Herc Holdings Inc (HRI) 2009 Q1 法說會逐字稿

Welcome to Hertz Global Holdings 2009 first quarter conference call. 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-looking information relayed on this call speaks only as of this date and the Company undertakes no obligation to update that information to reflect changed circumstances.

Additional information concerning these statements is contained in the Company's press release regarding its first quarter results issued yesterday, and in the risk factors and forward-looking statements section of the Company's 2008 Form 10-K. Copies of this filings are available from the SEC, the Hertz website, or the Company's Investor Relations department. I would like to remind you that today's call is being recorded by the Company and is also being made available for replay starting today at 1230 pm Eastern time and running through May 15th, 2009.

I would now like to turn the call over to our host, [Leslie Huntsinger]. Please go ahead.

Good morning and welcome to Hertz Global Holdings' 2009 first quarter conference call. You should all have our press release and associated financial information which was distributed last night. We've also provided slides to accompany our conference call which can be accessed on our website at www.hertz.com/investorrelations.

In a minute I'll turn the call over to Mark Frissora, Hertz's Chairman and CEO. Also speaking today is Elyse Douglas, our Chief Financial Officer. In addition we have Joe Nothwang, Executive Vice President and President of Vehicle Rental and Leasing, the America's and Pacific. Michel Taride, Executive Vice President and President, Hertz Europe Limited. And Gerry Plescia, Executive Vice President and President of HERC. They're here today to help answer any questions you may have.

Today we'll use certain non-GAAP financial measures, all of which are reconciled with GAAP numbers in our press release and at the back of the slide presentation. Both of which are 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 Inc., a publicly traded Company. Results for the Hertz Corporation differ only slightly as explained in our press release.

Now I'll go ahead and turn it over to Mark Frissora.

Good morning everyone and thanks for joining us. Let's get started on slide number five.

In our last call I told that in this economy our focus would be on improving profit retention and increasing cash flow. I'm pleased to report that in the first quarter we delivered on those objectives in spite of a difficult operating environment. And we remain committed to operating the Company on this basis going forward.

Before I get into the specifics of our performance, let me give you some color on what we're seeing in the economy and in our own industry. If you turn slide six, according to economic and industry reports, consumer confidence and spending held steady during the first quarter but continued to suppress global travel demand. Our US rental car operating performance reflects this stabilization. When you adjust out the impact from Easter shifting to the second quarter and the leap year effect, the pace of decline in this segment has leveled off since year end.

Getting especially hard hit however is the on airport business travel segment. Volume from contracted accounts is falling much faster than leisure travel as corporations are keeping tight controls on expenses. According to data from GDS, Global Distribution Systems, for the first quarter year-over-year business travel reservations declined 20% for the industry, while leisure travel was off 14%. Business accounts make up roughly 45% of our total US rent a car sales. Moreover, discounted rentals from third party online travel sites made up more of the mix year-over-year.

On the leisure side of the business we led an industry-wide price increase in the US in the first quarter after right-sizing our own fleets and seeing indication that's competitors were following suit. While macro environment has changed very little, we've made huge strides in the first quarter toward our goals to drive fleet and labor efficiencies and deliver strong cash flow metrics. And we were willing to sacrifice volume to achieve these objectives and capture higher quality revenue.

On slide seven, you can see that our operating strategies were focused on capturing longer length transactions to reduce vehicle turnover and associated maintenance and customer service costs. Additionally, we are consolidating certain off airport locations, reducing fleet and staffing levels, minimizing our exposure to weaker OEMs and thereby improving profit retention and generating higher fleet utilization. We made great progress on each of these strategies in the first quarter.

On slide eight are just some of the highlights from our US car rental operations. Most importantly, we generated positive adjusted pretax income in the first quarter. Secondly, the length of rental was up 5% over last year, driven primarily by the increased mix of leisure transactions including our focus on multi-month rentals. Revenue per transaction, a measure of pricing and length mix, increased 2% from the 2008 first quarter, due to increased length and was 5% higher sequentially due to both improved pricing and rental length.

We cut our average US car rental fleet in the first quarter by 15% or 44,500 cars compared with last year, and by 6% or 16,000 cars versus the 2008 fourth quarter, taking advantage of the improving used car market to delete some of our higher mileage models. US transaction days were down 13.4%, versus our 15% reduced fleet exhibiting how tight we ran the fleet. This tighter fleet helped drive fleet efficiency up 105 basis points from a year earlier and 75 basis points from the 2008 fourth quarter level. Net depreciation per vehicle came down 4% sequentially as residual values improved.

Total transactions were down 18% from a year earlier, but operating labor costs were reduced by 20%, evidence of our improved labor efficiency. And we reduced our exposure to General Motors by deleting cars and collecting on program car receivables. As you probably know, we have little to no exposure on Chrysler.

On the next slide, in addition to improving operating efficiencies, we continue to take global actions to reduce direct operating and SG&A expenses through pricing optimization, sales effectiveness and better product management. In the first quarter, we generated $125 million from total cost savings initiatives across the Company. Profit retention was 72% as adjusted pretax income declined by $133.7 million, from the year-ago period on $474.3 million reduction in revenue. This is a dramatic increase over the 2008 fourth quarter, where we had a 27% profit retention and the 2008 third quarter where profit retention was negative. We expect our profit retention rate to continue to improve each quarter throughout 2009.

We have increased our previous cost savings target of $350 million to $500 million for this year, after identifying additional actions to help counter the impact of recessionary effects on earnings. In addition to profit retention, a continually improving liquidity position is extremely important as we work to pay down debt and grow our business. This is on slide ten.

In the first quarter, as we reduced fleet size from historical levels, we generated $760.7 million in total net cash flow, which is represented by the change in net debt excluding the effects of currency. This compares favorably to the year earlier period when we reported a total net cash outflow of $95.5 million. All of this cash was used to reduce borrowings under the fleet facilities, bringing total debt down $1.3 billion or 12% from December 31st, 2008. Total restricted and unrestricted cash and equivalents were $880.5 million, which brought total net debt down 9% from the end of last year to $8.8 billion and down 18% from March 2008.

Since our acquisition by private equity in December of 2005, we have paid down $2.6 billion of total net debt, of which nearly $1 billion was net corporate debt. For the 12 months ending March 31st, 2009, we produced an effective total net cash flow yield of approximately 60%, based on $1,449.3 billion of total net cash flow. This yield is substantially better than the 12% yield we delivered on the last 12 month basis in March of 2008, indicating that there remains tremendous value in our equity. For the year ended December 31st, 2008 our cash flow yield was 19%.

Now on slide 11, let's talk a little bit about the equipment rental business. As previously mentioned we continue to drive this business for profit retention and cash. I'm pleased to report that our equipment rental business delivered positive adjusted pretax income in the first quarter. However, in contrast to the rental car segment, the equipment rental industry has experienced continued volume deterioration since the close of 2008. Furthermore, pricing has become more competitive due to what we believe is irrational behavior by a few key competitors.

