Herc Holdings Inc (HRI) 2009 Q4 法說會逐字稿

Welcome to the Hertz Global Holdings 2009 fourth quarter and full year 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 fourth quarter and full year results issued yesterday and in the risk factors and forward-looking statements sections of the Company's 2008 Form 10-K and third quarter 2009 Form 10-Q. Copies of this filing 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 at 12:30 Eastern time today and running through March 12, 2010. I would now like to turn the call over to our host, Leslie Hunziker. Please go ahead.

Good morning and welcome to Hertz Global Holdings 2009 fourth quarter and full year conference call. You should all have our press release and associated financial information. We've 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'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 Scott Sider, Executive Vice President and President of Vehicle Rental and Leasing the Americas, Michel Taride, Executive Vice President and President Hertz International, and Gerry Plescia, Executive Vice President and President of Hertz Equipment Rental. They'll all be on hand for the Q&A session.

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, a publicly traded company. Results for the Hertz Corporation differed only slightly as explained in our press release. Now I'll turn the call over to Mark Frissora.

Good morning, everyone, and thanks for joining us. Let's start on slide number six, page six. At Hertz, we have a comprehensive plan to improve operating efficiencies, restore financial strength and position the Company for future growth. Last year we gained significant momentum on all fronts. Our confidence that Hertz had the ability to manage effectively in response to changing market conditions proved true in 2009. We emerged from a very difficult year leaner, more focused and better positioned to take advantage of growth opportunities and improving economic trends.

During 2009, we increased operating efficiency through a comprehensive cost-management effort, generating savings of $760 million, well in excess of or $620 million goal. We demonstrated the agility of our car rental car business by quickly adjusting our labor and fleet network to match the dramatic change in demand. Specifically, Worldwide Rent-a-Car Fleet was down 9.7%, while transaction days in 2009 were down 8%. And we added the Advantage Value brand to our portfolio to capture a greater share of the growing leisure segment. Since our acquisition of Advantage in April, it has already gained a full point of U.S. airport market share.

Along the way, we also made several small strategic acquisitions to expand our equipment rental presence in the less cyclical industrial market, and we continued to invest in technology by acquiring Eileo, the world's leader in telematics, to advance our leadership by taking the customer experience to the next level. We were also extremely successful in refinancing $3.2 billion of U.S. fleet debt, one year ahead of schedule with pricing on par with our 2005 rates. And we raised $990 million of capital through a successful convertible debt and equity transaction. Both operational and financial results exceeded our expectations, and our worldwide rent-a-car customer satisfaction score is up more than 20% for 2009.

Now, before I get into the details of the fourth quarter, I thought I'd address the Toyota recall, which caused us to temporarily take a portion of our Toyota fleet out of service and how that could impact our results in the first quarter. The best news is that it was only a two-week issue that occurred during our seasonally weakest quarter for demand. And if there was ever a good time to be tight on fleet, it's in the first quarter. Furthermore, less than half of our Toyota inventory, or only about 13% of our total U.S. fleet, was affected by the recall. So it wasn't all-encompassing. As Toyota's largest US customer, we receive priority status for replacement parts, and today all of those vehicles are back in service. In the grand scheme of things, the impact was relatively small.

Based on our relationship with Toyota and the tenor of our discussions, we're confident that any and all financial impact will be fully compensated. As such, we expect no overall impact to our pre-tax performance this year. Moreover the strength of January's rental car business, and what's shaping up to be a strong March, should help to make up any of the February revenue shortfall. It's too early right now to accurately gauge the impact of the recall on Toyota's residual values, but most experts believe that if the solution Toyota puts in place for the affected vehicles solves the problem, any impact would be short-lived. In terms of those Toyotas not subject to the recall, they're actually selling at higher prices than before the recall based on a shortage of supply.

