Herc Holdings Inc (HRI) 2009 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to the Hertz Global Holdings 2009 third 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 the 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 third quarter results issued yesterday and in the risk factors and forward-looking statement section of the Company's 2008 Form 10-K and second quarter 2009 Form 10-Q. Copies of this filing are available from the SEC, from 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 as 12:30 pm Eastern and running through November 13, 2009

I would now like to turn the conference over to our host, Leslie Hunziker. Please go ahead.

Good morning and welcome to Hertz Global Holdings 2009 third quarter conference call. You should all have our press release and associated financial information. We have also provided slides to accompany our conference call which can be accessed on our website at www.hertz.com/investor relations. In a minute I will 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 & Leasing, The Americas and Pacific; Michel Taride, Executive Vice President and President Hertz Europe Limited; and Gerry Plescia, Executive Vice President and President of The Hertz Equipment Rental. They will be on hand 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 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., the publicly traded company. Results for the Hertz Corporation differed only slightly as explained in our press release.

Now I will turn the call over to Mark Frissora.

Good morning, everyone, and thanks for joining us this morning. Hertz employees did a great job delivering strong third quarter results in what remains a challenging economic environment. Our success was driven by an optimized business mix, improved utilization, reduced expenses, and lower fleet costs. Our financing performance has been equally strong. As you know, with our recent ABS transaction, we've essentially completed our US refinancing objective one year ahead of maturities. Since May we've raised $4.3 billion in three very successful financings where pricing came in much better than originally anticipated. And just this week S&P put us on positive outlook. Elyse will give you the details but I wanted to let you know that we said we could get this refinancing done all along, we knew we could, and my team has not only delivered on their word but they have exceeded my expectations.

Our operating performance has also exceeded expectations. As you know, the third quarter is always an important one in the rental car industry as travel demand peaks during the summer months. As always, we executed for growth and profitability and we were rewarded.

On slide 7 our worldwide rental car adjusted pretax margin was up 630 basis points over last year to 14.7% as a result of fleet and labor efficiencies, better administrative productivity and the closing or consolidating of under-performing locations. Remarkably, this is only 50 basis points lower than the pre-recession 2007 third quarter adjusted pretax margin. We are definitely closing the gap on pre-recession profitability and worldwide rent a car. More specifically, the biggest driver of the improvement was US Rent a Car which is benefiting from both better than expected leisure demand and disciplined cost management. To think that US adjusted pretax margins have rebounded 800 basis points from a year ago is remarkable especially given the 9.2% decrease in revenue. This result clearly shows the ability of the business to leverage sales at lower growth rates.

For consolidated adjusted pretax income on slide 6, we achieved a 15.5% increase year over year despite 15.7% lower revenues. This translated into a 9.6% adjusted pretax margin compared with a 7% margin in last year's third quarter and a 4.6% margin in the 2009 second quarter. Our corporate EBITDA margin for the consolidated business was 19% in the recent three month period. That's up from 16% both one year ago and in the second quarter of 2009.

Through lean Six Sigma products, like strategic fleet management, back office reengineering, organizational redesign and utilization improvements, we have led the industry in cost management. Year-to-date we achieved $535 million of incremental consolidated process improvements and we think we will capture at least another $85 million by the end of the year which will exceed our target of $570 million for all of 2009. The savings include a reduction in net depreciation per month per unit in our worldwide car rental business but they do not include the nearly $800 million of costs taken out as we flex labor and fleet down to align with lower demand levels. All of these cost actions led to adjusted pretax profit retention of 107% in the 2009 third quarter compared with 85.9% retention in the recent second quarter. If you look at it from a corporate EBITDA perspective, which is similar to our metric for covenant calculations, profit retention was 100.4%. This is our fourth consecutive quarterly improvement in profit retention and we expect the fourth quarter's performance to follow this important trend.

In the third quarter, US Rent a Car represented 54% of total revenue, international rental car accounted for 32% and the equipment rental business reflected the balance. I'm going to walk you through some of the highlights of the quarter by business unit. Let's first look at US Rent a Car on slide 7. As I mentioned, we continue to benefit from increased rental length in the US recording a 4.8% improvement over last year which supports our better fleet utilization. The extended rental link and an improving trend in transaction days supported a 1.2% increase in revenue per transaction year over year. Fleet efficiency was outstanding for US Rent a Car in the quarter.

Let me give you a couple of measurements. US fleet was down 8.6% which helped drive our US rental car fleet efficiency up 398 basis points compared with last year and 216 points better than the 2009 second quarter. Net depreciation per month per vehicle improved by 11.9% and we expect this trend to continue. Residual car values in the US are continuing to strengthen sequentially as supply of one and two-year old used vehicles remains tight and used car dealer inventories need replenishing. However, our focus in the third quarter was on utilizing our fleet to capture the higher demand rather than selling fleet to drive profits. As a result, we generated only $2 million in car sale gains worldwide and sold 26% fewer risk cars than in the prior year quarter.

Our new value brand, Advantage Rent a Car now has 22 locations in operation from the original four opened at the time of the acquisition in April. It is maintaining its mid 20% market share with third party online websites and is expanding its margins. These results are exceeding our expectations.

US Rent a Car field labor costs were down 12% during the quarter compared with an 8.4% decline in total transactions year over year. This is evidence of the success we are having in driving labor efficiency through process improvements across our largest business unit. In the US, advanced bookings are holding up in the seasonally weak fourth quarter which is encouraging. Today we have visibility through the end of the year and we are becoming more optimistic each week. Our biggest challenge in US Rent a Car continues to be in the business travel market where demand is weak but improving. According to our analysis of data from airline global distribution systems, for the third quarter year-over-year business travel reservations declined 13% while leisure travel was off only 5%. However, industry wide corporate travel reservations improved more than leisure during the third quarter. Similarly, volumes in Hertz commercial business have been gradually improving each month. For the third quarter 2009 US commercial shall transactions declined 13.6% year over year but were better than the 21.8% decline in the second quarter. The improvement is being driven by both new and existing contracted accounts.

Finally, we recently renewed and extended our exclusive partnership agreement with AAA through 2015. This is noteworthy because AAA is our largest exclusive partnership with annual revenues approaching $500 million a year.