Worldwide equipment rental pricing declined 4% year-over-year. Comparatively in the 2008 fourth quarter we experienced a 2% pricing decrease year-over-year. The aggressive competitive actions we're seeing on the equipment side are primarily driven by the accelerating decline in industry volumes. Worldwide volumes in our equipment rental business were down nearly 26% year-over-year in the first quarter, as customer demand in the commercial construction segment dwindled further and as the pace of decline in the industrial markets increased. Sequentially, the volume decline accelerated since the fourth quarter when demand was down 16% year-over-year.

In the recent first quarter, we reduced our world wide equipment rental fleet by roughly 15% compared with a year earlier and by about 5% sequentially from the 2008 fourth quarter on a first cost basis. By increasing our equipment fleet sales at auction, where pricing is stable, we continued our effort to close the gap on falling demand. Unfortunately, as I just mentioned, the gap expanded when volumes fell even faster in the first quarter from year end. Total worldwide equipment rental revenues was down 32% or 28% when you exclude unfavorable currency effects.

On a same store basis, excluding currency adjustments, revenue declined 24%. Despite this, cost savings actions like consolidating locations, merging back office operations, and reducing headcount and wages, supported a 40% corporate EBITDA margin, a level we expect to maintain or even improve throughout the year. In the first quarter, we closed a net 5% of our equipment rental facilities to reduce fixed costs and brought our staffing levels down commensurate with shrinking equipment rental demand.

It goes without saying that operational cost reductions alone are not sufficient in today's business climate to achieve profit objectives. At Hertz, on slide 12, we're taking a balanced approach that includes actions to improve pricing, generate new sales growth and elevate customer satisfaction. We've told you about our new car sharing program, Connect by Hertz, which was launched in December. We've increased membership significantly since then by building awareness through urban consumers, through low cost marketing initiatives. We're also continuing to sign academic and corporate accounts to the program like Marriott Hotels, Maryland headquarters and we've just agreed to pilot a car sharing program with IBM in Germany.

Another concept that's getting traction is multi month and monthly leasing programs which are particularly timely in this environment. Consumers who are coming off an OEM lease who are looking for a more flexible arrangement with no material cash payment and without a multi-year contract are finding our monthly leasing program the most economic alternative. Monthly and multi-month rentals comprise 10% of our first quarter 2009 worldwide car rental volume.

Our prepaid discount rental program is providing an attractive option for value conscious consumers. The prepaid program generated more than $10 million in revenue in the first quarter, and is being expanded from the top 30 markets currently in all US airports by year end. So we're going to go from the top 30 to all US airports by year end. We won a net addition of almost 60 new car rental accounts during the first quarter on a global basis.

And in the off airport segment we are a recognized supplier of 84 insurance companies and a preferred supplier at 101 insurance companies. Combined, we are a recognized or preferred supplier at 185 of the 209 largest auto insurance companies in the United States. These accounts are supported by our continued growth in the domestic off airport locations, which now represents 24% of our total US Rent-A-Car revenue. In both the car and equipment rental operations, we put together the custom rental programs for our contracted customers that address their specific needs in the current environment. We are offering them new ways to gain efficiencies in their rental programs, while securing our relationships and retaining accounts as the competition becomes more aggressive on pricing for corporate customers.

On the equipment side, specifically, in addition to a substantial number of incremental smaller accounts, our HERC business took three new sizable accounts from competition in the first quarter. One a Fortune 150 Company and one of the biggest oil refiners in the world, which we expect will be one of our top five national accounts this year. Finally, our global footprint continues to pay off in this recessionary environment. For example, in Brazil our car rental revenues increased 6% in the first quarter. Driven by a stronger rental environment as their economy held up longer than most.

And at a time when major infrastructure projects are being delayed around the world, China has pledged to spend an estimated $600 billion over the next two years to rebuild communities destroyed by an earthquake last May, and to construct new railways, subways and airports. Our equipment business is capitalizing on China's stimulus program by expanding our penetration in the region. We currently have one location open today and are preparing to open two additional facilities this year and later this year we're opening up wholly owned car rental locations in both Shanghai and Beijing, capitalizing on the strong Hertz brand from cross-selling opportunities. The new business awards in both the car rental and equipment rental segments are indicative of the organic growth we believe we can generate despite challenging macro trends.

Additionally, we're capitalizing on recession driven opportunities to increase the value of our franchise through small strategic acquisitions. Not every Company can turn a recession to its advantage, but Hertz is a leader in the industry with strong brands and ample liquidity. Acquiring a quality asset that has been significantly discounted and fills a product geographic or customer gap is only prudent. For example, the purchase of Advantage Rent-A-Car earlier this month offered all of those benefits and more. I'll lay them out for you in a little bit later on in the call.

There is no doubt we have faced another tough quarter. Our plans are in place to manage through several more quarters before we assume any type of recovery. Hertz employees are staying the course with the strategies and tactics that are driving profit retention and cash flow and I want to thank them for their outstanding effort.

With that I'll turn it over to Elyse to review the financial details of the quarter, starting on slide 13.

Thanks, Mark and good morning. Let me start by summarizing the consolidated results for the quarter. We generated total revenue of $1.6 billion in the first quarter, 23% lower year-over-year, but only 15% lower after adjusting for foreign exchange and the calendar effect of Easter and leap year. On slide 14, you can see that the decline reflects the impact of reduced demand in both the car and equipment rental businesses. Pricing also negatively affected revenues with equipment rental pricing under competitive pressure and the car rental revenue per day decline driven largely by mix. The good news is the pace of decline and demand has leveled off since the fourth quarter.

Adjusted pretax was a loss of $116.6 million in the first quarter compared with a profit of $17.1 million in the same period last year. Consolidated corporate EBITDA was $91.9 million in the first quarter, as compared to $235 million in the prior year. Profits were negatively impacted by the decline in volume and price across all businesses. In addition, we experienced higher costs associated with further fleet reductions in HERC and higher year-over-year car costs in Rent-A-Car. Adjusted direct operating costs in the quarter were down 20% and adjusted SG&A expenses were 16% lower, due to lower rental volumes and the achievement of $125 million in cost savings in the quarter. This lessened the impact of negative revenue trends on profits, resulting in the higher profit retention of 72%, improved from the fourth quarter level of 27%.

We've also taken significant actions over the past few months to assure further improvement and profit retention trends going forward including Company-wide wage and benefit reductions, closing unprofitable locations in both rental car and equipment rental, and reducing headcount by delayering in US Rent-A-Car, restructuring our international Rent-A-Car operations, and realigning the equipment rental regional structure. Adjusting diluted loss per share was $0.25 in the first quarter versus earnings of $0.02 per share a year earlier. On a GAAP basis, the fourth quarter loss was $0.51 per share.

Now let's turn to slide 15, where I'll walk you through some operating metrics for our car rental business. US car rental rate revenue was lower by 16% for the first quarter year-over-year, or 13% when you calendar adjust for Easter and leap year. Pricing in the US as measured by revenue per day or RPD was 3% lower, with on airport pricing down 2% and off airport pricing down 3%. This represents an improvement over the 5% year-over-year pricing decline seen in the fourth quarter of 2008.

