Herc Holdings Inc (HRI) 2008 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the Hertz Global Holdings first quarter 2008 earnings conference call. (OPERATOR INSTRUCTIONS.)

The Company has asked me to remind you that certain statements made on this call contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are not guarantees of performance, and by their nature are subject to inherent uncertainties. Actual results may differ materially. Any forward information relayed on this call speaks only as of this date, and the Company undertakes no obligation to update that information to reflect changes, circumstances.

Additional information concerning these statements is contained in the Company's press release regarding its first quarter results issued yesterday, and the Risk Factors and Forward-looking Statements Section of the Company's 2007 10-K. Copies of the 10-K are available from the SEC, the Hertz website, or the Company's Investor Relations Department. I also want to remind you that this call is being recorded by the Company.

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

Thank you. Good morning, and welcome to welcome to Hertz Global Holdings first quarter 2008 conference call. You should all have our press release and associated financial information. We have also provided slides to accompany our conference call. You can access these documents at www.Hertz.com/investorrelations. The slides can be found under the webcast presentation link.

In a minute, I will turn the call over to Mark Frissora, Hertz' Chairman and CEO. Also speaking today is Elyse Douglas, Hertz' Chief Financial Officer. In addition, we have 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, and Gerry Plescia, Executive Vice President and President of Hertz, with us for the Q&A session.

Today, we will use certain non-GAAP financial measures, all of which are reconciled with GAAP numbers in our press release posted on our website. We believe that our profitability and performance is better demonstrated using these non-GAAP metrics. Our call today focuses on Hertz Global Holdings, the publicly traded Company. Results for the Hertz Corporation differed only slightly, as explained in our press release.

And, now, I'll turn the call over to Mark Frissora.

Thanks, Lauren, and good morning, everyone, and thanks for joining us today. As you saw in the press release, Hertz delivered a solid performance this quarter, matching our results for first quarter 2007. We more than overcame challenging U.S. economic headwinds which impacted our car rental and equipment rental business.

Historically, volumes in the first quarter of the year are at their lowest, and we work harder to cover fixed cost. This year, the first quarter was also characterized by soft volume and pricing pressures, which we were able to offset with a strong focus on cost control and efficiency improvement.

Please turn now to slide 5, as I review our quarterly results. We achieved total revenue for the quarter of over $2 billion, an increase of $118 million or 6.1% across our businesses, with good growth in both car rental and equipment rental. On a currency adjusted basis revenue grew 1.9%.

Corporate EBITDA of $235 million, in line with Q1 2007, represented 11.5% of revenues. Adjusted pre-tax income improved 6.2% YOY, while adjusted net income of $6.5 million was slightly higher than 2007, and adjusted EPS of $0.02 matched the prior period results.

Levered after-tax cash flow, after fleet growth, for the last 12 months was $197 million compared to $462 million for the same time span ending March 31st, 2007, primarily due to the increased car rental net fleet equity requirement. This relates to a change in the risk composition of our fleet mix in 2006 and timing issues in the international fleet. When we transition to the lower cost of sale leaseback fleet financing facility in the U.K. in December, we knew there would be an adverse impact on Corporate cash flow in the first quarter which would reverse itself in the second quarter. This offset the cash flow benefit we derived from improved earnings and working capital.

I was especially encouraged by the improvement in the working capital days outstanding, which went from negative 36.4 days to negative 38.6 days, a $111 million improvement. In spite of a difficult U.S. environment, our business model continues to show improvement in this important cash flow measurement.

I want to point out to everyone on the call, again, that this is a negative working capital. Most businesses would love to be in a position to report negative working capital. In general, this means we are collecting faster from our customers than we pay our suppliers. We think this is a competitive benefit versus our U.S. car rental competitors.

In worldwide car rental, total revenues grew 6.3%, driven by a 4.6% increase in transaction days, which is partially offset by a 2.6% decline in rental rate revenue per day, or RPD. Part of the RPD decline relates to our continued strategy to drive leisure and off-airport growth, which are typically longer length rentals. In the U.S. the profitable mix shift from airport to off-airport accounted for 22% of the RPD contraction.

In HERC, our equipment rental business, revenue grew 5.4% to $411 million, representing volume growth of 2.6% and a 1% decline in worldwide pricing.

Given the overall weak economy, I'm very pleased with our first quarter performance. On the Q4 earnings conference call I highlighted the diversification of our revenue stream and how we stood out from the competitors because the Hertz brand is the only truly global brand. Please turn to slide 6.

On a consolidated basis we derived over 33% of our total revenues this past quarter from our international operations, which compares to 28% in the first quarter of 2007. International growth and network expansion remain key strategies for the Company, as evidenced by the fact that our international revenue growth inclusive of currency was 24% this past quarter.

Within our Company operations, product and market diversification continued to enhance revenue growth. Let me give you some examples. The U.S. off-airport market generated $232 million of revenue in the quarter, driven by 8.5% transaction day growth. The [$10 billion] off-airport market consists of three fairly equal sectors, replacement, which is a key part of our growth strategy, commercial, and the local retail business. Our insurance replacement transaction days in the first quarter grew 13.7% YOY, which we believe was stronger than the market. Hertz drove the improvement through increased account penetration in the top 200 plus insurance companies.

Our U.S. airport volume was boosted by an increase of almost 20% in inbound travel as tourists and shoppers took advantage of the weaker dollar. This represents 14% of total U.S. airport revenue. Domestic and international customers continue to rent in a variety of specialty vehicles from our Prestige, Fun and Green collections.

Our equipment rental initiatives, which include general rental, pump, power generation, and [trench shoring] grew faster than our base business. Internationally, our HERC, which is our equipment rental operations in Canada and Europe, reported 34.2% revenue growth, including foreign exchange, which helped drive worldwide revenue growth.

Across all businesses and geographies we achieved significant account re-signings and gains among corporate and replacement customers. In addition to our already existing relationships with many airlines and other travel industry participants, this quarter we added and renewed travel agreements with partners, such as Northwest Airlines, JetBlue, Jet2 Airline, and Travel Bag.

In the first quarter Hertz signed or renewed seven major national accounts with companies in diverse industries. We continue to penetrate the online leisure market, and over 28% of worldwide car rental revenues in the first quarter was booked through Hertz.com and third-party websites, an increase of almost 14% YOY, with strong growth in both the U.S. and abroad.

Despite challenging macros affecting our businesses, we continued to make investments in our Company. In the first quarter, total spending on our brand, our operations, and our people increased incrementally by $16 million over the prior year.

Net of closures, we actually opened up 75 new car rental locations worldwide, 54 in the U.S., and 21 internationally, and 7 stores in worldwide equipment rental. We expect to add new locations this year about this pace.

Included in those location additions are the acquisitions made during the quarter. We acquired 5 licensees, representing about $29 million in annual revenues, and earlier this month purchased our operations in the Czech Republic and Slovakia.

In equipment rental, we acquired a power generation rental company in Spain, named Quilovat, and All Reach, an aerial equipment rental company in Connecticut, which are expected to add over $15 million in revenue in 2008.

Let's go to slide 7, and I will give you an update on our cost efficiency initiatives. On the last earnings call, we talked about outsourcing property and facilities to CB Richard Ellis, and establishing our COE, Center of Expertise, for the retained responsibilities. You may recall that COE is a global center of expertise, focused on a specific function or discipline within the Company. The COE model helps us standardize and reengineer our processes within that discipline to lower our costs and drive efficiency throughout the Company.

During the past quarter, we announced several other major COEs, including human resources, which covers labor relations and talent management, information technology, marketing, which will help us leverage our spending on our brand, and finance.

