of financial covenants under Hertz’s senior credit facilities.
EBITDA and Corporate EBITDA are not recognized measurements under GAAP. When evaluating our
operating performance or liquidity, investors should not consider EBITDA and Corporate EBITDA in
isolation of, or as a substitute for, measures of our financial performance and liquidity as determined in
accordance with GAAP, such as net income or net cash provided by operating activities.