While prices in the quarter for discretionary rentals improved over last year, this was more than offset by the impact of changes in mix. The mix factors include a higher percentage of off airport business where volumes, measured by transactions, declined by 8% versus a 20% decline in transactions in the higher RPD airport business. And while rental length increased within the airport segment, longer length of keep rentals have lower RPD characteristics. So while revenue per day declined, revenue per transaction was up almost 2% year-over-year on improved length and was up 7% sequentially due to improved pricing and length. Domestic volume, as measured by transactions, declined 18% which was offset by a 5% increase in transaction length, resulting in transaction days being down 13% in the last three months.

The next slide shows our international car rental rate revenue declined 31% or 11% when you exclude the impacts of currency, Easter, and leap year. Revenue per day for international car rental in the first quarter was 4% lower due to pricing pressures across all our overseas markets. Similarly we saw transaction days decline in the major geographies where we operate with the exception of Brazil and Australia where we continue to see volume growth.

Europe represents 80% of international rental rate revenue. And Europe's economy is experiencing an 8.5% unemployment rate, all time low business and consumer confidence, and a negative 3.4% GDP forecast for 2009. Europe rental rate revenue was down 12% excluding the impact of foreign exchange and adjusting for leap year and Easter. European transactions declined 12% and revenue per day dropped 3%, of which half a percentage point was due to pricing and the rest was impacted by mix and length of keep.

Transaction days per airport and off airport combined were 13% lower year-over-year, with airport down 17% and off airport down 11%. In Europe, 62% of our transaction days are generated off airport, which helps mitigate the decline in business and leisure travel. In October 2008, we instituted a 10% price increase for all our non-contracted rates across Europe, which was generally followed by our competitors. We saw signs of price increasing sticking as our average first quarter leisure pricing per day for both on and off airport was up 3% year-over-year.

While there are currently no indications of a bottom in the recession and any recovery in the region's economy is expected to lag the US by several months, we have improved profit retention in our European operations by reducing staffing levels 14% in the quarter over last year, and closing 42 locations within our network this quarter.

On slide 17, you can see our monthly car rental fleet depreciation per vehicle was lower by 3.5% in the first quarter 2009 versus fourth quarter 2008. Additionally in the US, the monthly depreciation per vehicle improved by 4% for the same period. While there are no improvements -- while there are improvements in the used car market and we have been able to negotiate lower car costs for the new model year, it may take a few quarters before we see the full benefits of lower depreciation per car as it takes time to rotate in these new vehicles, especially as we continue to hold and age our existing fleet.

Our worldwide rental fleet efficiency, which is defined as the percentage of days a vehicle is rented compared with the average number of vehicles available to rent, improved in the first quarter by 41 basis points year-over-year, and 43 basis points from the 2008 fourth quarter. In the US, fleet efficiency was up 105 basis points over last year and 75 basis points sequentially. The improvements were driven by the impact of lower fleets, higher leisure mix, and process changes to drive better fleet efficiencies.

If you turn to the next slide, in the US we reduced our end of period car rental fleet by 16% in the first quarter while transactions were down 13% from last year. On a worldwide basis, our car rental fleet's down about 12%. As we've said before, we are maintaining a tighter fleet today with the flexibility to fleet up as demand levels warrant. At March 31st, risk cars in our US fleet represented 75% of the total fleet and the average age of cars operated was ten months, compared with roughly eight months in the first quarter of 2008. The average age of risk cars sold was about 20 months compared with 14 months a year earlier.

As we have mentioned, the US car market has improved since year end. The Manheim index showed an 8.3% increase on wholesale used car prices from December to March. Moreover, the index has shown sequentially monthly improvements since year end. The residual value experienced on our car sales in the US for the quarter increased 8.7 percentage points on an age adjusted basis from year end, better than the index.

Now let me discuss our exposure to Chrysler and General Motors. Today, less than 1% of our fleet is made up of Chrysler vehicles, so no real exposure there. We disclosed in our 2008 Form 10-K in detail the potential impact a GM bankruptcy would have on our liquidity and operations and you should refer to it for a complete description. Much of the risk occurs if GM does not immediately affirm its obligation on the program or buyback arrangements. We feel this is unlikely as we represent one of the largest private sector customers.

However, if GM filed for bankruptcy protection in the United States today, and does not immediately affirm these obligations, then our exposure would include fleet receivables outstanding under our GM vehicle repurchase program of approximately $20 million. And approximately $170 million in estimated exposure regarding the revaluing of GM program cars as risk cars and additional enhancement requirements under certain of our ABS credit facilities.

Although we think it's unlikely, a GM bankruptcy could result in a further reduction in GM residual values. As a sensitivity benchmark, a 5% decline across all our GM risk and program cars would be about $50 million. Please note that as we reduce the number of GM cars in our fleet, we expect that these exposures will continue to decrease. And we have adequate liquidity today to cover the ultimate impact if such an event were to occur.

Now let me discuss the results of our equipment rental business which we refer to as HERC. As you can see on slide 19, HERC continues to be impacted by the weak demand in all market segments due to the economic slump. As Mark mentioned, our worldwide revenue was down 28% currency adjusted year-over-year and 24% on a same store basis. This decline was driven by a 26% year-over-year drop in volumes on declining construction activities worsened by the tight credit markets. Pricing was down in the quarter, due to competitive pressure as the industry remained over-fleeted.

In response to the current decline in demand, we've continued to sell our equipment through auctions where there's still strong demand for used equipment. These defleeting actions, which are contributing significantly to our free cash flow and helping to reduce fleet in our low utilization categories, resulted in higher auction fees due the greater amount of equipment sold this year. Higher auction fees and lower residual values adversely impacted our adjusted pretax profits.

For the first quarter, net CapEx for HERC was a reduction of $85 million excluding the foreign exchange impact, representing a cash flow improvement of $83 million for the quarter. Equipment sales on a first cost basis totaled $201 million for the quarter, which is twice the level sold in last year's first quarter. These sales generated $122 million of less investment in fleet growth over the period.

HERC's quarterly fleet efficiency metric calculated by taking total HERC revenue less equipment sales and other revenue and dividing that by the average fleet acquisition cost, was eight percentage points below the prior year as our accelerated fleet reductions weren't able to keep pace with the steep decline in rental demand. I want to point out that this calculation understates efficiency due to the impact of the decline in pricing on revenue.

At March 31st, 2009, our worldwide equipment fleet age was 38 months, a two month increase compared with the fleet age at the end of 2008. We still believe that our fleet is one of the youngest relative to industry peers. In addition, due to a more favorable mix of equipment type, we feel comfortable aging the fleet into the mid-40s range, without deterioration in the customer experience.

Now let me review our financial strength on slide 20. As of March 31st, we had $5.4 billion of total liquidity, up sequentially from $4.8 billion in the fourth quarter. The improvement is due to reduced borrowing under our Fleet Financing facilities as a result of lower fleet levels, which are in line with lower demand. Based on the $3.6 billion of unused Fleet Financing capacity, there's more than enough liquidity to cover our 2009 debt maturities, which almost all are related to fleet debt.