When we started considering outsourcing, finance was a strong candidate, but after a thorough review we determined we could achieve at least the same process efficiencies and cost savings through internal reengineering. There will be additional COEs established during the remainder of 2008.

We also signed two additional business process outsourcing contracts. One for servicing information technology with IBM, an existing partner in an extended role, and the other with ICG Commerce, who partners with Genpact in Europe as the global procurement partner covering worldwide procurement.

We remain on track to deliver the $250 million of savings we have projected for this year, $75 million of which we expect will flow through to adjusted pre-tax income. We will use the other $175 million for investment in new stores in our businesses, for inflation and fleet and other costs, and to offset pricing pressures in our operations. This $250 million is in addition to the $187 million that we announced in 2007, resulting in a cumulative 2008 savings of approximately $440 million. We are now projecting total savings into 2010 of $800 million, which includes the estimated benefit of outsourcing and process reengineering that we have previously discussed with you.

Today, I would like to focus on fleet management for our businesses and explain how we are becoming more efficient and cost effective in managing the life cycle of our vehicles and other revenue earning equipment. I'm on slide 8, now.

Fleet holding costs, which we define as depreciation and interest, typically represent about 30% of our revenues, the largest single category of expense. To give you an idea of the leverage, if we improve fleet efficiency by 1 percentage point, that's an estimated annual savings of about $30 million for Worldwide Rent-A-Car and [$7 million] for Worldwide Equipment Rental. If we can reduce our fleet holding costs by 1% we would save approximately $25 million annually.

On our fleet purchases of approximately $9 billion each year, a 1 percentage point reduction in acquisition cost would improve levered Corporate cash flow by approximately $15 million to $20 million. In fact, during the quarter we improved both domestic and international car rental fleet efficiency by 1 percentage point YOY.

With $11 billion of net revenue earning equipment as of March 31st, 2008 it is easy to see how small process improvements can result in major benefits to our margins. The fleet related initiatives I will discuss are long-term projects, and the benefits will be evident over the next two years or more.

Some of the reengineering projects are in the pilot stage and currently generate savings, but the bigger benefits will be seen as we roll-out implementation throughout the organization.

Let's turn first to worldwide car rental, which is slide 9. We have diversified the composition of our fleet so that the largest concentration with a single manufacturer is now about 26% compared to 44% four years ago. In addition to enhancing customer satisfaction, this diversity also limits our exposure in the vehicle resale markets.

In the U.S. we no longer purchase all of our vehicles through manufacturer agreements, but have also developed local relationships with car dealerships to make out-of-stock purchases. The benefits of this are many. First, we gain access to a greater variety of vehicles than are typically available to fleet purchasers at a reasonable price. Second, establishing the relationship frequently leads to dealer replacement business for our off-airport operations. Third, it creates an additional disposal channel, where we sell cars directly to the dealer. And, fourth, we don't need to commit in advance to our full fleet plan for the year. This allows us to purchase additional fleet more opportunistically, and let's us flex the fleet size more easily in uncertain economic times.

From a portfolio management perspective, we found that about 90% of the revenue came from about 30% of the vehicle classes. Having 14 different models of standard size SUVs representing roughly 63 different trim configurations, some with 5 seats, others with 7, some 2-wheel drive, others 4-wheel drive is not efficient. By simplifying the car classes we can standardize replacement parts, reduce maintenance downtime and cost, and make it easier for our customers to book their rentals. Optimizing vehicle mix and vehicle trim packages within each of the remaining car classes helps drive-down our average holding cost per vehicle.

A key part of our Hertz improvement process and fleet reengineering efforts is reducing the number of vehicles that are unavailable for rent at any time. If we can improve that metric by just 20% we could save $30 million to $40 million by trimming the average fleet size, while maintaining the same level of rental activity.

Let's now discuss another important element of overall fleet management. I would now like to turn to fleet disposal. With approximately 70% of the worldwide car rental fleet on a non-program basis, it is important that we broaden our disposal efforts into other channels. In Europe, you will recall that most of our vehicles are purchased on a program basis, and the wholesale market is the only developed resale channel for risk vehicles. Therefore, we are focusing our efforts on the U.S., where virtually all of our car sales in the U.S. have been through the auction houses. This past year we increased the number of auctions and auction sites we use, which saves transportation costs and reduces the days to sale.

Our future vision is to diversify our sales channels by expanding dealer direct sales and web based sales. We have more than doubled field car sales operations staff and are exceeding our internal sales goals. We also continue to work with our auction partners to increase our web based sales activity. Overall, this diversification will reduce our days to sale by an average of 8 days. On Hertzcarsales.com, our retail customers can locate the car of their choice and begin the purchase process, or be directed to a nearby physical location.

We are in the process of establishing a retail network that will enable us to sell cars to the public at all 50 states. Ultimately, and this will take time, we would like to see at least 40% of our vehicles sold directly to dealers or other customers. This diversification will reduce selling cost and the number of days to sale, which will have a beneficial impact on expenses, working capital, and cash flow. We estimate that we can improve net sale proceeds by approximately $200 per vehicle.

Let's talk now about HERC, where we are also improving our fleet portfolio management to drive fleet related savings. While we remain committed to growing our revenue, we believe we can better manage fleet growth against anticipated peak demand levels. This will allow us to be more selective about the business we take during those peak periods, and should be beneficial for pricing, as well as profitability.

At HERC, too, we are consolidating fleet categories. For example, we currently rent aerial work platforms that are 80, 85, and 86-feet high, with the 86-foot high platform can usually be used for all three purposes. As in car rental, this will standardize replacement parts inventory, reduce maintenance costs, and simplify fleet management.

Over the next few months, we will be rolling out our GeoPool concept, which centralizes fleet requirements for our equipment rental branches located within one hour of each other. By expanding our capabilities to share equipment we will increase fleet efficiency and reduce our CapEx investment.

Another critical aspect of fleet management being implemented at HERC, will be optimizing the fleet holding period by measuring at various points in its life cycle the profit contribution of the piece of equipment compared to its residual value.

To sum up, our objective is to lower our fleet costs through portfolio and life cycle management, implementing more strategic acquisition and disposal practices in channels, optimizing the holding period, and rationalizing product categories to streamline fleet processes.

Our mission statement is simple, "to be the most customer focused, cost efficient vehicle and equipment rental Company in every market we serve." We are building this into our Corporate DNA. I just spoke about our cost savings, but I'm equally passionate about customer satisfaction and continuous improvement.

Let's turn to slide 10, and start with the roll-out of the Hertz Improvement Process, our lean Six Sigma Program. So far, we have trained almost 13,200 employees and we plan to train an additional 1,500 people over the rest of this year. By the end of 2008 we should have trained staff in car rental and equipment rental locations worldwide that represent about 60% of our consolidated revenues. It has been rewarding to see how quickly our employees take to this program and cascade best practices throughout the organization.

We have talked on previous calls about our net promoter score initiative, which measures the customer experience on a real-time basis. Even while Hertz is under construction, we continue to focus on customer satisfaction, as evidenced by significant increases in scores. North America Rent-A-Car is up 9 points YOY, and Europe Rent-A-Car improved by about 11 points since last April.

In our continuing efforts to enhance the customer experience, we've added "Click to Chat" on Hertz.com under frequently asked questions for customers that need support during the booking process.

Starting this summer, we'll be introducing a new online express service, designed to get you to your car faster. First, customers will check-in online at Hertz.com, then at one of the top U.S. airport locations they will use self-service express kiosks that will get them to their car quickly. Check-in online, wait less in line. It's one of the many ways that we are committed to reinventing the speed and convenience of renting with Hertz.