Our European business is experiencing positive trends similar to our US Rent a Car operations as revenue per transaction and rental link both increased year over year and advanced bookings reflect signs of recovery. This is on slide 8. The pace of improvement, however, lags the US as transaction days were down 8% compared with a domestic decline of just 4%. And the used car market remains weak for a majority of the countries abroad so while Europe's retraction is leveling off its recovery is fragile. In support of this, we operated with 10% less fleet in the third quarter versus a year ago and drove a 1.5% increase in length of rentals. As a result European fleet efficiency improved 177 basis points to 81.6% year over year and was 467 basis points higher than the 2009 second quarter. Europe's third quarter adjusted pretax margin was up about 410 basis points in constant currency over last year as the benefits of our European restructuring program targeted streamlining and consolidating regional operations, centralizing work and delayering the organization are paying off.

Overall the improving trends in the rental car business are going a long way to offset the challenges in the equipment rental which normally is a stronger contributor to profits. For example, for the full year 2007, worldwide equipment rental made up 54% of our total corporate EBITDA and 20% of our total Company revenue. Comparatively, in the recent third quarter it made up 30% of our total corporate EBITDA and 14% of our total Company revenue.

On the next slide in our equipment rental business, we believe volume is stabilizing at trough levels. Pricing pressure, however, continues. In the third quarter our equipment rental pricing fell 8.6% over last year from a decline of 7.4% in the second quarter and 4.2% in the first quarter. A big reason for the deep discounting is that the industry continues to be overfleeted, and as some competitors continue to offer significant discounts pricing remains under pressure across the entire industry. Today residual values at auctions are down 25% from last year causing most rental companies to hold on to their fleets. For the most part we will be on the sidelines in terms of de-fleeting while we reinforce disciplined pricing throughout our sales force by modifying our incentive programs as we focus on generating new sources of revenues and capturing new customers.

In the third quarter, we won or renewed several national accounts including Rail Marketplace, a strategic sourcing business for North America's largest railroads, DuPont, a science-based products and services company, and Mosaic, a world leader in agricultural services. Combined we think all of this activity will add at least $8 million to annual revenue. Similarly in our recent form to HERC entertainment services division we continue to expand our presence with movie and television production companies. This is a niche market where pricing is strong and our ability to provide a one stop shop for vehicle and equipment rentals gives us an edge over incumbent regional players.

As a balance to pursuing top line strategies, we are further tightening Hertz cost structure by rationalizing locations and implementing long term process improvements. This discipline enabled us to generate a corporate EBITDA margin of 41.9% for equipment rental in the third quarter.

Now, let me talk for a minute about our growth opportunities and opportunities to optimize our business mix before turning the call over to Elyse for a detailed financial review. Our businesses have differentiated themselves even more this year from others in the marketplace. As a result, we are driving traffic and retaining and gaining customers through new and innovative programs for growth. These programs will serve us well when the consumer confidence returns and discretionary spending ramps up.

On slide 10 we have outlined several of our initiatives. In the third quarter our US prepaid rental program continued to build momentum generating $26 million of revenue in the third quarter which is a 3% increase from the second quarter. Since its launch in December of '08 this program has delivered $62 million in revenue. Connect, our car sharing program now has more than 10,000 members worldwide and we're working to add car locations quickly. In the first quarter of 2010 Connect by Hertz will be the first car sharing company to offer very competitively priced one-way rentals from Manhattan to New York City area airports.

Our US mult month rental offering which is being promoted as a monthly lease alternative generated 29% higher revenue in the third quarter versus last year. I have already told you how well the Advantage integration is going. I'm really pleased with the early benefits we are accruing from this new value brand and in 2010 we expect to more than double the number of locations to 50, and have plans to introduce a new value proposition for the brand based on a blend of products and efficiencies geared specifically to the value consumer.

Our over--arching goal is long-term profitable growth. It would be easy for us to run a considerably smaller fleet, yield pricing up, and only take very high RPD business but we know that's not a sustainable strategy. Instead on slide 11, we want to be the number one broad-based company fulfilling the rental needs of business, leisure, insurance replacement, hourly and leasing customers. Essentially all mobility markets. The diversity of our customer base results in earnings power and stability over the long-term. Each of these components of mix has different demand, pricing and cost characteristics. But as long as we are making an incremental return per rental we will continue to grow and diversify our business.

And while of course we're focused on price we are not willing to forego profitable growth just to be able to report higher revenue per day. We focus on adjusted pretax profit per unit to measure our success. This metric tells us how well we are managing all facets of the income statement. Price, mix, volume, cost efficiencies and asset utilization. In the third quarter Worldwide Rent a Car adjusted pretax profit per unit was up 70.4% from last year. Our diversification of markets and products, a long-term competitive advantage for Hertz in terms of achieving market growth, expanded customer service and protection against economic shocks to a single business, product or market.

Today, more than one third of our US rental car revenues come from the business travel. On slide 12 I'd like you to pay particular attention because I believe there has been a lot of confusion in the community at large about RPD. On slide 12 we show you that this is a typical one-day to two-day mid-week rental with very favorable RPD statistics. However, in this economy our business rental volume has been down double digit percentages and pricing has been under pressure. In contrast our off airport strategy, which is part of our plan to pursue a stronger growth profile, is made up of longer length insurance replacement, leisure and mult month rentals. These rentals have much better volume trends and better utilization this year but contribute lower revenue per day than the on airport rental. On the slide you can see that both weekly leisure and insurance replacement generate higher contribution margins than the business rentals margin. But in the end, all of the businesses are profitable and that makes each important to our long-term strategy. Note on slide 12 that the lower RPD business is the highest contribution margin per day.

To further emphasize how well our diversification strategy is working I point out we saw a volume switch in the third quarter where on airport transaction days were down 8%, while off airport transaction days were up 5%. So you see this mix shift lowers RPD but actually improves contribution per day.

In addition to mix, pricing is often determined by how much value is being provided to customers. On slide 13, this is a very important slide as well, please pay particular note for all of those that would question us on RPD. On slide 13 we give you a point in time snapshot for the rental industry pricing based on an average weekly rental. You can see that Hertz, as a premium supplier to business and leisure travelers charges one of the highest rates in the industry but in a value driven market like today, for us to increase rates to the same degree as our competitors would basically price us right out of the market. So in this example, while we have increased weekly rental prices $91 over the past year, our competitors have been able to generate greater increases due to their much lower base rates. Our strategy, as a result, has been to increase prices along with the industry as warranted by supply but to reduce the pricing spread between Hertz and our lowest price competitor.

In addition to our pricing strategy we are also looking to capitalize on opportunities to increase ancillary revenues by doing a better job at upselling car classes and marketing additional classes like GPS, child seats, ski racks and DVD players. Upselling is an extremely effective way to increase revenue, and admittedly we are not the benchmark. We believe we have a significant opportunity to grow in this area. As you know, the easiest way to increase sales is to sell more to someone who is already buying. In the third quarter we hired an expert, initiating a training program and set goals, incentives and rewards to keep exceptional customer service reps motivated to upsell, and we've recruited new reps based on their people skills and attitudes. As a result of our refocus on upselling techniques we expect to report higher ancillary revenues in the fourth quarter.

