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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

ý   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2008

OR

o

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number 001-33139

HERTZ GLOBAL HOLDINGS, INC.
(Exact name of Registrant as specified in its charter)

Delaware
(State or other jurisdiction of
incorporation or organization)
  20-3530539
(I.R.S. Employer
Identification Number)

225 Brae Boulevard
Park Ridge, New Jersey 07656-0713
(201) 307-2000
(Address, including Zip Code, and telephone number,
including area code, of Registrant's principal executive offices)

Not Applicable
(Former name, former address and former fiscal year,
if changed since last report)

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý    No o

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer ý   Accelerated filer o   Non-accelerated filer o
(Do not check if a smaller reporting company)
  Smaller reporting company o

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o    No ý

There were 322,970,012 shares of the Registrant's common stock, par value $0.01 per share, issued and outstanding as of November 6, 2008.



HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES

INDEX

 
   
  Page
PART I. FINANCIAL INFORMATION    
     

ITEM 1.

 

Condensed Consolidated Financial Statements (Unaudited)

   

 

Report of Independent Registered Public Accounting Firm

 

1

 

Condensed Consolidated Balance Sheets as of September 30, 2008 and December 31, 2007

 

2

 

Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2008 and 2007

 

3

 

Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2008 and 2007

 

4–5

 

Notes to Condensed Consolidated Financial Statements

 

6–41

     

ITEM 2.

 

Management's Discussion and Analysis of Financial Condition and Results of Operations

 

42–82

     

ITEM 3.

 

Quantitative and Qualitative Disclosures About Market Risk

 

82

     

ITEM 4.

 

Controls and Procedures

 

83

PART II. OTHER INFORMATION

   
     

ITEM 1.

 

Legal Proceedings

 

84

     

ITEM 1A.

 

Risk Factors

 

84–92

     

ITEM 6.

 

Exhibits

 

93

SIGNATURE

 

94

EXHIBIT INDEX

 

95



PART I—FINANCIAL INFORMATION

ITEM 1.    Condensed Consolidated Financial Statements

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and
Stockholders of Hertz Global Holdings, Inc.:

We have reviewed the accompanying condensed consolidated balance sheet of Hertz Global Holdings, Inc. and its subsidiaries as of September 30, 2008 and the related consolidated statements of operations for each of the three-month and nine-month periods ended September 30, 2008 and September 30, 2007 and the consolidated statements of cash flows for the nine-month periods ended September 30, 2008 and September 30, 2007. These interim financial statements are the responsibility of the Company's management.

We conducted our review in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board (United States), the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

Based on our review, we are not aware of any material modifications that should be made to the accompanying condensed consolidated balance sheet and the related consolidated interim financial statements for them to be in conformity with accounting principles generally accepted in the United States of America.

We previously audited in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet as of December 31, 2007 and the related consolidated statements of operations, of stockholders' equity and of cash flows for the year then ended (not presented herein), and in our report dated February 29, 2008 we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of December 31, 2007 is fairly stated in all material respects in relation to the consolidated balance sheet from which it has been derived.

/s/ PricewaterhouseCoopers LLP
Florham Park, New Jersey
November 7, 2008

1



HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In Thousands of Dollars)

Unaudited

 
  September 30,
2008
  December 31,
2007
 

ASSETS

             

Cash and equivalents

  $ 731,539   $ 730,203  

Restricted cash

    514,048     661,025  

Receivables, less allowance for doubtful accounts of $15,541 and $11,137

    1,902,541     1,690,956  

Inventories, at lower of cost or market

    129,658     118,997  

Prepaid expenses and other assets

    348,260     317,613  

Revenue earning equipment, at cost:

             
 

Cars

    9,564,781     8,572,387  
   

Less accumulated depreciation

    (1,092,091 )   (962,054 )
 

Other equipment

    2,938,460     3,108,799  
   

Less accumulated depreciation

    (526,893 )   (411,272 )
           
     

Total revenue earning equipment

    10,884,257     10,307,860  
           

Property and equipment, at cost:

             
 

Land, buildings and leasehold improvements

    1,045,649     1,022,438  
 

Service equipment

    757,345     685,579  
           

    1,802,994     1,708,017  
   

Less accumulated depreciation

    (482,380 )   (362,469 )
           
     

Total property and equipment

    1,320,614     1,345,548  
           

Other intangible assets, net

    3,089,387     3,123,467  

Goodwill

    974,655     959,993  
           
     

Total assets

  $ 19,894,959   $ 19,255,662  
           

LIABILITIES, MINORITY INTEREST AND STOCKHOLDERS' EQUITY

             

Accounts payable

  $ 860,190   $ 1,064,878  

Accrued liabilities

    1,026,519     1,028,122  

Accrued taxes

    177,790     127,992  

Debt

    12,844,178     11,960,126  

Public liability and property damage

    325,628     343,028  

Deferred taxes on income

    1,772,076     1,797,099  
           
     

Total liabilities

    17,006,381     16,321,245  
           

Commitments and contingencies

             

Minority interest

    24,224     21,028  

Stockholders' equity:

             
 

Common Stock, $0.01 par value, 2,000,000,000 shares authorized, 322,969,814 and 321,862,083 shares issued

    3,230     3,219  
 

Preferred Stock, $0.01 par value, 200,000,000 shares authorized, no shares issued

         
 

Additional paid-in capital

    2,497,593     2,469,213  
 

Retained earnings

    281,657     270,450  
 

Accumulated other comprehensive income

    81,874     170,507  
           
     

Total stockholders' equity

    2,864,354     2,913,389  
           
     

Total liabilities, minority interest and stockholders' equity

  $ 19,894,959   $ 19,255,662  
           

The accompanying notes are an integral part of these financial statements.

2



HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(In Thousands of Dollars, except per share data)

Unaudited

 
  Three Months Ended
September 30,
  Nine Months Ended
September 30,
 
 
  2008   2007   2008   2007  

Revenues:

                         
 

Car rental

  $ 1,946,136   $ 1,944,499   $ 5,339,955   $ 5,161,230  
 

Equipment rental

    432,885     464,716     1,286,836     1,287,350  
 

Other

    42,853     40,397     109,521     98,228  
                   
   

Total revenues

    2,421,874     2,449,612     6,736,312     6,546,808  
                   

Expenses:

                         
 

Direct operating

    1,351,790     1,216,114     3,801,827     3,495,152  
 

Depreciation of revenue earning equipment

    595,016     535,039     1,658,715     1,498,893  
 

Selling, general and administrative

    234,321     203,183     595,744     586,000  
 

Interest, net of interest income of $5,490, $6,707, $20,450 and $26,974

    214,587     240,150     616,701     661,251  
                   
   

Total expenses

    2,395,714     2,194,486     6,672,987     6,241,296  
                   

Income before income taxes and minority interest

    26,160     255,126     63,325     305,512  

Provision for taxes on income

    (2,855 )   (86,870 )   (35,972 )   (107,291 )

Minority interest

    (5,641 )   (5,549 )   (16,146 )   (14,405 )
                   

Net income

  $ 17,664   $ 162,707   $ 11,207   $ 183,816  
                   

Weighted average shares outstanding (in thousands)

                         
 

Basic

    322,886     321,487     322,599     321,004  
 

Diluted

    322,886     327,507     322,599     325,256  

Earnings per share

                         
 

Basic

  $ 0.05   $ 0.51   $ 0.03   $ 0.57  
 

Diluted

  $ 0.05   $ 0.50   $ 0.03   $ 0.57  

The accompanying notes are an integral part of these financial statements.

3



HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In Thousands of Dollars)

Unaudited

 
  Nine Months Ended
September 30,
 
 
  2008   2007  

Cash flows from operating activities:

             
 

Net income

  $ 11,207   $ 183,816  
 

Adjustments to reconcile net income to net cash provided by operating activities:

             
   

Depreciation of revenue earning equipment

    1,658,715     1,498,893  
   

Depreciation of property and equipment

    131,441     134,389  
   

Amortization of other intangible assets

    49,747     46,560  
   

Amortization of deferred financing costs

    36,777     36,787  
   

Amortization of debt discount

    11,630     16,507  
   

Debt modification costs

        16,177  
   

Stock-based employee compensation charges

    20,303     24,269  
   

Unrealized (gain) loss on derivatives

    12,058     (3,006 )
   

Loss on ineffectiveness of interest rate swaps

    7,791     17,712  
   

Provision for losses on doubtful accounts

    21,693     10,375  
   

Asset writedowns

    34,113      
   

Minority interest

    16,146     14,405  
   

Deferred taxes on income

    5,010     58,106  
   

Gain on sale of property and equipment

    (9,370 )   (14,383 )
 

Changes in assets and liabilities, net of effects of acquisition:

             
   

Receivables

    (272,085 )   (102,391 )
   

Inventories, prepaid expenses and other assets

    (61,860 )   (44,569 )
   

Accounts payable

    (97,931 )   284,063  
   

Accrued liabilities

    (31,043 )   (46,066 )
   

Accrued taxes

    37,760     69,550  
   

Public liability and property damage

    (7,307 )   7,275  
           
     

Net cash provided by operating activities

  $ 1,574,795   $ 2,208,469  
           

The accompanying notes are an integral part of these financial statements.

4



HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

(In Thousands of Dollars)

Unaudited

 
  Nine Months Ended
September 30,
 
 
  2008   2007  

Cash flows from investing activities:

             
 

Net change in restricted cash

  $ 146,084   $ 124,087  
 

Revenue earning equipment expenditures

    (8,637,185 )   (9,569,217 )
 

Proceeds from disposal of revenue earning equipment

    6,135,741     6,574,011  
 

Property and equipment expenditures

    (149,439 )   (144,128 )
 

Proceeds from disposal of property and equipment

    36,746     53,143  
 

Acquisitions, net of cash acquired

    (68,864 )   (10,571 )
 

Other investing activities

    82     (190 )
           
     

Net cash used in investing activities

    (2,536,835 )   (2,972,865 )
           

Cash flows from financing activities:

             
 

Proceeds from issuance of long-term debt

    19,357     5,873  
 

Repayment of long-term debt

    (362,776 )   (957,557 )
 

Short-term borrowings:

             
   

Proceeds

    391,131     695,000  
   

Repayments

    (302,856 )   (225,000 )
   

Ninety day term or less, net

    1,294,208     976,611  
 

Payment of financing costs

    (33,839 )   (24,265 )
 

Distributions to minority interest

    (12,950 )   (5,775 )
 

Exercise of stock options

    6,753     4,287  
 

Proceeds from disgorgement of stockholder short-swing profits

    135     4,745  
           
     

Net cash provided by financing activities

    999,163     473,919  
           

Effect of foreign exchange rate changes on cash and equivalents

    (35,787 )   13,191  
           

Net increase (decrease) in cash and equivalents during the period

    1,336     (277,286 )

Cash and equivalents at beginning of period

    730,203     674,549  
           

Cash and equivalents at end of period

  $ 731,539   $ 397,263  
           

Supplemental disclosures of cash flow information:

             
 

Cash paid during the period for:

             
   

Interest (net of amounts capitalized)

  $ 626,934   $ 662,167  
   

Income taxes

    22,562     18,364  

The accompanying notes are an integral part of these financial statements.

5



HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Unaudited

Note 1—Basis of Presentation

Hertz Global Holdings, Inc., or "Hertz Holdings," is our top-level holding company. The Hertz Corporation, or "Hertz," is our primary operating company and a direct wholly owned subsidiary of Hertz Investors, Inc., which is wholly owned by Hertz Holdings. "We," "us" and "our" mean Hertz Holdings and its consolidated subsidiaries, including Hertz.

We are a successor to corporations that have been engaged in the car and truck rental and leasing business since 1918 and the equipment rental business since 1965. Hertz was incorporated in Delaware in 1967. Ford Motor Company, or "Ford," acquired an ownership interest in Hertz in 1987. Prior to this, Hertz was a subsidiary of UAL Corporation (formerly Allegis Corporation), which acquired Hertz's outstanding capital stock from RCA Corporation in 1985. Hertz Holdings was incorporated in Delaware in 2005 and had no operations prior to the Acquisition (as defined below).

On December 21, 2005, or the "Closing Date," investment funds associated with or designated by Clayton, Dubilier & Rice, Inc., or "CD&R," The Carlyle Group, or "Carlyle," and Merrill Lynch Global Private Equity, or "MLGPE," or collectively the "Sponsors," through CCMG Acquisition Corporation, a wholly owned subsidiary of Hertz Holdings (previously known as CCMG Holdings, Inc.) acquired all of Hertz's common stock from Ford Holdings LLC for aggregate consideration of $4,379 million in cash, debt refinanced or assumed of $10,116 million and transaction fees and expenses of $447 million.

We refer to the acquisition of all of Hertz's common stock through CCMG Acquisition Corporation as the "Acquisition." We refer to the Acquisition, together with related transactions entered into to finance the cash consideration for the Acquisition, to refinance certain of our existing indebtedness and to pay related transaction fees and expenses, as the "Transactions."

In November 2006, we completed our initial public offering of 88,235,000 shares of our common stock at a per share price of $15.00, with proceeds to us before underwriting discounts and offering expenses of approximately $1.3 billion. The proceeds were used to repay borrowings that were outstanding under a $1.0 billion loan facility entered into by Hertz Holdings, or the "Hertz Holdings Loan Facility," and to pay related transaction fees and expenses. The Hertz Holdings Loan Facility was used primarily to pay a special cash dividend of $4.32 per share to our common stockholders on June 30, 2006. The proceeds of the offering were also used to pay special cash dividends of $1.12 per share on November 21, 2006 to stockholders of record of Hertz Holdings immediately prior to the initial public offering.

In June 2007, the Sponsors completed a secondary public offering of 51,750,000 shares of their Hertz Holdings common stock at a per share price of $22.25. We did not receive any of the proceeds from the sale of these shares. We paid all of the expenses of the offering, excluding underwriting discounts and commissions of the selling stockholders, pursuant to a registration rights agreement we entered into at the time of the Acquisition. These expenses aggregated to approximately $2.0 million. Immediately following the secondary public offering, the Sponsors' ownership percentage in us decreased to approximately 55%.

The significant accounting policies summarized in Note 1 to our audited consolidated financial statements contained in our Annual Report on Form 10-K for the fiscal year ended December 31, 2007, filed with the United States Securities and Exchange Commission, or "SEC," on February 29, 2008, or the "Form 10-K," have been followed in preparing the accompanying condensed consolidated financial statements.

6



HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Unaudited

In our opinion, all adjustments (which include only normal recurring adjustments) necessary for a fair statement of the results of operations for the interim periods have been made. Results for interim periods are not necessarily indicative of results for a full year.

The December 31, 2007 condensed consolidated balance sheet data was derived from our audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America, or "GAAP."

Certain prior period amounts have been reclassified to conform with current reporting.

Note 2—Recent Accounting Pronouncements

In September 2006, the Financial Accounting Standards Board, or "FASB," issued Statement of Financial Accounting Standards, or "SFAS," No. 157, "Fair Value Measurements," or "SFAS No. 157." SFAS No. 157 defines fair value, establishes a framework for measuring fair value in accordance with GAAP and expands disclosures about fair value measurements. We adopted the provisions of SFAS No. 157 on January 1, 2008, except as they relate to non-financial assets and liabilities that are not recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually), which provisions become effective for us beginning in January 2009. We are currently reviewing SFAS No. 157, as it relates to our non-financial assets and liabilities that are not recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually), to determine its impact, if any, on our financial position or results of operations. See Note 14—Fair Value Measurements.

In February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for Financial Assets and Financial Liabilities," or "SFAS No. 159." SFAS No. 159 permits entities to choose to measure many financial assets and liabilities and certain other items at fair value. The provisions of SFAS No. 159 were effective for us beginning in January 2008. We chose not to change the measurement of the pertinent assets and liabilities as a result of SFAS No. 159; therefore, SFAS No. 159 did not have any impact on our financial position or results of operations.

In December 2007, the FASB issued SFAS No. 141 (revised 2007), "Business Combinations," or "SFAS No. 141(R)." The new standard requires the acquiring entity that gains control in a business combination to recognize 100% of the fair value of the assets acquired and liabilities assumed in the transaction; establishes the acquisition-date fair value as the measurement objective for all assets acquired and liabilities assumed; requires that acquisition related costs be expensed; and requires the acquirer to disclose to investors and other users all of the information they need to evaluate and understand the nature and financial effect of the business combination. The provisions of SFAS No. 141(R) will be effective for us beginning in January 2009.

In December 2007, the FASB issued SFAS No. 160, "Noncontrolling Interests in Consolidated Financial Statements-an amendment of ARB No. 51," or "SFAS No. 160." SFAS No. 160 will change the accounting and reporting for minority interests, which will be recharacterized as noncontrolling interests and classified as a component of stockholders' equity. Additionally, the amount of consolidated net income attributable to the parent and to the noncontrolling interests must be clearly identified and presented on the face of the consolidated statement of operations. Finally, changes in a parent's ownership interest while the parent retains its controlling financial interest in its subsidiary will be accounted for consistently as equity transactions. The provisions of SFAS No. 160 will be effective for us beginning in January 2009.

In March 2008, the FASB issued SFAS No. 161, "Disclosures about Derivative Instruments and Hedging Activities—an amendment of FASB Statement No. 133," or "SFAS No. 161." SFAS No. 161 changes the

7



HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Unaudited


disclosure requirements for derivative instruments and hedging activities. Entities are required to provide enhanced disclosures about how and why an entity uses derivative instruments, how derivative instruments and related hedged items are accounted for under FASB Statement 133 and its related interpretations, and how derivative instruments and related hedged items affect an entity's financial position, financial performance, and cash flows. The provisions of SFAS No. 161 will be effective for us beginning with our quarterly report for the period ended March 31, 2009.

Note 3—Cash and Equivalents and Restricted Cash

We consider all highly liquid debt instruments purchased with an original maturity of three months or less to be cash equivalents.

Restricted cash includes cash and equivalents that are not readily available for our normal disbursements. Restricted cash and equivalents are restricted for the purchase of revenue earning vehicles and other specified uses under our Fleet Debt facilities (as defined in Note 7—Debt), for our like-kind exchange programs and to satisfy certain of our self insurance regulatory reserve requirements.

As of September 30, 2008 and December 31, 2007, the portion of total restricted cash that was associated with our Fleet Debt facilities was $288.2 million and $573.1 million, respectively. The decrease in restricted cash associated with our Fleet Debt of $284.9 million from December 31, 2007 to September 30, 2008, primarily related to the timing of purchases and sales of revenue earning vehicles.

Note 4—Goodwill and Other Intangible Assets

We account for our goodwill and indefinite-lived intangible assets under SFAS No. 142, "Goodwill and Other Intangible Assets," or "SFAS No. 142." Under SFAS No. 142, goodwill and indefinite-lived intangible assets must be tested for impairment at least annually. We conducted the impairment review during the fourth quarter of 2007 and no impairment was determined to exist.

We will perform our annual impairment review for goodwill and indefinite-lived intangible assets in the fourth quarter of this year. The valuation of goodwill and intangible assets requires assumptions and estimates of many critical factors, including revenue and market growth, operating cash flows, market multiples, and discount rates. We have experienced declines in our operating results for the nine months ended September 30, 2008 as compared to the prior year, as a result of the current economic conditions. In addition, our market capitalization has declined. Adverse changes in expected operating results and/or unfavorable changes in other economic factors used to estimate fair values could result in a non-cash impairment charge in the future under SFAS No. 142.

8



HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Unaudited

The following summarizes the changes in our goodwill, by segment, for the period presented (in thousands of dollars):

 
  Car Rental   Equipment
Rental
  Total  

Balance as of December 31, 2007

  $ 318,134   $ 641,859   $ 959,993  

Acquisitions

    5,030     23,223     28,253  

Other changes(1)

    (7,362 )   (6,229 )   (13,591 )
               

Balance as of September 30, 2008

  $ 315,802   $ 658,853   $ 974,655  
               

(1)
Consists of changes resulting from the translation of foreign currencies at different exchange rates from the beginning of the period to the end of the period and pre-Acquisition tax adjustments.

Other intangible assets, net, consisted of the following major classes (in thousands of dollars):

 
  September 30, 2008   December 31, 2007  
 
  Gross
Carrying
Amount
  Accumulated
Amortization
  Net
Carrying
Value
  Gross
Carrying
Amount
  Accumulated
Amortization
  Net
Carrying
Value
 

Amortizable intangible assets:

                                     
 

Customer-related

  $ 620,014   $ (172,082 ) $ 447,932   $ 617,012   $ (124,647 ) $ 492,365  
 

Other

    12,241     (3,817 )   8,424     5,898     (1,505 )   4,393  
                           
   

Total

    632,255     (175,899 )   456,356     622,910     (126,152 )   496,758  
                           

Indefinite-lived intangible assets:

                                     
 

Trade name

    2,624,000         2,624,000     2,624,000         2,624,000  
 

Other

    9,031         9,031     2,709         2,709  
                           
   

Total

    2,633,031         2,633,031     2,626,709         2,626,709  
                           
     

Total other intangible assets, net

  $ 3,265,286   $ (175,899 ) $ 3,089,387   $ 3,249,619   $ (126,152 ) $ 3,123,467  
                           

Amortization of other intangible assets for the three months ended September 30, 2008 and 2007 was approximately $16.5 million and $15.8 million, respectively, and for the nine months ended September 30, 2008 and 2007 was approximately $49.7 million and $46.6 million, respectively. Based on our amortizable intangible assets as of September 30, 2008, we expect amortization expense to be approximately $16.6 million for the remainder of 2008 and range from $62.3 million to $66.7 million for each of the next five fiscal years.

