Herc Holdings Inc (HRI) 2007 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to Hertz Global Holdings third-quarter 2007 earnings conference call. At this time all participants are in a listen only mode. Later we will conduct a question-and-answer session. Instructions will be given at that time.

(OPERATOR INSTRUCTIONS) All individuals listening to the call or the replay are reminded that the call this being recorded by Hertz Global Holdings and is copyrighted material. Monitoring this call implies the listeners' consent to the Company's recording this call and agreement not to record or rebroadcast it without the Company's express permission.

The Company has asked me to read the following statement to you. Certain statements made on this call contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements include but are not limited to statements concerning Hertz Global Holdings outlook, management forecast, opportunities to increase productivity and profitability, implementation of productivity and efficiency initiatives, anticipated pricing and growth, future performance, management's plans, acquisitions, contingent liabilities, taxes and liquidity. The statements may be preceded by, followed by or include the words believes, expects, anticipates, intends, plans, estimates, projects, seeks, will, many common shares, forecast or similar expressions.

Forward-looking statements are not guarantees of performance and by their nature are subject to inherent risks and uncertainties and actual results may differ. Any forward-looking information relayed on this call speaks only as of the date hereof. Hertz Global Holdings undertakes no obligation to update or revise any forward-looking statement to reflect new information, changed circumstances or unanticipated events.

You are cautioned therefore that you should not rely on these forward-looking statements. You should understand that the risks and uncertainties discussed under the headings, risk factors and cautionary note regarding forward-looking statements, in the Hertz Global Holdings Form 10-K for the year ended December 31, 2006 and Form 10-Q for the three months ended June 30, 2007 could cause future results or outcomes to differ materially from those expressed or implied in Hertz Global Holdings forward-looking statements.

I would now like to turn the conference over to our host, Miss Lauren Babus. Please go ahead.

Thank you. Good morning everyone and welcome to Hertz Global Holding's third-quarter 2007 conference call. You should all have our press release and associated financial information.

In a minute I will turn the call over to Mark Frissora, Hertz's Chairman and CEO. Also speaking today are Joe Nothwang, Executive Vice President and President, Vehicle Rental and Leasing, the Americas and Pacific; Michel Taride, Executive Vice President and President, Hertz Europe Limited; Gerry Plescia, Executive Vice President and President of Hertz; and Elyse Douglas, Hertz's Executive Vice President Chief Financial Officer.

Today we will use certain non-GAAP financial measures all of which are reconciled with GAAP numbers in the press release attachment posted on our website, hertz.com/investor relations. We do not believe that the GAAP profit measures fully reflect our operating performance because of restructuring costs, certain non-cash expenses and nonrecurring charges relating to purchase accounting and debt cost amortization. These non-GAAP measures better reflect our profitability and the progress we're making on our financial goals.

Our call today focuses on Hertz Global Holdings, a publicly traded company. Third-quarter results for the Hertz Corporation, a totally owned subsidiary, were identical except for $0.2 million of additional interest expense incurred by the Hertz Corporation for on an intercompany loan from Hertz Global Holding's. This impacts both pretax and net income at the Hertz Corporation level. Now I'll turn the call over to Mark Frissora.

Thanks, Lauren, and good morning everyone. Thanks for joining us. Let's first turn to our consolidated financial results for the quarter. Hertz generated record total third-quarter revenues of $2.45 billion which is a year-over-year increase of 9.3%. Worldwide Rent a Car and Hertz each achieved record revenues for the quarter.

Adjusted pretax income, adjusted net income and corporate EBITDA all showed strong improvement versus Q3 2006. In fact, adjusted pretax income grew 34.4% and our adjusted pretax margin improved by 260 basis points. Adjusted net income for share for the quarter was also very positive increasing 35% to $0.65 from $0.48 per share in the third quarter of 2006.

This significant year-over-year improvement in profitability was due to a 280 basis point improvement in direct operating and SG&A expense and a 60 basis point improvement in total interest expense. Each expense is a percentage of revenue in spite of increased depreciation expense.

On a GAAP basis, third-quarter income before income taxes and minority interest -- that is pretax income -- increased by $91 million or 56% year-over-year. GAAP net income was $162 million compared to $107.5 million in the third quarter of 2006, an increase of over 50%.

Turning to our cash flow, net corporate debt at September 30, 2007 declined by $354 million year-over-year to $4.57 billion. Using year end 2006 as a starting point the increase in net corporate debt at September 30 was limited to only $34 million compared to a $104 million increase in the same period a year ago. The improvement in levered after-tax cash flow after fleet growth in each comparison was a result of higher earnings, lower working capital requirement, lower investment in Hertz revenue earning equipment and higher car rental net fleet equity requirement.

These results are particularly gratifying on several counts. First, they were obtained in light of the slower economic environment and general credit market concerns experienced during the third quarter. Second, we were able to achieve this level of profitability while continuing to invest incrementally in our brands, operations and people.

Through September this year we have increased the level of such investments by over $50 million. $20 million of that went to incremental investment in our brand advertising. Our share of voice in the car rental industry is now No. 1 and Simply Wheels, our new leisure brand, is up and running.

Another incremental investment of $15 million went to our operations. We opened up over 300 new locations and enhanced our website and continued development of the contribution management system. Finally, we have made an incremental investment of $15 million in our people. The Hertz improvement process training is now available through group sessions and online our management is being trained in organizational restructuring and efficiency techniques as well as project management. And in the US we have increased tuition reimbursement and vacation benefits. All of these incremental investments will position us well for continued long-term growth and profitability.

Earlier today we announced the appointment of Elyse Douglas as Executive Vice President and Chief financial Officer making her interim position permanent. Elyse has 25 years of experience in finance and treasury and joined Hertz in July 2006 as its treasurer. In that role she focused on strengthening our balance sheet by implementing new financings and establishing new working capital metrics. As interim CFO she's been the driving force in development of the global finance center of expertise. Our team is genuinely excited about Elyse assuming her new position.

This morning I want to give you an update on our growth initiatives and our cost-cutting activities and then discuss our business resiliency generally. After that Joe, Michel and Jerry will discuss their respective businesses in greater detail. Elyse will provide a financial update and I will conclude with full-year guidance and some closing comments before we take your questions.

In our US off-airport business, we achieved year-over-year revenue growth of 13.6% in the third quarter driven by 15.8% transaction day growth. We expect double-digit volume growth to continue in this sector of our business. Earlier this month, we had the official launch of Simply Wheels in Orlando, Florida and we have extended hourly rentals throughout Manhattan. These are still pileup programs but we are encouraged by the customer response.

In US RAC so far this year we acquired three small licensees representing about $3 million annualized revenue. In July we also purchased Auto Travel, a UK Hertz licensee which generates over $20 million of revenues annually. These acquisitions give us greater control of our growth in those geographies and more consistent product and service offerings across the Hertz network.

On the cost side we have now [rolled our hip] to numerous car rental, Hertz and headquarter locations and expect to have over 250 locations and [departments] involved by year-end. This would cover about 50 to 60% of our revenue base. In addition to implementing the program in new locations, we are actively training employees to keep up the momentum to ensure ongoing achievements. From the (inaudible) already held we've identified several best practices that we're rolling out across the operating units which will further reduce our cost.

In September, I announced the appointment of John Thomas, our new Executive Vice President, Supply Chain Management who comes to Hertz from RR Donnelly and General Electric. John will drive our cost savings initiatives in procurement and asset disposition. We believe this is a big opportunity for us given our $15 billion annual spend.