In the meantime we continue to be strategic with our marketing initiatives and innovative with our product offerings. We have already seen our service scores climb. And the plans that we have in place for growth will reposition us to deliver even more for our customers. I'll note that our customer satisfaction scores as measured by NPS (net promotor score) are actually back up to year ago levels pre recession. I'm very pleased at achieving this on customer satisfaction.

With that, I will turn it over to Elyse for a more detailed financial review.

Thank you, Mark. Good morning, everyone. Before I get to the numbers, I want to review the actions taken on our refinancing initiatives on slide 14. We have been very active of late, as I'm sure you have seen. In our last call we discussed our expectations of closing on the US conduit refinancing and a possible ABS term note issuance in the fourth quarter. I'm pleased to report we closed on the conduit facility in September, and the $2.14 billion raised exceeded our target. And based on very favorable market conditions two weeks ago we were able to close an ABS term note transaction and now have essentially completed the refinancing of the US fleet debt maturities earlier than we expected.

We raised $1.2 billion in ABS notes that were AAA rated by Moody's. The transaction consists of $500 million in three year notes and $700 million in five-year notes at fixed coupons of 4.26% and 5.29%, respectively. Our initial intention was to raise $500 million to $600 million in three-year financing but the deal was significantly oversubscribed. This allowed us to up size the transaction, get term extension and at the same time achieve very favorable pricing. The blended annual interest costs on the notes is 4.91% as shown on slide 15. The fact that this yield was actually below the cost of the notes that were issued in December 2005 by 49 basis points helped in our decision to increase the amount of financing raised.

So let me summarize the accomplishments made over the last six months on the refinancing front. In May we issued equity and convertible debt to preserve our corporate liquidity in light for the need of greater credit enhancement on ABS financing. The $990 million raised sufficiently addresses the corporate financing requirement to the changes in the advance rates. The advance rates achieved on the new financings are between 66% and 67%, in line with our original assumptions. As a result, we will continue to enjoy ample corporate liquidity to fund future growth opportunities.

In September we closed on the US conduit refinancing. The majority of our existing banks participated in the transaction and, in fact, we added a few new banks. Again, the transaction was over subscribed so we were able to refinance $2.14 billion above our original expectation of $1.5 billion at a spread of only 250 basis points over the bank's cost of funds. And we extended the term for a little more than two years.

Finally, with the ABS note issuance we've completed the US fleet debt refinancing. The remaining fleet debt to be refinanced is overseas and we are well into those negotiations even though the final maturity isn't until December 2010. We expect to complete the international refinancing sometime in the first half of 2010 and are pursuing several structures, including amending and extending existing bank conduits, new asset backed loans as well as leasing and OEM financings.

We still anticipate that our refinancing efforts will result in an increase in annual interest costs in 2010 in part due to the fact that we are prefunding the 2005 series notes in advance of the maturity dates. However, the expected increase is reduced from our original estimate based on the better rates we have secured. We now expect incremental expense between in 2010 to be between $90 million and $125 million which is a narrower estimate than the $100 million to $150 million we quoted back in June. Our savings from process efficiencies and cost management will more than offset the additional interest expense.

With that, let's get into the consolidated financial results on Slide 16. In the third quarter we generated more than $2 billion of consolidated revenue. A 15.7% or $380.5 million decline year over year. But in spite of soft revenues adjusted pretax earnings improved significantly. Adjusted pretax income of $195.3 million was up 15.5% or $26.2 million from the third quarter of 2008. And the adjusted pretax margin improved 260 basis points to 9.6% compared with last year.

And for corporate EBITDA we delivered $388.1 million in the quarter and expanded the margin by 300 basis points to 19%. The third quarter results reflect better than expected demand from both US and European car rental businesses offset by continued weakness in the equipment rental business which is still experiencing declines in revenue and low fleet utilization. Adjusted direct operating and SG&A expenses were reduced by 16% and 19%, respectively. Both were also down as a percent of sales. The overall profit improvements are due to management's focus on aligning operations to market conditions, the sustainability of cost savings which drive labor and fleet productivity, reduced corporate overhead and lower interest expense year over year.

Adjusted EPS was $0.31 versus $0.33 per share. Adjusted net income increased by 17.5% in the quarter while the number of adjusted diluted shares outstanding increased by 82.2 million year over year to 407.7 million primarily as a result of the equity transaction having a negative $0.07 impact on the adjusted EPS calculation. GAAP net income in the quarter was $64.5 million up $46.8 million or 264% improvement over the third quarter of 2008. Diluted EPS on a GAAP basis was $0.15 versus $0.05 per share. The higher number of weighted average shares outstanding had a $0.05 negative impact but was more than offset by reduced restructuring expenses, improved earnings due to efficiency improvement and cost controls, and lower interest expense this quarter versus the third quarter of last year.

Now let's review the performance trends by business unit. Starting with Worldwide Car Rental on slide 18, year over year revenue for the quarter was 11.5% lower or 8.9% excluding the effects of foreign currency, a sequential improvement from the 19.4% decline reported in the second quarter. In the face of this decline, our total adjusted direct operating and SG&A expenses fell by an even greater 14.4% from last year's level. This, together with improved car costs, helped generate an adjusted Worldwide pretax margin of 14.7%, up from 8.4% a year ago and a corporate EBITDA margin of 16%, an increase of 630 basis points.

In US Rental Car direct operating expenses and SG&A were both down in line with volume and also down as a percent of total US revenue year over year. Our cost actions helped offset the US revenue decline and contributed to the year-over-year improvement in adjusted pretax margin. Additionally, our acquisition of Advantage Rent a Car helped us capture more of the higher demand in the leisure value market.

In European Rental Car expenses were also down, in line with volumes, and down as a percent of revenue. The third quarter head count reduction related to our restructuring program resulted in a 10.3% increase in labor productivity. We are continuing to adjust to the still somewhat volatile economic conditions overseas. And as a result in the third quarter we closed or consolidated a net nine under-performing rental car locations across Europe. All of this supported the double digit adjusted pretax margin that Europe delivered, as Mark highlighted.