With that strategic overview, I will turn the call over to Elyse.

Thank you, Mark, and good morning, everyone. I will focus my remarks today on the operating environment and outlook for car rental and equipment rental, and we'll be referring to our first quarter 2008 operating data in the press release.

I will begin with U.S. Car, Rent-A-Car, on slide 11. Hertz domestic rental car pricing in the first quarter, as reflected in RPD, finished below prior year by 2.9% for the quarter, driven by a decline in airport RPD of 2.3%, and an off-airport RPD of 2.4%, and the impact of different growth rates in the two sectors. Transaction date growth in the U.S. was 2%, reflecting the strong off-airport rental activity.

The pricing environment was generally mixed in the first quarter, with some improvement as the quarter progressed. By March, RPD was about flat with prior year, as the industry benefitted to some degree from the shift of Easter into late March.

The airport pricing erosion experienced by the industry in Q4 '07 carried into January. However, Hertz and others attempted to raise pricing throughout the quarter with mixed success. The pricing outlook in the U.S. is improving, however. Over the last two weeks most of the industry began to support higher pricing for the May forward timeframe. Hertz, in particular, raised prices this week, and so far the response has been mostly positive.

Looking at another important operating metric, average rental length in the U.S. increased by 5.6% in the first quarter, with growth across all major customer categories. This reflects the shift away from traditional booking sources to online leisure rental sources, strong growth from international inbound customers, and growth in the off-airport sector, particularly, insurance related business.

As we've pointed out in earlier calls, while rental rates are lower for online leisure and off-airport rentals, they are profitable due to longer rental periods and lower transaction and vehicle cost. We expect this shift in mix to continue, as we grow the off-airport and online leisure components of our revenue base.

The recent maintenance related flight cancellations had little, if any, impact on our volume, as one-way rentals offset cancellations. We don't expect the impact of Aloha and ATA Airline shutdowns to have a significant impact. Hawaii is small, representing less than 3% of our U.S. car rental revenue, and our margins are strong. The merger between Northwest and Delta results in minimal route overlap, and our business relationships with both parties are strong, so we do not expect to see volumes affected.

International car rental produced YOY revenue growth of 21.9%, which was driven by strong transaction day growth in Europe in all customer categories, business, leisure, vans, and replacement rentals. Despite the weakness of the U.S. dollar, we experienced 10% growth in sourced U.S. transactions. While RPD for international car rental was 2.8% lower, this was primarily the results of the shift to longer rentals, particularly, in Europe, where the average length increased 7.9% to 5.5 days.

Looking forward, in Europe, advance reservations are strong. Ryanair is reopening key routes, so we expect to see volumes increase in those markets. And sourced U.S. reservations have slowed due to continued weakness in both the U.S. economy and the dollar.

In the second quarter, we are seeing some signs of improved pricing in Europe, as the fleet cost increases of the 2008 model year, which began in January, started filtering through the industry. However, we expect our reported RPD will reflect ongoing shift in product mix, as previously mentioned.

Turning to HERC, on slide 12, revenue growth in the first quarter was 5.4%. Although we continued to be impacted by the softening U.S. construction market, demand in our industrial business, international operations, and specialty equipment remains fairly strong. This helps offset the continued decline in earthmoving equipment rental activity.

In North America revenue from residential and nonresidential construction dropped from 50.6% of total revenues to 49.5% YOY, as fragmented and industrial revenues increased as a percent of total revenue.

Our foreign operations, particularly Canada, experienced stronger growth in the U.S. in the first quarter. Sequentially, however, the organic growth in France and Spain is slowing, but we had incremental revenue from the Quilovat acquisition, which was completed earlier this year.

To be more consistent with how we believe our competitors and the industry report same-stores revenue growth, we will now include revenues from new equipment sales and initiatives, such as pumps or power generation added to existing stores, in the same-store revenue growth calculation.

In Q1 revenue growth on this basis was flat. Using the previous methodology same-store revenue growth would have been down less than 1%. In Q1 2007 same-store revenue would have increased by 5.4% using the new method.

In our planning for 2008 revenue and profitability growth, we've forecasted a double-digit decline in earthmoving business, which represents about 25% of our revenue, and continued growth in industrial and fragmented sectors. HERC will continue to focus on its strategic efforts to diversify its customer base and grow industrial market share. With nonresidential building construction slowing, HERC continues to target areas, such as petroleum refining, oil and gas, power, manufacturing and infrastructure.

Compared to first quarter 2007 worldwide pricing declined by about 100 basis points, driven by a 1.2% decline in the U.S., and smaller declines in the other geographies. This pricing pressure is primarily due to the slowing of construction demand in most of our markets. We believe the industry will continue rightsizing fleets through the second quarter.

At March 31st the average age of our worldwide fleet was 30.8 months versus 27.8 months a year earlier. Based on current conditions we expect the average age of our fleet to increase by a few more months in 2008. However, our fleet is still relatively young, and this remains a competitive advantage for us.

In the quarter net CapEx for HERC was $20 million, which includes a foreign exchange impact of approximately $6 million. As Mark mentioned, one of our key focuses is on improved fleet efficiency, and in light of economic conditions we have moderated our investment in new fleet, using existing equipment to fleet new Greenfield locations. For full year 2008 we now expect total equipment rental fleet net capital expenditures to be under $150 million.

Let me now turn to our consolidated financial results for the quarter, shown on slide 13. As Mark reported earlier, we had strong first quarter revenue growth, with consolidated revenue of $2 billion, an increase of 6.1% YOY. We were encouraged that despite a difficult economic environment, both Rent-A-Car and HERC delivered strong revenue growth YOY, of 6.3% and 5.4%, respectively.

On a GAAP basis, our profit metrics this quarter were significantly better than first quarter 2007. Pretax loss improved by 38%, to $56 million. Net loss declined from $63 million to $58 million, an improvement of 7.8%, and loss per share was $0.18, $0.02 better than a year earlier.

Adjusted pre-tax income of $17.1 million was 6.2% higher and consistent with Q1 2007 as a percentage of revenue. Adjusted net income was $6.5 million, slightly above the prior year, and adjusted EPS using the December 31st, 2007 share count of 325.5 million shares was $0.02, the same as the prior period.

Corporate EBITDA in the first quarter was $235 million, slightly below 2007. Car rental corporate EBITDA was lower this year because rent revenue growth was driven by increased transaction days, while pricing declined. To service volume growth, our fleet size increased by 3%, and fleet related expenses were greater than the year before. HERC corporate EBITDA was $181 million or 4.3% higher YOY due to higher revenue.

In the first quarter we maintained the adjusted pre-tax margin achieved in the first quarter 2007. As a result of our cost savings initiatives, direct operating, selling, general, and administrative, and corporate interest expense on an adjusted basis declined by 200 basis points as a percentage of revenue. However, this was offset by higher fleet carrying costs due to higher per unit cost and larger fleets in the quarter.

Total cash interest expense during the quarter was flat with prior year, with the increase in net fleet offset by -- with the increase in net fleet related interest, offset by the reduction in net corporate interest expense.

In the international fleet facility our pricing increased by 100 basis points. This step-up was in accordance with the terms of the original agreement. This increase was offset by lower net corporate debt balances, reduced borrowing margins in our bank financings as a result of re-pricing actions we took in 2007, and lower overall base interest rates.

Adjustments to our GAAP results totaled $72.9 million in the first quarter, primarily due to $24.8 million in purchase accounting, $23.1 million in restructuring and related costs, and $14.5 million in noncash debt charges.