During the nine months ended September 30, 2008, we added 66 locations by acquiring former franchisees in our domestic and international car rental operations, as well as four locations related to external acquisitions done within our domestic and international equipment rental operations. Total intangible assets acquired during the nine months ended September 30, 2008 were $17.4 million. We recognized $11.1 million in amortizable intangible assets and $6.3 million in indefinite-lived intangible assets during the nine months ended September 30, 2008. Each of these transactions has been accounted for using the purchase method of accounting in accordance with SFAS No. 142, and

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Unaudited


operating results of the acquired entities from the dates of acquisition are included in our consolidated statements of operations. The allocation of the purchase price to the tangible and intangible net assets acquired is preliminary and subject to finalization. These acquisitions are not material, individually or collectively, to the consolidated amounts presented within our statement of operations for the nine months ended September 30, 2008.

Note 5—Taxes on Income

The effective tax rate for the three and nine months ended September 30, 2008 was 10.9% and 56.8%, respectively. The effective tax rate for the three and nine months ended September 30, 2007 was 34.0% and 35.1%, respectively. The provision for taxes on income of $2.9 million in the three months ended September 30, 2008 decreased by 96.7% from $86.9 million in the three months ended September 30, 2007, primarily due to the decline in 2008 annual projections based upon third quarter operating results, partly offset by the recording of a valuation allowance on certain deferred tax assets that we believe are no longer realizable. The provision for taxes on income of $36.0 million in the nine months ended September 30, 2008 decreased by 66.5% from $107.3 million in the nine months ended September 30, 2007, primarily due to the decline in 2008 annual projections based upon third quarter operating results, partly offset by the non-recognition of benefits for certain non-U.S. jurisdictions in loss positions and the recording of a valuation allowance on certain deferred tax assets that we believe are no longer realizable.

We adopted the provisions of FASB Interpretation No. 48, "Accounting for Uncertainty in Income Taxes—an Interpretation of FASB Statement No. 109," or "FIN 48," on January 1, 2007. As of December 31, 2007, we had total unrecognized tax benefits of $35.5 million, of which $8.2 million, if recognized, would favorably impact the effective tax rate in future periods. The $27.3 million remaining balance of our unrecognized tax benefits relates to pre-Acquisition items of $19.0 million and temporary difference items of $8.3 million. To the extent that these items reverse in the future, the pre-Acquisition items will affect goodwill and the temporary items will affect current and deferred income tax provision but will not have any effective rate impact.

We conduct business globally and, as a result, file one or more income tax returns in the U.S. federal jurisdiction and various state and non-U.S. jurisdictions. In the normal course of business we are subject to examination by taxing authorities throughout the world, including such major jurisdictions as Australia, Brazil, Canada, France, Germany, Ireland, Italy, the Netherlands, Spain, the United Kingdom and the United States. The open tax years for these jurisdictions span from 1997 to 2007. A tax indemnification agreement entered into with Ford on the Closing Date indemnifies Hertz from U.S. federal and unitary state, and certain combined non-U.S. income tax liabilities for all periods prior to December 21, 2005.

In many cases, our uncertain tax positions are related to tax years that remain subject to examination by the relevant taxing authorities. We are not currently under audit by the Internal Revenue Service but are under audit in several non-U.S. jurisdictions. It is reasonably possible that approximately $19.0 million of unrecognized tax benefits may reverse within the next twelve months due to their settlement with the relevant taxing authorities and/or the filing of amended income tax returns.

Net after-tax interest and penalties related to the liabilities for unrecognized tax benefits are classified as a component of "Provision for taxes on income" in our consolidated statement of operations. During the three and nine months ended September 30, 2008, we recognized approximately $0.3 million and $1.3 million, respectively, in net after-tax interest and penalties. We had approximately $13.3 million of net after-tax interest and penalties accrued in our condensed consolidated balance sheet at September 30, 2008.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Unaudited

The results of operations for the nine months ended September 30, 2008 included $5.6 million, net, of out-of-period adjustments. The most significant adjustment primarily related to the three months ended December 31, 2007 in the amount of $6.5 million, which would have had a negative impact on our results of operations of $0.02 per share on a diluted basis. These adjustments had a negative impact on our results of operations for the nine months ended September 30, 2008 of $0.02 per share on a diluted basis.

Note 6—Depreciation of Revenue Earning Equipment

Depreciation of revenue earning equipment includes the following (in thousands of dollars):

 
  Three Months Ended
September 30,
 
 
  2008   2007  

Depreciation of revenue earning equipment

  $ 553,777   $ 509,971  

Adjustment of depreciation upon disposal of the equipment

    20,758     3,810  

Rents paid for vehicles leased

    20,481     21,258  
           
 

Total

  $ 595,016   $ 535,039  
           

 

 
  Nine Months Ended September 30,  
 
  2008   2007  

Depreciation of revenue earning equipment

  $ 1,534,430   $ 1,437,306  

Adjustment of depreciation upon disposal of the equipment

    53,774     8,906  

Rents paid for vehicles leased

    70,511     52,681  
           
 

Total

  $ 1,658,715   $ 1,498,893  
           

The adjustment of depreciation upon disposal of revenue earning equipment for the three months ended September 30, 2008 and 2007 included net losses of $9.5 million and $4.9 million, respectively, on the disposal of vehicles used in our car rental operations and a net loss of $11.3 million and a net gain of $1.1 million, respectively, on the disposal of industrial and construction equipment used in our equipment rental operations. The adjustment of depreciation upon disposal of revenue earning equipment for the nine months ended September 30, 2008 and 2007 included net losses of $39.7 million and $16.9 million, respectively, on the disposal of vehicles used in our car rental operations and a net loss of $14.1 million and a net gain of $8.0 million, respectively, on the disposal of industrial and construction equipment used in our equipment rental operations.

Depreciation rates are reviewed on an ongoing basis based on management's routine review of present and projected future market conditions and their effect on residual values at the time of disposal. During the nine months ended September 30, 2008, depreciation rates being used to compute the provision for depreciation of revenue earning equipment were adjusted on certain vehicles in our car rental operations to reflect changes in the estimated residual values to be realized when revenue earning equipment is sold. These depreciation rate changes resulted in net increases of $12.2 million and $22.4 million in depreciation expense for the three and nine months ended September 30, 2008, respectively. During the three and nine months ended September 30, 2008, depreciation rates in certain of our equipment rental operations were decreased and resulted in net decreases of $0.1 million and $3.9 million, respectively, in depreciation expense.

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HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Unaudited

For the three months ended September 30, 2008 and 2007, our worldwide car rental operations sold approximately 53,600 and 51,300 non-program cars, respectively, a 4.5% increase. For the nine months ended September 30, 2008 and 2007, our worldwide car rental operations sold approximately 171,300 and 139,500 non-program cars, respectively, a 22.8% increase.

Note 7—Debt

Our "Senior Term Facility" is a secured term loan facility entered into by Hertz in connection with the Acquisition consisting of (a) a maximum borrowing capacity of $2,000.0 million (which was decreased in February 2007 to $1,400.0 million), which included a delayed draw facility of $293.0 million (which was utilized during 2006) and (b) a prefunded synthetic letter of credit facility in an aggregate principal amount of $250.0 million. This term loan facility and the synthetic letter of credit facility mature in December 2012.

Our "Senior ABL Facility" is a senior asset-based revolving loan facility entered into by Hertz and certain of its U.S. and of its Canadian subsidiaries in connection with the Acquisition with a maximum borrowing capacity of $1,600.0 million (which was increased in February 2007 to $1,800.0 million and was decreased in September 2008 to $1,785.0 million). Up to $200.0 million of the revolving loan facility is available for the issuance of letters of credit. The Senior ABL Facility matures in February 2012. We refer to the Senior Term Facility and the Senior ABL Facility together as the "Senior Credit Facilities."

Our "Senior Dollar Notes" are the $1,800.0 million aggregate principal amount of 8.875% Senior Notes due January 2014 issued by Hertz in connection with the Acquisition. Our "Senior Euro Notes" are the €225 million aggregate principal amount of 7.875% Senior Notes due January 2014 issued by Hertz in connection with the Acquisition. We refer to the Senior Dollar Notes and the Senior Euro Notes together as the "Senior Notes." Our "Senior Subordinated Notes" refer to the $600.0 million aggregate principal amount of 10.5% Senior Subordinated Notes due January 2016 issued by Hertz in connection with the Acquisition.

Our "Promissory Notes" consist of the outstanding untendered senior notes issued under three separate indentures existing prior to the Acquisition. These senior notes have remaining maturities ranging from March 2009 to January 2028.

Our "U.S. Fleet Debt" consists of approximately $4,300.0 million of asset-backed securities issued on the Closing Date by Hertz Vehicle Financing LLC, or "HVF," a special purpose entity wholly-owned by us, backed by our U.S. car rental fleet, all of which we issued under our existing asset-backed notes program, or the "ABS Program." An additional $600.0 million of issued asset-backed medium term notes that were issued prior to the Closing Date, or "Pre-Acquisition ABS Notes," having maturities from May 2007 to May 2009 remained outstanding under the ABS Program following the Closing Date ($430.0 million of which have subsequently matured). We have also issued approximately $1,500 million of variable funding notes on the Closing Date in two series under these facilities, none of which were funded on the Closing Date. The current capacity is $1,450.0 million. We also issued $825.0 million of 2008-1 Variable Funding Rental Car Asset-Backed Notes, or the "Series 2008-1 Notes," on September 12, 2008, which as of September 30, 2008 had not been funded. The U.S. Fleet Debt facilities have maturities ranging from February 2009 to November 2010.

Our "International Fleet Debt" consists of the aggregate borrowings of our foreign subsidiaries under asset-based revolving loan facilities entered into by Hertz International Ltd, or "HIL," a Delaware corporation organized as a foreign subsidiary holding company and a direct subsidiary of Hertz, and certain of its subsidiaries (all of which are organized outside the United States), together with certain

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HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Unaudited


bankruptcy-remote special purpose entities, subject to borrowing bases comprised of rental vehicles, rental equipment, and related assets of certain of our foreign subsidiaries (substantially all of which are organized outside of the United States) or one or more special purpose entities, as the case may be. The subsidiaries conducting the car rental business in certain European jurisdictions may, at their option, continue to engage in capital lease financings relating to revenue earning equipment outside the International Fleet Debt facilities. In 2007 and 2008, additional borrowers consented to the senior bridge facility agreement under the International Fleet Debt facilities in connection with the expected take-out of the interim facilities entered into at the time of the Acquisition. The International Fleet Debt matures in December 2010.

Our "Fleet Financing Facility" is a credit agreement entered into by Hertz and its subsidiary, Puerto Ricancars, Inc., or "PR Cars," in September 2006, which provides for a commitment of up to $275.0 million to finance the acquisition of Hertz's and/or PR Cars fleet in Hawaii, Kansas, Puerto Rico and St. Thomas, the U.S. Virgin Islands. The Fleet Financing Facility matures in December 2011, but Hertz and PR Cars may terminate or reduce the commitments of the lenders thereunder at any time.

Our "Brazilian Fleet Financing Facility" refers to the agreement dated April 4, 2007 amending and restating our Brazilian subsidiary's credit facility (which was originally included under the International Fleet Debt facilities) to, among other things, increase the facility to R$130 million (or $67.8 million, calculated using exchange rates in effect on September 30, 2008) consisting of a R$70 million (or $36.5 million) term loan facility and a R$60 million (or $31.3 million) revolving credit facility. This facility matures in December 2010.

Our "Canadian Fleet Financing Facility" refers to a Note Purchase Agreement entered into by our indirect subsidiary, Hertz Canada Limited, and certain of its subsidiaries, on May 30, 2007, with CARE Trust, a third-party special purpose commercial paper conduit administered by Bank of Montreal, or "CARE Trust," which acts as conduit for the asset-backed borrowing facility, and certain related agreements and transactions, in order to establish an asset-backed borrowing facility to provide financing for our Canadian car rental fleet. The new facility refinanced the Canadian portion of the International Fleet Debt facilities. The maximum amount which may be borrowed under the new facility is CAN$400 million (or $382.0 million). The Canadian Fleet Facility matures in May 2012.

Our "Belgian Fleet Financing Facility" consists of a secured revolving credit facility entered into by our Belgian subsidiary, Hertz Belgium BVBA on June 21, 2007, with varying facility limits of up to €25.4 million (or $36.2 million). This facility refinanced the Belgian portion of our International Fleet Debt facilities. The facility is scheduled to mature in December 2010.

Our "U.K. Leveraged Financing" consists of an agreement for a sale and leaseback facility entered into with a financial institution in the United Kingdom, or the "U.K.," by our subsidiary in the U.K., Hertz (U.K.) Limited, on December 21, 2007, under which we may sell and lease back fleet up to the value of £175.0 million (or $316.5 million). The amount available under this facility increases over the term of the facility. This facility refinanced the U.K. portion of the International Fleet Debt facilities. The facility is scheduled to mature in December 2013.

Our "International ABS Fleet Financing Facility" consists of a multi jurisdictional fleet financing initially covering Australia, France and the Netherlands. The maximum commitment under (i) the Euro denominated financing is €632.0 million (or $901.0 million) and (ii) the Australian dollar denominated financing is A$325.0 million (or $262.0 million). The expected maturity date is in December 2010.

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HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Unaudited

Our debt consists of the following (in thousands of dollars):

 
  September 30, 2008   December 31, 2007  

Corporate Debt

             

Senior Term Facility, average interest rate: 2008, 4.2%; 2007, 6.9% (effective average interest rate: 2008, 4.2%; 2007, 7.0%); net of unamortized discount: 2008, $19,819; 2007, $23,350

  $ 1,355,864   $ 1,362,702  

Senior ABL Facility, average interest rate: 2008, 4.8%; 2007, 6.0% (effective average interest rate: 2008, 4.9%; 2007, 6.6%); net of unamortized discount: 2008, $15,226; 2007, $19,086

    575,352     191,803  

Senior Notes, average interest rate: 2008, 8.7%; 2007, 8.7%

    2,120,695     2,131,370  

Senior Subordinated Notes, average interest rate: 2008, 10.5%; 2007, 10.5%

    600,000     600,000  

Promissory Notes, average interest rate: 2008, 7.2%; 2007, 7.1% (effective average interest rate: 2008, 7.3%; 2007, 7.2%); net of unamortized discount: 2008, $4,226; 2007, $5,102

    461,112     509,443  

Notes payable, average interest rate: 2008, 5.6%; 2007, 5.5%

    9,709     1,942  

Foreign subsidiaries' debt denominated in foreign currencies:

             
 

Short-term bank borrowings, average interest rate: 2008, 3.8%; 2007, 13.2%

    75,467     1,082  
 

Other borrowings, average interest rate: 2008, 4.9%; 2007, 6.0%

    6,552     4,516  
           
     

Total Corporate Debt

    5,204,751     4,802,858  
           

Fleet Debt

             

U.S. Fleet Debt and pre-Acquisition ABS Notes, average interest rate: 2008, 4.4%; 2007, 4.5% (effective average interest rate: 2008, 4.4%; 2007, 4.5%); net of unamortized discount: 2008, $9,214; 2007, $3,991

    4,745,786     4,603,509  

International Fleet Debt, average interest rate: 2008, 6.7%; 2007, 6.1% (effective average interest rate: 2008, 6.7%; 2007, 6.1%); net of unamortized discount: 2008, $184; 2007, $279

    1,377,664     1,912,386  

Fleet Financing Facility, average interest rate: 2008, 4.1%; 2007, 6.3% (effective average interest rate: 2008, 4.2%; 2007, 6.3%); net of unamortized discount: 2008, $1,313; 2007, $1,641

    154,187     170,359  

Brazilian Fleet Financing Facility, average interest rate: 2008, 11.7%; 2007, 13.2%

    66,169     62,907  

Canadian Fleet Financing Facility, average interest rate: 2008, 3.8%; 2007, 5.8%

    268,724     155,391  

Belgian Fleet Financing Facility, average interest rate: 2008, 5.8%; 2007, 6.2%

    36,203     30,044  

U.K. Leveraged Financing, average interest rate: 2008, 5.9%; 2007, 4.0%

    278,826     222,672  

International ABS Fleet Financing Facility, average interest rate: 2008, 7.1%; 2007, N/A (effective average interest rate: 2008, 7.2%; 2007, N/A); net of unamortized discount: 2008, $3,788; 2007, N/A

    711,868      
           
     

Total Fleet Debt

    7,639,427     7,157,268  
           
   

Total Debt

  $ 12,844,178   $ 11,960,126  
           

The aggregate amounts of maturities of debt for each of the twelve-month periods ending September 30 (in millions of dollars) are as follows: 2009, $5,109.4 (including $3,967.6 of other short-term borrowings,

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HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Unaudited


of which $3,892.1 were under long-term committed credit facilities); 2010, $2,431.3; 2011, $1,035.3; 2012, $176.4; 2013, $1,375.8; after 2013, $2,769.8.

Our short-term borrowings as of September 30, 2008 includes, among other items, the amounts outstanding under our Senior ABL Facility, International Fleet Debt facility, International ABS Fleet Financing Facility, Fleet Financing Facility, Brazilian Fleet Financing Facility, Canadian Fleet Financing Facility, Belgian Fleet Financing Facility and our U.K. Leveraged Financing facility. These amounts are considered short term in nature since they have maturity dates of three months or less; however these facilities are revolving in nature and do not permanently expire at the time of the short term debt maturity. In addition, we include certain scheduled payments of principal under our ABS Program as short-term borrowings.

As of September 30, 2008, there were outstanding standby letters of credit totaling $548.9 million. Of this amount, $334.0 million has been issued for the benefit of the ABS Program ($200.0 million of which was issued by Ford and $134.0 million of which was used under the Senior Credit Facilities) and the remainder is primarily to support self-insurance programs (including insurance policies with respect to which we have indemnified the issuers for any losses) in the United States, Canada and Europe and to support airport concession obligations in the United States and Canada. As of September 30, 2008, none of these letters of credit have been drawn upon.

As of September 30, 2008, the aggregate principal amount of $168.7 million (net of $1.3 million discount) of pre-Acquisition ABS Notes was outstanding and the average interest rate was 3.2%.

As of September 30, 2008, there were $30.5 million of capital lease financings outstanding. These capital lease financings are included in the International Fleet Debt total and mature in August 2010.

International ABS Fleet Financing Facility

On July 24, 2008, HIL and certain of its subsidiaries entered into the "Amendment Agreement" to amend the International Fleet Debt facility. The Amendment Agreement, effective on July 24, 2008, reduced the borrowing margins on the Tranche A1 and Tranche A2 bridge loans of certain borrowers under the facility participating in the International ABS Fleet Financing Facility and provided an August 12, 2008 final maturity date for loans to HIL's Swiss subsidiary borrower. In August, we paid off the loan to HIL's Swiss subsidiary borrower and closed out the loan.

Also on July 24, 2008, HA Fleet Pty Ltd, RAC Finance SAS and Stuurgroep Fleet (Netherlands) B.V., special-purpose indirect subsidiaries of HIL, each a "FleetCo," closed on the International ABS Fleet Financing Facility, initially covering Australia, France and the Netherlands, respectively, or the "Relevant Jurisdictions."

The funds under the new fleet financing will be used to (i) initially repay in whole the FleetCos' portion of indebtedness under the International Fleet Debt facility and the FleetCos' existing inter-company borrowings related to the acquisition of vehicles and (ii) finance the acquisition of vehicles from time to time in the Relevant Jurisdictions.

International Fleet Financing No. 1 B.V, the issuer of the fleet financing, or the "Issuer," is a special purpose entity incorporated as a Dutch B.V. under the laws of the Netherlands. Of the shares of the

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HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Unaudited


Issuer, 75% are held by a charitable trust and 25% are owned by Hertz Holdings Netherlands B.V., an indirect wholly-owned subsidiary of HIL.

The expected maturity date is in December 2010 (when the FleetCos' obligations to the Issuer are scheduled to come due). The maximum commitment under (i) the Euro denominated financing is €632.0 million (or $901.0 million) and (ii) the Australian dollar denominated financing is A$325 million (or $262 million). On July 24, 2008, actual issuance to the French FleetCo, the Dutch FleetCo and the Australian FleetCo was €230.4 million (or $328.4 million), €35.9 million (or $51.2 million) and A$151.9 million (or $122.4 million), respectively.

Series 2008-1 Notes

On September 12, 2008, HVF completed the closing of a new variable funding note facility referred to as the Series 2008-1 Notes. This series is not subject to a financial guaranty, including from either MBIA or Ambac. The aggregate principal amount of such facility is not to exceed $825.0 million and such facility is available to HVF on a revolving basis. The Series 2008-1 Notes were not funded on the closing date.

The Series 2008-1 Notes are secured primarily by, among other things, a pledge in (i) collateral owned by HVF, including substantially all of the U.S. car rental fleet that Hertz uses in its daily rental operations, a portion of which is subject to repurchase programs with vehicle manufacturers, (ii) the related manufacturer receivables, (iii) all rights of HVF under a lease agreement between Hertz and HVF relating to such U.S. car rental fleet, and (iv) all monies on deposit from time to time in certain collection and cash collateral accounts and all proceeds thereof. The assets of HVF, including the U.S. car rental fleet owned by HVF, will not be available to satisfy the claims of our general creditors.

The expected final maturity date of the Series 2008-1 Notes is August 2010. The Series 2008-1 Notes bear interest at variable rates partially based upon their rating. The Series 2008-1 Notes are currently rated "A" by Standard & Poor's Ratings Services and "A2" by Moody's Investors Service and based on these ratings the borrowing spread is approximately 150 basis points higher than HVF's existing variable funding notes.

Pursuant to a note purchase agreement, HVF sold the Series 2008-1 Notes to each of Deutsche Bank AG, New York Branch, Nantucket Funding Corp. LLC, (an affiliate of Deutsche Bank AG, New York Branch), Sheffield Receivables Corporation (an affiliate of Barclays Bank PLC), and Merrill Lynch Mortgage Capital Inc. The Series 2008-1 Notes were issued pursuant to a series supplement to HVF's indenture, or the "Indenture," with The Bank of New York Mellon Trust Company, N.A., as trustee.