Fleet efficiency, another important driver of profit, improved to 82.4% in the third quarter with average worldwide fleet units down 9.3% compared with last year's level, outpacing the 5.8% decline in worldwide rental car transaction days or volume. This is on slide 19. As a result, total worldwide car fleet efficiency improved roughly 300 basis points from both the second quarter of 2009 and the third quarter last year. The improvement is being driven by fleet planning and distribution efficiency and the effective use of alternative channels for vehicle sales. More than 37% of our car sales in the third quarter came from alternative channels.

One such car sale channel is our new rent to buy program which allows us to sell risk cars at higher residual prices with lower transaction costs and at the same time drive utilization improvements by keeping cars on rent right up to the point of sale. Year-to-date the number of days to sale in car sales inventory has dropped by approximately 50% to less than 15 days. In the US, our average fleet year over year was 8.6% smaller on 4% lower demand as measured by transaction days. The average size of the fleet operated in our international markets was down 10.4% while demand there fell 9%. Managing our fleets more efficiently by downsizing in line with demand and improving utilization with a better mix of rental length enables us to drive a higher return on invested capital.

Let's take a look at car rental monthly net fleet depreciation per unit or car costs. Our year over year worldwide car costs were 7% lower in the latest quarter. In the US we reduced car costs 11.9% compared with the 2008 third quarter. As you can see on slide 20, our domestic monthly depreciation costs have been decreasing sequentially since the fourth quarter last year when used car residual values were at an historic low. The improvements in car costs since then are attributable to our supply chain's disciplined fleet sourcing strategy, better portfolio mix, and improved residual value. We anticipate continued improvements in car costs throughout 2010.

As you can see on slide 20, our US car residual values are remained stable on a monthly age adjusted basis since June. This favorable trend compels us to delete more of our older, higher cost vehicles in the third quarter and replace them with lower depreciation new cars which allows us to reduce the average age of our total fleet. In Europe, while improving, monthly depreciation per unit was still higher year over year. However total car costs per unit which includes fleet interest were better by 3.7%. On a worldwide basis our fleet at the end of the third quarter was 63% risk with an average fleet age of 9.6 months, up 1.9 months year over year. At September 30, risk cars in our US fleet represented 66% of the domestic fleet and the average age of the overall US fleet was 9.9 months compared with 8 months in the third quarter of 2008. US risk cars at the time of sales currently average 20.5 months of age.

Now let me discuss the results of our equipment rental business on slide 21. HERC revenue was down 35.2% to $280.5 million in the quarter. Worldwide volume was down 28.7% compared with last year, a slight improvement from the second quarter's 29.8% year over year decline. However, pricing is still under pressure, as Mark noted. In spite of weak revenue HERC reported solid margin performance achieved continued aggressive cost actions. Since the third quarter of last year we have reduced HERC's worldwide head count by 24%. In addition, work hours in many locations have been reduced and furloughs mandated. We've also closed or consolidated 52 under performing branches since the beginning of the third quarter 2008 and 23 locations year-to-date.

Moving to slide 22. At September 30, 2009, our equipment fleet on a first cost basis was down 14.1% year over year. As equipment fleet net book value disposals of $24 million in the quarter outpaced purchases of $18 million, we reported a net capital inflow of $6 million compared with a net capital outflow of $54 million a year ago. You will recall that last year we were de-fleeting aggressively in the third quarter when demand dropped off precipitously. Year to date 2009 disposals in constant currency were approximately $168 million versus year to date purchases of $51 million. For year-to-date 2008 in comparison, disposals were $227 million, also in constant currency, and we bought $242 million of new equipment.

At September 30 our worldwide equipment wide fleet age was 42.5 months, a two-month increase from the end of the second quarter. We still feel comfortable aging the fleet into the mid-40s without deteriorating the customer experience because our growing mix of industrial equipment tends to have longer useful lives than our declining mix of construction equipment. Furthermore, with demand weak the fleet is not experiencing as much wear and tear, therefore extending its useful life even as the absolute age increases.

Restructuring and restructuring related charges in the third quarter are outlined on slide 23 and they were $47.1 million, of which $34.9 million was cash compared with $85 million in restructuring charges last year. These charges mainly are due to employee terminations, facility closing costs, and losses on the sale of surplus equipment. Nearly half are related to the European restructuring mentioned earlier which is driving improved labor productivity. The bulk of our restructuring efforts are behind us and therefore we anticipate significantly reduced restructuring costs going forward.

The tax provision for the 2009 third quarter was $6.9 million versus a provision of $2.9 million last year, an effective tax rate of 9% for the quarter. Cash taxes paid were $6.7 million in the latest three months ending September 30 compared with $7.7 million paid in the prior year, primarily as a result of lower tax payments in Europe. At this time we expect the full year effective tax rate for 2009 to be between 23% and 27% but on an adjusted basis we use a rate of 34% which is a more normalized rate over the long-term. We expect our cash taxes to be roughly $30 million to $33 million for all of 2009 comparable to the amount paid in 2008.

Now if you turn to slide 24 you'll see the quarterly financial covenants that we are required to meet under our corporate credit facilities. As of September 30 our consolidated leverage ratio was 4.39 times well below the maximum 5.5 times allowed. The interest coverage ratio was 2.56 times, well above the minimum required of 2 times. As a reminder, the convertible debt issued under Hertz Global Holdings in May is not counted in these covenant calculations since the covenants only apply to the Hertz Corporation results.

Next let's look at our cash and debt position on slide 25. Cash flow is typically negative in the third quarter due to higher fleet levels to meet demand for the peak travel months but with the receipt of $200 million in the quarter from closing on the private placement portion of the equity transaction, cash flow was positive. Total net cash flow reported was $70.8 million for the third quarter. It was a cash use of $130 million if you exclude the impact of the equity transactions which is still favorable when compared to 2008 when we reported a net cash outflow of $157.7 million. Third quarter levered cash flow, which is cash available to pay down corporate debt, was a source of $369.1 million compared with the use of $335.1 million last year.

The more than $700 million improvement in cash flow was in part driven by a positive change in our advance rates from roughly 67% in the second quarter to about 72% in the third quarter. The lower second quarter advance rate resulted from prepaying fleet debt with the proceeds from the equity transaction. Cash flow also benefited from an improvement in working capital for our net working capital days were negative 19.5 compared with negative 16.8 last year.