On the business process outsourcing front, we have been evaluating bids and interviewing vendors for select processes in finance, human resources, procurement, IT, and real estate. For other processes throughout the Company we're implementing business process reengineering to reduce cost and improve efficiency. Although we expect to see the benefit in the latter part of 2008, I hope to provide more details on these programs on our fourth-quarter earnings call.

Our progress so far in these cost savings initiatives is reflected in the improvement we report in our profit margins. We believe these initiatives will create value for Hertz irrespective of the economic environment. The question of Hertz's resiliency has come up frequently in light of general concerns regarding consumer confidence and spending and weakness in housing industry. We're happy to discuss this in detail during the Q&A session but I have some high-level comments on this point.

We have very flexible business models. About two-thirds of our total costs are variable which enables us to react quickly to a slowing of rental activity. Unlike many companies, we generate significant positive cash flow when we de-fleet. And disposition channels for cars and equipment rental fleet are fairly deep and liquid.

We have a strong international presence representing over 30% of total Company revenue on a year-to-date basis and we intend to continue to grow over time through expansion into Asia and other new markets. This diversifies our economic exposure. Most of our competitors whether in car rental or equipment rental do not have this level of geographic balance.

In addition, we also have strong product and customer type diversification. In the US rental car business we've been expanding our presence off-airport and these operations now represent about 22% of our total US car rental revenue. The off-airport market is much less seasonal up and less cyclical than the airport market.

Also although these are still in the early stages, licensee acquisitions, new business initiatives and product segmentation such as Simply Wheels, hourly rentals, our collections etcetera are also helping to reduce the impact of economic cyclicality as we penetrate different sectors of the market.

Internationally, our rental car business is already very diversified across product lines and also has an almost evenly balanced mix of on-airport off-airport revenues. In equipment rental business, we have strong product and customer type diversification as well with only about 25 to 30% of our US revenues tied to earthmoving activities as our industrial and fragmented product lines experience strong growth. On a year-to-date basis, new product initiatives such as industrial, power generation, pumps and trench shoring grew by over 20%.

Our national account program which currently represents almost 50% of our US rental and rental related revenue is a fairly stable source of business for us also. As an industry, equipment rentals is in much better shape than it was in the 2001 to 2003 nonresidential construction slowdown. The major players are more seasoned operators and some of them have emerged from bankruptcy as more savvy competitors. The industry is not over-fleeted and equipment residuals have remained fairly stable.

Finally, in light of the tightening of credit markets, there have also been questions regarding Hertz's capital structure and liquidity. Elyse will speak to this shortly, but let me assure you that we have ample room under our financing facilities, over $3 billion in availability to fund growth and meet upcoming debt service requirements.

With that strategic overview Joe, Michel and Jerry will walk you through the performance and initiatives last quarter in car rental and equipment rental. Joe?

Thank you, Mark and good morning, everyone. Let me give you some headlines worldwide car rentals third-quarter 2007 performance. Total revenues increased 11% to $2 billion, a record quarter for us. Corporate EBITDA was 19.7% higher and adjusted pretax income increased 28.6%, all very positive operating metrics. Profitability for worldwide car rental was enhanced by improved pricing and length which will be detailed shortly combined with continued progress on the cost actions Mark discussed.

An important macro trend for car rental is employment statistics. The Department of Transportation recently reported domestic employment growth for July of 3.9% following 1.6% and 3.2% growth for the first and second quarters, respectively.

Second quarter international employment growth was 2.9% with July at 3.2%. Employment numbers are good directional indicators for our airport car rental business but the absolute growth rates do not correlate well historically to our airport transaction growth rates.

On worldwide basis, rental rate revenue growth basically time and mileage before the impact of foreign exchange was 8% and consisted of a 5.5% increase in worldwide transaction days and an increase of 2.4% in rental rate revenue per day or RPD. Average rental length increased by 0.8% year-over-year. Let me just remind everyone not to get overly focused on RPD because it also reflects shifts in our business mix and there are underlying lengths and cost differences in each market sector which favorably impact overall profitability.

In the domestic off-airport market, we continued to gain momentum across all sectors with total revenue growth of 13.6% during the quarter. Transaction days grew by 15.8% and the average transaction length increased by 2.9%. The average rental length off-airport was about 1.5 days longer than at our airport location. While these off-airport rentals are at a relatively lower average revenue per day which declined 1.3% year-over-year, they also exhibit much lower transaction, vehicle depreciation and related costs and higher utilization rates as we have discussed in the past. This market is attractive to us because of these of lower cost dynamics and we continue to invest in our operations and increase our market share.

We're well ahead of our original off-airport network expansion plan for 2007. We added 48 locations through the end of September to bring our total to 1526 and we expect to add at least 30 more in the fourth quarter. Our new compensation program and beefed up sales force are working successfully to stimulate more profitable growth.

We remain focused on the insurance replacement sector in which we generated double-digit transaction day growth this quarter. As of September 30, we have relationships with 151 of the largest 200 or so companies. Our continuing sales efforts are focused on deepening existing relationships to increase market share and targeting additional insurance companies.

We said last quarter that the US airport pricing environment looked favorable and that proved to be true. Our domestic car rental revenue per day improved by 2.7% with airport revenue per day 4.8% higher year-over-year. As the summer progressed, we saw the opportunity to move pricing higher than we had planned optimizing profits at the expense of lower transaction day growth and utilization. This was reflected in our airport transaction day growth of 0.6% this past quarter and impacted our fleet efficiency which we will discuss later.

In our corporate account negotiations during the third quarter we achieved increases of about 3%. About 46% of our total revenue comes from business transactions with almost 50% of that from our corporate accounts and the remainder from other business transactions.

The leisure pricing environment at airport locations in the third quarter was generally robust with many industry participants raising prices during the quarter. One of the fastest-growing sources for leisure volume at airports remains the opaque channel such as Priceline particularly for trough periods and generally commercially oriented markets. Hertz continues to participate in this channel tactically when supply outweighs demand on a market-by-market basis.

For example in September where we typically see lower volume than in August or October this is an important way to improve fleet utilization. From a marketing standpoint it also lets us introduce price sensitive customers to the Hertz experience. In addition, at airports, we continue to execute on two key growth strategies which we have discussed in previous calls.

We're growing the daily segment by turning down fewer midweek customers. This has the effect of growing transactions faster than transaction days due to shorter average length of rental. And the online segment continues to experience solid growth as we capture more price sensitive customers that either provide weekend volume to utilize a vehicle during a trough period or keep the car for longer length rentals generating higher revenue per transaction.

For the fourth quarter we anticipate that industry behavior will remain rational and that Hertz will continue to experience business mix shifts as we grow the off-airport component of our revenue base. In the US airport market the latest statistics through July year-to-date show we are maintaining market share at 28% and and a healthy 8% point gap with the closest competing brand.

Mark mentioned the official launch of Simply Wheels in Orlando, the largest car rental market in the world. The response has been very positive and the advanced reservation book has exceeded our expectations. We specifically designed this offering so that it would not dilute our core business in higher-end leisure rentals. As a matter of fact, some of the Simply Wheels customers switch to classic Hertz and pay more when they see the vehicles in our specialty collection. And now let me turn the call over to Michel for an international update.

Thank you Joe, and good morning to everybody. International car rental experienced a 1.9% increase in revenue per day and production day growth of 7.1% driven by 2.6% improvement in revenue per day and strong volume trends in Europe which represents substantial portion of international.

Transaction day growth was particularly strong in business generated through our affiliation with Ryan Air and other market partners and also the leisure and van truck sectors which we have been targeting for growth over the last few years.