The Series 2008-1 Notes are subject to events of default and amortization events that are customary in nature for U.S. rental car asset-backed securitizations of this type, including non-payment of principal or interest, violation of covenants, material inaccuracy of representations or warranties, failure to maintain certain enhancement levels and insolvency or certain bankruptcy events. The occurrence of an amortization event or event of default could result in the acceleration of principal of the Series 2008-1 Notes and the liquidation of vehicles in the U.S. car rental fleet.

HVF is subject to numerous restrictive covenants under the Indenture and related agreements, including restrictive covenants with respect to liens, indebtedness, benefit plans, mergers, disposition of assets, acquisition of assets, dividends, officers compensation, investments, agreements, the types of business it may conduct and other customary covenants for a bankruptcy-remote special purpose entity.

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HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Unaudited

Certain of the purchasers of the Series 2008-1 Notes, the administrative agent and the trustee, and their respective affiliates, have performed, and may in the future perform, various investment banking, commercial banking, and other financial advisory services for us for which they have received and will receive, customary fees and expenses, and such parties are also participants in other of our credit facilities.

Guarantees and Security

Hertz's obligations under the Senior Term Facility and the Senior ABL Facility are guaranteed by Hertz Investors, Inc., its immediate parent and most of its direct and indirect domestic subsidiaries (subject to certain exceptions, including for subsidiaries involved in the U.S. Fleet Debt facility and similar special purpose financings), though Hertz Equipment Rental Corporation, or "HERC," does not guarantee Hertz's obligations under the Senior ABL Facility because it is a borrower under that facility. In addition, the obligations of the Canadian borrowers under the Senior ABL Facility are guaranteed by their respective subsidiaries, if any, subject to limited exceptions. The lenders under each of the Senior Term Facility and the Senior ABL Facility have received a security interest in substantially all of the tangible and intangible assets of the borrowers and guarantors under those facilities, including pledges of the stock of certain of their respective subsidiaries, subject in each case to certain exceptions (including in respect of the U.S. Fleet Debt, the International Fleet Debt and, in the case of the Senior ABL Facility, other secured fleet financing). Consequently, these assets will not be available to satisfy the claims of Hertz's general creditors.

Hertz's obligations under the Senior Notes and Senior Subordinated Notes are guaranteed by each of its direct and indirect domestic subsidiaries that is a guarantor under the Senior Term Facility.

The U.S. Fleet Debt issued on the Closing Date has the benefit of financial guaranty insurance policies under which either MBIA Insurance Corporation or Ambac Assurance Corporation guarantee the timely payment of interest on and ultimate payment of principal of such notes. See Note 14—Fair Value Measurements.

The obligations of the borrowers under the International Fleet Debt facilities are guaranteed by HIL, and by the other borrowers and certain related entities under the applicable tranche, in each case subject to certain legal, tax, cost and other structuring considerations. The obligations and the guarantees of the obligations of the Tranche A borrowers under the Tranche A2 loans are subordinated to the obligations and the guarantees of the obligations of such borrowers under the Tranche A1 loans. Subject to legal, tax, cost and other structuring considerations and to certain exceptions, the International Fleet Debt facilities are secured by a material part of the assets of each borrower, certain related entities and each guarantor, including pledges of the capital stock of each borrower and certain related entities. The obligations of the Tranche A borrowers under the Tranche A2 loans and the guarantees thereof are secured on a junior second priority basis by any assets securing the obligations of the Tranche A borrowers under the Tranche A1 loans and the guarantees thereof. The assets that collateralize the International Fleet Debt facilities will not be available to satisfy the claims of Hertz's general creditors.

The obligations of each of the borrowers under the Fleet Financing Facility are guaranteed by each of Hertz's direct and indirect domestic subsidiaries (other than subsidiaries whose only material assets consist of securities and debt of foreign subsidiaries and related assets, subsidiaries involved in the U.S. ABS Program or other similar special purpose financings, subsidiaries with minority ownership

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HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Unaudited


positions, certain subsidiaries of foreign subsidiaries and certain immaterial subsidiaries). In addition, the obligations of PR Cars are guaranteed by Hertz. The obligations of Hertz under the Fleet Financing Facility and the other loan documents, including, without limitation, its guarantee of PR Cars' obligations under the Fleet Financing Facility, are secured by security interests in Hertz's rental car fleet in Hawaii and by certain assets related to Hertz's rental car fleet in Hawaii and Kansas, including, without limitation, manufacturer repurchase program agreements. PR Cars' obligations under the Fleet Financing Facility and the other loan documents are secured by security interests in PR Cars' rental car fleet in Puerto Rico and St. Thomas, the U.S. Virgin Islands and by certain assets related thereto.

The Brazilian Fleet Financing Facility is secured by our Brazilian subsidiary's fleet of vehicles and backed by a $63.5 million Hertz guarantee.

The Canadian Fleet Financing Facility is secured by the fleet vehicles used in the Canadian operations.

The Belgian Fleet Financing Facility is guaranteed by HIL and the fleet assets used in the Belgian operations are pledged as collateral.

The U.K. Leveraged Financing facility is guaranteed by HIL.

The International ABS Fleet Financing Facility is secured by our fleet in each of the Relevant Jurisdictions. Each of the Fleetcos' portion of the facility is guaranteed by its respective Hertz vehicle rental company in each of the Relevant Jurisdictions. In certain cases, the International ABS Fleet Financing Facility is guaranteed by HIL or its subsidiary Hertz Europe Limited.

Also, substantially all of our revenue earning equipment and certain related assets are owned by special purpose entities, or are subject to liens in favor of our lenders under the Senior ABL Facility, the ABS Program, the International Fleet Debt facilities, the Fleet Financing Facility, the Brazilian Fleet Financing Facility, the Canadian Fleet Financing Facility, the Belgian Fleet Financing Facility, the U.K. Leveraged Financing and the International ABS Fleet Financing Facility. Substantially all our other assets in the United States are also subject to liens in favor of our lenders under the Senior Credit Facilities, and substantially all of our other assets outside the United States are (with certain limited exceptions) subject to liens in favor of our lenders under the International Fleet Debt facilities or (in the case of our Canadian HERC business) the Senior ABL Facility. None of such assets will be available to satisfy the claims of our general creditors.

Covenants

Certain of our debt instruments and credit facilities contain a number of covenants that, among other things, limit or restrict the ability of the borrowers and the guarantors to dispose of assets, incur additional indebtedness, incur guarantee obligations, prepay other indebtedness, make dividends and other restricted payments, create liens, make investments, make acquisitions, engage in mergers, change the nature of their business, make capital expenditures, or engage in certain transactions with affiliates. Some of these agreements also require the maintenance of certain financial covenants. As of September 30, 2008, we were in compliance with all of these financial covenants.

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HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Unaudited

Derivatives

We utilize certain derivative instruments to enhance our ability to manage risk relating to cash flow and interest rate exposure. See Note 14—Fair Value Measurements.

Credit Facilities

As of September 30, 2008, the following credit facilities were available for the use of Hertz and its subsidiaries:

As noted above, subject to borrowing base limitations, we had $2,779.2 million available under our various fleet financing facilities and $1,076.9 million available under our various corporate debt facilities.

As of September 30, 2008, substantially all of our assets were pledged under one or more of the facilities noted above. As of September 30, 2008 and December 31, 2007, accrued interest was $84.2 million and

19



HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Unaudited


$138.3 million, respectively, which is reflected in our condensed consolidated balance sheet in "Accrued liabilities."

Note 8—Employee Retirement Benefits

The following table sets forth the net periodic pension and post-retirement (including health care, life insurance and auto) expense (in millions of dollars):

 
  Three Months Ended September 30,  
 
  Pension Benefits    
   
 
 
  Post-retirement
Benefits (U.S.)
 
 
  U.S.   Non-U.S.  
 
  2008   2007   2008   2007   2008   2007  

Components of Net Periodic Benefit Cost:

                                     
 

Service cost

  $ 5.0   $ 5.8   $ 1.6   $ 2.9   $   $ 0.1  
 

Interest cost

    6.6     6.5     2.1     2.7     0.1     0.2  
 

Expected return on plan assets

    (6.2 )   (6.5 )   (2.3 )   (2.9 )        
 

Net amortizations

    (0.3 )   0.1     (0.1 )       (2.6 )    
 

Settlement/curtailment (gain) loss

    0.2     1.5                 (0.1 )
                           
 

Net pension/postretirement expense

  $ 5.3   $ 7.4   $ 1.3   $ 2.7   $ (2.5 ) $ 0.2  
                           

 

 
  Nine Months Ended September 30,  
 
  Pension Benefits    
   
 
 
  Post-retirement
Benefits (U.S.)
 
 
  U.S.   Non-U.S.  
 
  2008   2007   2008   2007   2008   2007  

Components of Net Periodic Benefit Cost:

                                     
 

Service cost

  $ 18.0   $ 19.4   $ 5.9   $ 8.2   $ 0.1   $ 0.3  
 

Interest cost

    20.3     18.9     7.5     7.7     0.5     0.7  
 

Expected return on plan assets

    (18.5 )   (19.3 )   (8.3 )   (8.2 )        
 

Net amortizations

    0.2     0.2     (0.5 )       (2.8 )   (0.1 )
 

Settlement/curtailment (gain) loss

    2.5     1.2         (0.1 )       0.1  
                           
 

Net pension/postretirement expense

  $ 22.5   $ 20.4   $ 4.6   $ 7.6   $ (2.2 ) $ 1.0  
                           

Our policy for funded plans is to contribute annually, at a minimum, amounts required by applicable laws, regulations and union agreements. From time to time, we make contributions beyond those legally required. In the three months ended September 30, 2008, a contribution of $1.5 million was made to the Cash Balance Plan for the 2007 plan year. For the three and nine months ended September 30, 2008, we contributed $9.7 million and $29.6 million, respectively, to our funded worldwide pension plans, including discretionary contributions of $4.9 million and $7.2 million, respectively, to our U.K. defined benefit pension plan and benefit payments made through unfunded plans.

We participate in various "multiemployer" pension plans administered by labor unions representing some of our employees. We make periodic contributions to these plans to allow them to meet their pension benefit obligations to their participants. In the event that we withdraw from participation in one of these plans, applicable law could require us to make an additional lump-sum contribution to the plan, and we would have to reflect that as an expense in our consolidated statement of operations and as a liability on our condensed consolidated balance sheet. Our withdrawal liability for any multiemployer

20



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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Unaudited


plan would depend on the extent of the plan's funding of vested benefits. In the ordinary course of our renegotiation of collective bargaining agreements with labor unions that maintain these plans, we could decide to discontinue participation in a plan, and in that event we could face a withdrawal liability. Some multiemployer plans, including one in which we participate, are reported to have significant underfunded liabilities. Such underfunding could increase the size of our potential withdrawal liability.

Note 9—Stock-based Compensation

In February 2008, we granted options to acquire 2,481,440 shares of our common stock to key executives, employees and non-management directors at exercise prices ranging from $12.74 to $12.97 under the Hertz Global Holdings Inc. Stock Incentive Plan, or the "Stock Incentive Plan," and the Hertz Global Holdings Inc. Director Stock Incentive Plan, or the "Director Plan." These options are subject to and governed by the terms of the Stock Incentive Plan and the Director Plan.

On February 28, 2008, our Board of Directors adopted the Hertz Global Holdings, Inc. 2008 Omnibus Incentive Plan, or the "Omnibus Plan", which was approved by our stockholders at the annual meeting of stockholders held on May 15, 2008. The Omnibus Plan provides for grants of both equity and cash awards, including non-qualified stock options, incentive stock options, stock appreciation rights, performance awards (shares and units), restricted stock, restricted stock units and deferred stock units to key executives, employees and non-management directors.

The Omnibus Plan provides that no further awards will be granted pursuant to the Stock Incentive Plan and the Director Plan, or the "Prior Plans." However, awards that had been previously granted pursuant to the Prior Plans will continue to be subject to and governed by the terms of the Prior Plans. As of September 30, 2008, there were 15.2 million shares of our common stock underlying such outstanding awards.

In addition to the 15.2 million shares underlying outstanding awards as of September 30, 2008, we had 16.6 million shares of our common stock available for issuance under the Omnibus Plan. The shares of common stock to be delivered under the Omnibus Plan may consist, in whole or in part, of common stock held in treasury or authorized but unissued shares of common stock, not reserved for any other purpose.

Shares subject to any award granted under the Omnibus Plan that for any reason are canceled, terminated, forfeited, settled in cash or otherwise settled without the issuance of common stock after the effective date of the Omnibus Plan will generally be available for grant under the Omnibus Plan.

All stock options and stock appreciation rights granted under the Omnibus Plan will have a per-share exercise price no less than fair market value of one share of Hertz Holdings common stock on the grant date. Stock options and stock appreciation rights will vest based on a minimum period of service or the occurrence of events (such as a change in control, as defined in the Omnibus Plan) specified by the compensation committee. No stock options or stock appreciation rights will be exercisable after ten years from the grant date. The compensation committee may accelerate the vesting of an option or stock appreciation right at any time. In addition, vesting of options and stock appreciation rights will be accelerated if Hertz Holdings experiences a change in control (as defined in the Omnibus Plan) unless options or stock appreciation rights with substantially equivalent terms and economic value are substituted for existing options and stock appreciation rights in place of accelerated vesting. Vesting of options and stock appreciation rights will also be accelerated in the event of an employee's death or disability (as defined in the Omnibus Plan). Upon a termination for cause (as defined in the Omnibus

21



HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Unaudited


Plan), all options and stock appreciation rights held by the employee are immediately cancelled. Following a termination without cause, vested options and stock appreciation rights will generally remain exercisable through the earliest of the expiration of their term or 30 days following termination of employment (one year in the case of death or disability).

Performance stock, performance stock units and performance units granted under the Omnibus Plan will vest based on the achievement of pre-determined performance goals over performance periods determined by the compensation committee. In the event of an employee's death or disability, a pro rata portion of the employee's performance stock, performance stock units and performance units will vest to the extent performance goals are achieved at the end of the performance period. Upon a termination of employment or for any other reason, all outstanding performance stock, performance stock units and performance units held by the employee are immediately canceled.

Restricted stock and restricted stock units granted under the Omnibus Plan will vest based on a minimum period of service or the occurrence of events (such as a change in control, as defined in the Omnibus Plan) specified by the compensation committee. Upon a termination of employment for any reason, any unvested restricted stock or restricted stock units of the employee will be canceled.

Each deferred stock unit granted under the Omnibus Plan represents the right to receive one share of Hertz Holdings' common stock on a specified future date. Generally, upon a participant's termination of employment other than for cause, Hertz Holdings will issue one share of common stock to the participant for each deferred stock unit the participant then holds.

In May 2008, we granted options to acquire 209,748 shares of our common stock to non-management directors or their assignees at an exercise price of $14.21. These options are subject to and governed by the terms of the Omnibus Plan.

In August 2008, we granted options to acquire 861,300 shares of our common stock to key executives, employees and non-management directors at an exercise price of $8.61 under the Omnibus Plan.

We have accounted for our employee stock-based compensation awards in accordance with SFAS No. 123R, "Share-Based Payment." The options are being accounted for as equity-classified awards.

For the three and nine months ended September 30, 2008, we recognized compensation cost of approximately $6.8 million ($4.2 million, net of tax) and $20.3 million ($12.5 million, net of tax), respectively for options granted pursuant to our Prior Plans and the Omnibus Plan. As of September 30, 2008, there was approximately $72.0 million of total unrecognized compensation cost related to non-vested stock options granted by Hertz Holdings under the Prior Plans and Omnibus Plan, including costs related to modifying the exercise prices of certain option grants in order to preserve the intrinsic value of the options, consistent with applicable tax law, to reflect special cash dividends of $4.32 per share paid on June 30, 2006 and $1.12 per share paid on November 21, 2006. These remaining costs are expected to be recognized over the remaining 1.8 years, on a weighted average basis, of the requisite service period that began on the grant dates.

Note 10—Segment Information

We follow SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information," which requires companies to disclose segment data based on how management makes decisions about allocating resources to segments and measuring their performance.

Our operating segments are aggregated into reportable business segments based primarily upon similar economic characteristics, products, services, customers, and delivery methods. We have identified two reportable segments: rental of cars and light trucks, or "car rental," and rental of industrial, construction and material handling equipment, or "equipment rental."

22



HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Unaudited

Adjusted pre-tax income (loss) is the measure utilized by management in making decisions about allocating resources to segments and measuring their performance. We believe this measure best reflects the financial results from ongoing operations. Adjusted pre-tax income (loss) is calculated as income (loss) before income taxes and minority interest plus other reconciling items, non-cash purchase accounting charges, non-cash debt charges relating to the amortization of deferred debt financing costs and debt discounts and certain one-time charges and non-operational items. The contribution of our reportable segments to revenues and adjusted pre-tax income and the reconciliation to consolidated amounts for the three and nine months ended September 30, 2008 and 2007 are summarized below (in millions of dollars).

 
  Three Months Ended September 30,  
 
  Revenues   Adjusted Pre-Tax Income  
 
  2008   2007   2008   2007  

Car rental

  $ 1,986.5   $ 1,982.2   $ 167.1   $ 301.1  

Equipment rental

    433.1     464.9     81.1     109.2  
                   
   

Total reportable segments

    2,419.6     2,447.1     248.2     410.3  

Other

    2.3     2.5              
                       
   

Total

  $ 2,421.9   $ 2,449.6              
                       

Adjustments:

                         
 

Other reconciling items(a)

                (79.1 )   (75.4 )
 

Purchase accounting(b)

                (25.2 )   (23.3 )
 

Non-cash debt charges(c)

                (20.2 )   (34.8 )
 

Restructuring charges

                (74.9 )   (16.1 )
 

Restructuring related charges(d)

                (10.1 )    
 

Management transition costs

                    (7.8 )
 

Unrealized loss on derivatives(e)

                (15.0 )   (7.0 )
 

Vacation accrual adjustment(f)

                2.5     9.2  
                       
   

Income before income taxes and minority interest

              $ 26.2   $ 255.1  
                       

23



HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Unaudited


 
  Nine Months Ended September 30,  
 
  Revenues   Adjusted Pre-Tax Income  
 
  2008   2007   2008   2007  

Car rental

  $ 5,442.8   $ 5,252.2   $ 355.8   $ 480.9  

Equipment rental

    1,287.4     1,287.8     225.9     271.5  
                   
   

Total reportable segments

    6,730.2     6,540.0     581.7     752.4  

Other

    6.1     6.8              
                       
   

Total

  $ 6,736.3   $ 6,546.8              
                       

Adjustments:

                         
 

Other reconciling items(a)

                (240.9 )   (244.2 )
 

Purchase accounting(b)

                (74.4 )   (69.0 )
 

Non-cash debt charges(c)

                (56.4 )   (87.3 )
 

Restructuring charges

                (127.2 )   (65.4 )
 

Restructuring related charges(d)

                (21.0 )    
 

Management transition costs

                (1.3 )   (11.0 )
 

Unrealized gain (loss) on derivatives(e)

                (12.0 )   3.2  
 

Realized gain on derivatives(e)

                14.8      
 

Vacation accrual adjustment(f)

                    28.8  
 

Secondary offering costs

                    (2.0 )
                       
   

Income before income taxes and minority interest

              $ 63.3   $ 305.5  
                       

(a)
Represents general corporate expenses, certain interest expense (including net interest on corporate debt), as well as other business activities such as our third-party claim management services.

(b)
Represents the purchase accounting effects of the Acquisition and any subsequent acquisitions 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.

(c)
Represents non-cash debt charges relating to the amortization of deferred debt financing costs and debt discounts. For the three and nine months ended September 30, 2008, also includes $2.8 million and $7.8 million, respectively, associated with the ineffectiveness of the HVF swaps. For the three and nine months ended September 30, 2007, also includes $17.7 million associated with the ineffectiveness of the HVF swaps. Additionally, in the nine months ended September 30, 2007, includes the write off of $16.2 million of unamortized debt costs associated with a debt modification.

(d)
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.

(e)
Represents unrealized gains and losses and a realized gain on interest rate swaptions.

(f)
Represents increases and 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 of each year.

The increase in total assets from December 31, 2007 to September 30, 2008 in our condensed consolidated balance sheet was primarily due to increases in revenue earning vehicles in our car rental segment and receivables, partly offset by decreases in revenue earning equipment in our equipment rental segment and restricted cash.

24



HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Unaudited

Note 11—Comprehensive Income (Loss)

Accumulated other comprehensive income as of September 30, 2008 and December 31, 2007 primarily includes accumulated translation gains of $147.8 million and $217.9 million, respectively, changes in unrecognized net periodic pension and postretirement costs of $6.8 million and $26.1 million, respectively, partly offset by unrealized losses on cash flow hedges of $51.4 million and $45.6 million, respectively, and unrealized losses on our Euro-denominated debt of $21.3 million and $27.8 million, respectively.

Comprehensive income (loss) for the three and nine months ended September 30, 2008 and 2007 was as follows (in thousands of dollars):

 
  Three Months Ended
September 30,
 
 
  2008   2007  

Net income

  $ 17,664   $ 162,707  
           

Other comprehensive income (loss), net of tax:

             
 

Foreign currency translation adjustments

    (134,108 )   56,535  
 

Unrealized gain on available-for-sale securities

    67     32  
 

Unrealized gain (loss) on Euro-denominated debt

    20,773     (9,371 )
 

Change in unrecognized net periodic pension and postretirement cost

    (19,056 )   (2 )
 

Change in fair value of cash flow hedges

    (4,835 )   (27,414 )
           
   

Total other comprehensive income (loss)

    (137,159 )   19,780  
           

Comprehensive income (loss)

  $ (119,495 ) $ 182,487  
           

 

 
  Nine Months Ended
September 30,
 
 
  2008   2007  

Net income

  $ 11,207   $ 183,816  
           

Other comprehensive income (loss), net of tax:

             
 

Foreign currency translation adjustments

    (70,103 )   94,022  
 

Unrealized gain (loss) on available-for-sale securities

    9     (41 )
 

Unrealized gain (loss) on Euro-denominated debt

    6,485     (13,484 )
 

Change in unrecognized net periodic pension and postretirement cost

    (19,241 )   15,736  
 

Change in fair value of cash flow hedges

    (5,783 )   (16,368 )
           
   

Total other comprehensive income (loss)

    (88,633 )   79,865  
           

Comprehensive income (loss)

  $ (77,426 ) $ 263,681  
           

Note 12—Earnings Per Share

Basic earnings per share is computed based upon the weighted average number of common shares outstanding. Diluted earnings per share is computed based upon the weighted average number of common shares outstanding plus the effect of all potentially dilutive common stock equivalents, except when the effect would be anti-dilutive.