As we look forward to the fourth quarter cash flow will not be as positive as in prior years. The typical pattern of de-fleeting that occurs as seasonal demand diminishes was exaggerated last year at the heigh of the recession. This fourth quarter with improving domestic volumes and overall better car mix, we expect cash flow to come in at a more modest level. We ended the quarter with total net corporate debt of $3.6 billion, total net fleet debt of $5.4 billion and $927 million of unrestricted cash on our balance sheet. Year over year we reduced our net corporate debt by $608.6 million. Additionally, our net fleet debt was lower by almost $2 billion on a year-over-year basis as we reduced our fleet size, as well as prepaying fleet debt with the equity proceeds, as I just mentioned. Total debt decreased by $623.9 million to $10.3 billion from December 31st, 2008. And today we have nearly $2 billion of corporate liquidity which is up from $1.7 billion in the second quarter.

And with that, I'll turn it back to Mark.

Thank you, Elyse. Let's move to slide 26, if we can. We built strong momentum during the past nine months in a very tough economy and we are taking what has worked for us and working hard at doing it even better. Everyone at Hertz is fully aware of the macro challenges the industry is facing and we know the importance of staying focused on our strategies of aggressively pursuing new profitable business while at the same time being very proactive in reducing costs.

In US Rent a Car, volumes are turning positive year-over-year as the comps get easier and demand maintains its upward trend. As I mentioned, even commercial account times were better in the third quarter than the second quarter and the pace of decline in October is much better than what it was in September. To give you a feel for that, just a quick statistic. 45% of our top 20 accounts in the US are flat to up year over year in the month of October. Significant improvement. So that's on the top 20 accounts.

The other thing that is going on in US Rent a Car is pricing is strengthening every day. Pricing in October we expect probably will be up at least 3.5 points even on an RPD basis, which is really not pricing but we expect that even to be up and therefore even up more significantly on a pure price basis. So again, pricing has been holding up and appears that it will hold through November, December, Of course that could change with any lessening of demand as you might expect because then people become overfleeted and pricing is at risk. But in general we feel pricing will be strong for the fourth quarter in US Rent a Car.

Monthly depreciation per vehicle in the US continues to decline as we sell out of our 2008 fleet at higher year-over-year residual values and we rotate in a substantial portion of our lower cost 2010 fleet. Our 2010 fleet, as I said, will be lower costs for sure next year in time for what looks to be really a strong holiday season. By year end we are expecting our fleet to be flat to up 1% to 2% with transaction days and pricing slightly higher. Essentially we are rotating out nearly as many cars as we are bringing in to satisfy the higher demand. So you can see we're still going to be tightly fleeted at the end of the year. We expect monthly depreciation per vehicle in the US to be down about 4% for the full year 2009 which should further improve our adjusted pretax margin for 2009.

Since mixed plays a substantial role in the pricing outcome as I told you earlier, we have substantial opportunity to improve pricing through better mix management. Our 2010 buy, for example, will reflect our growing relationships with the investment grade Asian auto makers. Where Toyota currently makes up 13% of our total fleet today, it should increase to roughly 27% for 2010. Our risk versus program vehicle mix is expected to remain the same at 70/30. However, our fleet will be richer as we bring in higher yielding mid-sized, luxury and prestige collection cars to fulfill a shift we're seeing in car class demand. All in all, we're significantly reducing fleet costs while at the same time upgrading what is already the highest quality, most desirable fleet mix in the industry.

In Europe, we talked about the economy improving but volumes there are still under pressure. While leisure demand looks relatively stable through the end of the year we see no signs of a comeback in the used car demand as a result of successful and ongoing scrappage programs. We do, however, have the ability to hold our cars longer while continuing to retain a competitive fleet age. And our restructuring efforts are starting to drive pretax margin in that region as we saw in the third quarter which should help offset the volume and pricing weakness that is still being realized in most regions overseas.

On the equipment rental demand, overall we have seen a flattening of equipment rental demand in the last few months and are hopeful we have reached the bottom of the cycle. Pricing pressure appears to have stabilized since the end of the quarter. Despite the uncertainty in Europe and the challenges in worldwide equipment rental, I'm encouraged and pleasantly surprised by the positive developments we are seeing in our US rental car operations. The trends are proving to be much better than our original planning assumptions. The economic outlook for the fourth quarter GDP has risen based on a stronger starting point provided by the solid end to the third quarter.

The change in our outlook and the economic outlook cause us to update our previous financial guidance for 2009 which is laid out for you on slide 27. We believe we have achieved the low cost position in the industry with the highest quality outcome as it relates to customer satisfaction. Our net promotor score has improved significantly through September, and we'll continue to focus on improving customer satisfaction by using technology enablers to transform the customer experience. We are well positioned to manage industry conditions today, while at the same time setting ourselves up for success over the long-term. We have got the right strategies in place and the most effective people executing those strategies.

Having said that I want to acknowledge that investors have been legitimately concerned about three issues for Hertz this year. First whether OEM bankruptcies might hurt the Company. Second, whether we could refinance our fleet debt and the cost of financing that fleet debt. And finally whether we could possibly improve profits in a weak revenue climate. I am pleased to say that we wiped the slate clean on all three issues. The OEMs fully honored their obligations, we refinanced the US fleet debt on favorable terms a year ahead of schedule and we generated a significant year over year profit improvement this past quarter on lower revenues. I believe our operating leverage will further increase as the revenue climate improves and we continue to run the Company on a much lower cost basis.

Let's go ahead and open it up for questions. Operator, open it up for questions.

(Operator Instructions) Our first question will come from the line of Rich Kwas with Wells Fargo. Please go ahead.

Good morning. Mark, on that slide 13 regarding US rack average weekly pricing, I thought that was a very good slide. A question about, as you look forward here, you're coming off a higher base relative to your competitors and that's part of the reason you have not increased pricing as much as maybe some of the others. Going forward as we think about a recovery, economic recovery, shouldn't that mean that you should be able to raise prices when things get better?

That's correct, that's exactly right. Our down side right now becomes an upside as revenues start to increase. You're exactly right on the money. This is a big opportunity for us. You'll see that. That's why I talked to you about, even in the fourth quarter, as we got to flat to up revenues I mentioned to you October pricing, even on an RPD basis, was going to be up. You're reading that exactly right, Rich.

So in a recovery scenario you'll have more pricing power relative to your competitors?

Absolutely.

Mannheim Index, I know you've been using some other outlets in terms of disposing vehicles, and that's been helpful to you. How should we think about, with Mannheim Index at a peak here, potentially near peak, if we seen some retrenchment there, how are you thinking about how that will affect appreciation rates?

We believe next year depreciation rates will be down year over year. Our actual fleet costs. I shouldn't say depreciation rates. I don't want to forecast that. But we have talked about our fleet costs being down at least 2% to 4% next year in that range. So we know that. And then in terms of residual values we continue to think that residual values, in the US anyway, will continue to be strong and expect total stability there. We have no expectation that demand for used cars at both dealers' lots, those inventory levels will continue to be fairly low and tight. So we see really a tight supply demand curve right now.