Now, I would like to take a few minutes to discuss fleet utilization and residual values, which are shown on slide 14. In the first quarter fleet efficiency, which is defined as the percentage of days a vehicle is rented, for both U.S. and international car rental, improved by 1 percentage point compared to prior year. During the quarter we tightened fleet levels and saw efficiency improvements kick-in.

In HERC our fleet efficiency, calculated by dividing total HERC revenue, less equipment sales and other revenue, by the average fleet value, was 2.6 percentage points below prior year, as we continued to rebalance our fleet away from earthmoving equipment. The decline in pricing understates our efficiency, but as we implement the initiatives Mark discussed we expect fleet efficiency will improve.

Let me address the issue of residual value, starting with U.S. car rentals. Those of you who follow the Manheim Index saw that the quarterly average for the first quarter declined by 4.7% compared to Q1 2007. The Manheim Index is for all makes and models of vehicles and for all ages, and is not representative of our rental car fleet.

In the first quarter, we sold 29,300 cars or about 6,000 more than in 2007. The average residual value as a percentage of the initial cap cost of the vehicles declined by only 89 basis points YOY. We have said that our residual performance is not as impacted as Manheim because our fleet is younger, we are not overexposed to any single manufacturer or model, and we can sell fleet more selectively.

This was certainly borne out in the first quarter. At March 31st, 2008 the percentage of non-program cars in the U.S. fleet increased YOY from 61% to 73%. The decision to purchase vehicles on a program or non-program basis is based on a model by model economic analysis. We continue to purchase higher cost vehicles, such as SUVs and specialty vehicles, on a program basis to reduce the risk in our portfolio and allow us to right size our fleet more quickly after the summer peak.

As Mark mentioned, in 2008 we will continue to develop alternative sales channels, particularly, online, which will allow us to maximize our residuals and dispose of vehicles more quickly.

In Europe the majority of our vehicles are program cars, and we sell our non-program cars to wholesalers or through our small network of retail sales locations in France. In the first quarter residual values were under pressure, as well.

At HERC the used equipment market continues to be relatively stable and is still maintaining good residual values among almost all categories of equipment, although earthmoving remains under pressure. As you may know, HERC typically sells most of its equipment through retail or wholesale channels, which provide better residual values and net sales proceeds than the auctions. Although this is still our long-term strategy, in the first quarter we sold more fleet at auctions to expedite our fleet balancing initiatives, which reduced used equipment sales profits in the quarter.

Just a reminder, that the depreciation rates for both business units, revenue earning equipment, are reviewed quarterly, and adjusted as appropriate to minimize any gain or loss on sale. It is important not to be overly focused on residual values or loss on sales. The true cost of fleet is the all-in holding cost, that is depreciation expense. Based on our current forecast, we still expect car rental depreciation expense per car to increase by 2% to 4% YOY in the U.S., and by about 10% in Europe, although the absolute vehicle depreciation per unit for Europe remains below that of the U.S.

In the quarter we were particularly encouraged that our net U.S. fleet costs increased by only 2.4% on a per unit basis. We have not had any issues obtaining adequate fleet in any geography.

As you can see on slide 15, our balance sheet remains in excellent shape. At March 31st our consolidated leverage was 3.0 times, and the consolidated interest coverage ratio was 4.0 times. These are improvements over the prior 12-month period and well within the covenant limits set in our financing agreement.

Total debt at March 31st was $11.6 billion, consisting of corporate debt of $5 billion, and fleet debt of $6.6 billion. On a net debt basis, corporate debt was $4.2 billion compared to $4 billion at yearend, and fleet debt was $6.6 billion, unchanged from yearend. YOY we reduced net corporate debt by $197 million from March 31st, 2007.

We believe we have more than ample liquidity to support our 2008 debt maturities of $214 million, as well as anticipated growth. Subject to borrowing base availability at March 31st, we had additional capacity of $5.6 billion, consisting of $3.5 billion in fleet financing, $1.4 billion in corporate credit facilities, and $729 million in cash. Approximately 35% of our average debt at March 31st, 2008 had interest calculated on a floating rate basis, which will let us benefit from lower based interest rates in 2008.

Let me spend a minute on the concerns in the market regarding our U.S. fleet financing. At March 31st there was [$4.5 million] outstanding under various U.S. asset backed notes, and we have a variable funding note facility of $1.5 billion which was unused at quarter end. Our upcoming fleet debt maturities are $55 million in May of 2008, and [$1 billion] in February 2009, although as is typical in asset backed securitizations there is amortization leading up to the maturity date.

While we have sufficient capacity to refinance these maturities under our existing debt agreement, we have already started reviewing refinancing alternatives, including structures that do not require a mono line insurance wrap. We are encouraged by our discussions with lenders, and we believe that we will be able to raise funds in the ABS market this year. And while we do expect our borrowing spreads to widen since we issued the ABS notes at the end of 2005, much of this increase should be offset by lower base rates. We will keep you informed of our progress.

Let me address investors' concern about the mono line insurers' performance and the impact on our U.S. ABS debt which is wrapped by AMBAC and MBIA. The downgrade of other mono line by the rating agencies has virtually no impact on our fleet financing. If a mono line were to go bankrupt our bonds would go into a controlled amortization period, which means that as cars are sold, proceeds from vehicle dispositions would go to repay bondholders. There is no impact on Hertz' rental revenue.

Given the nature of the risk fleet we have the flexibility to extend the holding period of the cars, thereby delaying debt repayment for a period of time. If this were to occur the most likely outcome would be a negotiation with the bondholders to eliminate the amortization in exchange for changes to terms and conditions. If we were unable to come to terms with bondholders, we have corporate cash and liquidity, as well as cash within our Like Kind Exchange program to fund new fleet purchase. And, as I mentioned, we believe there is still ample liquidity for rental fleet financing.

Moving to slide 16, the full year effective income tax rate for 2008 is projected to be approximately 34%. However, in the first quarter because of the seasonality of our business and valuation allowances in certain foreign jurisdictions, the GAAP effective income tax rate was 5.3%.

Cash income taxes paid in the first quarter were $8.9 million and are projected to be $65 million for the full year. Total Company net capital expenditures for property, plant, and equipment, that is investments in our facilities, systems, and service vehicles, were $47 million for the quarter, an increase of $15 million YOY, as shown in the levered cash flow in the press release. We expect to spend about $200 million in full year 2008 to maintain our facilities and operations.

On a consolidated basis cash flow from operating activities was $1.1 billion for the first quarter, primarily due to strong cash earnings and working capital performance. As Mark mentioned earlier, an important focus for Hertz is cash flow and deleveraging. We generate cash flow from earnings and given the liquid nature of our revenue earning equipment we also generate cash in periods of reduced demand as we de-fleet.

Given the seasaonality of our business, it is best to look at levered cash flow over a 12-month period, so please turn to slide 17. For the 12-month period ending March 31st, 2008 levered after-tax cash flow, after fleet growth, was $197 million compared to $462 million for the same period a year earlier. On the positive side, earnings improved by $112 million, better working capital management provided $170 million, and Hertz fleet growth was $26 million lower.

Offsetting this was an increase of $496 million in the car rental net fleet equity requirement. This variance in the net equity requirement is primarily due to three factors. First, we maintained higher fleet balances in the current 12-month period to satisfy transaction day growth. Secondly, there was a lower benefit from shifting to a higher percentage of risk cars in the 2007 versus 2008 period. And, thirdly, we experienced timing issues inhibiting our ability to fully utilize the international fleet financing at the end of the quarter.