Given our strong liquidity position, in April we opportunistically delevered by buying back roughly 150 million face value of our high yield notes in the secondary market. By making this decision, we carefully balanced the benefits of capitalizing on depressed bond prices against our cash flow outlook and liquidity needs. We continue to explore various strategies to meet our future refinancing needs. A large portion of which comes due in the second half of 2010.

If you turn to the slide 22, you can see that these strategies include extending the maturity on several existing credit facilities, leasing structures with the finance subsidiaries of stronger OEMs as well as with traditional fleet lessors. Potential TALF issuance as car rental asset backed paper has been approved as eligible collateral under the fed's TALF program. We feel this program will help stabilize the ABS market and provide a liquidity back stop for the Company. And finally, in spite of what we anticipate will be higher revenue in 2010, we feel it's likely that we'll be operating a smaller fleet due to improved fleet efficiencies, which will reduce the amount of debt needed to be refinanced as it comes due. Through these types of initiatives, we believe we will be able to successfully refinance our 2010 debt.

As Mark mentioned, we generated $760.7 million in total cash flow compared to a negative $95.9 million in the same period a year earlier. This improvement shown on slide 23 demonstrates the cash generating capability of our business model even during economic downturns. The resiliency of the used rental car and equipment markets enables us to sell assets and generate cash to reduce our debt levels quickly.

Now let's look at levered after tax cash flow after fleet growth or levered cash flow. Which measures cash flow available to reduce net corporate debt. Net corporate debt is used in calculating leverage which is one of the financial covenant calculations in our debt agreements. Levered cash flow in the first quarter was an outflow of $36.7 million, which is a $196 million improvement over last year's first quarter. On a trailing 12 month basis, levered cash flow was a positive $363.7 million.

Slide 24 highlights the two quarterly financial covenants that we are required to meet under our corporate credit facilities. As of March 31st, our consolidated leverage ratio was 4.11 times, sufficiently below the maximum five times allowed. The interest coverage ratio was 2.64 times, well above the minimum requirement of 2.25 times. The covenants provide for additional flexibility in the second and third quarters where the leverage test increases to 5.5 times and our interest coverage test drops to two times. Finally, based on our current forecast and Company-wide cost and debt reduction actions, we expect to maintain sufficient cushion through 2010 between reported ratios and the covenant limits established in our credit agreements.

Now moving to taxes, for the first quarter the GAAP effective income tax rate was 23.6%. Cash income taxes paid in the quarter was $7.8 million. The effective income tax rate is lower than the statutory tax rate, primarily due to losses in certain jurisdictions for which no tax benefit is realized. We expect the full year effective tax rate to be 30.5%. We ended 2008 with approximately $814 million of tax net operating losses in the US, and $515 million of tax losses in non-US jurisdictions. It is likely those losses will increase in 2009. At this time, none of the net operating losses are projected to expire prior to utilization.

With that, I'll turn it back to Mark.

Thanks, Elyse. In the second quarter the headwinds of the ongoing economic crisis continued to impact the global car rental market. Industry prospects are volatile and visibility is limited as consumers are being very cautious about advanced booking. Pricing on corporate accounts is still competitive and it's hard to predict with any confidence how the summer travel season will really play out.

Yet while the uncertainty remains, we can see some upside as we look ahead. With both rental car and equipment volumes stabilizing sequentially, we could be nearing a bottom. On the Rent-A-Car side, residual values have improved to near normal levels. Still lower year-over-year, but in the range of normalcy. Rental car pricing continues to improve especially in the leisure market. We believe the year-over-year decline in corporate pricing will moderate as comps become easier in the second half. Additionally, cost actions deliver increasing profit retention and therefore we believe our operating performance will improve even without an economic recovery.

On the equipment rental side, in April we've seen a slight improvement from March's depressed volume levels and we're hopeful that this will continue although pricing pressure hasn't dissipated. Additionally our strategic investments in business growth are generating encouraging results. And our three recent acquisitions should begin providing begin providing some incremental benefits at the year progresses.

The Hertz employees are very excited about these acquisitions for which we paid less than $60 million in total for what we believe offer multiples more in value. We penetrated the value price leisure segment, with the purchase of Advantage Rent-A-Car, gaining a significant market share nearly at all the top leisure destinations. In addition to the 20 primary locations and the strong brand, the growth potential for this business is enormous. We'll look to expand into additional airport locations and leisure markets that prefer low priced, no frills rental contracts. At this point, we look at 40 markets preliminarily that we would penetrate.

We'll also capitalize on synergies with our core brand like reservation systems, administrative processes, supply chain, procurement, fleet capacity, and advanced technologies. Next, we brought our former car sharing technology provider, Eileo . The Eileo system provides patented state-of-the-art user friendly technology for the global car sharing industry. This innovative system offers intelligent access control which allows entry and engine start only for member books at the time.

Smart cards that use radio frequent identification replace car keys, optimal security through patented immobilizer technology gives -- this technology gives mileage and trip reports generated automatically. Hands free GPS mobile phone navigation services, real time GPS tracking of the entire vehicle fleet and a whole lot of other advanced technologies. In addition to creating competitive advantages for Connect By Hertz, we plan to adapt the technology to create advantages in our traditional car and equipment rental businesses.

Finally, we purchased a small power generator equipment rental business in Spain called Rent One. The addition of Rent One supports our strategy of end user diversification. Moreover in a recession we know that industrial and generator equipment rentals have performed much better than construction equipment rentals so we're very focused on this segment.

Our plan for 2009 is to continue to invest in our future and optimize our cash and liquidity positions all the while reducing our fixed cost base. Now let's go ahead and open it up for questions,

(Operator Instructions). And first we'll go to the line of Emily Shanks with Barclays Capital. Please go ahead.

Hi. Good morning.

Good morning, Emily.

Nice job in a tough environment. I had a couple of follow-up questions. As we look at what the year-over-year decline in EBITDA is, can you give us a sense of how much was attributable simply to the year-over-year decline in the used car market?

I don't think we've -- we've not calculated that exactly, so it's hard to give -- we'll try to calculate some rough directions here for you or follow up with another call.

Okay. That's fine.

Certainly, it's -- I guess when we look at overall profit impact of residuals, the used car market for us in November and December obviously was probably around -- the residual values dropped to around 51%. If you -- and they've improved about 61% in the first quarter. However, that -- if you age adjust that, it's actually up to about 71% and 74% is where it was a year ago. So those are just a set of numbers for you that could help calculate back into it. But obviously in the first quarter residuals improved a lot so it was probably 300 to 400 basis points on an age adjusted fleet basis that had the impact on profitability. It's significant enough. Depreciation per car I believe in the first quarter the number was up -- how much, Elyse?

Depreciation per car in the US was --

how much was it up? Does anyone know? Net depreciation per car in the first quarter was up approximately how much? Because that's where the residual value calculates. 2.6%. So 2.6% on the value of the fleet. Most of that was due to the residual value issue. Okay?

I have another data point here. We did take car losses in the first quarter of last year. So actually on car sales, on just the car rental business, it's actually down year-over-year. So $30 million in the prior year, $15 million this year.