Then regarding a lease, regarding that depreciation comment regarding per vehicle per month. Pretty big step down here sequentially. Do we think of that getting better sequentially speaking over the next several quarters or is that comment more on a year over year basis?

That percentage will continue to get better quarter over quarter.

And that will continue for the foreseeable future in your view? Okay. And then, Mark, on Europe sounds like you made some headway there on restructuring but there is more to go. Where are you on getting the costs out of the business there and how should we think about that going forward?

We have to finish our restructuring there which will occur over the next six months. We are not completed, we are in the middle of it right now. We have got a good chunk of it done in the third quarter. So there was a lot done there but we still have more to go. The completion of it will be by, like I said, all done within six months. The bulk of it probably in the next four. Michel Taride is on the phone. Michel, can you add any color to that?

Sure, Mark. Restructuring in Europe will use about $35 million of savings, we've completed about three quarters of it already. As Mark mentioned we have consultation obligations in Europe. A couple of countries taking a bit more time. But I will tell you in Q3, our total employee productivity which is the calculation of transactions divided by the number of employees increased by 10.3%. Which shows that we are well ahead of the curve already and it takes time because it is a different structure which not only will be most lower costs for us but will improve significantly our effectiveness because we're going to be organized very differently.

To add to your question, Rich, cost take out, we are not nearly through. We still have a lot that will play out through 2010, and that's across the board on all businesses, whether it is equipment rental or Europe, as well as North America and rent a car. So we have a lot more to go that has not been realized yet. And we upped our forecast, we will probably beat that and then on top of that, a lot of this bleeds over into 2010. So a lot of these programs that we are on have sustainability and have more legs to them in the 2010 year.

Just one final one on HERC. URI yesterday talked about pricing pressure continuing. They are not expecting year over year increases in revenue until 2011. You talked about demand bottoming but pricing still under pressure. How do we think about that in the next several quarters with pricing under pressure, demand at a pretty low level but not getting any worse. It sounds like we should expect that revenues are going to be down at least for the first half of 2010.

I think revenues certainly in the first quarter will be down. Second quarter we could have flattish type of sales. It depends on what model you want to look at. We certainly think revenues will be up year over year probably for HERC overall. That's kind of our current forecasting model base based on everything we know. This is a market that no one really has a crystal ball but even in our conservative crystal ball, we looked at revenues net-net next year, for the full it would actually be up year over year.

Great. Thanks.

The next question comes from the line of John Healy with Northcoast Research, please go ahead.

Good morning. Mark, I was hoping you could talk a little bit about the Advantage brand and the strategy with the brand. Maybe give us some insight into how big that business is in terms of revenue this year, and maybe what you see as a realistic incremental revenue opportunity in 2010, and maybe a little bit of color on how you're managing the business today from a positioning standpoint compared to how the previous owner managed that business.

The Advantage brand seems to have, again, a lot of legs on it. When we turn it on we get 20% to 25% market share through third party online sources. As I mentioned, we are going to have 50 airports opened pretty quickly here. The run rate has been in the neighborhood of $80 million to $100 million at the current run rate, we think there is tremendous upside with the new locations, et cetera. This business was a $250 million business on an annualized basis before we bought it and it started winding down a year before we bought it. But the runway was actually about a $250 million business. Now, that was with all their locations. We really only bought the rights to about 22 locations but we bought the entire brand name and we are opening it up past 22 locations obviously. We are opening up to at least 50 next year.

So we see this as a way for us to protect our market share on airport. This is one of the key strategies for us. Obviously we didn't want to compromise the Hertz classic brand by going at the pricing levels necessary to protect share with someone like a Dollar, Thrift or Enterprise or Budget, low end. Everybody else has a budget brand. Hertz did not, so you need to to remember that. We just bought a budget brand but everyone already has one. So we just really were complementing our portfolio with having a budget brand so we expect to get our fair share of that. Just like everyone else has gotten their fair share, we're going to get our fair share, too, John. What is our fair share? We would be hopeful that in that budget segment we can get 20% to 30% share and it's a big opportunity. That's a lot of share in just that leisure segment. That's what we call the economy segment.

So we are building the brand to do that. Our value proposition will be, again, we're going to be the fastest guy on the block. So speed is something Hertz is known for. Advantage will be a separate brand. Hertz won't touch it. It is managed separately and we will make sure it doesn't even edge up against the Hertz classic brand but we see speed as a way of getting you in and out of the car the most painless and simplest way possible. We are using technology to enhance the experience. It will be a technology enhanced brand, modern and simple and that's the positioning of it. And we expect to expand it on that basis. And low cost obviously, to support the margins we are getting on. We are getting margins that equal our airport margins so we feel really good. Our normal airport business, we have the same margins already on that basis for locations that have been open up, let's say, four or five months.

Great, very helpful. On slide 12, that was a great slide with the profitability mix. When we think about the business traveller going into next year, should we think about when the commercial business comes back online, as that business comes on, the higher revenue per day transaction, we should probably see your RPD even stronger than maybe some other peers next year as a result of that? And should we see the contribution per day margin, should that also move a little bit ahead of that 15%? Am I thinking of it the right way?

Yes, I think so because what we are seeing is the pricing in commercial is now flattish to starting to show up year over year because the comps become easier. There was a lot of pressure on our commercial contracts. That pressure is still always there but the pricing levels I think have hit the bottom. And we should start seeing some improvement as again commercial demand improves. And as that demand improves and that pricing gets better year over year, then the benefits from operating leverage accrue to the contribution per day, and, yes, we would get a higher contribution per day accordingly.

Great. And then last question, can you talk a little bit about internationally with vehicle values there, should we anticipate that to become somewhat of a tailwind for you guys next year, maybe seeing some stability, if we begin to see some stability there or is it just too hard to try to determine what will happen with fleet costs internationally mixed?

Europe fleet costs will be down year over year next year. We are using the same fleet tactics we implemented and pioneered in the US in Europe and this is the first go around of negotiations which will be finalized in the first quarter. But you should know that historically, since I have been with the Company, our fleet costs have gone up every year. Could be 8% to 10% and Michel and his team and John Thomas who is our head of fleet globally, we have worked it really hard and our fleet costs in Europe we believe will be down year over year next year.

That will actually provide momentum, right, not earnings drag?