The international issues were the retention of fleet in the U.K. after the maturity of the initial sale-leaseback traunch, temporarily exceeding our risk car limit due to the seasonal ramp-up of fleet in Australia, and an increasing cars added in Europe between the bridge borrowing date and month end in 2008. This resulted in an increase in the amount of corporate funding required for the fleet at March 31st. I am pleased to report, however, that these timing issues were resolved in April, and we anticipate a more normalized advance rate for the full year.

For full year 2008 we expect the car rental net equity requirement to continue to be a use of funds and for working capital to generate funds, albeit at a lesser level than in 2007, when we were able to affect certain onetime changes that had a big impact.

We have committed internally to increase operating focus on working capital and cash flow. To this end, we are pushing balance sheet accountability down to the local operating units, and as a result we expect to see the benefits of this in future quarters.

As you can see, our balance sheet is strong, and we believe we are well positioned for growth.

And, now, let me turn the call back to Mark.

Thanks, Elyse.

To sum up the first quarter, we were challenged by U.S. macroeconomic factors, and pricing pressures, as fleet supply exceeded rental demand in both of our businesses. However, in spite of these, we beat all of our internal business plan targets. Volume growth with the reduced pricing impacts profitability as fleet and other costs increased without the flow through from higher RPD or equipmental rental rates.

Our revenue stream diversification and our global footprint enabled us to achieve growth despite the slowing U.S. economy. By executing on our costs and efficiency initiatives, by staying disciplined and focused, we were successful in generating solid results during the quarter.

I am fairly encouraged with the future pricing trends in the U.S. R-A-C industry going forward. Fleets continue to tighten industry wide, helping optimize yield management.

For the full year 2008 we are reaffirming our guidance. We expect improvement in all of our guidance metrics, as shown on slide 18, based on current economic conditions. We are forecasting total revenues to increase to between $8.9 billion to $9 billion, with car rental revenue growth of 2.5% to 3.5%, and equipment rental revenue growth of 3% to 8%.

Corporate EBITDA is projected to improve, as well, to $1.575 billion to $1.615 billion. We expect adjusted pre-tax and adjusted net income to also increase YOY, and should be between $725 million and $750 million, and between $450 million and $470 million, respectively.

Using the notional tax rate of 34% and 325.5 million shares, the number of diluted shares outstanding as of the year ended December 31st, 2007, adjusted EPS is expected to grow to between $1.38 to $1.44 per share. These earnings projections are weighted toward the back half of the year based on the seasonality of our businesses and our expectation of a slightly less challenging macro environment. We project 2008 will be another year of improved cash flow, with levered after-tax cash flow after fleet growth to be between $550 million and $650 million in 2008.

Looking ahead, we believe we have set realistic revenue and cost targets for our business in 2008, given our visibility for the remainder of the year. We expect to achieve our revenue growth agenda by expanding our rental networks into other parts of the world through both acquisitions and organic growth, and by increasing penetration into existing products and markets. We remain committed to margin enhancement as we implement process improvement and streamline our costs.

2008 will be a challenging year, but we believe our financial targets are achievable even in the current environment. Our focus on revenue generation and operating efficiency is critical, and the whole team is motivated to execute on our plans with great discipline. In this environment we can be more conservative and hold-off on discretionary spending on our businesses, but we are taking a longer term view.

I mentioned our incremental YOY investment of $16 million in the quarter in Hertz, in our people, our facilities, and our brand. This is fundamental to our operating strategy. Only by continuing to open up new locations, expand to new geographies, develop new technology, train our workforce, and extend the Hertz brand can we position ourselves for future growth and enhanced profitability. That is how we plan to maximize shareholder value now and in the years to come.

And, now, Operator, we will take questions.

(OPERATOR INSTRUCTIONS.)

Our first question will come from the line of Christopher Agnew from Goldman Sachs. Please go ahead.

Thank you very much. Good morning.

Hey, good morning.

First of all, in terms of advanced reservations you're seeing in R-A-C in the second quarter, is there any color you can share in terms of mix, particularly, commercial versus leisure? Or if you're not able to get that granular, maybe share some of your expectations? Thanks.

Yes, I would tell you that leisure, which represents roughly 40% of our revenues in the U.S., is in fact showing positive trends. Commercial has continued to be under some pressure in the first quarter, seeing that into the second quarter but some of the new business will kick-in. But in general business travelers have -- a lot of CEOs I think have cut back a little bit on T&E, travel and entertainment, and so we've seen some contraction on that.

In terms of going forward, feel pretty good about what's going to happen in the future based on advanced reservations, backlog as a whole.

Okay. Thanks. And fleets, you mentioned that fleets continue to tighten. What's your flexibility there? Say, if advanced reservations are misleading, and commercial and leisure suddenly slows down going into the end of the second quarter or the third quarter?

Yes, I think that in general when you look advanced reservations, I mean we're not, you know, I should be explicit here, we're not seeing like double-digit kind of growth rates in advanced reservations. I don't think the industry is going to respond by adding amounts of fleet. In general, we see industry conditions as tightening of the fleet all the way through the third quarter.

I think most of our competitors, from what we've seen on the lots and what we've experienced, what we've heard in the trade, have said that this is going to be a year where most rental companies are going to tighten their fleets. They're feeling the pinch of the economy, in general, and that provides for good pricing going forward in the year.

Okay. Thanks. And then one more question, please. Off-airport, you're growing at 14% with the insurance replacement business. Maybe could you just comment what sort of competitive response that's drawing?

And then, also, in the off-airport business, I mean I think you've been talking to low double-digit rates, but I thought that applied to the whole business, and it -- I think on the last call you mentioned there were a couple of factors in December that saw deceleration to 6% growth for the whole off-airport piece. 1Q we saw a continuation of that 6% growth. Is there anything in particular we need to bear in mind that happened in the first quarter? Thanks.

Okay. Well, I guess, you know, the only thing we saw in the first quarter was that continued expansion, we think our share into the off-airport insurance replacement segment, so that's a third of the market of off-airport. The other two segments, which are commercial, as well as leisure, those two segments kind of suffered from the same kind of issues that we saw in the general airport, U.S. airport. So there was in general it was a good quarter, a solid quarter, and we see that continuing going forward with kind of a double-digit kind of growth rate on transaction days in the insurance replacement segment.

Joe, do you want to add any color to that?

Yes. Chris, you know, you're correct, we did report some weakening in December, but very positively the business, all off-airport business popped the middle of January forward and producing the 8.5% growth that we reported.

In terms of your question on the rationality on pricing in this market, I would say that's a good description of it. All competitors, particularly, Enterprise, and Avis Budget, whom we compete with on insurance replacement, have rational pricing strategies as we compete for these big accounts.

Okay. Next question?

The next question will come from the line of Manav Patnaik from Lehman Brothers. Please go ahead.

Hi, guys. Firstly, congratulations on a relatively strong quarter. I just had a few questions on your full year, I guess, 2008 guidance in terms of the assumptions you guys were taking into account with respect to maybe, you know, you gave a little color on the pricing trends and, hopefully, that the positive trends there continue. I was wondering in terms of maybe your assumptions on -- in [claimants] in the U.S., what are you factoring in for the second half of the year? And are you baking in there maybe some more contribution from your international operations that should offset maybe any potential sort of U.S. weakness that we might see given sort of the uncertain economic environment we're in?

[On the claimants], I guess we're expecting very modest assumptions baked into the back half of the year. I would say the U.S., when we look at our revenue assumptions we're probably assuming no more than a 1% improvement YOY on claimants. In Europe it's a little more bullish there. It's probably going to be in the neighborhood of 5% to 6%. So those are the assumptions kind of baked into the way we do our revenue guidance. Does that help you on that?