Okay. All of that helps quite a bit. So thank you. And then if I could, around the open market repurchases that you executed on the high yield notes, can you give us a breakout of what the repurchases were between senior and sub notes?

Sure. About 55% was the senior subs, about a third was the senior notes and the balance was the Euro notes and the average price was about 67.

Great. And do you plan on further reducing corporate debt as we look out through the rest of this year?

Obviously, we're going to continue to evaluate and then based on our cash flow and liquidity needs, we'll keep -- we'll consider doing more, but right now we have no plans.

Okay. And then if I could, just one last one around the actual fleet debt that's coming due in 2010. I was having a little bit of difficulty reconciling some of the numbers that were on slides 20 through 22. Just want to make sure, maybe just to jump to slide 22. For 2010 that $5 billion number that you have up there, is that your -- is that your corporate plus fleet, plus like the conduit or -- I was just trying to reconcile that with what's on slide 21, that shows $4.3 billion.

Let me start with slide 21, Emily. Slide 21 really reflects our outstandings as of this March, March 2009. Obviously, our fleet is seasonal and we'll have higher outstandings in the second and third quarter. So the five really just reflects kind of what we anticipate the number to be in terms of the total refinancing need. To basically compensate for that seasonality.

Got you. And then around the $1.75 billion that's extending maturities, is that simply you guys going to your ABS holders and asking to roll into a longer piece of paper?

There's actually a number of facilities that we could approach. They're basically the revolving Fleet Finance facilities where we have a limited number of investors.

So, it's amending and extending those, that's right.

So there's some in Europe, there's some VFN's under the US, it's a number of different facilities that would make that up.

Okay. Great. And then the $1.2 billion that's TALF, would that be $1.2 billion that you would fund all in the AAA rated collateral pools? Or is that $1.2 billion a portion you would fund with that and then maybe have somebody else take down the subordinated piece or the mezzanine piece of that?

The latter.

The latter. Okay. And then just final one, sorry and then I will get back into queue. The billion dollar bucket of other, I apologize, I missed what the description was on that.

That's going to be a number of different things. Basically it's going to be a combination of it could be ABL facilities, we could be upsizing some of the existing facilities, it's really -- it could be further issuance of TALF, it could be a number of different things.

Actually, sorry, I said that was my last one. This is really my final one. But on the TALF one, have you already started investigating potential interest for that sub piece?

What we're really doing right now, Emily, is that we're more focused on working with the rating agencies to really understand what the credit enhancement and the rating requirement would be.

Okay. That's it. Thanks so much, guys.

Thank you.

Next we will go to the line of Christina Wu with Soleil Securities. Please go ahead.

Hi, good morning.

Good morning.

I was wondering, the $125 million of first quarter savings, that was a great result and I wanted to just clarify whether that included the $38 million of restructuring or excluded that restructuring charge?

It excludes the restructuring charge.

Okay. And do you have any expectation for how much restructuring we should expect through the rest of 2009?

It will moderate. We'll have some restructuring but it will be less than we had in the first quarter, certainly.

Okay. I also wanted to ask about the level of enhancement requirement on the purchase of new vehicles. I've heard that some of the enhancement levels, which had originally or previously been at the 20% to 30% level are up to nearly double that. And I'm wondering if you're seeing that magnitude of change?

What we're looking at you now is as -- you're correct, Christina, that historically it was at 27%. When we did our deal in September, it was 37% and we're looking kind of in the ballpark of 55% to 60% today. Based on the current market for AA rating, that is. That's for AAA that's required for TALF.

Okay. And then just shifting gears to the HERC side of the business, it sounds like you were defleeting and changing maybe the mix of your HERC fleet. Are you finding that competitors just aren't defleeting and that's what's causing part of the pricing irrationality?

We believe that that's part of the pricing irrationality is the fact that people haven't defleeted as aggressively we did in the first quarter. I mean, obviously we dubbed our defleeting needs. And we think when our competitors announce that it will be clear that we probably sold more fleet than they did in the first quarter in order to try to right size the business. But it's really -- it's really a -- couple competitors were extremely irrational during the quarter and that -- why they were, part of it may be chasing volume. We obviously think it's the wrong answer because it just creates an obvious lower market for everyone. Because no one wants to give up any share or volume.

Right.

So we think that's a bad tactic for any of our competitors to use. Gerry, you want to add something to that?

We sold more fleet also in the third and fourth quarter versus our competitors as we have discussed. I think we're seeing competitors sell more fleet now as the demand continues to deteriorate. But that pace of demand is causing the imbalance of the fleet level in the industry to the demand level so that's exacerbating the problem.

That was helpful and just one follow-up question to that and then I'll end. Your equipment depreciation levels were a little bit greater in the first quarter than I was anticipating, especially with your aggressive defleeting efforts. I'm wondering if that's -- if you could attribute some of that to a mix shift as you're bringing in new equipment at maybe higher cost? Or if we should really think about that depreciation level rising as a result of residual values of the equipment coming down?

I think the biggest impact in the quarter on our depreciation was that gain on sale of equipment was a $25 million lower profit than prior year. So we had a loss on sale that was lower than last year's small gain by $25 million. That's factored into the depreciation line and that's the single biggest piece versus any mix change you're referring to.

Okay. Perfect. Thanks so much.

Thank you.

And next we will go to the line of Brian Johnson with Barclays Capital. Please go ahead.

Good morning. Want to focus a bit on some follow-up questions around the equipment rental business. First, you talk on the last slide about some stabilization. Could you give some color around that? Is that in utilization rate? Pricing? Is that -- how does that play out geographically and in terms of aerial versus earth moving and so forth?

I guess when we look at the volume levels in the first quarter, February and March were tough months. Actually, probably a higher rate of decline than 26, probably in the neighborhood of 30 in those months, 30 to 31. And then what we've seen in April and what we were talking about during the discussion that we had in the script here was that the last three weeks we've seen volumes stabilizing around minus 28%, which is better than what it was in February and in March.

And because of that, we feel like there may be some stabilization and we may be seeing the bottom. Of course, it's an extremely volatile market and that minus 28 includes the pricing issue. Pricing hasn't gotten any worse. So we don't see it getting worse right now, but it's worse than it was certainly in the fourth quarter. And so that's -- again, we see a little light at the end of the tunnel in terms of the last three weeks, about last three and-a-half weeks, being relatively stable at a rate of decline in the neighborhood of 28%. Gerry, you want to add color on that?

No, as Mark just said, we had an acceleration of that decline throughout the quarter. But we're not seeing that in April. The decline has slowed fairly significantly to closer to flat. And then, again, versus prior year, we had a -- the decline started around April, May of last year so the comps are a little bit easier. So we're not seeing any incremental growth but the pace of decline is definitely slower and the pricing environment does remain competitive. There's no real improvement on the pricing side at this moment.

Okay, but. in terms of sequential volume seasonally adjusted it sounds flattish March to April?

Yes.

Correct.

Given the easier comp. Second is what is going on on pricing, it's easy obviously on the rental side to break that out but how on the equipment rental can we get underneath price versus volume in the revenue numbers?