25



HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Unaudited

The following table sets forth the computation of basic and diluted earnings per share (in thousands of dollars, except share and per share amounts):

 
  Three Months Ended
September 30,
 
 
  2008   2007  

Basic and diluted earnings per share:

             

Numerator:

             
 

Net income

  $ 17,664   $ 162,707  
           

Denominator (in thousands):

             
 

Weighted average shares used in basic computation

    322,886     321,487  
 

Add: Stock options

        6,020  
           
 

Weighted average shares used in diluted computation

    322,886     327,507  
           

Earnings per share, basic

  $ 0.05   $ 0.51  

Earnings per share, diluted

  $ 0.05   $ 0.50  

 

 
  Nine Months Ended
September 30,
 
 
  2008   2007  

Basic and diluted earnings per share:

             

Numerator:

             
 

Net income

  $ 11,207   $ 183,816  
           

Denominator (in thousands):

             
 

Weighted average shares used in basic computation

    322,599     321,004  
 

Add: Stock options

        4,252  
           
 

Weighted average shares used in diluted computation

    322,599     325,256  
           

Earnings per share, basic

  $ 0.03   $ 0.57  

Earnings per share, diluted

  $ 0.03   $ 0.57  

Diluted earnings per share computations for the three and nine months ended September 30, 2008 excluded the weighted average impact of the assumed exercise of approximately 16.4 million stock options because such impact would be antidilutive. Diluted earnings per share computations for the three and nine months ended September 30, 2007 excluded the weighted average impact of the assumed exercise of approximately 0.4 million stock options, because such impact would be antidilutive.

Note 13—Restructuring

As part of our ongoing effort to implement our strategy of reducing operating costs, we are evaluating our workforce and operations and making adjustments, including headcount reductions and business process reengineering to optimize work flow at rental locations and maintenance facilities as well as streamlining our back-office operations and evaluating outsourcing opportunities. When we make adjustments to our workforce and operations, we may incur incremental expenses that delay the benefit of a more efficient workforce and operating structure, but we believe that increasing our operating

26



HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Unaudited


efficiency and reducing the costs associated with the operation of our business are important to our long-term competitiveness.

On January 5, 2007, we announced the first in a series of initiatives to further improve our competitiveness through targeted job reductions affecting approximately 200 employees primarily at our corporate headquarters in Park Ridge, New Jersey and our U.S. service center in Oklahoma City, Oklahoma.

On February 28, 2007, we announced the second initiative to further improve our competitiveness and industry leadership through targeted job reductions affecting approximately 1,350 employees primarily in our U.S. car rental operations, with much smaller reductions occurring in our U.S. equipment rental operations, the corporate headquarters in Park Ridge, New Jersey, and the U.S. service center in Oklahoma City, Oklahoma, as well as in Canada, Puerto Rico, Brazil, Australia and New Zealand.

On June 1, 2007, we announced the third initiative to further improve our operational efficiency through targeted reductions affecting approximately 480 positions in our U.S. car and equipment rental operations, as well as financial and reservations-related positions in our U.S. service center in Oklahoma City, Oklahoma.

During 2007, we began to implement cost saving initiatives in our European operations, and we are continuing implementation of these measures in 2008. Additionally, during the fourth quarter of 2007, we finalized or substantially completed contract terms with industry leading service providers to outsource select functions globally, relating to real estate facilities management and construction, procurement and information technology. The contracts related to these outsourced functions were completed during the first quarter of 2008. Substantially all of the selected functions in these areas have been transitioned to the third-party service providers by the end of the third quarter of 2008.

In the first quarter of 2008, to continue improving our competitiveness and industry position, we initiated job reductions affecting approximately 950 employees in our U.S. and European car rental operations with much smaller reductions occurring in our U.S. equipment rental operations, the corporate headquarters in Park Ridge, New Jersey, and the U.S. service center in Oklahoma City, Oklahoma.

In late May and June 2008, our U.S. equipment rental business initiated the closure of 22 branch operations across the U.S. to gain further operating efficiencies. This initiative resulted in severance costs for approximately 180 employees whose positions were eliminated, asset impairment charges for surplus equipment identified for disposal, recognition of future facility lease obligations and the impairment of related leasehold improvements. Additionally, in the second quarter of 2008, we implemented other cost containment and efficiency initiatives resulting in approximately 220 employee reductions.

During the third quarter of 2008, our equipment rental business incurred charges for asset impairments, losses on disposal of surplus equipment and recognition of future facility lease obligations related to branch closings in the U.S. and Europe. Our U.S. car rental business, in order to streamline operations and reduce costs, initiated the closure of 48 off-airport locations and incurred a charge related to facility lease obligations. Additionally, to address the challenging economic environment, we introduced a voluntary employment separation program in our U.S. operations as well as initiating involuntary employee severance actions globally. The third quarter restructuring charges included employee termination liabilities covering approximately 1,400 employees.

27



HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Unaudited

For the three months ended September 30, 2008, our consolidated statement of operations includes restructuring charges relating to the initiatives discussed above of $74.9 million, which is composed of $38.5 million of termination benefits, $23.5 million in asset impairment charges, $7.9 million in facility lease obligations, $2.2 million in consulting costs, $0.2 million in pension settlement losses and $2.6 million of other restructuring charges. The after-tax effect of the restructuring charges reduced diluted earnings per share by $0.16 for the three months ended September 30, 2008.

For the nine months ended September 30, 2008, our consolidated statement of operations includes restructuring charges relating to the initiatives discussed above of $127.2 million, which is composed of $62.5 million of termination benefits, $34.1 million in asset impairment charges, $11.6 million in facility lease obligations, $9.6 million in consulting costs, $1.2 million in pension settlement losses and $8.2 million of other restructuring charges. The after-tax effect of the restructuring charges reduced diluted earnings per share by $0.27 for the nine months ended September 30, 2008.

Additional efficiency and cost saving initiatives may be developed during the fourth quarter of 2008. However, we presently do not have firm plans or estimates of any related expenses.

Restructuring charges in our consolidated statement of operations can be summarized as follows (in thousands of dollars):

 
  Three Months Ended September 30,  
 
  2008   2007  

By Caption:

             
 

Direct operating

  $ 55,746   $ 5,462  
 

Selling, general and administrative

    19,112     10,648  
           
   

Total

  $ 74,858   $ 16,110  
           

 

 
  Nine Months Ended September 30,  
 
  2008   2007  

By Caption:

             
 

Direct operating

  $ 87,117   $ 30,356  
 

Selling, general and administrative

    39,995     35,039  
           
   

Total

  $ 127,112   $ 65,395  
           

 

 
  Three Months Ended September 30,  
 
  2008   2007  

By Segment:

             
 

Car rental

  $ 36,318   $ 11,868  
 

Equipment rental

    36,563     449  
 

Other reconciling items

    1,977     3,793  
           
   

Total

  $ 74,858   $ 16,110  
           

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HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Unaudited

 

 
  Nine Months Ended September 30,  
 
  2008   2007  

By Segment:

             
 

Car rental

  $ 64,567   $ 46,279  
 

Equipment rental

    54,971     3,383  
 

Other reconciling items

    7,574     15,733  
           
   

Total

  $ 127,112   $ 65,395  
           

Our condensed consolidated balance sheet as of September 30, 2008, included accruals of $52.4 million relating to the restructuring program. We expect to pay substantially all of the remaining restructuring obligations by the end of the second quarter 2009. The following table sets forth the activity affecting the accrual during the nine months ended September 30, 2008 (in thousands of dollars):

 
  Termination
Benefits
  Pension
and Post
Retirement
Expense
  Consultant
Costs
  Other   Total  

Balance as of January 1, 2008

  $ 15,190   $ 105   $ 2,105   $ 788   $ 18,188  
 

Charges incurred

    62,459     1,183     9,608     53,862     127,112  
 

Cash payments

    (31,319 )   (11 )   (11,133 )   (9,514 )   (51,977 )
 

Other(1)

    (1,891 )   (1,175 )   (7 )   (37,885 )   (40,958 )
                       

Balance as of September 30, 2008

  $ 44,439   $ 102   $ 573   $ 7,251   $ 52,365  
                       

(1)
Consists of an increase of $31.2 million for the impairment of revenue earning equipment, $6.4 million in facility lease obligations, $2.9 million for the impairment of fixed assets, $1.1 million in pension and post retirement liabilities and $0.5 million for health benefits, partly offset by $(1.1) million loss in foreign currency translation, which have been included within "Accumulated other comprehensive income" on our condensed consolidated balance sheet.

Note 14—Fair Value Measurements

Effective January 1, 2008, we adopted the provisions of SFAS No. 157 except as they relate to our non-financial assets and liabilities that are not recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually), which provisions become effective for us beginning in January 2009. SFAS No. 157 defines fair value, establishes a framework for measuring fair value in accordance with GAAP and expands disclosures about fair value measurements. SFAS No. 157 establishes a three-tier value hierarchy, which prioritizes the inputs used in measuring fair value as follows: (Level 1) observable inputs such as quoted prices in active markets; (Level 2) inputs other than the quoted prices in active markets that are observable either directly or indirectly; and (Level 3) unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Unaudited

The following table summarizes our financial assets and liabilities measured at fair value on a recurring basis as of September 30, 2008 (in thousands of dollars):

 
  September 30, 2008(1)  

Assets:

       
 

HIL swaptions

  $ 7,614  
 

Foreign currency options

    674  
 

Interest rate caps

    394  
       
   

Total assets

  $ 8,682  
       

Liabilities:

       
 

HVF swaps(2)

  $ 67,584  
 

Interest rate caps

    394  
       
   

Total liabilities

  $ 67,978  
       

(1)
All fair value measurements were based upon significant observable (Level 2) inputs.

(2)
As the HVF swaps are in a liability position, the measurement of fair value reflects the nonperformance risk associated with the liability, as required by SFAS No. 157.

Derivative Instruments and Hedging Activities

In connection with the Acquisition and the issuance of $3,550.0 million of floating rate U.S. Fleet Debt, HVF entered into certain interest rate swap agreements, or the "HVF Swaps," effective December 21, 2005, which qualify as cash flow hedging instruments in accordance with SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." These agreements mature at various terms, in connection with the scheduled maturity of the associated debt obligations, through November 2010. Under these agreements, HVF pays monthly interest at a fixed rate of 4.5% per annum in exchange for monthly amounts at one-month LIBOR, effectively transforming the floating rate U.S. Fleet Debt to fixed rate obligations. HVF paid $44.8 million to reduce the fixed interest rate on the HVF Swaps from the prevailing market rates to 4.5%. Ultimately, this amount will be recognized as additional interest expense over the remaining terms of the HVF Swaps, which range from approximately 1 to 3 years. For the three and nine months ended September 30, 2008, we recorded an expense of $2.8 million and $7.8 million, respectively, and for the three and nine months ended September 30, 2007, we recorded an expense of $17.7 million in our consolidated statement of operations, in "Interest, net of interest income," associated with the ineffectiveness of the HVF Swaps. The ineffectiveness resulted from a decline in the value of the HVF Swaps due to a decrease in forward interest rates along with a decrease in the time value component as we continue to approach the maturity dates of the HVF Swaps. The effective portion of the change in fair value of the HVF Swaps is recorded in "Accumulated other comprehensive income." As of September 30, 2008 and December 31, 2007, the balance reflected in "Accumulated other comprehensive income" was a loss of $51.4 million (net of tax of $32.8 million) and $45.6 million (net of tax of $29.0 million), respectively. As of September 30, 2008 and December 31, 2007, the fair value of the HVF Swaps was a liability of $67.6 million and $50.2 million, respectively, which is reflected in our condensed consolidated balance sheet in "Accrued liabilities." The fair value of the HVF Swaps was calculated using a discounted cash flow method and applying observable market data (i.e. the 1-month LIBOR yield curve and credit default swap spreads).

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Unaudited

In connection with the entrance into the HVF Swaps, Hertz entered into seven differential interest rate swap agreements, or the "differential swaps." These differential swaps were required to be put in place to protect the counterparties to the HVF Swaps in the event of an "amortization event" under the asset-backed notes agreements. In the event of an "amortization event," the amount by which the principal balance on the floating rate portion of the U.S. Fleet Debt is reduced, exclusive of the originally scheduled amortization, becomes the notional amount of the differential swaps and is transferred to Hertz. There was no payment associated with these differential swaps and their notional amounts are and will continue to be zero unless (1) there is an amortization event, which causes the amortization of the loan balance, or (2) the debt is prepaid.

An "event of bankruptcy" (as defined in the indentures governing the U.S. Fleet Debt) with respect to MBIA Insurance Corporation or Ambac Assurance Corporation would constitute an "amortization event" under the portion of the U.S. Fleet Debt facilities guaranteed by the affected insurer. In that event, we would also be required to apply a proportional amount, or substantially all in the case of insolvency of both insurers, of all rental payments by Hertz to its special purpose leasing subsidiary and all car disposal proceeds under the applicable facility or series, or under substantially all U.S. Fleet Debt facilities in the case of insolvency of both insurers, to pay down the amounts owed under the affected facility or series, instead of applying those proceeds to purchase additional cars and/or for working capital purposes. An insurer "event of bankruptcy" could lead to consequences that have a material adverse effect on our liquidity if we were unable to negotiate mutually acceptable new terms with our U.S. Fleet Debt lenders or if alternate funding were not available to us.

In May 2006, in connection with the forecasted issuance of the permanent take-out international asset-based facilities, HIL purchased two swaptions for €3.3 million, to protect itself from interest rate increases. These swaptions gave HIL the right, but not the obligation, to enter into three year interest rate swaps, based on a total notional amount of €600 million at an interest rate of 4.155%. The swaptions were renewed twice in 2007, prior to their scheduled expiration dates of March 15, 2007 and September 5, 2007, at a total cost of €2.7 million and were due to expire on June 5, 2008. On June 4, 2008, these swaptions were sold for a realized gain of €9.4 million (or $14.8 million). Additionally, on June 4, 2008, HIL purchased two new swaptions for €8.6 million, to protect itself from interest rate increases associated with the International ABS Fleet Financing Facility, which closed on July 24, 2008. These swaptions were based on an underlying transaction with a notional amount of €600 million at an interest rate of 4.25%. As of September 30, 2008 and December 31, 2007, the fair value of the swaptions was €5.3 million (or $7.6 million) and €6.2 million (or $9.2 million), respectively, which is reflected in our condensed consolidated balance sheet in "Prepaid expenses and other assets." The fair value of the HIL swaptions was calculated using a discounted cash flow method and applying observable market data. During the three and nine months ended September 30, 2008, the fair value adjustments related to these swaptions were a loss of $15.0 million (unrealized loss on the new swaptions) and a gain $2.8 million ($14.8 million realized gain on sale of the old swaptions and a net $12.0 million unrealized loss on the old and new swaptions), respectively, which were recorded in our consolidated statement of operations in "Selling, general and administrative" expenses. During the three and nine months ended September 30, 2007, the fair value adjustments related to these swaptions was a loss of $6.9 million and a gain of $3.0 million, respectively, which was recorded in our consolidated statement of operations in "Selling, general and administrative" expenses. On October 10, 2008, the outstanding swaptions were terminated and Hertz received a €1.9 million payment from counterparties.

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HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Unaudited

We have purchased foreign currency option contracts to manage exposure to fluctuations in foreign exchange rates for selected marketing programs. The effect of exchange rate changes on these financial instruments would not materially affect our consolidated financial position, results of operations or cash flows. Our risks with respect to foreign currency option contracts are limited to the premium paid for the right to exercise the option and the future performance of the option's counterparty. Premiums paid for options outstanding as of September 30, 2008, were approximately $0.5 million, and we limit counterparties to financial institutions that have strong credit ratings. As of September 30, 2008 and December 31, 2007, the fair value of all outstanding foreign currency option contracts was approximately $0.7 million and $0.1 million, respectively, which was recorded in our condensed consolidated balance sheet in "Prepaid expenses and other assets." The fair value of the foreign currency option contracts was calculated using a discounted cash flow method and applying observable market data. Gains and losses resulting from changes in the fair value of these options are included in our results of operations in the periods incurred.

On September 12, 2008, a supplement was signed to the Indenture, dated as of August 1, 2006, between HVF and the Bank of New York Mellon Trust Company, N.A. This supplement created the Series 2008-1 Notes for issuance by HVF. In order to satisfy rating agency requirements related to its bankruptcy-remote status, HVF acquired an interest rate cap in an amount equal to the Series 2008-1 maximum principal amount of $825.0 million with a strike rate of 7% and a term until August 15, 2011. HVF bought the cap on the date the supplement was signed for $0.4 million. In connection with this interest rate cap, Hertz sold an equal and opposite cap for $0.3 million. The fair value of these interest rate caps on September 30, 2008 were an asset of $0.4 million and a liability of $0.4 million. The fair value of these interest rate caps was calculated using a discounted cash flow method and applying observable market data. Gains and losses resulting from changes in the fair value of these interest rate caps are included in our results of operations in the periods incurred.

Note 15—Related Party Transactions

Relationship with Ford

Prior to the Acquisition, we were an indirect, wholly-owned subsidiary of Ford. While we were a subsidiary of Ford, we and certain of our subsidiaries had entered into contracts, or other transactions or relationships, with Ford or subsidiaries of Ford, the most significant of which are described below.

Car purchases/repurchases 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 August 31, 2010, that covers the 2005 through 2010 vehicle model years.

During the nine months ended September 30, 2008, we purchased cars from Ford and its subsidiaries at a cost of approximately $2,304.6 million and sold cars to Ford and its subsidiaries under various repurchase programs for approximately $809.9 million.

Taxes

Prior to the Acquisition, Hertz and its domestic subsidiaries filed a consolidated federal income tax return with Ford. Pursuant to a tax sharing agreement, or the "Agreement," with Ford, current and deferred taxes were reported, and paid to Ford, as if Hertz had filed its own consolidated tax returns with its domestic subsidiaries. The Agreement provided that Hertz was reimbursed for foreign tax credits in accordance with the utilization of those credits by the Ford consolidated tax group.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Unaudited

On December 21, 2005, in connection with the Acquisition, the Agreement with Ford was terminated. Upon termination, all tax payables and receivables with Ford were cancelled and neither Hertz nor Ford has any future rights or obligations under the Agreement. Hertz may be exposed to tax liabilities attributable to periods it was a consolidated subsidiary of Ford. While Ford has agreed to indemnify Hertz for certain tax liabilities pursuant to the arrangements relating to our separation from Ford, we cannot offer assurance that payments in respect of the indemnification agreement will be available.

Other relationships and transactions

We and Ford also engage in other transactions in the ordinary course of our respective businesses. These transactions include providing car and equipment rental services to Ford and providing insurance and insurance claim management services to Ford. In addition, Ford subsidiaries are our car rental licensees in Scandinavia and Finland.

Relationship with Hertz Investors, Inc. and the Sponsors

Stockholders Agreement

In connection with the Acquisition, we entered into a stockholders agreement, or, as amended, the "Stockholders Agreement," with investment funds associated with or designated by the Sponsors. The Stockholders Agreement contains agreements that entitle investment funds associated with or designated by the Sponsors to nominate all of our directors. The director nominees are to include three nominees of an investment fund associated with CD&R (one of whom shall serve as the chairman or, if the chief executive officer is the chairman, the lead director), two nominees of investment funds associated with Carlyle, two nominees of an investment fund associated with MLGPE (collectively, the "Sponsor Designees") and up to six independent directors (subject to unanimous consent of the Sponsor Designees, for so long as Hertz Holdings remains a "controlled company" within the meaning of the New York Stock Exchange rules), subject to adjustment in the case that the applicable investment fund sells more than a specified amount of its shareholdings in us. In addition, upon Hertz Holdings ceasing to be a "controlled company" within the meaning of the New York Stock Exchange rules, if necessary to comply with the New York Stock Exchange rules, the director nominees of the Sponsors shall be reduced to two nominees of an investment fund associated with CD&R (one of whom shall serve as the chairman or, if the chief executive officer is the chairman, the lead director), one nominee of investment funds associated with Carlyle, and one nominee of an investment fund associated with MLGPE, and additional independent directors will be elected by our Board of Directors to fill the resulting director vacancies. The Stockholders Agreement also provides that our chief executive officer shall be designated as a director, unless otherwise approved by a majority of the Sponsor Designees. In addition, the Stockholders Agreement provides that one of the nominees of an investment fund associated with CD&R shall serve as the chairman of the executive and governance committee and, unless otherwise agreed by this fund, as Chairman of our Board of Directors. On October 12, 2006, our Board elected four independent directors, effective from the date of the completion of the initial public offering of our common stock. In order to comply with New York Stock Exchange rules, we will be required to have a majority of independent directors on our Board of Directors within one year of our ceasing to be a "controlled company" within the meaning of the New York Stock Exchange rules.