Yes. And I guess maybe just with respect, maybe Joe can answer this, but with respect to I guess the used car market and you guys did a good job in talking about the first quarter trend. Like, given, maybe you can help just us sort of understand again what sort of trends you've seen in the past with respect to maybe a softening economic environment, and how that tends to affect sort of the used car market out there, for the car rental age, specifically?

Joe, you want to go ahead, and then I'll take a stab at it? Go ahead.

I think, first, I'd like to clarify that even in the current environment, the capacity to sell is no issue, at all. A very strong capacity, and we could sell literally tens of thousands of cars, if necessary.

The advantage for us in accelerating our movement to risk cars is that we control the timing of when we bring cars to market. So if there is pressure on certain models we can delay the sale of those models.

We have seen an improvement in the trend in March because we are managing the makes and models that we take to the market, and we believe that trend is going to continue into the summer, overcoming any overall macroeconomic impact of the market. So difficult climate, no question on that, but we believe we're managing it exceptionally well.

Well, I will just add to that. We have seen, I want to emphasize, just positive residual trends. You know, that wasn't really stated in the script that we just took you through, but we're seeing positive residual trends. And, in fact, our ability to manage in a tough environment, again, is accentuated by the fact that we do business with more OEMs than anyone else in the industry, and we -- it's been a very laser beam focused strategy of ours, and we've got 11 OEMs to deal with, and in the U.S. we're very balanced into deciding which make and model we're able to sell based on timing issues, residual issues, by make and model.

Good. Yes, thanks for that color. Just one question on the HERC side, I guess is, again, with respect to your overall outlook. Firstly, on the fleet age, I mean how -- like at what sort of level do you get at your fleet age where you decide, okay, now it's time to reduce that? Like how far can you stretch that? And for the full year, I guess should we expect margin contraction to continue on a YOY basis, at least on the HERC side?

Well, I'll let Gerry answer that, and I'll answer just the first part of it, I guess. You know, in general, aging of the fleet, our biggest competitor I guess is at about 39 months. We think we can go to 34 and 35 months without having any competitive disadvantage, and that's kind of what our target is.

We did say in the script that we're going to improve our utilization in the back half of the year. We've got -- we're seeing that right now, and we feel very confident that we'll have significant movements in the way our fleet utilization numbers are right now tallying versus what they will tally in the back half of the year. That will obviously help our margin contraction issue, as well.

Gerry, you want to expand on it a little bit?

Sure. On the fleet age, you're absolutely right, we have plenty of room there, even beyond what we expect to age this year. Also, related to the margin, we don't expect to have the same activity we had in the first quarter. We actually went to auction to sell some earthmoving, that impacted our margins. Where we continue to right size that fleet. We don't expect to have that level of activity going forward, because we'll be more balanced as we move, and also some of the efficiencies we're building in at the international expansion will help us improve margin.

And so we've built in the forecast the weaker U.S. activity, and the growth from our specialty equipment fleet balancing and international operations should improve our position in the following quarters without the same headwinds on selling used equipment in the first quarter.

All right. Great. Thanks a lot, guys.

Our next question will come from the line of Christina Woo from Morgan Stanley. Please go ahead.

Hi, thanks. Good morning.

Hi, Christina.

Hi. So we talked a little bit about your [claimant] expectations. I was also wondering if you could provide some expectations for nonresidential construction spending, industrial growth, some of the larger segments on the HERC side of the business?

Sure. I guess, you know, just in general on the nonres construction activity, we baked into our forecast I guess for revenues this year about a 6% contraction YOY versus what was kind of the run rate last year which was already contracted. And I think that we're going to certainly see that as we go forward.

Gerry, do you want to expand on some of the other parts of the question she asked?

Sure. Yes, related to the construction side, again, we talked about our base business contracting low to mid single digits within our forecast, and that's backed up by Dodge and some other components that are forecasting slower growth. I think we've already seen that occurring in the industry and within our business, based on the U.S. construction decline, so that we believe that will continue, and we've built into our forecast improvement in the industrial sector, an improvement in some of our fleet specialty lines.

The industrial sector, you'll see forecasts that say it's going to be flat to slightly negative. Most of that's related to the big surge of ethanol plants and ethanol plant activity that happened in '07. So although the forecast is flat we believe there's plenty of opportunity in the petrochem area for us to still take market share and grow that sector, so we are forecasting stronger growth continue in '08 even though the overall macro is about flat, and then also building some of the decline in the construction market, offset by the other initiatives that we have. So basically continuing to see what occurred in the first quarter.

Okay. And pricing has declined over the past couple of quarters, has that been across the board, or are you getting some pricing -- you've just described a great growth environment in the industrial segment, for example -- are you getting pricing increases in some of the segments?

Yes. Overall, just because of the slower nonres construction market, there's some pressure on pricing. We're not seeing steep declines in that area, but what's offsetting some of that weaker demand are better pricing in the most active industrial markets in North America, yes.

Great. And is part of your strategy to proactively decrease the prices, or has your pricing decline really been more of a response to the competitive environment?

We're very selective about that response, but the answer is the latter, we are, we're reacting to the competitive environment in certain markets, in certain places, where there is some excess fleet on the Hertz side or the industry side where we are participating very selectively. The rest of our strategy is to try and increase prices where we can, where utilization is higher, and where there's a stronger industrial base.

Yes, we do a weekly detailed pricing review, and I would tell you that looking at it by category of equipment and then even by market segment, we are improving and increasing our prices YOY in every category we can. We continue to try to be the price leader, if you will, in the category, but it's a difficult environment obviously on what I call the construction equipment side of the equation. And we felt pretty good about a 1% decline YOY, it wasn't bad given some of the macros in the U.S. on nonres construction environment.

Right. Okay. Shifting gears for one last question. You had commented that in Europe you're seeing longer rental lengths. I think it was up 7.9% YOY. I understand the shift in the U.S. because you're going to the off-airport market or focusing on leisure. What's causing that shift in the European market?

Yes, some very good things, actually, very profitable things. Michel Taride is on the call. Michel, why don't you just talk through the strategy that we started probably a year-and-a-half, two years ago, on vans and trucks, and some other things in leisure that's driving that?

That's right. Well, we, in fact, we have a (inaudible) increase in all our key segments. We are developing very strongly the monthly rental business in all segments, and that's true for both commercial and leisure, so that's one big part of the explanation.

The second part is that, as Mark just mentioned, we are also growing our vans and trucks business in Europe, most of which, a lot of which, I mean certain countries is what we call long-term rentals, meaning three, four months' rental. That's very true, for example, in the U.K. or in Germany, and it's a significant portion of the business for us. It's about 15% of our revenue and growing actually faster than the car rental business, itself, double digit right now. So I would say the main, that's what is explaining the increase in length, which is, indeed, significant.

And it sounds like it would be the smaller businesses, is that your target customer for the monthly rentals?

What do you mean by smaller businesses?

Is it a business client or is it more -- it's probably not going to be a leisure client, or a--?

Oh, no, no, no. You're right. I'm sorry. Yes, it is, indeed, the commercial client, it's business, absolutely.

Okay. Thanks so much.

You're welcome.

Thank you.

Our next question will come from the line of William Truelove from UBS. Please go ahead.

Hi. I just really have two questions. First, you mentioned about the leisure travel rental car business picking up. Is that picking up just in transaction volume or also in prices?

Well, just in terms of transaction volume, we're saying that business has a stronger trend line to it than let's just say the commercial segment that we've seen. And when we look at advanced reservations, again, that's what we're seeing. So it's -- any other questions on that? Am I being--?