Well, we talked about 2% decline last -- in the fourth quarter. It's dropped to 4% decline in the first quarter and we saw that sequentially get progressively worse as the months of the quarter went on. And this is reflective of what we have stated as some irrational behavior by some competitors where there is less selective pricing offered to certain customers as opposed to more broad based discounting based on the excess supply versus demand.

So the environment is less healthy than it was in the fourth quarter and that's what we're dealing with essentially. We have -- we're able to combat that somewhat in that we have long-term relationships with a large national account base. And that relationship allows us to look for other cost savings for those customers and be more selective in what we discount and how much we participate. So that's how Hertz combats it, but we are seeing a difficult competitive environment right now.

And in terms of the resale value, we've got Manheim again on the retail side. What indexes do you track and how do those look on the equipment side?

There's a Company called [Roust] that does a pretty good survey of the equipment rental companies and the auctions. And at the end of 2008 there reported about an 18% decline in year-over-year residuals at the end of December versus the end of December 2007. We don't have full numbers out for the first quarter, but we've seen the auction prices essentially fairly stable from the end of December through the first quarter. What we're selling into February and March auctions were pretty similar to the fourth quarter pricing so we suspect there's some stability there as well and that liquidity is very good. We're able to sell whatever we need to at those auctions but about an 18% year-over-year decline in residuals, net-net.

Okay. Thanks.

Okay.

Thank you.

Thank you. Next we will go to the line of Sundar Varadarajan with Deutsche Bank. Please go ahead.

Yes, hi. Thanks. Just a couple of follow-ups. First on the debt buybacks, could you go over what kind of restrictions you may have under your credit facility in terms of how much of senior notes and sub notes you can buy back?

There are restrictions and it's captured under a restricted payments basket. So --

Dollar amount?

It's -- the dollar amount, Scott, do you remember the calculation on it? It's also limited by our --

I think it's about $400 million.

About $400 million is what's available.

That's $400 million of actual cash out the door, right, not principal amount?

Are you talking about what's available?

Yeah. I mean, how much more can you buy?

How much more could we do?

Yes.

The basket limit's about $400 million.

About $350 million more on the high yield notes.

Did you hear that? $350 million more on the high yield notes.

Oh, okay. Got it. On the fleet debt side, both fleet as well as your overall fleet, do you think that you've kind of reached the bottom in terms of your total fleet size? And correspondingly in terms of fleet debt outstanding is this kind of the bottom level and as you go into the seasonal strength over the next couple of quarters we start some refleeting?

I would say that -- when you say the bottom of the fleet, let's be clear, right. So on a year-over-year basis, on comparisons, we'll still be down on fleet.

No, I'm just talking sequentially from going forward in terms of absolute cars.

The fleet debt will increase in Q2 and Q3.

Exactly. So it will increase the next couple quarters for sure.

As then you think about the refinancing requirement for the next year, based on the information available right now on a kind of average basis how do you think the advance rates on that $5 billion that will come due next year will differ from what you have right now? And also kind of the borrowing cost how do you see that impacting in terms of additional borrowing cost next year versus the average borrowing cost that you have on the $5 billion now?

Okay. Are you going to answer, go ahead?

So I guess couple things. First of all, we're confident that we're going to refinance all the debt coming due next year. And it's not a matter of whether or not we're going to get it done. It's going to be what the cost is, right. So, which means -- and one of things we think it will be from $3.5 billion to $4 billion. So $ billion at the most, [not $5 billion], in that range, $3.5 billion to $4 billion.

Question is also how much is it going to cost us when we refinance? We know it's going to be more than our existing deals. And our liquidity will cost -- basically, much of our liquidity will actually use up the cost of refinance. So right now we estimate the cost roughly at $100 million to $150 million more per year in interest expense. In that range. Between $100 million and $150 million. But remember we are anticipating generating $500 million in cost savings this year along and if things improve, it would cost us a lot less than it would today. That's our estimate today based on the knowns that we have in the door today.

Okay. You talked about the interest cost but what about the liquidity impact of higher advanced rates?

Yes, no. As Mark said, we have $1.7 billion of corporate liquidity today. And based on what we're seeing in terms of the market for enhancement levels, what we're talking about, the 55 to 60 for a AAA rated level, it would be about $700 million of corporate liquidity would be required to fund that.

Got it. Thank you.

And next we will go to the line of Rich Kwas with Wachovia Capital Markets. Please go ahead.

Good morning.

Hi, Rich.

Mark, on SG&A, how should we think about the fixed versus variable component of SG&A? You did a nice job where it was down significantly year-over-year. Going forward how should we think about that split in terms of numbers?

In general for us, 65% of it is variable, 35% of it is fixed, in general, that's just rough. But we have a lot more coming out that has not come out yet. Both -- on all three operations, we're delayering. And so whichever operation you want to talk to, we're delayering the organization going forward. So not customer facing positions but just efficiency around how we're layered and also efficiency in back room operations.

So every SG&A center is being looked at really hard. We've got solid plans in place through the end of the year. So what you're going to see is SG&A going forward going down year-over-year and as a percent of sales, and as a reduction year-over-year, it should improve through the year. Throughout the year. So while it was down 16%, it will be down more than that as we move through the year.

Okay. That's helpful. Thanks. And then Elyse, on the liquidity on slide 20, I see the note where it says $1.4 billion of borrowing base available at 331 and then $600 million of cash. How does that -- so do we assume that it's $2 billion total liquidity under all the borrowing base calcs for the Company?

For the corporate liquidity, yes.

Okay. So that's for the corporate only. Okay. Great. Okay. And then Mark or Gerry, could you comment on the infrastructure, the stimulus package and how you're positioning the Company to try to take advantage of that? I understand most of that probably won't come online until next year at some point but how are you thinking about that and how are you thinking about the opportunity?

Yes, Rich. We have information that shows us a listing of projects, dollars and dollars allocated by state, by MSA within the states and there's quite a substantial number of projects. It's a matter of the timing of kickoff of each of those. We don't anticipate -- we're not anticipating our estimates that will have a material impact on the business but as those projects come to fruition, it will start to impact some volume levels. We really think this is going to be well into the back half of the year, third or fourth quarter of this year. So there is enough detail out there, it is exactly when administratively the monies are let, contracts are awarded and they start infiltrating the business. But we're not anticipating anything in the next four to six months that's material at this point.

We have identified every single opportunity, the number of shovels in the ground, how many do you have and do you have some statistics around that are impacting us?

There's hundreds -- oh, yes, yes. There's 80,000 or so different specific projects that are listed and we can see those. So we have sales people involved in where those potential projects will start up so we're prepared. It's a matter of when the kickoffs are. We also have a connection through US Communities, it's an entity that deals with municipalities and state governments where we are a preferred vendor of that entity. And as state municipalities start to kick off local projects, we should have some positive impact from that as well. So we're attacking from two different ways. But we're not anticipating anything very material until the end of this year.

If you take a longer term view, I mean, is there any broad kind of number we should be thinking about in terms of the dollar opportunity if you look out over the next 24 months?