Vans and trucks include light commercial vehicles and in Germany also heavy trucks. This business generates good contribution primarily due to the longer than average rental length and good RPD. This results in revenue per vehicle which is 20% higher than we achieved for cars. We're a significant player in this markets in most countries and a leader in the heavy truck segment in Germany. From what we can see today, the outlook for fourth-quarter revenue growth in Europe is favorable and even with the weakness of the dollar we experienced good inbound volume from the US in September and October which is important given the good level of contribution generated by this business for us.

In Europe, we gained several new commercial accounts this quarter and re-signed two of our top 10 accounts on an exclusive worldwide basis. In December 2005, we launched NeverLost, our navigation solution in Europe and it's been very popular. Last month for the first time Europe rental car achieved monthly NeverLost revenue of about $1

The Hertz collection, a growing source of revenue worldwide, performed well in the third quarter generating revenues of $213 million compared to $126 million in the same quarter in 2006 during which the Green Collection was launched. We maintain our global push in the online leisure market and in the third quarter over 36% of our worldwide reservations came through online channels including Hertz.com an increase of 3.3 percentage points over the same period last year.

The same stats hold true for the United States and are even stronger for Europe. Another important leisure marketing initiative for Europe would be the fourth quarter launch of Simply Wheels in Spain, (inaudible) and Malaga. Spain is a major leisure destination in Europe and Simply Wheels is aimed at getting our share of the lower priced leisure segment which is significant and growing. As in the US, Simply Wheels will be clearly differentiated from classic Hertz in order to avoid dilution.

In Europe, we successfully implemented our new organization in July. As an industry first, we moved from a structure with eight separate countries had offices with full-blown management teams to a streamlined organization structure with two regions and centralized staff functions. The new structure is projected to provide annual savings in excess of $25 million on a run rate basis and we continue to work on reorganizing certain activities into additional centers of expertise and outsourcing other functions. The objective of the restructuring is to save a total of $15 million in annualized cost and significantly improve our overall effectiveness.

On the last call, Joe spoke to you about our new customer satisfaction tool, the net promoter score or NPS measurement. This is a short online survey in which customers are asked how likely is it that you will recommend us to a friend or colleague? We subtract the percentage of negative responses from highly positive responses and the result is the net promoter score. Responses are gathered immediately following the rentals enabling local field management to follow up quickly on problems and target areas for improvements. We're using the survey globally in our worldwide car rental and Hertz network and even our licensees are participating.

Customer response rates have been phenomenal. We understand that a 20% response rate is considered very high and we are consistently running at 32 to 35%. And the key to our success we believe is that the survey is short and to the point. It's only four questions long. Our score or so far has remained fairly stable, and represents good customer satisfaction levels although we're always focused on improving our customer service.

With that, let me turn the call over to Gerry Plescia who will now discuss worldwide Hertz.

Thanks, Michel. Good morning everyone. Turning now to worldwide HERC, our total third-quarter revenue was a record $465 million an increase of 2.6% year-over-year. Rental and rental related revenues which include charges for delivery, loss damage waivers, and fueling increased by 3.1%.

Corporate EBITDA and adjusted pretax income were each higher year-over-year by 5.2% and the adjusted pretax income margin improved by 60 basis points. This improvement in profitability was driven by volume growth and our cost cutting initiatives.

The major trend affecting HERC is the softening US construction market. In August, FW Dodge increased their 2007 forecast of nonresidential construction growth to 7.2%. However, their latest report shows 3% growth year-to-date. The latest Architecture Billings Index showed signs of continued growth for the next nine to twelve months albeit at a slowing pace. The FW Dodge forecast which was released last week was slightly lower than previously forecasted for nonresidential construction but is basically in line with how we have been forecasting our business.

The third quarter continued to be impacted by the slower growth in some sectors of US residential and nonresidential construction market particularly in Florida, Southeast region and parts of California where construction activity is contracted. Other regions of North America are experiencing stronger results through the mix of their business which has a higher percentage of industrial and fragmented rental activity. Overall, our market conditions have not deteriorated since our call in early August although pressure on construction related activity continues.

Worldwide pricing was potentially the same as third-quarter 2006 with positive pricing in Canada and Europe offsetting a slightly less than 1% decline in the US which is due to some pricing pressure on earthmoving equipment.

Revenue growth at Hertz European operations continued at a double-digit pace. Aerial pump services, general rental, power generation and on-site plant services experienced double-digit growth this quarter. This results in greater diversification of our revenue mix.

In third-quarter 2007, industrial accounted for 18% of our US revenue compared to 16% in quarter three 2006. Fragmented and other increased to 33% from 32% last year and construction including residential and nonresidential declined from 52% to 49% this year.

As part of our growth strategy, HERC expanded product offerings at 12 additional stores and we extended our footprint by seven locations. In the fourth quarter, we expect to add seven to 10 additional locations worldwide bringing our total network to about 380 locations. That's split two-thirds between North America, two-thirds in North America and one-third in France and Spain.

During the recent quarter, we gained several new accounts that are expected to add significant revenue over time across all business lines. At September 30, the average age of our worldwide fleet was 27.7 months versus 26.4 months at year end 2006. Our plan is to age the fleet slightly to about 28 months by the end of 2007. Having this relatively young fleet gives us a competitive advantage with customers and helps reduce our investment in new fleet.

From June 30, 2007 to September 30, net book value of HERC revenue earning equipment increased by $144 million. During the quarter HERC purchased $230 million of new fleet, incurred $78 million of depreciation expense and our dispositions totaled $42 million. The foreign exchange adjustment related to fleet was $34 million.

The additional investment in equipment is primarily to support our industrial growth, new business initiatives and network expansion. The used equipment market remains fairly strong and is still maintaining excellent residuals among almost all categories of equipment.

For the fourth-quarter 2007, depending on economic conditions, we expect total equipment rental fleet CapEx to be approximately $90 million consisting of about $80 million in maintenance CapEx and about $10 million in growth CapEx. And now I'll turn the call over to Elyse Douglas who will provide a financial update.

Thank you, Gerry and good morning everyone. As Mark mentioned, our third-quarter profitability metrics improved dramatically year-over-year on both the GAAP and an adjusted basis. As I discuss the financial results, I'll be referencing profit improvements as a percentage of revenues and will be using Table 2 in our press release which shows the income statement on an adjusted basis along with the reconciliation to GAAP.

Adjustments to our GAAP results totaled $79.8 million in the third quarter primarily due to non-cash debt charges, purchase accounting and restructuring costs offset by a $9.2 million credit related to the change in vacation accrual. Our adjusted profit margins increased due to improvements in our major cross lines.

Direct operating, selling general and administrative and corporate interest expense declined by 370 basis points as a percentage of revenue. This margin benefit was partially offset by higher fleet carrying costs that is depreciation in interest expense due to higher per unit cost and larger fleets.

We achieved this improvement even as we increased our net advertising spend by $12 million. The net result is an improvement of 260 basis points year-over-year in our adjusted pretax margins.

Total cash interest expense during the quarter increased 1.7% in total year-over-year. Net fleet related interest increased by 12.5% reflecting higher interest rates primarily in Europe and higher average net fleet debt balances throughout the quarter.

Net corporate interest expense declined by 15.3% excluding the pre-IPO dividend loan due to lower net corporate debt balances and reduced borrowing margins in our bank financings as a result of re-pricing actions we took earlier in the year. At December 30, 2007 total debt outstanding was $13 billion consisting of $8 billion of fleet debt, $1.8 billion of debt secured by other assets and $3.2 billion in unsecured debt. Compared to a year ago which would take the seasonality of our business into account and excluding the pre-IPO $1 billion loan outstanding at September 30, 2006 net total debt is higher by $330 million primarily to support our fleet growth.