The Stockholders Agreement also grants to the investment funds associated with CD&R or to the majority of the Sponsor Designees the right to remove our chief executive officer. Any replacement chief executive officer requires the consent of investment funds associated with CD&R as well as investment funds associated with at least one other Sponsor. It also contains restrictions on the transfer of our

33



HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Unaudited


shares, and provides for tag-along and drag-along rights, in certain circumstances. The rights described above apply only for so long as the investment funds associated with the applicable Sponsor maintain certain specified minimum levels of shareholdings in us.

In addition, the Stockholders Agreement limits the rights of the investment funds associated with or designated by the Sponsors that have invested in our common stock and our affiliates, subject to several exceptions, to own, manage, operate or control any of our "competitors" (as defined in the Stockholders Agreement). The Stockholders Agreement may be amended from time to time in the future to eliminate or modify these restrictions without our consent.

Registration Rights Agreement

On the Closing Date, we entered into a registration rights agreement, or, as amended, the "Registration Rights Agreement," with investment funds associated with or designated by the Sponsors. The Registration Rights Agreement grants to certain of these investment funds the right, to cause us, at our own expense, to use our best efforts to register such securities held by the investment funds for public resale, subject to certain limitations. The exercise of this right is limited to three requests by the group of investment funds associated with each Sponsor, except for registrations effected pursuant to Form S-3, which are unlimited, subject to certain limitations, if we are eligible to use Form S-3. The secondary offering of our common stock in June 2007 was effected pursuant to this Registration Rights Agreement. In the event we register any of our common stock, these investment funds also have the right to require us to use our best efforts to include shares of our common stock held by them, subject to certain limitations, including as determined by the underwriters. The Registration Rights Agreement also provides for us to indemnify the investment funds party to that agreement and their affiliates in connection with the registration of our securities.

Indemnification Agreements

On the Closing Date, Hertz entered into customary indemnification agreements with us, the Sponsors and our stockholders affiliated with the Sponsors, pursuant to which Hertz Holdings and Hertz indemnify the Sponsors, our stockholders affiliated with the Sponsors and their respective affiliates, directors, officers, partners, members, employees, agents, representatives and controlling persons, against certain liabilities arising out of the performance of a consulting agreement with Hertz Holdings and each of the Sponsors and certain other claims and liabilities, including liabilities arising out of financing arrangements or securities offerings.

We have entered into indemnification agreements with each of our directors in connection with our initial public offering in November 2006. The indemnification agreements provide the directors with contractual rights to the indemnification and expense advancement rights provided under our by-laws, as well as contractual rights to additional indemnification as provided in the indemnification agreements.

We have not recorded any liability relating to these indemnification agreements because these liabilities are not considered to be material.

Director Compensation Policy

On October 12, 2006, our Board of Directors approved our Director Compensation Policy. Pursuant to the policy our directors who are not also our employees each receive a $150,000 annual retainer fee, of which 40% (i.e., $60,000) is payable in cash and 60% (i.e., $90,000) is payable in the form of stock options and having a Black-Scholes value equal to such dollar amount.

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HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Unaudited

The chairperson of our Audit Committee is paid an additional annual cash fee of $25,000 and each other member of our Audit Committee is paid an additional annual cash fee of $10,000. The chairperson of our Compensation Committee is paid an additional annual cash fee of $15,000 and each other member of our Compensation Committee receives an additional annual cash fee of $10,000.

We also reimburse our directors for reasonable and necessary expenses they incur in performing their duties as directors, and our directors are entitled to free worldwide Hertz car rentals upon completion of evaluation forms. In the case of a member of our Board who is also one of our employees, no additional compensation is paid for serving as a director. Each of our directors who is employed by or affiliated with one of our Sponsors may assign all or any portion of the compensation the director receives for his services as a director to that Sponsor or its affiliates.

Stock options are granted annually in arrears, and cash fees are payable quarterly in arrears, although a director may generally elect to receive all or a portion of fees that would otherwise be payable in cash in the form of shares of our common stock having a fair market value at such time equal to the amount of such fees. Any such shares are paid to the director when cash fees would otherwise be payable, although, if a director so chooses, these shares may be payable on a tax-deferred basis in phantom shares if the requirements regarding such deferral are met in accordance with applicable tax law, in which case the actual shares of our common stock are paid to the director promptly following the date on which he or she ceases to serve as a director (or, if earlier, upon a change in control as defined in the Director Plan or the Omnibus Plan).

Options granted under the Director Compensation Policy must be granted at an exercise price no less than fair market value of such shares on the date of grant. Options granted as part of a director's annual retainer fee will be fully vested at the time of grant and will generally have a 10-year term.

A director recognizes ordinary income upon exercising options granted in an amount equal to the fair market value of the shares acquired on the date of exercise, less the exercise price, and we have a corresponding tax deduction at that time. In the case of shares issued in lieu of cash fees, a director who is an individual generally recognizes ordinary income equal to the fair market value of such shares on the date such shares are paid to the director and we have a corresponding tax deduction at that time. For the three and nine months ended September 30, 2008, we recognized $0.5 million and $1.4 million, respectively, of expense relating to the Director Compensation Policy in our consolidated statement of operations in "Selling, general and administrative" expenses. For the three and nine months ended September 30, 2007, we recognized $0.4 million and $1.3 million, respectively, of expense relating to the Director Compensation Policy in our consolidated statement of operations in "Selling, general and administrative" expenses.

All equity awards granted to our directors prior to May 15, 2008 pursuant to the Director Compensation Policy were granted pursuant the Director Plan, which was approved by our stockholders on October 20, 2006. On February 28, 2008, our Board of Directors adopted the Omnibus Plan, which was approved by our stockholders at the annual meeting of stockholders held on May 15, 2008. The Omnibus Plan provides that no further equity awards will be granted pursuant to the Director Plan. However, awards that had been previously granted pursuant to the Director Plan prior to May 15, 2008 will continue to be subject to and governed by the terms of the Director Plan. Accordingly, all equity awards granted to our directors on May 15, 2008 as part of our Director Compensation Policy were (and those that are granted in the future pursuant to the Director Compensation Policy will be) granted pursuant to the Omnibus Plan.

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HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Unaudited

Financing Arrangements with Related Parties

Affiliates of ML Global Private Equity, L.P. and its related funds (which are stockholders of Hertz Holdings) and of Merrill Lynch & Co., or "ML," one of the underwriters in the initial public offering of our common stock and the June 2007 secondary offering by the Sponsors, were lenders under the Hertz Holdings Loan Facility (which was repaid with the proceeds of our initial public offering); are lenders under the original and amended Senior Term Facility, the original and amended Senior ABL Facility and the Fleet Financing Facility; acted as initial purchasers with respect to the offerings of the Senior Notes, the Senior Subordinated Notes and the Series 2008-1 Notes; acted as structuring advisors and agents under our ABS Program; and acted as dealer managers and solicitation agents for Hertz's tender offers for its existing debt securities in connection with the Acquisition.

Guarantees

Hertz's obligations under the Senior Term Facility and Senior ABL Facility are guaranteed by Hertz's immediate parent, Hertz Investors, Inc. (previously known as CCMG Corporation). Hertz Holdings is not a guarantor of these facilities. See Note 7—Debt.

Other Sponsor Relationships

Merrill Lynch, Pierce, Fenner & Smith Incorporated acted as an underwriter with respect to a secondary public offering of our common stock in June 2007, for which they received customary fees and expenses. In addition, Merrill Lynch, Pierce, Fenner & Smith Incorporated acts as the administrator of the Stock Incentive Plan and receives customary fees and expenses for these services.

In connection with our car and equipment rental businesses, we enter into millions of rental transactions every year involving millions of customers. In order to conduct those businesses, we also procure goods and services from thousands of vendors. Some of those customers and vendors may be affiliated with the Sponsors or members of our Board of Directors. We believe that all such rental and procurement transactions have been conducted on an arms-length basis and involved terms no less favorable to us than those that we believe we would have obtained in the absence of such affiliation. It is our management's practice to bring to the attention of our Board of Directors any transaction, even if it arises in the ordinary course of business, in which our management believes that the terms being sought by transaction participants affiliated with the Sponsors or our Board of Directors would be less favorable to us than those to which we would agree absent such affiliation.

In the second quarter of 2007, we were advised by ML, an affiliate of one of our Sponsors, that between November 17, 2006, and April 19, 2007, ML engaged in principal trading activity in our common stock. Some of those purchases and sales of our common stock should have been reported to the SEC on Form 4, but were not so reported. ML and certain of its affiliates have engaged in additional principal trading activity since that time. ML and certain of its affiliates have since filed amended or additional reports on Form 4 disclosing the current number of shares of our common stock held by ML and its affiliates. To date, ML has paid to us approximately $4.9 million for its "short-swing" profit liability resulting from its principal trading activity that is subject to recovery by us under Section 16 of the Securities Exchange Act of 1934, as amended. In the event that ML or its affiliates (including private investment funds managed by certain private equity-arm affiliates of ML) sell additional shares of our common stock in the future, this amount may change. In 2008 and 2007, we recorded $0.1 million (net of tax) and $2.9 million (net of tax of $1.9 million), respectively, in our condensed consolidated balance sheet in "Additional paid-in capital." In addition, because ML may be deemed to be an affiliate of Hertz Holdings and there was no registration statement in effect with respect to its sale of shares during this

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Unaudited


period, certain of these sales may have been made in violation of Section 5 of the Securities Act of 1933, as amended.

Note 16—Commitments and Contingencies

Off-Balance Sheet Commitments

As of September 30, 2008 and December 31, 2007, the following guarantees (including indemnification commitments) were issued and outstanding:

Indemnifications

In the ordinary course of business, we execute contracts involving indemnifications standard in the relevant industry and indemnifications specific to a transaction such as the sale of a business. These indemnifications might include claims relating to the following: environmental matters; intellectual property rights; governmental regulations and employment-related matters; customer, supplier and other commercial contractual relationships; and financial matters. Performance under these indemnities would generally be triggered by a breach of terms of the contract or by a third party claim. We regularly evaluate the probability of having to incur costs associated with these indemnifications and have accrued for expected losses that are probable and estimable. The types of indemnifications for which payments are possible include the following:

Sponsors; Directors

On the Closing Date, Hertz entered into customary indemnification agreements with us, the Sponsors and our stockholders affiliated with the Sponsors, pursuant to which Hertz Holdings and Hertz indemnify the Sponsors, our stockholders affiliated with the Sponsors and their respective affiliates, directors, officers, partners, members, employees, agents, representatives and controlling persons, against certain liabilities arising out of performance of a consulting agreement with Hertz Holdings and each of the Sponsors and certain other claims and liabilities, including liabilities arising out of financing arrangements or securities offerings. We do not believe that these indemnifications are reasonably likely to have a material impact on us. We also entered into indemnification agreements with each of our directors in connection with the initial public offering of our common stock in November 2006.

Environmental

We have indemnified various parties for the costs associated with remediating numerous hazardous substance storage, recycling or disposal sites in many states and, in some instances, for natural resource damages. The amount of any such expenses or related natural resource damages for which we may be held responsible could be substantial. The probable expenses that we expect to incur for such matters have been accrued, and those expenses are reflected in our condensed consolidated financial statements. As of September 30, 2008 and December 31, 2007, the aggregate amounts accrued for environmental liabilities, including liability for environmental indemnities, reflected in our condensed consolidated balance sheet in "Accrued liabilities" were $2.6 million and $2.7 million, respectively. The accrual generally represents the estimated cost to study potential environmental issues at sites deemed to require investigation or clean-up activities, and the estimated cost to implement remediation actions, including on-going maintenance, as required. Cost estimates are developed by site. Initial cost estimates are based on historical experience at similar sites and are refined over time on the basis of in-depth studies of the sites. For many sites, the remediation costs and other damages for which we ultimately may be responsible cannot be reasonably estimated because of uncertainties with respect to

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Unaudited


factors such as our connection to the site, the materials there, the involvement of other potentially responsible parties, the application of laws and other standards or regulations, site conditions, and the nature and scope of investigations, studies, and remediation to be undertaken (including the technologies to be required and the extent, duration, and success of remediation).

Legal Proceedings

Consumer or Supplier Class Actions

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HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Unaudited

39



HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Unaudited

40



HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Unaudited

We believe that we have meritorious defenses in the foregoing matters and will defend ourselves vigorously.

In addition, we are currently a defendant in numerous actions and have received numerous claims on which actions have not yet been commenced for public liability and property damage arising from the operation of motor vehicles and equipment rented from us and our licensees. In the aggregate, we can be expected to expend material sums to defend and settle public liability and property damage actions and claims or to pay judgments resulting from them.

On February 19, 2007, The Hertz Corporation and TSD Rental LLC v. Enterprise Rent-A-Car Company and The Crawford Group, Inc. was filed in the United States District Court for the District of Massachusetts. In this action, we and our co-plaintiff seek damages and injunctive relief based upon allegations that Enterprise and its corporate parent, The Crawford Group, Inc., or "Crawford," unlawfully engaged in anticompetitive and unfair and deceptive business practices by claiming to customers of Hertz that once Enterprise obtains a patent that it has applied for relating to its insurance replacement reservation system, Hertz will be prevented from using the co-plaintiff's EDiCAR system, which Hertz currently uses in its insurance replacement business. The complaint alleges, among other things, that Enterprise's threats are improper because the Enterprise patent, once issued, should be invalid and unenforceable. In April 2007, Enterprise and Crawford filed a motion to dismiss and Hertz and TSD Rental LLC, or "TSD," filed opposition papers in May 2007. After a hearing on Enterprise's motion in September 2007, Hertz and TSD filed an amended complaint in October 2007. In February 2008, Enterprise and Crawford filed a motion to dismiss the amended complaint and Hertz and TSD filed opposition papers in March of 2008. In June 2008, the court denied the motion to dismiss that had been filed by Enterprise and Crawford. Discovery will now commence.

On September 25, 2007, we filed a second lawsuit, also captioned The Hertz Corporation and TSD Rental LLC v. Enterprise Rent-A-Car Company and The Crawford Group, Inc. in the United States District Court for the District of Massachusetts. In this second lawsuit—the patent action—we seek a declaratory judgment that a newly issued patent to Crawford is not infringed by Hertz and is invalid and unenforceable. In October 2007, we filed a motion to consolidate the antitrust action and the patent action and, in November 2007, the court granted our motion to consolidate the two actions. Enterprise and Crawford filed a motion to dismiss the patent action in December 2007 and Hertz and TSD filed opposition papers in January 2008. In June 2008, the court denied the motion to dismiss that had been filed by Enterprise and Crawford. Discovery will now commence. See "Item 1A—Risk Factors" included in our Form 10-K.

In addition to the foregoing, various legal actions, claims and governmental inquiries and proceedings are pending or may be instituted or asserted in the future against us and our subsidiaries. Litigation is subject to many uncertainties, and the outcome of the individual litigated matters is not predictable with assurance. It is possible that certain of the actions, claims, inquiries or proceedings, including those discussed above, could be decided unfavorably to us or any of our subsidiaries involved. Although the amount of liability with respect to these matters cannot be ascertained, potential liability in excess of related accruals is not expected to materially affect our consolidated financial position, results of operations or cash flows, but it could be material in the period in which it is recorded.

41


ITEM 2.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis provides information that management believes to be relevant to understanding our consolidated financial condition and results of operations. This discussion should be read in conjunction with the financial statements and the related notes thereto contained elsewhere in this Form 10-Q, or this "Report."

Cautionary Note Regarding Forward-Looking Statements

Certain statements contained or incorporated by reference in this Report including, without limitation, those concerning our liquidity and capital resources, contain "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 concerning our results of operations; economic performance; financial condition; management forecasts; efficiencies, cost savings and opportunities to increase productivity and profitability; income and margins; liquidity and availability to us of additional or continued sources of financing for our revenue earning equipment and financial instability of insurance companies providing financial guarantees for asset-backed securities; anticipated growth; economies of scale; the economy; future economic performance; our ability to maintain profitability during adverse economic cycles and unfavorable external events; fuel costs; future acquisitions and dispositions; litigation; potential and contingent liabilities; management's plans; taxes; tangible and intangible asset impairment charges; and refinancing of existing debt. Because such statements involve risks and uncertainties, actual results may differ materially from those expressed or implied by such forward-looking statements. These statements often include words such as "believes," "expects," "projects," "anticipates," "intends," "plans," "estimates," "seeks," "will," "may," "should," "forecasts" or similar expressions.

Forward-looking statements are not guarantees of performance or results and by their nature are subject to inherent risks and uncertainties. We caution you therefore that you should not rely on these forward-looking statements. You should understand that the risks and uncertainties discussed in "Item 1A—Risk Factors" included in Hertz Global Holdings, Inc.'s Annual Report on Form 10-K for the fiscal year ended December 31, 2007, filed with the United States Securities and Exchange Commission, or the "SEC," on February 29, 2008, or our "Form 10-K," could affect our future results and could cause those results or other outcomes to differ materially from those expressed or implied in our forward-looking statements.

Any forward-looking information contained in this Report speaks only as of the date of this Report. We undertake no obligation to update or revise any forward-looking statements to reflect new information, changed circumstances or unanticipated events.

Unless the context otherwise requires, in this Report, (i) "we," "us," "our," the "Registrant" and the "Company" mean Hertz Global Holdings, Inc. (previously known as CCMG Holdings, Inc.), or "Hertz Holdings," and its consolidated subsidiaries, (ii) "Hertz" means The Hertz Corporation, (iii) "HERC" means Hertz Equipment Rental Corporation, our wholly owned subsidiary, and our various other wholly owned international subsidiaries that conduct our industrial, construction and material handling equipment rental business, (iv) "cars" means cars and light trucks (including sport utility vehicles and, outside North America, light commercial vehicles), (v) "program cars" mean cars purchased by car rental companies under repurchase or guaranteed depreciation programs, (vi) "non-program cars" mean cars not purchased under repurchase or guaranteed depreciation programs for which the car rental company is exposed to residual risk and (vii) "equipment" means industrial, construction and material handling equipment.

We are a successor to corporations that have been engaged in the car and truck rental and leasing business since 1918 and the equipment rental business since 1965. Hertz was incorporated in Delaware in 1967. Ford Motor Company, or "Ford," acquired an ownership interest in Hertz in 1987.

42


ITEM 2.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

Prior to this, Hertz was a subsidiary of UAL Corporation (formerly Allegis Corporation), which acquired Hertz's outstanding capital stock from RCA Corporation in 1985. Hertz Holdings was incorporated in Delaware in 2005 and had no operations prior to the Acquisition (as defined below).

On December 21, 2005, or the "Closing Date," investment funds associated with or designated by Clayton, Dubilier & Rice, Inc., or "CD&R," The Carlyle Group, or "Carlyle," and Merrill Lynch Global Private Equity, or "MLGPE," or collectively the "Sponsors," through CCMG Acquisition Corporation, a wholly owned subsidiary of Hertz Holdings acquired all of Hertz's common stock from Ford Holdings LLC for aggregate consideration of $4,379 million in cash, debt refinanced or assumed of $10,116 million and transaction fees and expenses of $447 million.

We refer to the acquisition of all of Hertz's common stock through CCMG Acquisition Corporation as the "Acquisition." We refer to the Acquisition, together with related transactions entered into to finance the cash consideration for the Acquisition, to refinance certain of our existing indebtedness and to pay related transaction fees and expenses, as the "Transactions."

In November 2006, we completed our initial public offering of 88,235,000 shares of our common stock at a per share price of $15.00, with proceeds to us before underwriting discounts and offering expenses of approximately $1.3 billion. The proceeds were used to repay borrowings that were outstanding under a $1.0 billion loan facility entered into by Hertz Holdings, or the "Hertz Holdings Loan Facility," and to pay related transaction fees and expenses. The Hertz Holdings Loan Facility was used primarily to pay a special cash dividend of $4.32 per share to our common stockholders on June 30, 2006. The proceeds of the offering were also used to pay special cash dividends of $1.12 per share on November 21, 2006 to stockholders of record of Hertz Holdings immediately prior to the initial public offering.

In June 2007, the Sponsors completed a secondary public offering of 51,750,000 shares of their Hertz Holdings common stock at a per share price of $22.25. We did not receive any of the proceeds from the sale of these shares. We paid all of the expenses of the offering, excluding underwriting discounts and commissions of the selling stockholders, pursuant to a registration rights agreement we entered into at the time of the Acquisition. These expenses aggregated to approximately $2.0 million. Immediately following the secondary public offering, the Sponsors' ownership percentage in us decreased to approximately 55%.

In September 2008, Bank of America Corporation announced it was acquiring the parent company of MLGPE, Merrill Lynch & Co., Inc. Once this acquisition closes it will indirectly alter the ownership of our capital stock. As a consequence, when combined with prior ownership changes we had during the previous three years, this event will likely constitute an "ownership change" for U.S. income tax purposes. An ownership change will result in an annual limitation on the utilization of tax net operating losses and credits generated prior to the ownership change. Based on preliminary analysis, the limitation is not expected to have a material impact on cash taxes and will not result in a permanent loss of net operating losses, only deferred utilization of the losses.

Overview of Our Business

We are engaged principally in the business of renting cars and renting equipment.

Our revenues primarily are derived from rental and related charges and consist of:

43


ITEM 2.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

Our equipment rental business also derives revenues from the sale of new equipment and consumables.

Our expenses primarily consist of:

The car and equipment rental industries are significantly influenced by general economic conditions. The car rental industry is also significantly influenced by developments in the travel industry, and, particularly, in airline passenger traffic. The United States and intentional markets are currently experiencing a significant decline in economic activities, including a tightening of credit markets, reduced airline passenger traffic, reduced consumer spending and volatile fuel prices. During the three months ended September 30, 2008, this resulted in a rapid decline in the volume of car rental transactions, an increase in depreciation and fleet related costs as a percentage of revenue, lower industry pricing and lower residual values for the non-program cars that we sold. See "Item 1A—Risk Factors—Risks Related to Our Business" in this Report.