It's tough to say. But it's -- we're looking at a real rough range of $20 million to $30 million of potential revenues. And that's real -- a real rough estimate on those in the next 18 months or so.

All right. And then Gerry, last question on the -- on HERC. What's the mix of the portfolio right now in terms of assets? How much have you cut the earth moving equipment down to and what's industrial and aerial, et cetera?

Sure, sure. Right now, between aerial and material and link, so it's aerial, [sissolous] booms and material handling forklifts, that represents combined about 45% of our fleet at the end of the quarter. Aerial, 27, material handling, 18, so it's 45% in those two categories. That's more dedicated toward industrial although there is construction applications there. And earth moving is down to 23.5% at the end of the first quarter so that's substantial reduction over prior years. So we continue to reduce that earth moving mix against the aerial, industrial application.

And does that have room to go lower, the 23.5?

A little bit lower. I think we're getting close to the right number, 20, 21%. There's room as the demand levels are still not great from a commercial construction side, we'll continue to sell in those categories. And don't have plans to buy much fleet in that area so it will trickle down a little bit from here.

Great. Thank you.

Okay.

Thanks.

Thank you. Next we will go to the line of Jordan Hymowitz with Philadelphia Financial. Please go ahead.

Hi, guys. Thanks for taking my questions. Two things, on the page 24, where you calculate the leverage and the interest coverage ratio, I assume these are done on a trailing four quarters basis?

Yes, that's correct.

Okay. And can we just say what numbers we're using for the numerator and the denominator for both ratios today?

Sure. Give me one second. For March, for the leverage covenants, the EBITDA number is 943, $943 million, and the consolidated indebteds in is $3.873 billion.

Okay. For the interest coverage?

The interest coverage, obviously EBITDA is the same and interest is 357.

Okay. Next question is the impact of GM and Ford, you said it was detailed, the effects of it, where, I'm sorry?

In our 10-K.

And this $5 million sense -- 5% sensitivity for $50 million, is that for a full year?

That assumes that given the GM cars in the fleet today, if the residuals fell by 5% it would be $50 million. That would be recognized over the remaining life of the car.

So that -- well I guess because of the ten month average fleet it's probably all one year anyway.

Right.

Okay. And I think that's it. Thank you very much. I appreciate it. Oh, one more question. I apologize. Is your -- can you give us a status on your pension funding at this point?

Yes. We have an underfunded pension today and we anticipate that we will make some pension contributions this year in the range of about $40 million.

$40 million. And what's the net underfunded at this point?

It's about $200 million.

Okay. And is that calculated into the assumptions at this point on capital needs?

Yes, it is.

Okay. Thank you very much.

Thank you. Next we will go to the line of [Jonathan Chen with Private Management Group]. Please go ahead.

Good morning. I was wondering if you could talk a little bit about the spot market as far as pricing demand availability on both the rental car and the equipment rental side?

Spot market, what do you mean by that? I'm not sure I get that.

Like if someone were to walk into one of your rental facilities without a reservation what availability is like and what current pricing or demand is like?

Are you talking about current availability on walk-ups, is that what you're saying?

Correct.

Joe, you want to respond to that? Joe Nothwang will talk. Move the mic over to Joe.

The first thing to consider, I believe particularly for Hertz and for the rest of the industry is that we have inventory levels matched very efficiently with the current outlook for demand. That said, we do allow some flexibility at the point of sale and a controlled environment to negotiate a price for the walk-up customer. That represents less than 10% of our total business and in today's environment it's in the 4% to 6% range. But it is reasonably very representative of the types of rates that you would see displayed on Travelocity or any of the other online channels. So the discounting at point of sale is very minimal.

And obviously on the weekends we have more fleet available and we get more walk-ups there. Midweek if you were to come in on a Tuesday or Wednesday at a major airport you probably wouldn't be able to walk up and get that kind of demand because we're very fleet optimized anywhere from let's say, Tuesday through Thursday and Friday, okay?

Very good.

Now, you asked that on both the equipment rental and the Rent-A-Car side, right?

Correct.

So Gerry.

Seasonality in this season, the availability is good. Obviously we talked about the imbalance. There's still the slowing demand against a higher fleet level for the industry and for HERC as well. So the availability is good and except for the industrial and some larger equipment we'll be moving into some bigger projects right now. But mostly the earth moving and other small aerial products are available and accessible by customers. Which is what we talked about as far as putting pressure on pricing at this point.

That's all I got. Thanks, guys.

Okay. Thank you.

Thank you. Next we will go to the line of [Michael Millman with Millman Research Associates]. Please go ahead.

Thank you. Could you talk a little bit more about the -- your expectations for your fleeting for rack and particular I think you said you expected the fleet to be down next year with demand up? Maybe you can give us some more color on that and to what extent you're seeing the other industry participants matching your fleet levels?

Go ahead, Joe.

I think the key here, is to recall we said the fleet is down 15%. This is the US fleet. When our transaction days, the best metric to compare the efficiency of the fleet. So that 1.5 point efficiency level, we want to continue that or better as we proceed into 2010.

So just in terms of the future, though, we see obviously with limited visibility we have that volume levels will improve. Demand as you know, seasonality-wise, improves as well so we're going to have to fleet up sequentially in order to handle third quarter demand and second quarter demand that we're seeing. One of the things on the call that I mentioned was that our visibility so far in the second quarter says there's some upside off of what was a steady state demand level in the first quarter. Second quarter demand seems to be stronger than first quarter demand.

And as we look at the summer season, we've talked a lot with the airlines and looked at our own internal studies and we have a suspicion that third quarter demand will be better also than what was in the first quarter. So that means that we'll be rotating more fleet in, new fleet, buying new cars, at a little higher rate than what we originally anticipated in the first quarter of the year. That's about as much as I can say, Michael.

And when you say that you expect it stronger, do you mean stronger relative to usual seasonal --

First quarter. Stronger relative to first quarter. So instead of having transaction days-- right now they're at minus 13.4. Maybe they'll be -- I mean, we don't know. We don't know what's that's going to be but it could be three to four points better than that as you move into the third quarter.

I see, so you're talking about it relative to year-over-year, not absolute?

Relative to year-over-year, that's correct. But I said it was sequential so let me say it again. First quarter transaction days were down 13.4% in the US. And in the US we expect that to improve going into the second and third quarter. It could improve in the neighborhood of three points, three to four points. We're not -- again, not a lot of visibility right now. But on the limited visibility we have, there could be some upside over the demand rate that we saw year-over-year decline in the first quarter. So that year-over-year decline becomes less moving into the second and third quarter. Okay?

And to what extent are your prices on your res book limited as it may be showing -- to what extent --

Advanced reservations, Michael, are just absolutely worthless. I would tell you because we don't -- whatever they tell us, it's wrong. And that's what's been going on for the last four months. So we used to have a very stable way of looking at our business in the future and now the booking curve is so close in, people are not reserving cars in advance the way they used to. And there's no stability in that. If you use that data to gauge yourself, it's wrong more times than it's right. So advanced reservations isn't really looking for us anyways any more positive until it gets very close in and then it starts to improve. So we used to have maybe six weeks visibility, seven weeks visibility, now we're lucky to get two weeks visibility.