We continue to be comfortable with our performance relative to our financial covenants. Under these tests at quarter end our consolidated average was 3.1 times and the consolidated interest coverage ratio was 3.5 times, well within the limits set in our financing agreements. The cushion we have under our [titus] covenant for corporate EBITDA is $673 million. For indebtedness, the cushion is $3.9 billion and for interest expense $422 million.

At September 30, 2007 restricted cash associated with fleet debt was $390 million. This is a function of the credit enhancement requirements in the fleet financings which vary in accordance with the fleet size. We believe we have more than ample liquidity to support our anticipated growth.

Subject to borrowing base availability at September 30 we had additional capacity of $3.7 billion consisting of $1.9 billion in fleet financing our column of $1.4 billion in corporate credit facilities and $0.4 billion in cash. Our next debt maturity of any size is $165 million in May of 2008.

In third quarter, we paid approximately $10.5 million in cash taxes and expect full year cash taxes to be about $46 million. The full year projected effective income tax rate for 2007 is 31.1%. We do not anticipate paying material US federal income taxes until approximately 2011 because of our like kind exchange programs relating to our US fleets.

In worldwide car rental in the third quarter, overall fleet efficiency which we define as the percentage of days a vehicle is rented was 79.4% compared to 81.3% in the prior year. This represents a 340 basis point improvement over Q2 but was a decline of 2.5 percentage points to 80.2 in the US and a decline of 70 basis points to 77.9% internationally compared to the third quarter of '06.

In 2006, as you may recall we maintained a tight fleet in the third quarter and as a result we lost some profitable volume growth. The decline in utilization was caused by three principal issues. First, our initiative to generate incremental midweek volumes by adding fleet to convert shorter duration midweek reservation turndowns to rentals. Second, the expansion of our collections fleet which drives highly profitable premium price volumes at lower utilization levels. And third, as noted earlier, our decision to take more price increases in the US at the expense of some volume growth.

Vehicle supply in the US is excellent and we are on target for moderate cost increases of 3 to 5% which should only result in a depreciation expense for cost increase of 2 to 3% as we increase our penetration into rental sectors for smaller vehicles. We do not foresee any supply issues internationally as well.

In the US, the percentage of nonprogram cars in the fleet increased from 43% at September 30, 2006 to 63% at September 30, 2007. The used car sales market remains stable and residual values have been maintained. In the past quarter we sold 42,000 vehicles, a new record for us. The wholesale market remains steep but we plan to diversify further into retail and dealer sales and online auctions to optimize car sale proceeds.

In worldwide equipment rental, average rental equipment operated during the third quarter using the acquisition cost basis was 6.7% higher than the comparable period of 2006. Overall fleet efficiency for the past quarter calculated by dividing HERC rental and related revenue by the average fleet level was 46%, 260 basis points below prior year but 80 basis points above the second quarter.

Given the changes in demand, we continue to rebalance our fleet away from earthmoving equipment which impacts efficiency. Although we experience slightly lower asset efficiency in both car rental and equipment rental in the third quarter, corporate EBITDA adjusted pretax margins improved year-over-year for both businesses.

Total Company net capital expenditures for property, plant and equipment -- that is investments in our facilities, systems and service vehicles -- were $32.4 million for the quarter compared to $31.2 million for the third-quarter 2006. Working capital which we define as customer and other non-fleet accounts receivable, inventories, prepayments, accounts payable and accrued liabilities improved year-over-year from negative $318 million to negative $504 million resulting in a six-day improvement in days outstanding. This change was driven primarily by an increase in payables including fleet payables.

On a consolidated basis, cash flow from operating activities was $10.6 million for the quarter compared to $96.3 million in the prior year primarily due to an increase in fleet receivables resulting from timing differences relating to program car disposals. This was partly offset by improved earnings.

As Mark mentioned, the levered after-tax cash flow after fleet growth improved by $70 million year-to-date compared to 2006 year-to-date. This was driven by $150 million of higher earnings, $123 million in improved working capital, and $170 million of lower investment in HERC fleet, partly offset by a $379 million increase in the car rental net fleet equity requirements reflecting the higher fleet balances and higher program receivables previously mentioned.

Turning specifically to the third quarter, levered cash flow after fleet growth was a requirement of $203 million compared to $354 million of cash generation for the prior year. This was driven by three factors.

First, in the third quarter of 2006, we entered into a new fleet financing agreement with GE to fund cars that were not eligible for the US ABS program. Since these cars were previously being funded with corporate debt, the change had a positive impact on levered cash flow after fleet growth.

Secondly, this year we were able to extend payments on fleet payables in Europe resulting in a shift of cash outflow from the second quarter to the third quarter this year. As you will recall we experienced a positive year-over-year cash flow comparison in the second quarter.

Lastly, our cash flow was also impacted by the higher fleet levels and the higher fleet receivable at September 30 this year due to the timing of vehicle disposals. Now let me turn the call back to Mark.

Thanks, Elyse. Based on our strong performance through September we're forecasting full- year 2007 results to the above or at the upper end of guidance provided earlier for revenue, adjusted pretax income, adjusted net income and adjusted EPS. With HERC revenue growth somewhat weaker than originally forecasted we expect that worldwide car rental will be stronger as we continue to execute our growth plans.

We expect corporate EBITDA for the full year to be at the lower end of our guidance range primarily driven by the mix shift between HERC and Rent a Car. Unlike adjusted pretax income, and adjusted net income, our corporate EBITDA calculation does not benefit from reductions in corporate interest expense, rightsizing the HERC fleet and more efficient use of non fleet assets.

As you will recall, while corporate EBITDA is important for our financial covenants, we believe adjusted pretax income and adjusted net income are more relevant to our profitability and performance. We will wait until the fourth quarter earnings call to provide full-year 2008 guidance.

So despite a challenging macro economic environment, Hertz performed exceptionally well this quarter. An intense focus on cost management and process improvement combined with our revenue initiatives has driven the strong increase in profitability.

I spoke earlier about our strong business line, product and geographic diversification which differentiates Hertz from the competition. We are the only company in the rental industry with two leading franchises. We participate in a variety of markets within each industry -- on-airport and off-airport, industrial and construction. HERC and Rent a Car operate globally with opportunity to expand in developing markets. Over unique business profile is a benefit during periods of economic growth and more challenging times. And now operator, we will take questions.

(OPERATOR INSTRUCTIONS) Jeff Kessler, Lehman Brothers.

Thank you. With regard to your off-airport business -- significant growth there relative to the Company as a whole. The 22% number that you cited was that relative to the US car rental business or international and if you could expand on what you intend to do on international as well?

That's the US growth number, Jeff. Outside the US the off-airport business particularly insurance replacement is not a specialty business and we have been in it for years and years. So there isn't a separate focus on compensation plans, organization, sales force that there is in the US market since it is a specialty market and we are relatively new at it.

Okay well in any event then focusing on the US market because again the 22% number was a bit above what we expected. And the profitability in that group is a little bit better than on-airport. I know you're not giving out numbers for 2008 yet but given the growth that you have seen in there is it possible that we're going to see a one-third, two-thirds type of mix off-airport, on-airport by the end of '08?

First of all, Jeff, just to clarify, on-airport is not less profitable than of airport. Remember off-airport as it matures has (inaudible) mature stores. We're just as profitable as on-airport but in the newer stores it takes anywhere from a year to 18 months for us to get the same profit margins that we have on-airport. So I just want to clarify that. And you are looking for a mix?

You know, we don't have I guess what we have said in the past is that our off-airport market share should double within the next couple of years. That's what we have maintained and we said that our share depending on how you calculate the overall market, our share is around 10%; expect to grow it to about 20%. We do expect to continue to see double-digit type of growth characteristics in the off-airport market going forward in the foreseeable future.