In response to this economic downturn, we implemented aggressive strategic actions to reduce costs and improve liquidity. These actions include:

44


ITEM 2.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

We believe these actions will enhance our liquidity going forward and especially in the fourth quarter when we traditionally generate most of our cash flow. As of September 30, 2008, we had approximately $4.6 billion of liquidity, comprised of $0.7 billion in unrestricted cash, $1.1 billion in unfunded corporate debt capacity and $2.8 billion in unfunded fleet debt capacity (including an $825 million variable note facility closed in September 2008), both subject to borrowing base availability. See "Liquidity and Capital Resources" in this Item 2.

Our profitability is primarily a function of the volume, mix and pricing of rental transactions and the utilization of cars and equipment. Significant changes in the purchase price or residual values of cars and equipment or interest rates can also have a significant effect on our profitability depending on our ability to adjust pricing for these changes. In the United States, 2007 model year program vehicle depreciation costs rose approximately 15% and per-car depreciation costs for 2007 model year U.S. non-program cars declined as compared to 2006. As a consequence of those changes in per-car costs, as well as the larger proportion of our U.S. fleet we purchased as non-program cars and other actions we took to mitigate program car cost increases, our net per-car depreciation costs for 2007 model year cars in the United States have increased by less than 3% from our net per-car depreciation costs for 2006 model year U.S. cars. We continue to have an overall strategy of increasing the proportion of non-program cars we have in our worldwide fleet. However, given the recent economic downturn described above, we sold a higher proportion of non-program cars during the third quarter, when the used car market is traditionally stronger, to reduce exposure to residual value declines in the fourth quarter. Accordingly, as of September 30, 2008, the percentage of non-program cars in the U.S. fleet decreased slightly from 63% to 59% as compared to September 30, 2007. Internationally, as of September 30, 2008, the percentage of non-program cars was 55%, compared to 46% as of September 30, 2008.

We expect 2008 vehicle depreciation costs year over year to increase in the mid single digits in the United States and by approximately 15% in Europe. Our business requires significant expenditures for cars and equipment, and consequently we require substantial liquidity to finance such expenditures. See "Liquidity and Capital Resources" below.

Our car rental and equipment rental operations are seasonal businesses, with decreased levels of business in the winter months and heightened activity during the spring and summer. We have the ability to dynamically manage fleet capacity, the most significant portion of our cost structure, to meet market demand. For instance, to accommodate increased demand, we increase our available fleet and staff during the second and third quarters of the year. As business demand declines, fleet and staff are decreased accordingly. A number of our other major operating costs, including airport concession fees, commissions and vehicle liability expenses, are directly related to revenues or transaction volumes. In addition, our management expects to utilize enhanced process improvements, including efficiency initiatives and the use of our information systems, to help manage our variable costs. Approximately two-thirds of our typical annual operating costs represent variable costs, while the remaining one-third is fixed or semi-fixed. We also maintain a flexible workforce, with a significant number of part time and seasonal workers. However, certain operating expenses, including minimum concession fees, rent, insurance, and administrative overhead, remain fixed and cannot be adjusted for seasonal demand.

As part of our ongoing effort to implement our strategy of reducing operating costs, we are evaluating our workforce and operations and making adjustments, including headcount reductions and business process reengineering to optimize work flow at rental locations and maintenance facilities as well as streamlining our back-office operations and evaluating outsourcing opportunities. When we make adjustments to our workforce and operations, we may incur incremental expenses that delay the benefit

45


ITEM 2.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)


of a more efficient workforce and operating structure, but we believe that increasing our operating efficiency and reducing the costs associated with the operation of our business are important to our long-term competitiveness.

On January 5, 2007, we announced the first in a series of initiatives to further improve our competitiveness through targeted job reductions affecting approximately 200 employees primarily at our corporate headquarters in Park Ridge, New Jersey and our U.S. service center in Oklahoma City, Oklahoma.

On February 28, 2007, we announced the second initiative to further improve our competitiveness and industry leadership through targeted job reductions affecting approximately 1,350 employees primarily in our U.S. car rental operations, with much smaller reductions occurring in our U.S. equipment rental operations, the corporate headquarters in Park Ridge, New Jersey, and the U.S. service center in Oklahoma City, Oklahoma, as well as in Canada, Puerto Rico, Brazil, Australia and New Zealand.

On June 1, 2007, we announced the third initiative to further improve our operational efficiency through targeted reductions affecting approximately 480 positions in our U.S. car and equipment rental operations, as well as financial and reservations-related positions in our U.S. service center in Oklahoma City, Oklahoma.

During 2007, we began to implement cost saving initiatives in our European operations, and we are continuing implementation of these measures in 2008. Additionally, during the fourth quarter of 2007, we finalized or substantially completed contract terms with industry leading service providers to outsource select functions globally, relating to real estate facilities management and construction, procurement and information technology. The contracts related to these outsourced functions were completed during the first quarter of 2008. Substantially all of the selected functions in these areas have been transitioned to the third-party service providers by the end of the third quarter of 2008.

In the first quarter of 2008, to continue improving our competitiveness and industry position, we initiated job reductions affecting approximately 950 employees in our U.S. and European car rental operations with much smaller reductions occurring in our U.S. equipment rental operations, the corporate headquarters in Park Ridge, New Jersey, and the U.S. service center in Oklahoma City, Oklahoma.

In late May and June 2008, our U.S. equipment rental business initiated the closure of 22 branch operations across the U.S. to gain further operating efficiencies. This initiative resulted in severance costs for approximately 180 employees whose positions were eliminated, asset impairment charges for surplus equipment identified for disposal, recognition of future facility lease obligations and the impairment of related leasehold improvements. Additionally, in the second quarter of 2008, we implemented other cost containment and efficiency initiatives resulting in approximately 220 employee reductions.

During the third quarter of 2008, our equipment rental business incurred charges for asset impairments, losses on disposal of surplus equipment and recognition of future facility lease obligations related to branch closings in the U.S. and Europe. Our U.S. car rental business, in order to streamline operations and reduce costs, initiated the closure of 48 off-airport locations and incurred a charge related to facility lease obligations. Additionally, to address the challenging economic environment, we introduced a voluntary employment separation program in our U.S. operations as well as initiating involuntary employee severance actions globally. The third quarter restructuring charges included employee termination liabilities covering approximately 1,400 employees.

46


ITEM 2.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

For the three and nine months ended September 30, 2008, our consolidated statement of operations includes restructuring charges relating to the initiatives discussed above of $74.9 million and $127.2 million, respectively. For the three and nine months ended September 30, 2007, our consolidated statement of operations includes restructuring charges relating to the initiatives discussed above of $16.1 million and $65.4 million, respectively.

Additional efficiency and cost saving initiatives may be developed during the fourth quarter of 2008. However, we presently do not have firm plans or estimates of any related expenses. See Note 13 to the Notes to our condensed consolidated financial statements included in this Report.

For the year ended December 31, 2007, based on publicly available information, we believe some U.S. car rental brands experienced transaction day growth and rental rate revenue per transaction day, or "RPD," increases compared to the year ended December 31, 2006. For the year ended December 31, 2007, in the U.S., we experienced low to mid single digit transaction day growth versus the prior period, while RPD was down less than one percentage point. During the year ended December 31, 2007, in our European operations, we experienced mid to high single digit transaction day growth and our car rental RPD was above the level of our RPD during the year ended December 31, 2006.

For the nine months ended September 30, 2008, based on publicly available information, we believe some U.S. car rental brands experienced a decline in transaction days and RPD compared to the nine months ended September 30, 2007. For the nine months ended September 30, 2008, we experienced a 2.1% decline in car rental transaction days and car rental RPD was down 1.1% versus the prior period in the United States. During the nine months ended September 30, 2008, we experienced single digit transaction day growth and our car rental RPD was below the level of our RPD during the nine months ended September 30, 2007 in our European operations.

In the three years ended December 31, 2007, we increased the number of our off-airport rental locations in the United States by approximately 27% to approximately 1,580 locations. Revenues from our U.S. off-airport operations grew during the same period, representing $963.8 million, $890.1 million and $845.8 million of our total car rental revenues in the years ended December 31, 2007, 2006 and 2005, respectively. Our expanding U.S. off-airport operations represented $755.0 million and $733.7 million of our total car rental revenues in the nine months ended September 30, 2008 and 2007, respectively. As of September 30, 2008, we had approximately 1,655 off-airport locations. In the balance of 2008 and subsequent years, our strategy will include selected openings of new off-airport locations, the disciplined evaluation of existing locations and the pursuit of same-store sales growth. Our strategy includes increasing penetration in the off-airport market and growing the online leisure market, particularly in the longer length weekly sector, which is characterized by lower vehicle costs and lower transaction costs at a lower RPD. Increasing our penetration in these sectors is consistent with our long-term strategy to generate profitable growth. When we open a new off-airport location, we incur a number of costs, including those relating to site selection, lease negotiation, recruitment of employees, selection and development of managers, initial sales activities and integration of our systems with those of the companies who will reimburse the location's replacement renters for their rentals. A new off-airport location, once opened, takes time to generate its full potential revenues and as a result revenues at new locations do not initially cover their start-up costs and often do not, for some time, cover the costs of their ongoing operations.

For the year ended December 31, 2007, based on publicly available information, we believe the U.S. equipment rental industry experienced downward pricing, measured by the rental rates charged by equipment rental companies. HERC experienced higher equipment rental pricing and volumes worldwide for the year ended December 31, 2007, with pricing increases attributable to higher price

47


ITEM 2.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)


activity in Canada and Europe offset by lower price activity in the U.S. During the year ended December 31, 2007, HERC had a net increase of six U.S. locations, one Canadian location and seven European locations. For the nine months ended September 30, 2008, based on publicly available information, we believe the majority of the U.S. equipment rental industry experienced reduced or decreased volumes and downward pricing. HERC experienced lower equipment rental volumes and pricing worldwide for the nine months ended September 30, 2008 compared to the prior year period. During the nine months ended September 30, 2008, HERC had a net reduction of 22 U.S. locations and a net increase of two Canadian locations, a net reduction of six European locations and one location opening in China. In connection with new location openings in the U.S., we expect HERC will incur non-fleet start-up costs of approximately $0.9 million per location and additional fleet acquisition costs, excluding equipment transferred from other branches, over an initial twelve-month period of approximately $2 to $4 million per location. In connection with new location openings in Europe, we expect HERC will incur lower start-up costs per location as compared with the United States.

Three Months Ended September 30, 2008 Compared with Three Months Ended September 30, 2007

Summary

The following table sets forth the percentage of total revenues represented by the various line items set forth in our consolidated statements of operations for the three months ended September 30, 2008 and 2007 (in millions of dollars):

 
   
   
  Percentage of Revenues  
 
  Three Months Ended
September 30,
  Three Months Ended
September 30,
 
 
  2008   2007   2008   2007  

Revenues:

                         
 

Car rental

  $ 1,946.1   $ 1,944.4     80.3 %   79.4 %
 

Equipment rental

    432.9     464.8     17.9     19.0  
 

Other

    42.9     40.4     1.8     1.6  
                   
   

Total revenues

    2,421.9     2,449.6     100.0     100.0  
                   

Expenses:

                         
 

Direct operating

    1,351.8     1,216.1     55.8     49.7  
 

Depreciation of revenue earning equipment

    595.0     535.0     24.5     21.8  
 

Selling, general and administrative

    234.3     203.2     9.7     8.3  
 

Interest, net of interest income

    214.6     240.2     8.9     9.8  
                   
   

Total expenses

    2,395.7     2,194.5     98.9     89.6  
                   

Income before income taxes and minority interest

    26.2     255.1     1.1     10.4  

Provision for taxes on income

    (2.9 )   (86.9 )   (0.2 )   (3.6 )

Minority interest

    (5.6 )   (5.5 )   (0.2 )   (0.2 )
                   

Net income

  $ 17.7   $ 162.7     0.7 %   6.6 %
                   

48


ITEM 2.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

The following table sets forth certain of our selected car rental, equipment rental and other operating data for the three months ended or as of September 30, 2008 and 2007:

 
  Three Months Ended or
as of September 30,
 
 
  2008   2007  

Selected Car Rental Operating Data:

             
 

Worldwide number of transactions (in thousands)

    7,133     7,667  
   

Domestic

    5,052     5,578  
   

International

    2,081     2,089  
 

Worldwide transaction days (in thousands)(a)

    35,525     36,626  
   

Domestic

    22,613     23,957  
   

International

    12,912     12,669  
 

Worldwide rental rate revenue per transaction day(b)

  $ 46.73   $ 47.12  
   

Domestic

  $ 45.01   $ 44.85  
   

International

  $ 49.74   $ 51.43  
 

Worldwide average number of company-operated cars during the period

    490,700     504,400  
   

Domestic

    312,400     327,200  
   

International

    178,300     177,200  
 

Adjusted pre-tax income (in millions of dollars)(c)

  $ 167.1   $ 301.1  
 

Worldwide revenue earning equipment, net (in millions of dollars)

  $ 8,472.7   $ 8,869.1  

Selected Worldwide Equipment Rental Operating Data:

             
 

Rental and rental related revenue (in millions of dollars)(d)

  $ 384.8   $ 422.8  
 

Same store revenue growth, including growth initiatives(e)

    (5.5 )%   0.5 %
 

Average acquisition cost of rental equipment operated during the period (in millions of dollars)

  $ 3,405.0   $ 3,396.6  
 

Adjusted pre-tax income (in millions of dollars)(c)

  $ 81.1   $ 109.2  
 

Revenue earning equipment, net (in millions of dollars)

  $ 2,411.6   $ 2,720.0  

Other Operating Data:

             
 

EBITDA (in millions of dollars)(f)

  $ 889.4   $ 1,083.9  
 

Corporate EBITDA (in millions of dollars)(f)

  $ 386.7   $ 555.1  

(a)
Transaction days represents the total number of days that vehicles were on rent in a given period.

(b)
Car rental rate revenue consists of all revenue, net of discounts, associated with the rental of cars including charges for optional insurance products, but excluding revenue derived from fueling and concession and other expense pass-throughs, NeverLost units in the U.S. and certain ancillary revenue. Rental rate revenue per transaction day is calculated as total rental rate revenue, divided by the total number of transaction days, with all periods adjusted 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 management as it represents the best measurement of the changes in underlying pricing in the car rental business and encompasses the elements in car rental pricing that management has the ability to control. The optional insurance products are packaged within certain negotiated corporate, government and membership programs and within certain retail rates being charged. Based upon these existing programs and rate packages, management believes that these optional insurance products should be consistently included in the daily pricing of car rental transactions. On the other hand, non-rental rate revenue items such as refueling and concession pass-through expense items are driven by factors beyond the control of management (i.e. the price of fuel and the concession fees charged by airports). Additionally, NeverLost units are an optional revenue product which management does not consider to be part of their daily pricing of car rental transactions. The following table reconciles our car rental

49


ITEM 2.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

   
  Three Months Ended September 30,  
   
  2008   2007  
 

Car rental revenue per statement of operations

  $ 1,946.1   $ 1,944.4  
 

Non-rental rate revenue

    (276.0 )   (260.5 )
 

Foreign currency adjustment

    (10.1 )   42.0  
             
 

Rental rate revenue

  $ 1,660.0   $ 1,725.9  
             
 

Transaction days (in thousands)

    35,525     36,626  
 

Rental rate revenue per transaction day (in whole dollars)

  $ 46.73   $ 47.12  
(c)
Adjusted pre-tax income (loss) is calculated as income (loss) before income taxes and minority interest plus non-cash purchase accounting charges, non-cash debt charges relating to the amortization of deferred debt financing costs and debt discounts and certain one-time charges and non-operational items. Adjusted pre-tax income (loss) is the measure utilized by management in making decisions about allocating resources to segments and measuring their performance. Management believes this measure best reflects the financial results from ongoing operations. The following table reconciles income before income taxes and minority interest by segment to adjusted pre-tax income by segment for the three months ended September 30, 2008 and 2007 (in millions of dollars):

   
  Three Months Ended September 30, 2008  
   
  Car Rental   Equipment Rental  
 

Income before income taxes and minority interest

  $ 85.8   $ 26.9  
 

Adjustments:

             
   

Purchase accounting(1)

    9.9     14.8  
   

Non-cash debt charges(2)

    13.5     2.6  
   

Unrealized loss on derivative(3)

    15.0      
   

Restructuring charges

    36.4     36.6  
   

Restructuring related charges(4)

    8.3     0.8  
   

Vacation accrual adjustment(5)

    (1.8 )   (0.6 )
             
 

Adjusted pre-tax income

  $ 167.1   $ 81.1  
             

 

   
  Three Months Ended September 30, 2007  
   
  Car Rental   Equipment Rental  
 

Income before income taxes and minority interest

  $ 250.5   $ 94.4  
 

Adjustments:

             
   

Purchase accounting(1)

    9.1     13.8  
   

Non-cash debt charges(2)

    29.1     2.8  
   

Unrealized loss on derivative(3)

    7.0      
   

Restructuring charges

    11.9     0.4  
   

Vacation accrual adjustment(5)

    (6.5 )   (2.2 )
             
 

Adjusted pre-tax income

  $ 301.1   $ 109.2  
             

50


ITEM 2.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

(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 revenue to our equipment rental and rental related revenue (based on December 31, 2007 foreign exchange rates) for the three months ended September 30, 2008 and 2007 (in millions of dollars):

   
  Three Months Ended September 30,  
   
  2008   2007  
 

Equipment rental revenue per statement of operations

  $ 432.9   $ 464.8  
 

Equipment sales and other revenue

    (44.8 )   (49.3 )
 

Foreign currency adjustment

    (3.3 )   7.3  
             
 

Rental and rental related revenue

  $ 384.8   $ 422.8  
             
(e)
Same store revenue growth represents the change in the current period total same store revenue over the prior period total same store revenue as a percentage of the prior period. The same store revenue amounts are 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.

(f)
We present EBITDA and Corporate EBITDA to provide investors with supplemental measures of our operating performance and liquidity and, in the case of Corporate EBITDA, information utilized in the calculation of the financial covenants under our senior credit facilities. EBITDA, as used in this Report, is defined as consolidated net income before net interest expense, consolidated income taxes and consolidated depreciation and amortization. Corporate EBITDA differs from the term "EBITDA" as it is commonly used. Corporate EBITDA, as used in this Report, means "EBITDA" as that term is defined under our senior credit facilities, which is generally consolidated net income before net interest expense (other than interest expense relating to certain car rental fleet financing), consolidated income taxes, consolidated depreciation (other than depreciation related to the car rental fleet) and amortization and before certain other items, in each case as more fully defined in the agreements governing our senior credit facilities. The other items excluded in this calculation include, but are not limited to: non-cash expenses and charges; extraordinary, unusual or non-recurring gains or losses; gains or losses associated with the sale or write-down of assets not in the ordinary course of business; and earnings to the extent of cash dividends or distributions paid from non-controlled affiliates. Further, the covenants in our senior credit facilities are calculated using Corporate EBITDA for the most recent four fiscal quarters as a whole. As a result, the measure can be disproportionately affected by a particularly strong or weak quarter. Further, it may not be comparable to the measure for any subsequent four-quarter period or for any complete fiscal year.

Management uses EBITDA and Corporate EBITDA as performance and cash flow 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. In addition, both metrics are important to allow us to evaluate profitability and make performance trend comparisons between us and our competitors. Further, we believe EBITDA and Corporate EBITDA are frequently used by securities analysts, investors and other interested parties in the evaluation of companies in our industries.

51


ITEM 2.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

52


ITEM 2.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

   
  Three Months Ended September 30,  
   
  2008   2007  
 

Net income(1)

  $ 17.7   $ 162.7  
   

Depreciation and amortization(2)

    654.2     594.1  
   

Interest, net of interest income(3)

    214.6     240.2  
   

Provision for taxes on income

    2.9     86.9  
             
 

EBITDA(4)

    889.4     1,083.9  
 

Adjustments:

             
   

Car rental fleet interest

    (119.9 )   (132.5 )
   

Car rental fleet depreciation

    (504.2 )   (456.9 )
   

Non-cash expenses and charges(5)

    38.9     45.9  
   

Extraordinary, unusual or non-recurring gains or losses(6)

    82.5     14.7  
             
 

Corporate EBITDA

  $ 386.7   $ 555.1  
             


   
  Three Months Ended September 30,  
   
  2008   2007  
 

Net cash (used in) provided by operating activities

  $ (261.7 ) $ 9.0  
   

Amortization of debt and debt modification costs

    (17.2 )   (17.1 )
   

Provision for losses on doubtful accounts

    (8.4 )   (4.1 )
   

Unrealized loss on derivatives

    (15.0 )   (7.0 )
   

Gain on sale of property and equipment

    1.8     11.4  
   

Loss on ineffectiveness of interest rate swaps

    (2.8 )   (17.7 )
   

Stock-based employee compensation charges

    (6.8 )   (10.5 )
   

Asset writedowns

    (23.5 )    
   

Minority interest

    (5.6 )   (5.5 )
   

Deferred taxes on income

    15.8     (42.2 )
   

Provision for taxes on income

    2.9     86.9  
   

Interest expense, net of interest income

    214.6     240.2  
   

Net changes in assets and liabilities

    995.3     840.5  
             
 

EBITDA

  $ 889.4   $ 1,083.9  
             

53


ITEM 2.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

   
  Three Months Ended September 30,  
   
  2008   2007  
 

Non-cash amortization of debt costs included in car rental fleet interest

  $ 13.7   $ 28.5  
 

Corporate non-cash stock-based employee compensation charges

    6.8     7.0  
 

Corporate non-cash charges for public liability and property damage

    3.4     2.1  
 

Corporate non-cash charges for pension

        1.3  
 

Unrealized loss on derivatives

    15.0     7.0  
             
   

Total

  $ 38.9   $ 45.9  
             
   
  Three Months Ended September 30,  
   
  2008   2007  
 

Restructuring charges

  $ 74.9   $ 16.1  
 

Restructuring related charges

    10.1      
 

Management transition costs

        7.8  
 

Vacation accrual adjustment

    (2.5 )   (9.2 )
             
   

Total

  $ 82.5   $ 14.7  
             

Revenues

 
  Three Months Ended
September 30,
   
   
 
(in millions of dollars)
  2008   2007   $ Change   % Change  

Revenues:

                         
 

Car rental

  $ 1,946.1   $ 1,944.4   $ 1.7     0.1 %
 

Equipment rental

    432.9     464.8     (31.9 )   (6.8 )%
 

Other

    42.9     40.4     2.5     6.1 %
                     
   

Total revenues

  $ 2,421.9   $ 2,449.6   $ (27.7 )   (1.1 )%
                     

Total revenues decreased 1.1% (3.5% in constant currency) for the three months ended September 30, 2008 compared to the three months ended September 30, 2007.