No, I just wanted to make sure, that's just mainly transaction, you're not -- are you getting pushback on price, or--?

No, I mean pricing, in general what you'll see is that pricing in general improves, obviously, in leisure oftentimes faster than it does in commercial accounts. The reason for that is in commercial accounts you have contracts, and they're for one year, sometimes two-year periods depending on the customer, and those contracts are renewed every month, they're annualized. But leisure pricing you get a quicker bang for the buck, if you get tighter fleets quickly.

Okay. And then just to go back to the point about the U.S. residual values, you mentioned that maybe you shouldn't focus so much on the positive residual trends, but on your slide 14 you do say that the residual values are under pressure YOY and down 89 basis points, and talked about flexibility in what you could sell based upon the kind of residual values you are receiving.

So my question was twofold. One, are you changing the mix of what you're selling and that's why you only did 89 basis points. Would it have been worse if you were not changing the mix? And, two, what in fact would you mean by positive residual trends, given that it's still down YOY? Could you just clarify for me those two points?

Sure. Joe, do you want to go ahead and take it?

Yes. Two factors, and you touched on one of them. We are managing the mix of what we sell, and then we are taking advantage of the flexibility of a risk fleet, and we are extending the average age of the cars. And we did so by approximately one month. So selling, instead of selling at about 13 months, our average age of cars sold was about 14 months.

Yes, and just so I'm clear with you on this, on a normal residual, when you sell and optimize, if you will, your pricing and the way the cost, as well as the maintenance cost, et cetera, occur on a risk car versus a program car, you always sell a risk car and hold it longer than you do a program car. A program car sometimes you'll turn back in, the way the depreciation schedules are set-up with the OEMs, after nine months, and so our fleet has gotten a little older as we moved to higher risk mix, and that's helping obviously in terms of managing fleet costs for us, as well.

The outlook on residuals is less negative. I don't want to make you to think that it's going to be some big positive number going forward, but it's much less negative than it was, let's say, to what we saw in the first quarter and in the fourth quarter. Okay?

Okay. That's fair. Thanks.

Thank you.

Our next question will come from the line of Brandt Sakakeeny from Deutsche Bank. Please go ahead.

Hi, it's [Adrian] for Brandt. I was wondering if you could provide a little bit more color on what you described in the HERC segment in terms of lower proceeds on sales of used equipment? Is that more a function of the mix of used equipment that's being sold or how the equipment is being disposed of?

Yes, Gerry will take that.

Yes, sure, Adrian. The quarter was highlighted by the fact that we did sell more earthmoving equipment, you know, mid to large size earthmoving, and we went to auction with a slightly greater percentage than we've done historically. So it was more of a factor of the quick sale aspect of how we sold the fleet, which really put some pressure on the net proceeds. Normally, we're selling more of a quantity at retail or wholesale, which is a more orderly sale, which keeps the residuals up. So that was the biggest factor in the quarter YOY.

Great. Thank you. And then a housekeeping question, in prior releases you've provided us the direct operating expenses by segment as a percentage of revenue. I was wondering if you could give that to us?

Yes, I guess we can follow-up on the call. I don't know why we didn't provide it. We were down 200 basis points, when we throw all costs together YOY on an adjusted basis, so the number is 200 basis points lower, looking at [DOE], SG&A, and what we call the interest expense associated with the fleet. So that's the total. I guess we can, after the call Lauren will follow-up with you and give you some breakouts. Okay?

Sure, it's in the release. We can work with you.

Thank you.

Thank you.

Our next question will come from the line of Emily Shanks from Lehman brothers. Please go ahead.

Good morning.

Good morning.

Just a quick question for you on HERC. I know that you made that very tiny acquisition here in the U.S. in the northeast, and then you also referenced the acquisition you made in Spain. I know that in the past you've really focused on growing that business organically. Has your overall operating model changed? Would you consider more acquisitions and potentially larger in size, at all, in that business?

No, not larger acquisitions. No, small acquisitions has always been part of our strategy. Right now, it's opportunistic to pick-up some of these companies, as everyone is trading at lower EBITDA multiples and there's a little bit more pressure in some markets. We're also trying to shift, if you will, our profile into industrial and power generation, and so again it's opportunistic for us to be able to buy some of those companies in today's environment.

So it's really part of what has been a strategy on an ongoing basis, although recently because of some of the pressure we were able to buy these companies in a way that's accretive very quickly and help us offset any issues that you have in the nonres construction market here in the U.S.

Gerry, you want to expand on that, at all?

Yes. No, just the fact each company was an aerial based fleet component, the other was power generation, as Mark said. So it serves to purposes. Quicker into the market and also helps to diversify at the same time into those fleet lines.

Great. That's very helpful. And then just another question. Elyse, I wanted to make sure I caught your comments at the very end of your script correctly. Am I to assume that the uptick in the ABL draw was a result of the increased advance rates required for the international fleet? Just really what I'm trying to get at is understand if that increased ABL draw was sort of as expected, or it just looked a little high to me on a sequential basis.

Actually, it relates to the timing issues that we talked about in the international fleet financing, so the -- if you were to quantify those, it's about $300 million. So we were -- we didn't borrow under the fleet financing for that $300 million, which was really a timing issue, and actually it was funded under the ABL.

Perfect. And just to follow-up, that has been -- that's since worked out?

That's correct.

Yes.

That's just a timing issue, and we expect normalized advance rates going forward.

Awesome. And if I could, just one other quick question, for Gerry? Is there any way to break-out what your expectations are around [or lease] on CapEx specific to HERC? I think during the prepared comments you said that now you expect net CapEx to be less than $150 million. I was really looking for color around maintenance, growth, and then fleet proceeds?

Sure, Emily. The maintenance component of that would be approximately $300 million. It's what we would call maintenance CapEx, and the growth in this scenario is essentially negative about $150 million or so on the growth CapEx.

Awesome. Thank you so much.

Thank you.

Our next question will come from the line of Michael Millman from Soleil Securities. Please go ahead.

Thank you. On HERC, given some of the headwinds you've discussed, why is the acquisition still double digit, acquisition growth?

Fleet acquisition growth you're referring to, when you see the 12%, that's the YOY fleet size, I think is what you're referring to, YOY.

All right.

Keep in mind, that that large number is foreign exchange impacted, so about 30% plus is because of the fleet sizes in our foreign operations. It's just a YOY comparison. The actual fleet YOY is only up about 7% to 8% in apples-to-apples dollars. So it's affected by where we're making investments, and then the foreign exchange difference YOY is really inflating that number.

Okay.

The actual fleet from the end of December to the end of the first quarter is down over 2% total worldwide HERC.

And that's adjusting for the foreign exchange?

Yes.

Just on R-A-C, why is an increase in holding period reducing or improving your -- I should say improving residual value?

I don't know if I can answer that question. I know that our overall fleet costs, as you knew, were up 2.4%, and you're asking the question about residual values and whether or not that impacts -- is impacted by the fact that we have longer depreciation? Go ahead.

I thought there was a comment that residual values were helped by a lengthening of the holding period?

Yes. What it does affect is just the gain or the loss, itself. So, for instance, we depreciate a car over a straight line basis. If we sell that car in 12 months versus 14 months, it affects the magnitude of the gain or loss.

But wouldn't the residual value move in line with the age?

The -- when you buy a car, the actual market value is not really straight lined, so until you get to a certain period of time, do you really hit that break-even point.

And so the longer you hold it, the better off you are?

Lauren, go ahead.

Yes, I think, Mike, the point, and we can talk about it a little later, but like the residual value on a 12 or 14-month car is not going to impact, be as impacted dramatically. The slope will change, it'll flatten out, and that's the point.