Second question. I realize that it is trying to shift a very large battleship but obviously you've spent some money on investing in HERC changing the business mix there. Can give us some idea of where that business mix is at now and where you see that business mix in six months?

I'll let Gerry answer that. Go ahead, Gerry.

Sure, Jeff. As you see from what we talked about segmentation wise we have moved about two full percentage points from last year to this year on the industrial side to 18% over 16%. Over a six-month period, slightly better than that and certainly more significant than that over the next two to three years. We think as we've talked about, mid-20s as far as an industrial mix going forward.

It's something that takes a little bit of time but we're moving in the right direction. From a fleet mix standpoint, we have reduced our earthmoving fleet and increased our aerial and other industrial fleet. Our earthmoving fleet is down high-single-digits from last year and our aerial and other is up over double-digit in total fleet size from last year. So from a fleet mix perspective, we are making great strides and the actual customer segmentation is at a longer process.

As you buy equipment in the Ariel and industrial area -- is the average age of that part of the fleet getting younger versus an older mix in your earthmoving equipment?

Over time, the earthmovement will age a little bit more than the Ariel just based on the simple fact that the growth element is the aerial so you are buying a greater quantity new. So certainly the math works that way; yes.

Final question. On the order rental side your mix of business is obviously moving toward as we expected at risk and could you go a little bit further into where used car pricing or what we might call just the market pricing for automobiles is as -- number one, there may be less economic activity, maybe less people buying cars but on the other hand the auto manufacturers have been cutting back on their manufacturing to auto rental fleets. There must be some balance going on in there.

I will just say that we have no issues on getting capacity from the OEMs; none at all. We have not seen any issues there. We have said that before. As you know it's just we're not seeing it. In terms of the residual values in the marketplace, they continue to hold up very well. They're are very stable. They haven't gone down. They're stable; that's the best way of saying it I guess. And we don't anticipate any deterioration. Joe, you want to add to that?

Just the capacity for the industry particularly the auction market to take the cars we're selling -- we sold 42,000 units in the order compared to just under 16,000 last year with minimal increase in infrastructure. So the capacity is there and we have plans to expand our channels into more retail and more direct sales to dealers just to add additional capacity in the future.

Yes, just for the sake of it, the American Leasing Guide is more positive on residual values holding up than Mannheim but the Mannheim doesn't necessarily take in your segment as focused I think as American Leasing Guide does. Just my opinion.

Thanks, Jeff. We will have to move on now and get another analyst on.

Chris Agnew, Goldman Sachs.

Thank you, good morning. I would like to touch on your corporate EBITDA guidance and understand the mix shift between RAC and HERC. But if I think about the EBITDA margins for the two businesses individually and both have been stronger year-over-year so far. But based on your guidance, I assume your RAC EBITDA margins are flat year-over-year. I think they were 10% last year. That implies quite substantial drop in HERC margins to the low 40s. So I was wondering if you could provide maybe provide a little bit more color there.

First of all, we had an expansion in margins in HERC. You know that, right? That was in the press release. So our margins expanded and we don't see that stopping; okay, Jeff? Sorry Chris; I don't see that stopping. So just to correct that for a minute.

In terms of your first part of your question it kind of cut out when you were saying it. Can you start with the first part of your question again?

Sure; it was I guess so year-to-date you have had margins in both businesses expanding on a year-over-year basis?

Correct.

Really I'm just trying to tie together your corporate EBITDA guidance which is then you'll come in at the low end of guidance versus high end for revenues. I said I understand the mix shift between RAC and HERC but if we imply the same RAC EBITDA margins as last year in the fourth quarter which I think were 10%, that implies that your HERC margins drop sequentially.

No, they don't. You know again I can't give -- we didn't give specific guidance in the fourth quarter. I will look at this question. I don't have the analytics here to actually tell you if you back into the lower end of guidance what that means. So I will do that. But we don't see any margin contraction going on in either business in the fourth quarter. Okay?

We can work through the numbers.

Will work through the numbers with you offline.

Maybe a next question on equipment rental business. Can you comment on the trends that you saw in pricing through the quarter and maybe provide an update on the current trends? And also can give some color with -- you talked about a couple of businesses which -- you are seeing strong pricing. Can you comment on earthmoving?

Sure, Chris. The pricing trends -- there continues to be pressure on the earthmoving side of the pricing segment where we are seeing slightly lower pricing year-over-year in the third quarter versus second quarter in earthmoving in the low-single-digit negatives. The other segments, the industrial related business and the associated equipment types have slightly better pricing in the third quarter year-over-year.

So we're still seeing a little bit of pressure obviously from the construction side and particularly the earthmoving segment within that customer segmentation. However, quarter over quarter our pricing is up sequentially from the second and third quarter overall even though year-over-year we're seeing some weakness on the earthmoving side. So net net the trend has remained about the same, the weaker segments being earthmoving and the construction sector and strengthening and more positive on the aerial industrial type of equipment and a little more weakening on the earthmoving side in the third quarter versus the second quarter.

Great thanks -- one quick follow-up. Can you comment on your expectation for fleet levels in the car rental business year-over-year how much you expect it to be up? Thanks.

Are you talking about perspectively for '08?

Sorry, for the fourth quarter. What level do you expect the fleet to up year-over-year?

For the fourth quarter about 5% up at the high range; so 3.5 to 5.

Himanshu Patel, J.P. Morgan.

Hi, I had two questions. Maybe Gerry, you can help us with this one. Could we get a little bit if sensitivity on the HERC business for next year? Let's say if revenues were to actually decline maybe in the 5 to 10% range if we go into recession what sort of margin impact would you sort of bucket that for the HERC operations?

First of all we don't even in our worst-case nightmare don't ever think that the Hertz business will be down 5 to 10%. I want to make sure that is clear. Because of growth that is being generated in industrial and other markets it's offsetting any of the cyclical decline that we see in nonresidential construction.

We don't think there is is a cyclical declined in nonresidential construction. We actually believe that we're still in the middle of a cycle, an upward cycle. So I just want to clarify that. But we have modeled obviously declines of let's say 5 to 10%. I'm going to let Gerry -- I'll turn it over to you, Gerry.

Just another comment, Mark, also our geographical opportunities also on top of the industrial fleet makes our -- interesting and significant worldwide which offset some of that also. If there were that type of a decline we have modeled that out up to a 10% decline and we're very confident we would still see 40% plus EBITDA margins in this business is if in fact we would have a decline of that magnitude.

The factors are essentially a more mature market with better operators, less overfleet supply in this market today and just is a better shift, a continued shift from ownership to (technical difficulty) drive in the secular part of the market. So we've modeled that out and we believe that we're very comfortable with a 40% plus EBITDA margin if in fact it dropped that significantly. And that's at a 10% decline.

That is helpful. And then Mark, I wanted to go back to your comment earlier on the $15 billion purchasing bill. Can you give a little bit of granularity on that? How does that breakdown and sort of how long does it take to sort of get to the level of procurement cost savings that you guys are looking for?

About when you look at that roughly $9 billion of that would be cars that we actually purchase. Probably $1.5 billion would be in the equipment rental area. It flexes every year differently depending on how much new we're buying; it could be less than that. Then rest of it would be a variety of things whether it's concessions; it could be leases; it could be a variety of other related products, auto parts etcetera.

But we have not traditionally as you know, centralized purchasing and we have been doing that all throughout 2007 and we have centralized close to almost $3 billion now in purchasing where we actually now are looking at national contracts, running things through all kinds of RFPs, doing online auctioning etcetera. So, in that piece we think we have significant traction and we will continue to gain momentum over the next twelve months.