Revenues from our car rental operations increased 0.1%, primarily due to the effects of foreign currency translation of approximately $50.9 million, partly offset by a 3.0% decrease in car rental transaction days worldwide and by lower RPD.

54


ITEM 2.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

RPD for worldwide car rental declined 0.8% from the three months ended September 30, 2007, due to a decline in international RPD of 3.3%, partly offset by an increase in U.S. RPD of 0.4%. U.S. airport RPD increased 0.7% and U.S. off-airport RPD increased 0.6%. Our strategy includes increasing penetration in the off-airport market and growing the online leisure market, particularly in the longer length weekly sector, which is characterized by lower vehicle costs and lower transaction costs at lower RPD. Increasing our penetration in these sectors is consistent with our long-term strategy to generate profitable growth.

Revenues from our equipment rental operations decreased 6.8%, primarily due to an 8.3% decrease in equipment rental volume and a decline of 1.6% in pricing, partly offset by the effects of foreign currency translation of approximately $5.9 million.

Revenues from all other sources increased 6.1%, primarily due to increases in international car leasing revenues of $1.8 million and car rental licensee revenues of $1.1 million.

Expenses

 
  Three Months Ended
September 30,
   
   
(in millions of dollars)
  2008   2007   $ Change   % Change

Expenses:

                       
 

Direct operating

  $ 1,351.8   $ 1,216.1   $ 135.7     11.2%
 

Depreciation of revenue earning equipment

    595.0     535.0     60.0     11.2%
 

Selling, general and administrative

    234.3     203.2     31.1     15.3%
 

Interest, net of interest income

    214.6     240.2     (25.6 )   (10.6)%
                   
   

Total expenses

  $ 2,395.7   $ 2,194.5   $ 201.2     9.2%
                   

Total expenses increased 9.2% and total expenses as a percentage of revenues increased from 89.6% for the three months ended September 30, 2007 to 98.9% for the three months ended September 30, 2008.

Direct operating expenses increased 11.2% as a result of increases in other direct operating expenses and fleet related expenses, partly offset by a decrease in personnel related expenses.

Depreciation of revenue earning equipment for our car rental operations of $504.2 million for the three months ended September 30, 2008 increased 10.4% from $456.9 million for the three months ended September 30, 2007. The increase was primarily due to a $12.2 million net increase in depreciation in

55


ITEM 2.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

certain of our car rental operations resulting from changes in depreciation rates to reflect changes in the estimated residual value of vehicles, lower net proceeds received in excess of book value on the disposal of used vehicles and the effects of foreign currency translation, partly offset by a 2.7% decrease in average fleet size. Depreciation of revenue earning equipment in our equipment rental operations of $90.8 million for the three months ended September 30, 2008 increased 16.3% from $78.1 million for the three months ended September 30, 2007. The increase was primarily due to lower net proceeds received in excess of book value on the disposal of used equipment.

Selling, general and administrative expenses increased 15.3%, primarily due to increases in administrative and advertising expenses, partly offset by a decrease in sales promotion expenses. Administrative expenses increased $19.0 million, or 16.5%, primarily due to increases in restructuring and restructuring related charges of $14.1 million, the unrealized losses on our interest rate swaptions of $8.1 million, consultant fees of $4.2 million and the effects of foreign currency translation of approximately $3.6 million, partly offset by a decrease in management incentive compensation costs of $9.6 million. Advertising expenses increased $14.3 million, or 32.0%, primarily due to a concerted effort to increase media spending during the third quarter. Sales promotion expenses decreased $2.2 million, or 5.2%, primarily related to a decrease in sales commissions.

Interest expense, net of interest income, decreased 10.6%, primarily due to the decrease in the ineffectiveness of the HVF swaps of $15.0 million, the write off in 2007 of $16.2 million in unamortized debt costs associated with the debt modification and a decrease in the weighted average interest rate.

Adjusted Pre-Tax Income

Adjusted pre-tax income for our car rental segment of $167.1 million decreased 44.5% from $301.1 million for the three months ended September 30, 2007. The decrease was primarily due to the decrease in car rental transaction days worldwide, lower RPD, higher fleet related costs, increases in other operating costs and lower net proceeds received in excess of book value on the disposal of used vehicles. Adjustments to our car rental segment GAAP pre-tax amount for the three months ended September 30, 2008 and 2007, totaled $81.3 million and $50.6 million, respectively. See footnote c to the table under "Three Months Ended September 30, 2008 Compared with Three Months Ended September 30, 2007" for a summary and description of these adjustments. Adjusted pre-tax income for our car rental segment as a percent of its revenues decreased from 15.2% to 8.4%.

Adjusted pre-tax income for our equipment rental segment of $81.1 million decreased 25.7% from $109.2 million for the three months ended September 30, 2007. The decrease was primarily due a decrease in volume and pricing and lower net proceeds received in excess of book value on the disposal of used equipment. Adjustments to our equipment rental segment GAAP pre-tax amount for the three months ended September 30, 2008 and 2007, totaled $54.2 million and $14.8 million, respectively. See footnote c to the table under "Three Months Ended September 30, 2008 Compared with Three Months Ended September 30, 2007" for a summary and description of these adjustments. Adjusted pre-tax income for our equipment rental segment as a percent of its revenues decreased from 23.5% to 18.7%.

The ratio of adjusted pre-tax income to revenues for our two segments reflects the different environments in which they operate. Our infrastructure costs are higher within our car rental segment due to the number and type of locations in which it operates and the corresponding headcount. Within our equipment rental segment, our revenue earning equipment generates lower depreciation expense due to its longer estimated useful life.

56


ITEM 2.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

Provision for Taxes on Income, Minority Interest and Net Income

 
  Three Months Ended
September 30,
   
   
(in millions of dollars)
  2008   2007   $ Change   % Change

Income before income taxes and minority interest

  $ 26.2   $ 255.1   $ (228.9 )   (89.7)%

Provision for taxes on income

    (2.9 )   (86.9 )   84.0     (96.7)%

Minority interest

    (5.6 )   (5.5 )   (0.1 )   1.7%
                   

Net income

  $ 17.7   $ 162.7   $ (145.0 )   (89.1)%
                   

The effective tax rate for the three months ended September 30, 2008 decreased to 10.9% from 34.0% in the three months ended September 30, 2007. The provision for taxes on income decreased 96.7%, primarily due to the decline in 2008 annual projections based upon third quarter operating results, partly offset by the recording of a valuation allowance on certain deferred tax assets that we believe are no longer realizable.

Minority interest increased 1.7% due to an increase in our majority-owned subsidiary Navigation Solutions, L.L.C.'s net income in the three months ended September 30, 2008 as compared to the three months ended September 30, 2007.

Net income decreased 89.1% primarily due to lower pricing and volume in our worldwide car and equipment rental segments and higher fleet and operating costs, as well as the net effect of other contributing factors noted above. The impact of changes in exchange rates on net income was mitigated by the fact that not only foreign revenues but also most foreign expenses were incurred in local currencies.

Effects of the Acquisition

The following table summarizes the purchase accounting effects of the Acquisition on our results of operations for the three months ended September 30, 2008 and 2007 (in millions of dollars):

 
  Three Months Ended
September 30,
 
 
  2008   2007  

Depreciation and amortization of tangible and intangible assets:

             
 

Other intangible assets

  $ 15.3   $ 15.3  
 

Revenue earning equipment

    6.1     4.6  
 

Property and equipment

    1.3     2.1  

Accretion of revalued liabilities:

             
 

Discount on debt

    0.9     1.6  
 

Workers' compensation and public liability and property damage

    1.4     1.3  
           

  $ 25.0   $ 24.9  
           

57


ITEM 2.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

Nine Months Ended September 30, 2008 Compared with Nine Months Ended September 30, 2007

Summary

The following table sets forth the percentage of total revenues represented by the various line items set forth in our consolidated statement of operations for the nine months ended September 30, 2008 and 2007 (in millions of dollars):

 
   
   
  Percentage of Revenues  
 
  Nine Months Ended
September 30,
  Nine Months Ended
September 30,
 
 
  2008   2007   2008   2007  

Revenues:

                         
 

Car rental

  $ 5,340.0   $ 5,161.2     79.3 %   78.8 %
 

Equipment rental

    1,286.8     1,287.4     19.1     19.7  
 

Other

    109.5     98.2     1.6     1.5  
                   
   

Total revenues

    6,736.3     6,546.8     100.0     100.0  
                   

Expenses:

                         
 

Direct operating

    3,801.8     3,495.1     56.4     53.4  
 

Depreciation of revenue earning equipment

    1,658.7     1,498.9     24.6     22.9  
 

Selling, general and administrative

    595.8     586.0     8.9     8.9  
 

Interest, net of interest income

    616.7     661.3     9.2     10.1  
                   
   

Total expenses

    6,673.0     6,241.3     99.1     95.3  
                   

Income before income taxes and minority interest

    63.3     305.5     0.9     4.7  

Provision for taxes on income

    (36.0 )   (107.3 )   (0.5 )   (1.7 )

Minority interest

    (16.1 )   (14.4 )   (0.2 )   (0.2 )
                   

Net income

  $ 11.2   $ 183.8     0.2 %   2.8 %
                   

58


ITEM 2.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

The following table sets forth certain of our selected car rental, equipment rental and other operating data for the nine months ended or as of September 30, 2008 and 2007:

 
  Nine Months Ended or as
of September 30,
 
 
  2008   2007  

Selected Car Rental Operating Data:

             
 

Worldwide number of transactions (in thousands)

    21,158     21,975  
   

Domestic

    15,368     16,395  
   

International

    5,790     5,580  
 

Worldwide transaction days (in thousands)(a)

    99,042     98,355  
   

Domestic

    66,353     67,793  
   

International

    32,689     30,562  
 

Worldwide rental rate revenue per transaction day(a)(b)

  $ 45.58   $ 46.41  
   

Domestic

  $ 43.41   $ 43.91  
   

International

  $ 49.99   $ 51.95  
 

Worldwide average number of company-operated cars during the period

    467,700     466,800  
   

Domestic

    311,000     318,600  
   

International

    156,700     148,200  
 

Adjusted pre-tax income (in millions of dollars)(a)(c)

  $ 355.8   $ 480.9  
 

Worldwide revenue earning equipment, net (in millions of dollars)

  $ 8,472.7   $ 8,869.1  

Selected Worldwide Equipment Rental Operating Data:

             
 

Rental and rental related revenue (in millions of dollars)(a)(d)

  $ 1,139.8   $ 1,177.1  
 

Same store revenue growth, including growth initiatives(a)

    (2.9 )%   2.3 %
 

Average acquisition cost of rental equipment operated during the period (in millions of dollars)

  $ 3,448.9   $ 3,237.6  
 

Adjusted pre-tax income (in millions of dollars)(a)(c)

  $ 225.9   $ 271.5  
 

Revenue earning equipment, net (in millions of dollars)

  $ 2,411.6   $ 2,720.0  

Other Operating Data:

             
 

EBITDA (in millions of dollars)(a)(e)

  $ 2,503.8   $ 2,623.2  
 

Corporate EBITDA (in millions of dollars)(a)(e)

  $ 986.2   $ 1,163.5  

(a)
For further details relating to car rental transaction days, car rental rate revenue per transaction day, adjusted pre-tax income, equipment rental and rental related revenue, equipment rental same store revenue growth and a discussion of our use and presentation of EBITDA and Corporate EBITDA, see "Three Months Ended September 30, 2008 Compared with Three Months Ended September 30, 2007—Summary."

59


ITEM 2.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

(b)
The following table reconciles our car rental revenue to our rental rate revenue and rental rate revenue per transaction day (based on December 31, 2007 foreign exchange rates) for the nine months ended September 30, 2008 and 2007 (in millions of dollars, except as noted):

 
  Nine Months Ended
September 30,
 
 
  2008   2007  

Car rental revenue per statement of operations

  $ 5,340.0   $ 5,161.2  

Non-rental rate revenue

    (775.0 )   (731.5 )

Foreign currency adjustment

    (50.6 )   134.7  
           

Rental rate revenue

  $ 4,514.4   $ 4,564.4  
           

Transaction days (in thousands)

    99,042     98,355  

Rental rate revenue per transaction day (in whole dollars)

  $ 45.58   $ 46.41  
(c)
The following table reconciles income before income taxes and minority interest by segment to adjusted pre-tax income by segment for the nine months ended September 30, 2008 and 2007 (in millions of dollars):

 
  Nine Months Ended
September 30, 2008
 
 
  Car
Rental
  Equipment
Rental
 

Income before income taxes and minority interest

  $ 209.4   $ 118.5  

Adjustments:

             
 

Purchase accounting(1)

    30.5     42.4  
 

Non-cash debt charges(2)

    37.9     8.0  
 

Unrealized loss on derivative(3)

    12.0      
 

Realized gain on derivative(3)

    (14.8 )    
 

Restructuring charges

    64.7     55.0  
 

Restructuring related charges(4)

    16.1     2.0  
           

Adjusted pre-tax income

  $ 355.8   $ 225.9  
           

 

 
  Nine Months Ended
September 30, 2007
 
 
  Car
Rental
  Equipment
Rental
 

Income before income taxes and minority interest

  $ 379.2   $ 224.2  

Adjustments:

             
 

Purchase accounting(1)

    25.1     42.6  
 

Non-cash debt charges(2)

    53.9     8.3  
 

Unrealized gain on derivative(3)

    (3.2 )    
 

Restructuring charges

    46.3     3.4  
 

Vacation accrual adjustment(5)

    (20.4 )   (7.0 )
           

Adjusted pre-tax income

  $ 480.9   $ 271.5  
           

60


ITEM 2.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

(d)
The following table reconciles our equipment rental revenue to our equipment rental and rental related revenue (based on December 31, 2007 foreign exchange rates) for the nine months ended September 30, 2008 and 2007 (in millions of dollars):

 
  Nine Months Ended
September 30,
 
 
  2008   2007  

Equipment rental revenue per statement of operations

  $ 1,286.8   $ 1,287.4  

Equipment sales and other revenue

    (137.4 )   (140.6 )

Foreign currency adjustment

    (9.6 )   30.3  
           

Rental and rental related revenue

  $ 1,139.8   $ 1,177.1  
           
(e)
The following table reconciles net income to EBITDA and Corporate EBITDA for the nine months ended September 30, 2008 and 2007 (in millions of dollars):

 
  Nine Months Ended
September 30,
 
 
  2008   2007  

Net income(1)

  $ 11.2   $ 183.8  
 

Depreciation and amortization(2)

    1,839.9     1,679.8  
 

Interest, net of interest income(3)

    616.7     661.3  
 

Provision for taxes on income

    36.0     107.3  
           

EBITDA(4)

    2,503.8     2,632.2  

Adjustments:

             
 

Car rental fleet interest

    (322.2 )   (320.7 )
 

Car rental fleet depreciation

    (1,399.7 )   (1,279.7 )
 

Non-cash expenses and charges(5)

    69.6     82.1  
 

Extraordinary, unusual or non-recurring gains or losses(6)

    134.7     49.6  
           

Corporate EBITDA

  $ 986.2   $ 1,163.5  
           

61


ITEM 2.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)


   
  Nine Months Ended
September 30,
 
   
  2008   2007  
 

Net cash provided by operating activities

  $ 1,574.8   $ 2,208.5  
   

Amortization of debt and debt modification costs

    (48.4 )   (69.5 )
   

Provision for losses on doubtful accounts

    (21.7 )   (10.4 )
   

Unrealized gain (loss) on derivatives

    (12.0 )   3.0  
   

Gain on sale of property and equipment

    9.4     14.4  
   

Loss on ineffectiveness of interest rate swaps

    (7.8 )   (17.7 )
   

Stock-based employee compensation charges

    (20.3 )   (24.3 )
   

Asset writedowns

    (34.1 )    
   

Minority interest

    (16.1 )   (14.4 )
   

Deferred taxes on income

    (5.0 )   (58.1 )
   

Provision for taxes on income

    36.0     107.3  
   

Interest expense, net of interest income

    616.7     661.3  
   

Net changes in assets and liabilities

    432.3     (167.9 )
             
 

EBITDA

  $ 2,503.8   $ 2,632.2  
             

   
  Nine Months Ended
September 30,
 
   
  2008   2007  
 

Non-cash amortization of debt costs included in car rental fleet interest

  $ 37.3   $ 52.2  
 

Corporate non-cash stock-based employee compensation charges

    20.3     20.8  
 

Non-cash charges for workers' compensation

        1.8  
 

Corporate non-cash charges for public liability and property damage

        7.2  
 

Corporate non-cash charges for pension

        3.0  
 

Unrealized loss (gain) on derivatives

    12.0     (2.9 )
             
   

Total

  $ 69.6   $ 82.1  
             

62


ITEM 2.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)


   
  Nine Months Ended
September 30,
 
   
  2008   2007  
 

Restructuring charges

  $ 127.2   $ 65.4  
 

Restructuring related charges

    21.0      
 

Management transition costs

    1.3     11.0  
 

Secondary offering costs

        2.0  
 

Realized gain on derivatives

    (14.8 )    
 

Vacation accrual adjustment

        (28.8 )
             
   

Total

  $ 134.7   $ 49.6  
             

Revenues

 
  Nine Months Ended September 30,    
   
 
(in millions of dollars)
  2008   2007   $ Change   % Change  

Revenues:

                         
 

Car rental

  $ 5,340.0   $ 5,161.2   $ 178.8     3.5 %
 

Equipment rental

    1,286.8     1,287.4     (0.6 )   %
 

Other

    109.5     98.2     11.3     11.5 %
                     
   

Total revenues

  $ 6,736.3   $ 6,546.8   $ 189.5     2.9 %
                     

Total revenues increased 2.9% (decreased 0.6% in constant currency) for the nine months ended September 30, 2008 compared to the nine months ended September 30, 2007.

Revenues from our car rental operations increased 3.5%, primarily as a result of the effects of foreign currency translation of approximately $186.7 million and a 0.7% increase in car rental transaction days worldwide, partly offset by lower RPD.

RPD for worldwide car rental declined 1.8% from nine months ended September 30, 2007, due to declines in U.S. and International RPD of 1.1% and 3.8%, respectively. U.S. airport RPD decreased 0.8% and U.S. off-airport RPD declined by 0.9%. Our strategy includes increasing penetration in the off-airport market and growing the online leisure market, particularly in the longer length weekly sector, which is characterized by lower vehicle costs and lower transaction costs at lower RPD. Increasing our penetration in these sectors is consistent with our long term strategy to generate profitable growth.

Revenues from our equipment rental operations decreased $0.6 million, primarily due a 2.6% decrease in equipment rental volume and a decline of 1.3% in pricing, partly offset by the effects of foreign currency translation of approximately $39.1 million.

Revenues from all other sources increased 11.5%, primarily due to increases in car rental licensee revenues of $7.9 million and international car leasing revenues of $4.2 million, including the effects of foreign currency translation of approximately $2.2 million.

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ITEM 2.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

Expenses

 
  Nine Months Ended September 30,    
   
 
(in millions of dollars)
  2008   2007   $ Change   % Change  

Expenses:

                         
 

Direct operating

  $ 3,801.8   $ 3,495.1   $ 306.7     8.8 %
 

Depreciation of revenue earning equipment

    1,658.7     1,498.9     159.8     10.7 %
 

Selling, general and administrative

    595.8     586.0     9.8     1.7 %
 

Interest, net of interest income

    616.7     661.3     (44.6 )   (6.7 )%
                     
   

Total expenses

  $ 6,673.0   $ 6,241.3   $ 431.7     6.9 %
                     

Total expenses increased 6.9% and total expenses as a percentage of revenues increased from 95.3% for the nine months ended September 30, 2007 to 99.1% for the nine months ended September 30, 2008.

Direct operating expenses increased 8.8%, as a result of increases in other direct operating expenses, fleet related expenses and personnel related expenses.

Depreciation of revenue earning equipment for our car rental operations of $1,399.7 million for the nine months ended September 30, 2008 increased 9.4% from $1,279.7 million for the nine months ended September 30, 2007. The increase was primarily due to a $22.4 million net increase in depreciation in certain of our car rental operations resulting from changes in depreciation rates to reflect changes in the estimated residual value of vehicles, lower net proceeds received in excess of book value on the disposal of used vehicles and the effects of foreign currency translation. Depreciation of revenue earning equipment in our equipment rental operations of $259.0 million for the nine months ended September 30, 2008 increased 18.2% from $219.2 million for the nine months ended September 30, 2007. The increase was primarily due to an increase of 6.5% in the average acquisition cost of rental equipment operated during the period, as well as lower net proceeds received in excess of book value on the disposal of used equipment, partly offset by a $3.9 million net decrease in depreciation in certain of our equipment rental operations resulting from changes in depreciation rates to reflect changes in the estimated residual value of equipment.