Could you give us some measure of the percentage of cars that you have been sending into the opaque channel year-over-year, quarter-over-quarter?

We use the opaque channel when we have extra cars on weekends, for example. And opaque channel we expect probably will be less and less used as we go forward because we're seeing improved demand, improved fleet utilization.

Can you quantify that at all?

No, I don't -- no, we don't quantify how much of our revenues go through channels like opaque.

Can you give us a --

Joe, you want to give any color on that?

I think the key to it is a safety valve that you can turn on and turn off based upon relative price level.

Trying to get some rough ballpark. Is it 10% of the fleet or is it 25% of the fleet?

We have not disclosed that kind of detail. As I said, it's a safety valve. If we do have excess fleet, market by market, we turn it on. Ideally, in the kind of environment we're looking forward, there will be less and less use of it.

And regarding Advantage, what's that mean for Simply Wheels?

It means that we will fold Simply Wheels probably into Advantage brand. So we're likely to take the current Simply Wheels locations and over a period of time make that an Advantage counter. Okay?

And will this -- will significant savings? Not significant savings?

The synergies between dealing in the leisure, the lower end leisure market with the Advantage brand provides significant synergies, particularly on the back end, administrative, financial activity. Yes. So there will be significant savings.

The Advantage brand made last year revenues in the places we were at were -- revenues were around $146 million pretax margins were actually about 7%.

7.5%.

7.5%. So I know some analysts indicated they didn't see how we could make 10% EBITDA margins. But if you do the math, last year 7.6% that means we would have higher than 10% EBITDA margins. So the existing business was generating that higher than 10% EBITDA margins. And we know that we buy the fleet better and we know that our back room operations costs are better. So again, we think this is a very good business for us to expand off of. And as I mentioned on the call, we're going -- we have 20 airport locations but we're also negotiating at airports all over, all the time, for new space. And our expectation is very quickly to expand this to at least 40 markets.

Great. Thank you very much.

Yes.

Thank you. Next we will go to the line of [Chris Daugherty] with Oppenheimer. Please go ahead.

Good morning.

Good morning.

I just wanted to ask a little bit about the rental -- the revenue per transaction day. I think you said in the statement that it was down 3%. But can you also give some color on ancillary revenue and what's happening there? That looks like it might have been down a little bit more.

Yes, I think that you're right, that ancillary revenue was down. We were disappointed with our results. We kind of knew why it happened, though. There were two things going on. One is we reduced some of our compensation on ancillary revenues and we relaunched a program because we were in the middle of transitioning from one program to another. That transition caused a lapse in the month of March. We were surprised how much it was tied to compensation. That was one of the issues.

In terms of -- also, another issue for us is business travelers as you might imagine are cutting some of those ancillary. Like never lost for example, instead of electing to have never lost, some are electing not to have never lost and it was in their profile. So we came up with a new strategy on that as well with our corporate customers giving them additional incentives to use never lost. Joe, you want to talk about on accelerating revenues?

Yes. Gasoline is the other issue. Very lucrative opportunity for us on the revenue side with gasoline purchases at the Hertz facility. The dominant customer in that segment is the commercial customer. And with commercial travel down that has been a drag on our ancillary revenue.

But we think there's upside in there going forward based on -- if you look at first quarter's performance, we don't expect to repeat that, so.

And Mark, can you talk a little bit more about the synergies? I think in the presentation there was $125 million that was realized in Q1 and then you say that you've increased the year's expectation of $500 million. Does that mean you basically hit the run rate for this year?

Well, I mean, no, it doesn't mean. We just upped the number. Obviously, you're right, the first quarter demonstrates that those cost actions already have traction, right. But we also have incremental ones to be announced. And as you may or may not know, I mean, based on our track record, we try to over deliver on cost savings and so whatever number we give you, we're more than confident in that number and then some. I think some of those cost savings become volume related and but based on the current trajectory and the way we see the business, those cost savings are real and we should deliver on that number and then some. That's the best way to answer it, I guess.

And then Elyse, just a little quick housekeeping. Can you tell us what the AR and AP balances were at the end of the quarter?

AR and AP balances. You want if -- I have that handy. For the consolidated Company?

Yes.

Hang on one second. I think I have it. At the end of the quarter, accounts receivable -- and this is just corporate accounts, this does not include fleet. Was about $700 million, just a little over $700 million. And accounts payable was about $525 million. Ballpark.

What was the fleet? That's what I'm actually trying to get to, is understand that.

The fleet receivables?

Yes.

The fleet receivables at the end of March were about 365 and the fleet payables were about 405.

All right. Thank you.

Next we will go to the line of Adam Silver with Babson Capital Management. Please go ahead.

Yes. Good morning. Just had a couple questions around your year-over-year cost on your 2009 model year cars. What's been the cost change from 2009 versus 2008 and can you break that out on a program versus non-program basis?

On the car costs, it's a function of the car sales losses and it's a function of the mix of the fleet year-over-year. So we obviously adjusted the depreciation rates in 2008 and some of that gets reflected in 2009. And until we can circulate out the model year 2008 cars into the new model year 2009 cars, that monthly depreciation's going to be up year-over-year.

So in the quarter, it was up around 10%, 10% to 12%. The bulk of that was in Europe where there was heavy defleeting activities in the first quarter as we -- as their model year cars begin at the beginning of the year. So they're a little bit delayed versus the US. In the US the car costs were only up about 2.7%. And again, these will mitigate as the year goes on.

Okay. And then have you guys started your negotiations with OEMs for model year I guess 2010?

Preliminarily. We're just in the early stages.

You haven't heard any color on how that's going? Do you expect costs to continue to go down as we enter that model year?

Yes. That's about the best I can give you as an answer.

And then my last question is what's your risk to program mix that you're planning on for 2010? Is it still around 50/50 or is that going to change a little bit with --

It's been around 70/30 for a while now. So I expect it to be about 70/30, 75/25.

Okay. Thank you very much.

Thank you. I think we'll take one more question, operator.

Okay. [Sam Apebonia] with Columbia Management. Please go ahead.

Good morning. I think most of my questions have been answered, just want to follow up on housekeeping item. You mentioned the repurchase of the high yield notes. Can you give me the breakdown again and confirm for the last time sort of what the availability is for 2010?

The breakdown is we bought about 50 -- it's 150 million of par value. 55% of that was the senior subs. About a third of it was the senior notes and the balance was the Euro notes. And in terms of our available basket for debt buyback, it's about $350 million.

Remaining?

Correct.

Okay. Thank you.

We're not saying that we're going to do that. We aren't saying that we're going to do that.

No, I understand.

That's how much is available, right.

Okay. Thank you. Appreciate it.

Thank you.

And back to you, speakers.

Okay. Thanks very much, operator. Thanks everyone for being on the call. We'll look forward to talking to you next time.

Ladies and gentlemen, that does conclude our conference for today. Thank you for your participation and for using AT&T executive teleconference. You may now disconnect.