On looking at the fleet end of it, we haven't really yet completed our professionalization of purchasing techniques that we use to negotiate with the OEMs and as well as the even disposal of those assets. We are in the process of reengineering all that right now. I think there's tremendous upside as we manage the fleet both from the time we buy it to the time we sell it, dispose of it. And that's probably one of the single biggest opportunities the Company has in terms of just reengineering that whole cycle. John Thomas I know is on board. He's in the room with me right now. But John is there anything you want to add to that all?

No, I think that tying in with our project Genesis and all of the re-engineering and [guidance] around the whole fleet process and connecting the dots so to speak is where we've got tremendous opportunities.

So some of those opportunities are actually being harvested yet this year and some of them will be throughout 2008. We are using a lot of lean techniques on that process. We've broken it down into 10 different distinct buckets. And so anyways the whole thing is the $15 billion was based on 2006 numbers. That number is growing as you can imagine, as our revenues grow with it.

Christina Woo, Morgan Stanley.

Thanks. Earlier in the Q&A you commented that HERC won't be down 5 to 10% which was good to hear. And it was also great to hear that you're seeing the secular shift toward renting equipment versus owning it. I was wondering if you could comment -- and I know that you're giving further guidance in January of February next year, but if you're expecting the HERC equipment rental business to be up year-over-year for 2008 and also what your expectation is for industry growth.

I guess you're asking for kind of guidance. I'm -- in terms of 2008, we're going to announce what our guidance is on the earnings call. But as we look forward in the year into 2008, our trajectory on the nonresidential construction business has bottomed out and consistent what -- and us saying that and we continue to see that. I mean we haven't seen any changes in that.

And the growth that we have coming from industrial and other fragmented markets will accelerate. So we look at our visibility -- kind of going through 2008 we don't see any change in that trajectory. I think it's fair to say that we will continue to have growth in the HERC segment. The question is going to be is it going to be 3%, is it going to be 8% growth and that's kind of the range that you can look at high-end to low-end at the visibility that we have right now. I don't have a crystal ball. So I'm trying to give you what the net is of all of our information that we get to gather from both our customers as well as external resources.

That's extremely helpful; thank you. One last question. You had mentioned in your prepared comments that the net promoter score that that is going well and I think that the commentary was based on Europe. I was wondering if you could just provide a little bit more color on a full-company basis how the net promoter score has been trending, maybe commenting on the difference between the RAC side versus HERC side.

First of all on the RAC side it's directly to consumer. On the HERC side it is more business to business. On the Rent a Car side in the US and in Europe actually it has gone up over the last 4.5 months. We track it everyday and we get weekly snapshots of the senior team reviews. We just had a snapshot look this week right before this call and if you look at the five months of data and you trend it on a trendline it has gone up.

So we've been very happy with that, the fact that it has gone up in spite of some of the restructuring that we have done. We have a really intense focus on it and it's gone up both in Europe as well as in the US. And what happens is we have every airport, every location on this and we have a bottom 10 list and top 10 list. We pat on the back all the people on the top 10 and the bottom 10, we have weekly calls with the bottom 10 to get them up.

So there's just a, I would say a fairly intense focus on this. I have an objective at the Board of Directors level, I have made a commitment to the Board of Directors that we would improve our overall NPS score this year in spite of any restructuring. So again at the highest level in the Company we're measuring this and staying focused on it and it is improving.

What about on the RAC side -- I'm sorry on the HERC side?

On the HERC side, Gerry's business is very -- he gets very high scores. And do you want to talk about it, Gerry?

Sure. We really implement this right around the second quarter so we're approaching 800 to 1000 responses right now -- waiting for more complete data. But we are averaging very very high scores -- 70% plus -- essentially reflecting the 48% to 50% of our business being long-term relationship, large national account customers really is reflected in that score. We're looking at more data and get down to the lower levels of the customer base to get to a bigger sampling size as we move forward.

But in Gerry's business he hasn't had any deterioration of trend. His trend has actually been constant to maybe up moderate marginally, okay?

Jairam Nathan, Banc of America Securities.

Hi, just a couple of questions. When I look at the average acquisition cost on the HERC side for rental equipment being up 6.5%, how should I compare that to the -- when I look at the pricing it is kind of flat. Does that mean that your -- does that imply kind of negative pressures on your margins going forward? And how do you offset that?

Yes, what you're seeing is as we remix the fleet, we are buying industrial and aerial equipment to pursue that opportunity while we de-fleet in the earthmoving side because of that balancing effect. So in that process, we are a little over-fleeted in regard to that which is reflected in a lower, slightly lower dollar utilization which we talked about in the call.

So, from that perspective a little lower dollar utilization on the fleet however, our profit margins have improved due to this customer segment change, cost-cutting and other efforts to improve the margin. So as we balance that fleet there is a little bit of a dollar utilization decline but our profit margins have expanded despite in spite of that.

Rich Kwas, Wachovia Securities.

Hi; good morning everyone. I had a question on earthmoving equipment. Gerry, you talked about the percentage declining -- or I should say you talked about the industrial and aerial and the other, the fragmented piece. I should say industrial aerial going up to the low 20s as a percentage of revenue I believe. Is that all going to be taken out of the earthmoving side or is some of that going to be coming out of the fragmented piece as well?

Most of it is coming out of the earthmoving side. We are a Company that always had a solid customer base for backhoes, wheel loaders, excavators, some of the mid to large size equipment. And that's where the biggest impact is happening on new projects coming out of the ground where we have those larger pieces that are not as active as six months to 12 months ago. So essentially most of the offset is in the larger earthmoving pieces being reduced and the aerial industrial increasing. Essentially that's the biggest to offset.

Okay and then in a stable environment what are the relative margins in those three businesses?

Essentially they're very similar on both the earthmoving and industrial side. You will have some slightly higher margin on the industrial side when you're on plant or on-site at a refinery where you have lower fixed overhead charges. But the actual margins are pretty close on both sides of the business in a stable environment.

That would include the fragmented piece as well?

Yes.

And then Mark or Elyse, could you comment on the restructuring benefit year-over-year in terms of what -- how much that helped margins this quarter versus last year?

I will just sustain what we have actually already announced which is that we have $165 million for that we've actually realized or completed in terms of restructuring initiatives in the US. And in addition to that you will notice on the call Michel talked about $25 million roughly that he will have completed by the end of the year this year, actually a run rate with an additional 25 or so that will end up coming through -- probably leading into the first quarter as we complete our centers of expertise.

So when you look at the actual numbers themselves, you'd have to almost lay this out quarter by quarter but we completed all of the 165 in the second quarter. And then the 25 started also in Europe kind of midyear and it will be completed -- the 25 million will be completed at the end of this year in Europe. So you kind of have to radically take that over the next three to four quarters starting in the second quarter of this year. Does that make sense?

So you are basically expecting a year payback with these restructuring initiatives?

Correct.

Zafar Nazim, J.P. Morgan.

Thank you. I guess Mark if you could give us some of your thoughts on how we should expect free cash flow to be used this year and next year? Is debt paydown still the number one priority for the Company?

Yes, this is Elyse. I would definitely say we will use a cash flow to pay down debt. We obviously -- fourth quarter tends to be a strong cash flow period for us. We have a significant amount of bank debt which would likely be the first pieces of debt we would pay off.

Elyse, just on free cash flow, how should we think about fleet equity as a source of cash in the fourth quarter? Is there a number we can use for modeling purposes?

I don't have it at my fingertips to forecast for the fourth quarter. We haven't provided (multiple speakers) Generally it's positive. It's a big de-fleeting period. So with respect to the -- fleet balances will come down and we'll use that to pay off cash. The only caveat is that sometimes we're required to maintain some cash balances for credit enhancement purposes.