Mark, it is Michel speaking. Also for nine months, the last nine months our residual values have stabilized. They took a pretty significant drop last year. They have stabilized. The UK market actually has improved significantly despite a scrapping campaign here, and we are hopeful that as this scrapping campaign phases out next year our retail values will improve which will help to further lower our fleet costs here in Europe.

One final question for you, Mark. If you look into 2009 the year is exiting a lot different than it started out and you guys and your peers have made great progress. I look into next year and I see pricing and transactions hopefully improving, you see the benefit of residual values, you see the benefit of improved cost structure. As you and your team look next year, what is the worry, what are the one or two issues that you guys are really focusing on that could make or break next year that we should be aware of?

Fleet we think will be down. Pricing should be flattish to up. It depends on how tight everyone keeps their fleets. I guess the only thing that could hurt us would be another weakening in the economy which would hurt our volume. On the rent a car side we tie pretty closely to GDP. I think everyone believes that the US and Europe's GDP will actually improve year over year. If that holds true, even if it is a 1% improvement, that gives us cause for optimism.

On the equipment rental side we think the stimulus package should start to kick in. It hasn't so far into our business model but we believe it will next year. We also have switched a lot of our inventory into industrial markets which are improving, certainly more rapidly than nonresident construction. Looking at next year it is hard for me to sit there and say I've got a big downer that is going to kill us. Of course, I can't predict the economy and is it going to be U-shaped, is it going to be V? What will it look like? You know that as well as I, but that's my biggest worry. In general I think we are positioned well to capitalize on any uptick in volume.

Great. Thank you.

And our next question comes from the line of Emily Shanks Barclays with Barclays Capital. Please go ahead.

Good morning, everybody. As we look at fiscal year 2010 fleet coss -- thank you for the data and the affirmation, Mark, of the 2 to 4 decline -- specifically around quantity of fleet, how should we think about it on a year over year basis, that you will be purchasing?

I would say that fleet, based on the way we are looking at it right now, and of course that changes, we change our fleet buys every week, it could change but we think we will probably be up 5% on fleet next year, if I give you a rough estimate in the US. In Europe, Michel, what do you anticipate fleet being in terms of total fleet next year?

In terms of costs, Mark?

Fleet size.

Yes, it should be up in the region of about 6% to 7%.

So 6%. So you see the range, Emily, 5 to 7% is kind of as we see it right now.

Great. And then I have a question for Elyse around potential OEM financing. You don't have any EOM financing agreements in place right now do you?

We have a few. We have a few ease deals with some OEMs.

And how do you look at that versus doing, say, another non (inaudible) eligible ABS deal? How do you weigh the two?

We view it as opportunistic. We have had some conversations also with OEMs about participating in an ABS. That could be another form of OEM financing as being potentially an investor in a deal.

Great. Thanks. That's all I have, best of luck.

Our next question comes from the line of Jordan Hymowitz with Philadelphia Financial. Go ahead.

Thank you for taking my question, guys. The depreciation amount, you said there were no gains in the quarter but your depreciation was much less than the decline in the actual vehicle fleet year over year. So you have to increase the depreciation amount, correct, or the residual amount even if it wasn't sold?

We have a policy where we look at that every quarter and we adjust the depreciation rates based on the residual values, yes. What we did say though, Jordan, was we took gains of $2 million in the quarter.

$2 million which is much lower than you'll probably see out of some competitors. That's a worldwide number.

Okay. Could you comment, then. Like Auto Nation, Group One, Lithia, and Capital One have all commented on weaknesses in the used car market in the past month, that should be reflected in the October data. You're saying it's staying pretty strong. Lithia actually said used car sales have been particularly weak. Are you just not seeing that at all or are they wrong?

We only sell cars that are one to two years of age. So there is a whole other market for used cars where they are older, dirtier and a lot more aged. So you really need to talk specifically about the cars that we sell and in our market we have had normal seasonal adjustments for used cars pricing. So every year in the used car market the last 40 years residuals drop in October because rental car companies defleet after the summer season. It happened last year and the 39 years behind that. So, yes, residuals drop but not any more than what they would normally do seasonally. Does that make sense?

Completely, I didn't realize the magnitude. So what you're saying then is that each quarter you're going to seasonally adjust the residual value changes, in fact, in the depreciation but because you're buying less expensive cars the absolute number to start with should be lower?

I don't think we are saying that. We do adjust every quarter the depreciation rates, and as we mentioned earlier in the call the low point for residuals was in December and residuals have improved. So when we saw that low point we adjusted the depreciation rates up and then as residuals get better we adjust the depreciation rates down. So when you look at car costs you really have to look at them over an extended period of time. That's one element to car costs. The other element is how effectively we buy. And we are actually buying cars at better rates so the 2009 model year cars are at better rates, better kept costs than what we bought in 2008, and 2010 should be better as well. And then fleet mix also has an impact, as well, but the fleet mix hasn't changed materially year over year.

Okay, so basically your cap costs are coming down so even if the depreciation was the same, the residual value was the same, there should be less depreciation, you're saying.

That's true, that's an element as well, yes.

Then the other factor is where the Mannheim trends and you're saying you do track the Mannheim closely or don't? Because it seems like your depreciation policy seems to be in line with where that index trends?

And we probably rely more heavily on our own experience so we look at our actual gains and losses on car sales and that becomes a guiding principle, as well.

Okay. And you did actually realize much less gains than the other car companies that have reported so far?

Yes. Again, that's a worldwide number. We did have losses in Europe as well, but that's correct.

Thank you very much.

Our next question comes from the line of Aaron Kettle with Hove Capital, please go ahead.

My questions have been asked and answered. Thank you very much.

(Operator Instructions) Next question comes from the line of Chris Doherty with Oppenheimer, please go ahead.

Good morning, Mark and Elyse. Elyse, just a question in terms of the timing on fleet sales because one of the challenges of modeling you guys from a cash flow standpoint is the fluctuation in the fleet. When do you tend to defleet the post summer season? Is that within the the Q3 period or does it tend to be the beginning of Q4 in October?

It starts in September, I would say, the heavy defleeting from the summer peak, but you have to keep in mind that we have a normal rotation so that every month we rotate cars in and out of the fleet. But the defleeting from the summer months really begins in September and throughout the fourth quarter. We have a choice between defleeting program and risk cars and so we have a mix of both as part of that exercise.

And then when you start to pick up the fleet for the summer period, is that late Q2 or is it earlier than that?

Literally we'll start buying 2010 model year cars even in the fourth quarter of this year, so it's really when can we buy efficiently and when can we dispose of efficiently. But you'll see the fleet actually build from the second quarter to the third quarter, that's really where the summer peak is.