64


ITEM 2.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

Selling, general and administrative expenses increased 1.7%, primarily due to increases in administrative and sales promotion expenses and the effects of foreign currency translation of approximately $26.4 million, partly offset by a decrease in advertising expenses. Administrative expenses increased $9.9 million, or 3.0%, primarily due to increases in restructuring and restructuring related charges of $13.8 million and consultant fees of $3.8 million, as well as the effects of foreign currency translation of approximately $15.4 million, partly offset by a decrease in management incentive compensation costs of $20.9 million. Sales promotion expenses increased $1.4 million, or 1.1%, primarily related to the effects of foreign currency translation of $3.6 million. Advertising expenses decreased $1.6 million, or 1.2%, primarily due to a decrease in media spending, partly offset by the effects of foreign currency translation of $7.4 million.

Interest expense, net of interest income, decreased 6.7%, primarily due to the write-off in 2007 of $16.2 million in unamortized debt costs associated with the debt modification and a decrease in the weighted average interest rate, partly offset by an increase in the ineffectiveness of the HVF swaps of $9.9 million, an increase in interest income of $6.5 million and the effects of foreign currency translation of approximately $15.5 million.

Adjusted Pre-Tax Income

Adjusted pre-tax income for our car rental segment of $355.8 million decreased 26.0% from $480.9 million for the nine months ended September 30, 2007. The decrease was primarily due to higher fleet related costs, increases in other operating costs and a decrease in RPD. Adjustments to our car rental segment GAAP pre-tax amount for the nine months ended September 30, 2008 and 2007, totaled $146.4 million and $101.7 million, respectively. See footnote c to the table under "Nine Months Ended September 30, 2008 Compared with Nine Months Ended September 30, 2007" for a summary and description of these adjustments. Adjusted pre-tax income for our car rental segment as a percent of its revenues decreased from 9.2% to 6.5%.

Adjusted pre-tax income for our equipment rental segment of $225.9 million decreased 16.8% from $271.5 million for the nine months ended September 30, 2007. The decrease was primarily due to higher fleet related costs, increases in other operating costs and decreases in volume and pricing. Adjustments to our equipment rental segment GAAP pre-tax amount for the nine months ended September 30, 2008 and 2007, totaled $107.4 million and $47.3 million, respectively. See footnote c to the table under "Nine Months Ended September 30, 2008 Compared with Nine Months Ended September 30, 2007" for a summary and description of these adjustments. Adjusted pre-tax income for our equipment rental segment as a percent of its revenues decreased from 21.1% to 17.5%.

The ratio of adjusted pre-tax income to revenues for our two segments reflects the different environments in which they operate. Our infrastructure costs are higher within our car rental segment due to the number and type of locations in which it operates and the corresponding headcount. Within our equipment rental segment, our revenue earning equipment generates lower depreciation expense due to its longer estimated useful life.

Provision for Taxes on Income, Minority Interest and Net Income

 
  Nine Months Ended September 30,    
   
 
(in millions of dollars)
  2008   2007   $ Change   % Change  

Income before income taxes and minority interest

  $ 63.3   $ 305.5   $ (242.2 )   (79.3 )%

Provision for taxes on income

    (36.0 )   (107.3 )   71.3     (66.5 )%

Minority interest

    (16.1 )   (14.4 )   (1.7 )   12.1 %
                     

Net income

  $ 11.2   $ 183.8   $ (172.6 )   (93.9 )%
                     

65


ITEM 2.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

The effective tax rate for the nine months ended September 30, 2008 increased to 56.8% from 35.1% in the nine months ended September 30, 2007. The provision for taxes on income decreased 66.5% primarily due to the decline in 2008 annual projections based upon third quarter operating results, partly offset by the non-recognition of benefits for certain non-U.S. jurisdictions in loss positions and the recording of a valuation allowance on certain deferred tax assets that we believe are no longer realizable.

Minority interest increased 12.1% due to an increase in our majority-owned subsidiary Navigation Solutions, L.L.C.'s net income in the nine months ended September 30, 2008 as compared to the nine months ended September 30, 2007.

Net income decreased 93.9% primarily due to lower pricing in our worldwide car and equipment rental operations, higher fleet and operating costs and lower volume in our equipment rental operations, partly offset by a slightly higher volume in our worldwide car rental operations, as well as the net effect of other contributing factors noted above. The impact of changes in exchange rates on the net income was mitigated by the fact that not only foreign revenues but also most foreign expenses were incurred in local currencies.

Effects of the Acquisition

The following table summarizes the purchase accounting effects of the Acquisition on our results of operations for the nine months ended September 30, 2008 and 2007 (in millions of dollars):

 
  Nine Months Ended
September 30,
 
 
  2008   2007  

Depreciation and amortization of tangible and intangible assets:

             
 

Other intangible assets

  $ 45.9   $ 45.9  
 

Revenue earning equipment

    15.7     13.2  
 

Property and equipment

    5.1     5.9  

Accretion of revalued liabilities:

             
 

Discount on debt

    3.5     5.3  
 

Workers' compensation and public liability and property damage

    4.1     4.0  
           

  $ 74.3   $ 74.3  
           

Liquidity and Capital Resources

As of September 30, 2008, we had cash and equivalents of $731.5 million, an increase of $1.3 million from December 31, 2007. As of September 30, 2008, we had $514.0 million of restricted cash to be used for the purchase of revenue earning vehicles and other specified uses under our Fleet Debt facilities (defined below), our like-kind exchange programs and to satisfy certain of our self-insurance regulatory reserve requirements. The decrease in restricted cash of $147.0 million from December 31, 2007 to September 30, 2008, primarily related to the timing of purchases and sales of revenue earning vehicles.

Our domestic and foreign operations are funded by cash provided by operating activities and by extensive financing arrangements maintained by us in the United States, Europe, Puerto Rico, Australia, New Zealand, Canada and Brazil. Net cash provided by operating activities during the nine months ended September 30, 2008 was $1,574.8 million, a decrease of $633.7 million from the nine months ended September 30, 2007. The decrease was primarily due to changes in working capital, fleet

66


ITEM 2.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)


receivables and a decrease in net income, partly offset by an increase in depreciation of revenue earning equipment.

Our primary use of cash in investing activities is for the acquisition of revenue earning equipment, which consists of cars and equipment. In addition, we and our affiliates may from time to time repurchase or otherwise retire debt of our subsidiaries and take other steps to reduce such debt or otherwise improve our balance sheet. These actions may include open market repurchases, negotiated repurchases and other retirements of outstanding debt. The amount of debt that may be repurchased or otherwise retired, if any, will depend on market conditions, trading levels of such debt from time to time, our cash position and other considerations. Net cash used in investing activities during the nine months ended September 30, 2008 was $2,536.8 million, a decrease of $436.0 million from the nine months ended September 30, 2007. The decrease is primarily due to a decrease in revenue earning equipment expenditures, partly offset by a decrease in proceeds from the disposal of revenue earning equipment. For the nine months ended September 30, 2008, our expenditures for revenue earning equipment were $8,637.2 million and our proceeds from the disposal of such equipment were $6,135.7 million.

For the nine months ended September 30, 2008, our capital expenditures for property and non-revenue earning equipment were $149.5 million and our proceeds from the disposal of such equipment were $36.8 million. For the nine months ended September 30, 2008, we experienced a decreased level of net expenditures for revenue earning equipment and property and equipment compared to the nine months ended September 30, 2007. This decrease was primarily due to a decrease in revenue earning equipment expenditures, partly offset by a decrease in proceeds from the disposal of revenue earning equipment. For the full year 2008, we expect the level of net expenditures for revenue earning equipment, property and non-revenue earning equipment to be lower than the full year 2007. See "—Capital Expenditures" below.

Our car rental and equipment rental operations are seasonal businesses with decreased levels of business in the winter months and typically heightened activity during the spring and summer. This is particularly true of our airport car rental operations and our equipment rental operations. To accommodate increased demand, we maintain a larger fleet by holding vehicles and equipment and purchasing additional fleet which increases our financing requirements in the second and third quarters of the year. These seasonal financing needs are funded by increasing the utilization of our various corporate and fleet credit facilities and the variable funding notes portion of our U.S. Fleet Debt facilities (defined below). As business demand moderates during the winter, we reduce our fleet accordingly and dispose of vehicles and equipment. The disposal proceeds are used to reduce debt.

We are highly leveraged and a substantial portion of our liquidity needs arises from debt service on indebtedness incurred in connection with the Transactions and from the funding of our costs of operations, working capital and capital expenditures.

As of September 30, 2008, we had approximately $12,844.2 million of total indebtedness outstanding. Cash paid for interest during the nine months ended September 30, 2008 was $626.9 million, net of amounts capitalized.

We rely significantly on asset-backed financing to purchase cars for our domestic and international car rental fleets. For further information concerning our asset-backed financing programs, see Note 3 to the Notes to our audited annual consolidated financial statements included in our Form 10-K. For a discussion of risks related to our reliance on asset-backed financing to purchase cars, see "Item 1A—Risk Factors" contained in our Form 10-K and "Part II—Other Information, Item 1A—Risk Factors" in this Report.

67


ITEM 2.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

Also, substantially all of our revenue earning equipment and certain related assets are owned by special purpose entities, or are subject to liens in favor of our lenders under the Senior ABL Facility, the U.S. ABS Program, the International Fleet Debt facilities (all as defined below) or the fleet financing facilities relating to our car rental fleet in Hawaii, Kansas, Puerto Rico and St. Thomas, the U.S. Virgin Islands, Brazil, Canada, Belgium and our U.K. leveraged financing facility. Substantially all our other assets in the United States are also subject to liens in favor of our lenders under the Senior Credit Facilities (defined below), and substantially all of our other assets outside the United States are (with certain limited exceptions) subject to liens in favor of our lenders under the International Fleet Debt facilities or (in the case of our Canadian equipment rental business) the Senior ABL Facility. None of such assets will be available to satisfy the claims of our general creditors.

We have a significant amount of debt that will mature over the next several years. The aggregate amounts of maturities of debt for each of the twelve-month periods ending September 30 (in millions of dollars) are as follows: 2009, $5,109.4 (including $3,967.6 of other short-term borrowings, of which $3,892.1 were under long-term committed credit facilities); 2010, $2,431.3; 2011, $1,035.3; 2012, $176.4; 2013, $1,375.8; after 2013, $2,769.8. We believe that cash generated from operations, together with amounts available under the Senior Credit Facilities, asset-backed financing and other available financing arrangements will be adequate to permit us to meet our debt service obligations, ongoing costs of operations, working capital needs and capital expenditure requirements for the foreseeable future. Our future financial and operating performance, ability to service or refinance our debt and ability to comply with covenants and restrictions contained in our debt agreements will be subject to future economic conditions and to financial, business and other factors, many of which are beyond our control. Recent turmoil in the credit markets and the financial instability of insurance companies providing financial guarantees for asset-backed securities has reduced the availability of debt financing, which may result in increases in the interest rates at which lenders are willing to make debt financing available to us. The impact of such an increase would be more significant than it would be for some other companies because of our substantial debt. For a discussion of risks related to our substantial indebtedness, see "Item 1A—Risk Factors" contained in our Form 10-K and "Part II—Other Information, Item 1A—Risk Factors" in this Report.

A significant number of cars that we purchase are subject to repurchase by car manufacturers under contractual repurchase or guaranteed depreciation programs. Under these programs, car manufacturers agree to repurchase cars at a specified price or guarantee the depreciation rate on the cars during a specified time period, typically subject to certain car condition and mileage requirements. We use this specified price or guaranteed depreciation rate to calculate our asset-backed financing capacity. If any manufacturer of our cars fails to fulfill its repurchase or guaranteed depreciation obligations, due to bankruptcy or otherwise, it could make vehicle-related debt financing more difficult to obtain on reasonable terms and our asset-backed financing capacity could be decreased, or our financing costs and interest rates could be increased. For a discussion of risks related to the repurchase of program cars from us or the guarantee of the depreciation rate of program cars by the manufacturers of our cars, see "Part II—Other Information, Item 1A—Risk Factors" in this Report.

Approximately half of our $4,300.0 million U.S. Fleet Debt issued and funded on or prior to the Closing Date is subject to the benefit of a financial guaranty from MBIA Inc., or "MBIA," while the remainder is subject to the benefit of a financial guaranty from Ambac Financial Group Inc., or "Ambac." MBIA and Ambac are facing financial instability due to factors beyond our control. Each of MBIA and Ambac has been downgraded by one or more credit ratings agencies and is on review for a further credit downgrade or under developing outlook. These or any further downgrade or a bankruptcy of either MBIA or Ambac could make vehicle-related debt financing more difficult to obtain on reasonable terms and our asset-

68


ITEM 2.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)


backed financing capacity could be substantially decreased, or our financing costs and interest rates could be increased. To help offset this financial guaranty risk, in September we closed on the "Series 2008-1 Notes", as defined below, which is not subject to a financial guaranty, including from either MBIA or Ambac. For a discussion of risks related to the financial instability of MBIA or Ambac, see "Part II—Other Information, Item 1A—Risk Factors" in this Report.

Financing

Our "Senior Term Facility" is a secured term loan facility entered into by Hertz in connection with the Acquisition consisting of (a) a maximum borrowing capacity of $2,000.0 million (which was decreased in February 2007 to $1,400.0 million), which included a delayed draw facility of $293.0 million (which was utilized during 2006) and (b) a prefunded synthetic letter of credit facility in an aggregate principal amount of $250.0 million. This term loan facility and the synthetic letter of credit facility mature in December 2012.

Our "Senior ABL Facility" is a senior asset-based revolving loan facility entered into by Hertz and certain of its U.S. and of its Canadian subsidiaries in connection with the Acquisition with a maximum borrowing capacity of $1,600.0 million (which was increased in February 2007 to $1,800.0 million and was decreased in September 2008 to $1,785.0 million). Up to $200.0 million of the revolving loan facility is available for the issuance of letters of credit. The Senior ABL Facility matures in February 2012. We refer to the Senior Term Facility and the Senior ABL Facility together as the "Senior Credit Facilities."

Our "Senior Dollar Notes" are the $1,800.0 million aggregate principal amount of 8.875% Senior Notes due January 2014 issued by Hertz in connection with the Acquisition. Our "Senior Euro Notes" are the €225 million aggregate principal amount of 7.875% Senior Notes due January 2014 issued by Hertz in connection with the Acquisition. We refer to the Senior Dollar Notes and the Senior Euro Notes together as the "Senior Notes." Our "Senior Subordinated Notes" refer to the $600.0 million aggregate principal amount of 10.5% Senior Subordinated Notes due January 2016 issued by Hertz in connection with the Acquisition.

Our "Promissory Notes" consist of the outstanding untendered senior notes issued under three separate indentures existing prior to the Acquisition. These senior notes have remaining maturities ranging from March 2009 to January 2028.

Our "U.S. Fleet Debt" consists of approximately $4,300.0 million of asset-backed securities issued on the Closing Date by Hertz Vehicle Financing LLC, or "HVF," a special purpose entity wholly-owned by us, backed by our U.S. car rental fleet, all of which we issued under our existing asset-backed notes program, or the "ABS Program." An additional $600.0 million of issued asset-backed medium term notes that were issued prior to the Closing Date, or "Pre-Acquisition ABS Notes," having maturities from May 2007 to May 2009 remained outstanding under the ABS Program following the Closing Date ($430.0 million of which have subsequently matured). We have also issued approximately $1,500 million of variable funding notes on the Closing Date in two series under these facilities, none of which were funded on the Closing Date. The current capacity is $1,450.0 million. We also issued $825.0 million of 2008-1 Variable Funding Rental Car Asset-Backed Notes, or the "Series 2008-1 Notes," on September 12, 2008, which as of September 30, 2008 had not been funded. The U.S. Fleet Debt facilities have maturities ranging from February 2009 to November 2010.

Our "International Fleet Debt" consists of the aggregate borrowings of our foreign subsidiaries under asset-based revolving loan facilities entered into by Hertz International Ltd, or "HIL," a Delaware corporation organized as a foreign subsidiary holding company and a direct subsidiary of Hertz, and

69


ITEM 2.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)


certain of its subsidiaries (all of which are organized outside the United States), together with certain bankruptcy-remote special purpose entities, subject to borrowing bases comprised of rental vehicles, rental equipment, and related assets of certain of our foreign subsidiaries (substantially all of which are organized outside of the United States) or one or more special purpose entities, as the case may be. The subsidiaries conducting the car rental business in certain European jurisdictions may, at their option, continue to engage in capital lease financings relating to revenue earning equipment outside the International Fleet Debt facilities. In 2007 and 2008, additional borrowers consented to the senior bridge facility agreement under the International Fleet Debt facilities in connection with the expected take-out of the interim facilities entered into at the time of the Acquisition. The International Fleet Debt matures in December 2010.

Our "Fleet Financing Facility" is a credit agreement entered into by Hertz and its subsidiary, Puerto Ricancars, Inc., or "PR Cars," in September 2006, which provides for a commitment of up to $275.0 million to finance the acquisition of Hertz's and/or PR Cars fleet in Hawaii, Kansas, Puerto Rico and St. Thomas, the U.S. Virgin Islands. The Fleet Financing Facility matures in December 2011, but Hertz and PR Cars may terminate or reduce the commitments of the lenders thereunder at any time.

Our "Brazilian Fleet Financing Facility" refers to the agreement dated April 4, 2007 amending and restating our Brazilian subsidiary's credit facility (which was originally included under the International Fleet Debt facilities) to, among other things, increase the facility to R$130 million (or $67.8 million, calculated using exchange rates in effect on September 30, 2008) consisting of a R$70 million (or $36.5 million) term loan facility and a R$60 million (or $31.3 million) revolving credit facility. This facility matures in December 2010.

Our "Canadian Fleet Financing Facility" refers to a Note Purchase Agreement entered into by our indirect subsidiary, Hertz Canada Limited, and certain of its subsidiaries, on May 30, 2007, with CARE Trust, a third-party special purpose commercial paper conduit administered by Bank of Montreal, or "CARE Trust," which acts as conduit for the asset-backed borrowing facility, and certain related agreements and transactions, in order to establish an asset-backed borrowing facility to provide financing for our Canadian car rental fleet. The new facility refinanced the Canadian portion of the International Fleet Debt facilities. The maximum amount which may be borrowed under the new facility is CAN$400 million (or $382.0 million). The Canadian Fleet Facility matures in May 2012.

Our "Belgian Fleet Financing Facility" consists of a secured revolving credit facility entered into by our Belgian subsidiary, Hertz Belgium BVBA on June 21, 2007, with varying facility limits of up to €25.4 million (or $36.2 million). This facility refinanced the Belgian portion of our International Fleet Debt facilities. The facility is scheduled to mature in December 2010.

Our "U.K. Leveraged Financing" consists of an agreement for a sale and leaseback facility entered into with a financial institution in the United Kingdom, or the "U.K.," by our subsidiary in the U.K., Hertz (U.K.) Limited, on December 21, 2007, under which we may sell and lease back fleet up to the value of £175.0 million (or $316.5 million). The amount available under this facility increases over the term of the facility. This facility refinanced the U.K. portion of the International Fleet Debt facilities. The facility is scheduled to mature in December 2013.

Our "International ABS Fleet Financing Facility" consists of a multi jurisdictional fleet financing initially covering Australia, France and the Netherlands. The maximum commitment under (i) the Euro denominated financing is €632.0 million (or $901.0 million) and (ii) the Australian dollar denominated financing is A$325.0 million (or $262.0 million). The expected maturity date is in December 2010.

70


ITEM 2.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

As of September 30, 2008, the aggregate principal amount of $168.7 million (net of $1.3 million discount) of pre-Acquisition ABS Notes was outstanding and the average interest rate was 3.2%.

As of September 30, 2008, there were $30.5 million of capital lease financings outstanding. These capital lease financings are included in the International Fleet Debt total and mature in August 2010.

International ABS Fleet Financing Facility

On July 24, 2008, HIL and certain of its subsidiaries entered into the "Amendment Agreement" to amend the International Fleet Debt facility. The Amendment Agreement, effective on July 24, 2008, reduced the borrowing margins on the Tranche A1 and Tranche A2 bridge loans of certain borrowers under the facility participating in the International ABS Fleet Financing Facility and provided an August 12, 2008 final maturity date for loans to HIL's Swiss subsidiary borrower. In August, we paid off the loan to HIL's Swiss subsidiary borrower and closed out the loan.

Also on July 24, 2008, HA Fleet Pty Ltd, RAC Finance SAS and Stuurgroep Fleet (Netherlands) B.V., special-purpose indirect subsidiaries of HIL, each a "FleetCo," closed on the International ABS Fleet Financing Facility, initially covering Australia, France and the Netherlands, respectively, or the "Relevant Jurisdictions."

The funds under the new fleet financing will be used to (i) initially repay in whole the FleetCos' portion of indebtedness under the International Fleet Debt facility and the FleetCos' existing inter-company borrowings related to the acquisition of vehicles and (ii) finance the acquisition of vehicles from time to time in the Relevant Jurisdictions.

International Fleet Financing No. 1 B.V, the issuer of the fleet financing, or the "Issuer," is a special purpose entity incorporated as a Dutch B.V. under the laws of the Netherlands. Of the shares of the Issuer, 75% are held by a charitable trust and 25% are owned by Hertz Holdings Netherlands B.V., an indirect wholly-owned subsidiary of HIL.

The expected maturity date is in December 2010 (when the FleetCos' obligations to the Issuer are scheduled to come due). The maximum commitment under (i) the Euro denominated financing is €632 million (or $901 million) and (ii) the Australian dollar denominated financing is A$325 million (or $262 million). On July 24, 2008, actual issuance to the French FleetCo, the Dutch FleetCo and the Australian FleetCo was €230.4 million (or $328.4 million), €35.9 million (or $51.2 million) and A$151.9 million (or $122.4 million), respectively.

Series 2008-1 Notes

On September 12, 2008, HVF completed the closing of a new variable funding note facility referred to as the Series 2008-1 Notes. This series is not subject to a financial guaranty, including from either MBIA or Ambac. The aggregate principal amount of such facility is not to exceed $825.0 million and such facility is available to HVF on a