I see. And on current conditions, you've indicated that you're seeing some improvement in the leisure market, can -- a couple of items on that. One, is it primarily due to seasonality? Two, you didn't mention much about April, I think you said was flat and March. I was wondering about April? And regarding May we're seeing some improvement in leisure pricing, can you give us some idea as to what that is? Thank you.

Gerry, do you want to respond to that?

Well, let me respond in two ways. On the improving trends, let's look at the reservation growth, as well as the pricing. On the reservation growth we have positive reservation growth for all states forward. The real turning point is about the 11th of May, so that's where we see the improvement of the trend, and we get into solid double digits as we move into June and July, or solid single digits as we move into June and July.

On the pricing we haven't commented on forward pricing previously, and I'll refer back to what Mark said, we raised prices this week, and we are seeing reasonably good competitive response.

And can you give us some idea of what prices were in April?

No, no. We can't yet. Sorry.

Okay. Thank you.

Okay, who is next?

Our next question will go to the line of Himanshu Patel from JPMorgan. Please go ahead.

Hi, this is [Sanjeev]. Could you comment on the trajectory of volume growth and pricing in HERC during the first quarter? I think you addressed that in the Rent-A-Car segment. I'm just curious about the same trajectory in HERC?

Sure. Gerry, go ahead?

Sure, yes. It actually improved throughout the quarter. March was from a volume perspective, particularly in North America the volume was at its lowest point in January, and we have progressive improvement all the way through the end of March, so it was weighted towards the back end of the quarter.

And pricing?

Pricing was pretty stable throughout the quarter. The 1% to 1.3% negative in the U.S., was fairly stable throughout the quarter.

Okay. And how much forward visibility do you have on HERC equipment rentals? In terms of like similar to advance reservations for car rental, what's sort of the equivalent on equipment rental?

Well, we obviously don't have a reservation bank like car rental, but we do have as far as our national account base which is, which represents almost half of our business, the largest accounts, we have visibility of their project flow, major work that's there. You know, we actually, we have relationships that give us that indication. We also look at obviously all the macroeconomic reports, nonres reports that are put out by Dodge and things like that. So the combination of the two gives us some pretty good visibility six months out.

Okay, that's great. One last question, could you remind us if your -- if LIBOR resets are sort of factored into your guidance during '08 for pre-tax income?

Yes.

Okay. Thank you.

Thank you.

Our next question will come from the line of [Matt Vitorioso] from Barclay's. Please go ahead.

Good morning.

Good morning.

Just curious about the corporate EBITDA margin at Rent-A-Car. Over the long term is the change in mix into off-airport, does that have a long-term affect on margin, or does the lower cost of off-airport offset the lower pricing?

In general, pre-tax margins, for example, in the off-airport business model equal that of the airport, that's after the stores mature and we've had a couple of years to develop a normal business in that model. So the pre-tax and the EBITDA margins, the margins would move pretty much in concert. We continue to say that over the long-term our EBITDA margins will improve to 19% to 21%, and feel confident in that projection.

Okay. And you had talked about the fleet equity requirement, sort of reversing itself in the second quarter, but still being a use of cash for the full year. Can you give us some sort of idea of the magnitude of the use of cash it might be for the year? Did you already provide that?

No, we haven't provided that, but it should be in line with the growth in the fleet.

In line with the growth of the fleet. Okay. And, lastly for me, have you guys every provided a break-down of your fleet mix for HERC as far as how much of your fleet is currently earthmoving versus aerial, versus some of the other categories you might break it down into?

I think we've done that internally. Gerry?

I mean generally we -- about half, a little over half of our fleet is a mix of earthmoving and aerial. Previously our earthmoving fleet had been, within the last two years, as high as 30% to 35% of the fleet. That's down -- now down to about 25%, and the aerial component which is obviously feeding some of the industrial growth and other strength in that segment is now, you know, has grown from about 20% to over 25%, 26%, 27%. So those are the two largest categories, and then it trickles down from there.

We have a truck component, that's the next largest of about 11% or 12%, and then on and on the categories get smaller and smaller, power generation, concrete equipment, you know, different welders, and other specific categories that get smaller. But those are the two largest, and that's -- those are roughly the percentages.

And are there just a couple high profile applications that these trucks go into, I mean as far as what's their end use, just generally, what do these trucks do?

It's a wide range of trucks. It's everything from a Ford Ranger, a small truck that's rented by a contractor on a job site, and there's a lot of that, all the way up to 25 to 30-ton articulated dump trucks on infrastructure work, large site construction, things like that. We have water trucks, you know, the watering of different construction sites is a significant part of the U.S. construction market. So it's a wide gamut of things, from very small trucks, up through those large ones.

Okay. Very helpful. Thank you.

Thanks.

Our next question will come from the line of Frank Jarman from Goldman Sachs. Please go ahead.

Thanks, guys. Just a couple of questions. One, last quarter you guys mentioned the potential for you to potentially buy-back some bank debt or bonds in the open market, can you just update us on those actions and any future plans you might have?

Sure. We continually look at that. As you know, our bonds have performed very well over the past couple weeks, and some of them are even trading at par today, so it's not as big an opportunity as it has been in the past. But we continue to evaluate, we have no immediate plans right now, but we'll see how things progress as the year goes on.

Okay. And then you guys touched on the weakness at the mono line insurers and the potential for an early [Am] event. And I'm sure it's pretty tough to place a probability on a scenario like that playing out, but is there anything that you guys are doing today to mitigate that risk, or is it all potentially sort of reactionary measures that you'd have to take in an early [Am] type of scenario.

Well, we're certainly talking about refinancing alternatives, and that would be one way that we would position ourselves if there was an event, so we are having active dialogue in terms of looking at financing alternatives.

Okay. Then I guess just the last question, on a sort of monthly depreciation rate for R-A-C, is there any sense you can give me for what that number is?

I don't know if we have done that in the past, have we? Monthly depreciation rates, have we given that?

No, I mean you can -- I can work with you, given the information we have, it would be a worldwide number.

Okay.

You can calculate it by backing into it, but she'll work with you on that. Okay?

Okay. Great. That's all I had. Thanks.

All right. Thank you. Just one more question, operator.

Very good. And that will come from the line of Clark Orsky from KDP Investment Advisors. Please go ahead.

Oh, hi. Elyse, can you just restate what you said about the per unit depreciation rates? I didn't catch that, and sort of tie that into the YOY increase in fleet [D&A], which I think was up about 13%.

Sure. What we said was that the per unit depreciation rate in the U.S. was up only 2.4%, so that would include the gain or loss on the sales, as well as the car cost increases, so we were very pleased with that result.

Okay. And the 13% increase in the absolute number, was that just mainly increase in the size of the fleet?

A lot of it has to do with size of the fleet, yes.

Okay. And have you guys articulated a goal for net debt reduction this year?

Do we have -- well, it's in line with our cash flow guidance.

Yes, the driver of the 13% level was the international component of the fleet. We talked to you about having fleet costs I think up roughly 10% YOY on the international fleet. Foreign exchange is a driver.

Right, it's in there, as well.

Okay?

Yes. And the net debt reduction you said in line with the--?

Cash flow guidance, the $550 million to $650 million.

Okay.

All right.

Appreciate it.

Thank you. Thank you, operator.

Thank you. And I'll turn it back to, now, Mark Frissora.

All right. Well, once again, thanks for joining us today, and we really appreciate your interest in the Company. Good-bye.

And, ladies and gentlemen, that does conclude our conference for today. We thank you for your participation and for using the AT&T Executive Teleconference Service. You may now disconnect.