Thank you.

Our next question comes from the line of Michael Millman, Millman Research & Associates, please go ahead.

Thank you. Getting back to an earlier question, and wondering that if in fact you had held your spread between enterprise, I think it got reduced by $24, it seems intuitively that you would have done better than by cutting that and adding more volume. Maybe you can give us a little more color or statistics to help us through that.

Michael, we study, as you might imagine, every day pricing, and we've got a very large pricing staff here and we look at pricing by the hour, by the half hour. And we canvas and we gauge competitor reactions combined with what our volume and rental days are in a yield management program called CMS. And what we find is that if we expanded it by what you just said we would lose business. We make real contribution dollars, incremental dollars, by actually pricing with the methodology we use. So we're not doing this in anything less than a very highly scientific way with very, very smart, brilliant people actually doing it, and then we talk about it as a team every week, the senior operating committee that we work on.

So I can't probably explain to you on the call, give you all the science, because some of it's confidential, and actually some of it has to do with what we think is our intellectual property here and how we price. But we feel confident in showing you that our net profit per day was hugely successful and probably beat all competitors, and that's where it all comes home, mixed volume price as well as expense control associated with the fleet. That's all wrapped into that profit, that pretax profit per rental day. So I think that's where you've got to look to see where we're optimizing price. We try to go down the rabbit hole on any discussion, it's crazy, that's why we try to put those slides together, actually, I know that pricing is a very complicated subject in rental car and we have a very complex fleet. We have a lot of different manufacturers, a lot of different car classes, more business segments than anyone serves, and therefore for us the relationships on pricing are very complex and sensitive because we have to make sure we honor every contract that we have.

So feel like we do a pretty good job of that. But in terms of taking one off and saying if we had to have that for enterprise and we kept the gap on enterprise greater, we already had a gap, $99 a day, we test that model all the time and if the gap gets too big we end up losing business. We test that real time, and we can do it every day. I could actually show you a model that says today, if we narrow that gap to $50, what's the incremental rental versus if I do it tomorrow at $100. We can test that all the time. And so we basically test and then optimize based on our yield management system called CMS which we have refined a lot over the last 12 months.

I thought almost all the companies have a similar yield management system.

No, they don't because they don't have the complexity we do. Avis, Budget probably most closely models our complexity. But the difference between the other rental companies, we think, strategically right now, may be the fact we are very balanced. We are not yielding up, we are not reducing the size of our fleet to get higher pricing. Again, we could do that but that's not a sustainable, it's a good short form strategy. I'm not saying our competitors do it, but if you look at our transaction day growth it is pretty decent, it is a lot less than some of our competitors because we are trying to drive contribution margin incrementally. Our objective is to grow profits overall so we are having to take all contributing profit segments and that's the philosophy. That's why we put together pages -- we were hoping that most people could understand it by looking at those pages 11, 12 and 13, and what I said about those pages. I think the evidence is obvious that we are doing a pretty good job on price. RPD is not price as you know, it is just not price. RPD is merely a function of whatever your fleet classes look like. If you had a higher class of fleet your RPD is going to be higher. That's why the chart showed that our pricing is still very high, we are at the highest end still.

Yes, we would still like to see what transparency on some of the different silos so that we can understand some of this complexity or maybe work with some of this complexity. Maybe beating a horse a bit here, most of the companies do use some sort of yield management. Why wouldn't they come to some of the same conclusions? Why do they come to vastly different conclusions that it behooves them to keep their prices up and their fleets down? And to what extent if they did have a model similar to yours that your model would be affected by that?

First of all, if you go to some other industries, if you want to compare Starbucks to Dunkin Donuts, you will find that all top end companies have fallen more than their peers on pricing. That's just the way any high end brand falls. This is not unique to rental land. You can go anywhere and see this. So that's just what happens on the math. That's why I tried to show you, again, on the page that was indicated. Budget has Budget, and that's part of Avis. That contributes to RPD help for them. We don't have with Advantage as big of a brand as Avis Budget has with Budget. Obviously Dollar is a budget brand, it's a leisure brand, so that has lower price characteristics to it. Again, what are the other Company strategies, you can talk to them about it, but we are very happy with our strategy and we feel it has been very successful and at the end of the day it shows up in pretax profit per unit and that's what you need to look at.

Just a clarification. On the October price at 3.5% that was compared with September? What was that compared with?

Year over year. Year-over-year comparison.

And so again, other companies are talking about double digit year over year price in October.

But they are contracting, right? One of the issues, Mike, was as the business starts to expand, and Rich Kwas talked about it, as the business starts to expand then we have a lot of operating leverage on pricing going forward. The reverse starts to happen. When you're a high priced brand, when it goes down, plus we are chasing mix and volume on RPD business that is lower RPD. You understand that on page 12 that we are getting higher contribution per day on lower RPD business that is a higher percent of our mix. You understand that, right? Look at page 12 on the slides and you need to look at the math on that and it should put to rest what your concerns are.

I will study that some more.

We say those are real numbers, those are real numbers. We tried to put that slide together to make it clear and we gave you more transparency on page 12 than we have ever given before. And 11, so 11 and 12 and 13 are incredibly transparent. We actually give you real data and we made it simple so everyone can understand it. Next question?

And the next question comes from the Emily Shanks, Barclays Capital, please go ahead.

Thank you for squeezing me in. Just one quick follow-up I forget to ask. Around the equipment rental market are you guys still expecting consolidation? Mark, I was hoping you could give us a little color about how you think about HERC as it relates to part of the Hertz business on a longer term go forward basis, please?

In terms of HERC they are part of the Hertz family and there is no discussions about doing anything other than keeping them part of the Hertz family, if that's your question. If we ever think that there could be shareholder value creation doing anything with any of our businesses, whether it is HERC or whether it is rent a car, it could be Europe or US, we would do it to unbundle value. But having said that, no plans here. Was that your question on HERC?

Yes, that was.

Okay, what was the first part of your question?

Just around consolidation. I know the last time we spoke I think the view was that there would be continued consolidation within the equipment rental industry and I just wanted to see if that was still your view.

I think that both in the rent a car and the equipment rental industry that over the next several years there will be consolidation in both of those businesses. And so I think it would surprise me over the next 24 months if something didn't happen in both of those industries. Something that would be competitors that we all know about.

Perfect, thank you so much

And we have no further questions in queue.

Thank you, we really appreciate you attending the conference call with us. We look forward to talking and sharing our results in the fourth quarter.

Ladies and gentlemen, that does conclude our call for today. You may now disconnect.