Just one question for Gerry. Gerry, you gave us some numbers on fleet CapEx in the fourth quarter. I was wondering if you could also give us an estimate for what you expect from disposals in the fourth quarter?

It's about $70 million of disposals in the fourth quarter.

Emily Shanks, Lehman Brothers.

Good morning, very nice quarter. I just have a couple of follow-up questions. The first one is around the intercompany loan between corporation and Inc. What is that for? And is that new this quarter I am assuming?

Yes, you know that is money that was the result of the transaction that we did, the secondary which sits at the holding company level. We basically just don't let that cash sit at the holding company. We actually lend it to the Hertz Corporation. Is that what you are referring to ? The HGH?

Yes, exactly. That's very helpful. And then just around the corporate debt balance, it looks like it is up sequentially. Certainly it is down year-over-year. But I wanted to understand what was driving the corporate debt sequential increase?

The corporate debt balance from (multiple speakers) are you looking at?

From Q2 to Q3. It looks like it's up about $175 million.

It's primarily just the growth in the fleet. The third quarter tends to be our big quarter with respect to fleet. It's always going to grow between the second and third quarter.

Okay so it's safe to the assume that you financed that with drawings on your ABL?

No, we financed that through the ABS structure but there is an advance rate associated with that. So there's always a net equity portion that is financed with corporate debt.

Okay. So the net equity you recognize in the corporate debt line? I was just trying to look at the prior years, Q2 to Q3. Actually it looked like corporate debt went down. So I just wanted to make sure understood the trend this year.

No, there's a lot of variances when you look at just the quarter year-over-year. One of the differences has to do with the fact that we added some fleet debt at the very end of the third quarter of last year so it makes the comparison look a little bit muddy.

James Solomon, JPMorgan.

Good morning. I'm not sure if this was covered, this one question initially because I got cast off earlier. But just in terms of Europe, I just wondered how the pricing is developing there. I see international was up 1.9% on rate per day but Europe in particular I was wondering. And really seeing an improving trend throughout the year, I know there's been some mix development by country.

And the second question I had was on the insurance replacement business. I just wanted to see if I heard right earlier in the sense that you think the market there is more specialized in the US versus Europe in that segment and I just wondered if you were targeting the segment as aggressively in Europe as the US. Thanks.

I will turn it over to Michel to answer some this and get some color as well. But in general, I would tell you that pricing environment in Europe for the third quarter was relatively good. We felt pretty positive about it. Again it was due to the fact we had very nice demand I think for a lot of people and we're always able to price well in good demand patterns typically. So that was good.

In the fourth quarter we haven't really talked about or forecasted where we are on pricing. We typically try to refrain from doing that because legally that puts me in a big jeopardy. So I'm not going to talk about forecasting pricing environment in Europe in the fourth quarter.

In terms of the other part of your question which dealt with off-airport, we have in the US a $10 billion off-airport market that we traditionally have ignored. We now have close to $1 billion in revenue in that and have grown from 0% share to 10% share over the last let's say, nine years or so and now were expecting to double that.

In Europe, we've always been in the off-airport market. It was not a market that we ever ignored. So it has a much different -- we managed it much differently in Europe because it's something that's always been a relative strength of ours. However, we stay focused on it and we're just trying to grow that end of the business. Michel, would you like to provide any more color on that?

Sure, Mark. Mark was obviously correct on the pricing. I remind you 2.6% increase in the third quarter. One reason was indeed demand was good and we've been able to yield pricing very well I have to say, especially in countries like France. So there was good, sometimes a little bit of -- call it tension on top corporate accounts -- it's still competitive. But as I said we've renewed a lot of accounts with increases like in the US and two of our top 10 accounts exclusively on a worldwide basis with a price increase too.

In terms of the off-airport in Europe the total -- 60% of the total market is off-airport. For us it is the bit more 50% of our revenue. So as Mark said we are already very well diversified. In countries like Germany, it's already 70% of our revenue is off-airport. The key segment off-airports are vans and trucks which account for about 25% of our total off-airport revenue. And your question was I think in terms of replacing business. Without being too long, yes we're focusing on that.

The kind of insurance replacing business that you see in the US really refines the same kind of the segment if you will in the UK primarily and a little bit in Germany. In other countries it's a different route to market. It works primarily through roadside assistance companies where we have a leading share. I'm not saying we're the number one every time but we are certainly number one or two in each of the big (inaudible) of roadside assistance companies.

So yes we're focusing on that segment. It's different by country. Where we have growth opportunities clearly is in the UK which is more like the US model, if you like. I hope that's what you were expecting (multiple speakers)

Yes, thanks -- that's excellent. Just to clarify that -- I mean one of the advantages I think is that market is less seasonal and so on and so forth. You can help improve your utilization on the fleet but it is generally a lower priced segment is it not?

It is a lower-priced segment even though you have several subsegments. So it's all about -- we're not looking after everything I have to say at least in Europe. We are very conscious about yield and look for the most profitable part of the insurance replacement market. But you're right. It's a much longer length, a lower-price per day but very good [circulation]. In total, when you look for our total dollar contribution (inaudible) is quite good I have to say. It complements very well.

You're right. So as long as it's not overly -- how can I say -- too heavy in the mix it's very good. It's all about balance [and hence the vans and trucks business too]. So we have kind of an ideal mix by location, if you like, between insurance replacement business, vans, leisure and commercial. That's the kind of model we're following.

Finally, as a percentage of your revenues in Europe that segment --

Like 46 or 48% -- isn't it Michel?

Well yes, the off-airport -- is that your question? Off-airport?

No, specifically the insurance replacement business (multiple speakers)

I think we'd rather just stick to the off-airport mix.

Okay, because I thought you already gave it for the US. Wasn't it about 22% for the US?

Right, we did but she's saying that within off-airport is insurance replacement. So, (multiple speakers) off-airport business in Europe, Michel, is what roughly?

Insurance replacement within (multiple speakers)

No, not insurance replacement. What is the total off-airport business in Europe?

60%.

50%; okay.

(multiple speakers) it could be between 45 and 55% depending on seasonality.

Frank Jarman, Goldman Sachs.

Thanks, guys. Just a couple of quick questions. One on the levered after-tax free cash flow targets. You guys said last quarter that you were looking to generate about $1 billion over the next three years. Do you still feel comfortable with that number after today's results?

Yes.

Yes.

I guess secondly, a separate question just in terms of use prices specifically for earthmoving equipment, how do you see those prices trending over the next year?

I will let Gerry answer that.

We have seen pretty good stability on used equipment, earthmoving used equipment prices. Some of very large items, the track machines are under slight pressure. But overall they're remaining at pretty solid residual values. I think if you look at some of the worldwide used equipment supply data you'll see that it's at relatively moderate levels in other words compared to the last couple of years. So we see that trend continuing into 2008.

Last question I had was specifically regarding your credit rating. Have you guys had any conversations with S&P or Moody's on the credit rating and do you expect to get an upgrade at some point down the road?

We actually meet with the rating agencies twice a year. We're scheduled to meet with them in the fourth quarter and we're certainly going to be pushing for a rating increase.

Douglas Carson, Banc of America Securities.

Great guys, thanks. Just a quick question on the earthmoving equipment. You said end markets for used are holding up. What percent of the used equipment is sold outside the US?

Percent of our used equipment or just worldwide?

Your used equipment.

Our used equipment is a very small amount, mid-single digits. Low to mid-single digit percentage of our total sales.

During the last industry downturn, did that number increase dramatically, kind of sales outside the US?

Not so much. We did go to auction more and we sold wholesale to brokers. Ultimately some of that fleet ended up outside of the US but our network was really the auction and the wholesalers.

Mike Millman, Soleil.

Thank you. In the third quarter on the car rental particularly in the US, did you see the industry increase their fleeting as well? And I guess what does that suggest about the fourth quarter in terms of pricing?

I think the competitive fleet levels are about what we expected. We've said several times that there's no capacity issue in obtaining fleets. I believe our competitors probably saw some trends in early summer about how July and August were going to be and fleeted up for it.

In terms of the fourth quarter pricing, we're not going to forecast where we see it going. But in terms of fleet capacity this is a seasonal issue. We go through it every fourth quarter coming off of your peak summer travel season.

In general for -- and again this is just in terms of how we see pricing in the fourth quarter -- I can't forecast but there are no surprises for us. We're not seeing any issues on pricing that would surprise us one way or another. So that's the best way for me answer that without getting into pricing discussions that lawyers jump on me about, okay?

I guess what I was looking at is given as that nonprogram car fleet has increased, companies are in the industry left with more cars in the slow periods. Just wondering if we see a repeat of what we saw in the second quarter.

For us, no. I would say no. To answer your question I would say that's probably no. But in terms of having a higher percent of risk cars, what Joe had mentioned in the call Joe Nothwang, was that we sold roughly three times as many cars in one month that we did a year ago. We're having no issues de-fleeting. In other words we can delete cars just as quickly now with the risk fleet as we could with a program fleet. I think that's an important point.

People have worried a little bit about that. We've developed all kinds of outlets; again dealer direct outlets, different types of online auctions through wholesalers. We have done a variety of things that have allowed us to increase our capacity of selling cars. So the issue of timing and de-fleeting has not become an issue for us. That was I think something that people were worried about. That's why we gave statistics in August. Joe, do you want to repeat those statistics?

42,000 cars sold in the third quarter and that's 78% higher than what we sold in the same quarter last year. The other thing to consider there is not incremental car rental cars in the industry. This is the cars that had been managed and turned back to auctions by the OEMs. So the same units are now risk units being held by the Rent a Car companies being managed and sold into the same market. So it's not a dramatic increase in the number of cars being offered to the end user.

Another question. Can you at least rank the margins for airport, leisure, corporate and off-airport?

I think that's more detail than we typically give it. So --

Can you talk about the premium [ICE] trends you are seeing on comparable rentals, green cars, the cars compared to premiums you were getting in the past -- what the trends are?

Yes, I would say that we're finding that our collections in general on fund collection are increasing significantly year-over-year. Green Collection is increasing significantly year-over-year and Prestige is barely up just marginally in terms of year-over-year. Prestige is a more mature collection, if you will that we've had for years now. So that overall, the mix of premium cars has increased significantly.

So we are seeing an increase in the overall mix if you will of our vehicles that we sell and what we call our collection formats. And our collections typically give us anywhere from 5 to 50% higher RPD versus our normal cars we sell outside of the collection. So it just depends on which collection you're talking about but in general it is a margin improvement and an RPD improvement.

Well I guess my question was really -- that's 5 to 50 -- how is that compared in the past? Are you seeing better premiums going forward on a comparable core basis? Are they stable or not stable?

RPD in general, revenue per day, on let's just say a normal vehicle was up on a like comparison especially in the premium collection category. RPDs -- we're seeing generally speaking up 7 to 8% on the collections -- in that neighborhood. So we're seeing higher RPD levels on the collections. Does that answer your question?

Jordan Hymowitz, Philadelphia Financial.

Hey guys, thanks for taking my question. On the 42,000 vehicles sold what was the average gain per vehicle sold?

We would never give that information out because it would drive everyone crazy.

You give it in the Q.

Every single week we buy 6000, 7000 cars a day. Again, I don't even know if we would be able to hit level of detail ourselves. If we could get it we would have to get it out of our system.

But you give it in the Q.

What do we give in the Q? The actual margin on the (multiple speakers)

The dollar amount of gain on your vehicles sold in the quarter.

On a worldwide basis that's -- this is the US.

Okay, can I get the number either for the US basis then or if not, for the worldwide basis? And what was the number of vehicles sold worldwide then? (technical difficulty)

I don't have the worldwide --

(multiple speakers) we can follow up on the call right afterwards if you would like. You want us to call you after the call?

That would be great. If we could just get that same -- can we get the number of vehicles sold last year too? We're at 78% higher so I can calculate that. So it would would be great then if you were disclosing the difference between the US and worldwide vehicles -- if we could just get the dollar amount of gain associated with these that would be very helpful.

We can talk after the the call but it would be worldwide. Just a reminder that it gets mixed up with the depreciation expense which is really what you should be watching.

Right but it's netted out of the depreciation so that's the key number. It's not whether or not you guys are selling more cars or less cars. It's if you're keeping the margins stable. And I'm really glad that you're willing to disclose that information now because I think it will be a lot more helpful in analyzing.

We do -- but as you imagine we do look at the quarterly. We look at our depreciation rates and we adjust them periodically. So to the extent we've made adjustments in the past that number will vary.

Also last question you have a CFO/CEO transition cost in the quarter. How long will that be going on for, those charges?

Just this quarter of but -- (multiple speakers) just this quarter we don't.

We can get you back on that one. (multiple speakers) we are expecting it to go to.

You guys have been in charge there for a long time now. Why would that charge still be going on?

The CFO just recently resigned.

Because of the CFO issue, I have got it, I have got it. Thank you.

Jeff Kessler, Lehman Brothers.

Thank you for letting me have a follow-up. Just a quick follow-up on your fleet collateralization. Where do you expect your fleet collateralization to go, overall fleet costs? You have given us some base numbers. If you could just go into a little more detail on fleet costs and collateralization expectations.

What you may mean by collateralization?

Where your collateralization costs are going -- I'm sorry on your ABS facility.

We are not expecting any major change in the ABS structure. So right now the advanced rates are approximately 80% --

And you're expecting no major changes there?

No major changes.

Okay that's what I was actually asking for. Thank you.

Chris Agnew, Goldman Sachs.

Thank you for the follow-up. I just wanted to come back to the guidance. And given you had such a strong third quarter, what makes you cautious not to raise full-year guidance particularly for adjusted EPS?

You now I think we are all -- we all want to be able to forecast with precision a fourth quarter but unfortunately our visibility is such that we have to wait. And see, this business has got about a four-week window really and that's about all the visibility you have. So we always want to be conservative.

We don't want to to overestimate where we're going to perform. As you know the market hammers any company that's publicly traded who underperforms to a forecast, right? So I think that's the best answer I can give you. I sure don't want to come in and underperform. So we said that we had really good shot at beating the estimate. We're coming in at the upper end of the range. So I thought that was a prudent thing to do given our visibility of what's happening in today's environment.

So there's nothing in your visibility to actually make you more cautious? You're just being conservative?

No. It's just a macroenvironment that we're all living under right now.

Speakers, I will turn the meeting back to you.

Okay. I guess at this point if you want to talk about the replay?

Thank you, ladies and gentleman. This conference call will be made available for replay starting at 3:15 p.m. Eastern Time today October 29. The replay of the conference runs until the date of November 5 at midnight Eastern. You may access the AT&T teleconference replay system by dialing 1-800-475-6701. Please enter the replay access code 884004. International participants may dial 1-320-365-3844. Those numbers again 1-800-475-6701 and international participants dial 1-320-365-3844. The replay access code is 884004 884 000 for. Speakers, back to you.

Thanks everyone for attending the call. I look forward to announcing our fourth-quarter earnings call coming up shortly. Thank you.

Thank you ladies and gentleman. That does conclude our conference call for today. I would like to thank you for your participation and for using AT&T executive teleconference service. You may now disconnect.