In any event, we always have the ability to manage short-term fluctuations in the residual values of certain makes and models, if necessary. We can always hold fleet and age it a little further while adjusting our fleet rotation planning for the overall portfolio to ensure our fleet remains aligned with demand. I've never been more proud of how our employees handled a difficult situation. They were quick, analytical and strategic and acted with an absolute sense of urgency. Our team is a well-oiled machine, with all departments working together toward the same goal, from supply chain and its fleet group, to operations, to communications, to legal -- everyone immediately took action, a plan was developed, other OEM risk cars targeted for sale were kept in service, new cars on order were brought in early, our regional field managers supported one another by sharing fleet, and our communication with Toyota was open and ongoing. Hertz's culture of execution with discipline and customer service priority set the stage for a positive outcome. In fact, our customer service scores during those two weeks were equal to our scores in the fourth quarter.

Now let's take a step back and review the fourth quarter starting on slide seven, and the favorable trends we saw as we closed out 2009. In the fourth quarter, we experienced strong Christmas leisure rentals, recovering business rental transactions, growing demand for off-airport monthly and replacement rentals, and weak but stable volumes in equipment rental which helps slow the pace of revenue decline to just 2.7% year over year. This compares with the sequential 2009 third quarter's 15.7% year-over-year revenue decline. Positive revenue in rental car was offset by the continued weakness in equipment rental. And, through lean Six Sigma projects like strategic lead management, back office re-engineering and organizational redesign, we continue to lead the industry in cost management. Cost savings of $224 million were delivered in the fourth quarter, reducing in part adjusted direct operating expenses by 430 basis points and adjusted SG&A by 860 basis points year over year. Both metrics were also lower as a percent of revenue.

Included in the expense improvement was a double-digit decrease in worldwide net depreciation per vehicle. These accomplishments drove the quarter's 2.3% adjusted pre-tax margin, which is a nice turnaround from last year's negative outcome. Consolidated corporate EBITDA was $221 million in the fourth quarter, and the margin was 12.7%, up from 6.5% last year. The US rental car business is clearly the catalyst behind the Company's progress, as seen on slide eight. In the US, rental rate revenue was up 2.5% in the quarter compared with last year, driven by a 7.1% increase in off-airport rental revenue.

I'm happy to report that revenue from our corporate airport business has been improving sequentially since August from levels as low as negative 26% during the year. In the fourth quarter, corporate revenue was down just 7% year over prior year. But in December, revenue actually turned positive year over year, reflecting the continuing favorable trend. Revenue per day, or RPD, which encompasses both price and mix was up 1.8% over the prior year. Importantly, in our largest airport segment, which is leisure, we increased RPD by 9.6%. This was partially offset by volume growth and new volumes in the lower RPD off-airport and Advantage businesses respectively. In terms of mix, airport transaction days, or volume, were down 2.6%, while off-airport volume, where longer-length rentals drive lower RPD, improved 8%.

Our US fleet is right-sized and more productive than ever, as evidenced by the 1.1% revenue per vehicle increase achieved in the fourth quarter. Our average fleet size in the quarter was proportionate to the increase in transaction days. Monthly depreciation per vehicle was 14% lower than the 2008 fourth quarter's level. And on the used car front, residual values remain at normal seasonal levels, which we expect will continue throughout 2010. U.S. rental car generated a 10.7% point increase in adjusted pre-tax margin in the fourth quarter, reversing last year's negative margin.

The 2009 quarter's margin came within 0.5 percentage point of 2007 fourth quarter margin, despite an 11.5% decline in revenue over that period. For corporate EBITDA, we achieved a double-digit margin improvement, benefiting from better than expected US leisure demand, recovering corporate volumes and disciplined cost management.

The European rental car business on slide 10 continues to lag the USs rebound as overseas economy struggled to improve. Irrespective of this, our European achieved positive adjusted pre-tax income even in the face of a 7.2% decline in rental rate revenue. Notably, European RPD for commercial accounts was positive year over year for the first time in 2009. The adjusted pre-tax margin improvement was 15.8 percentage points better than the prior year's fourth quarter pre-tax loss. The benefits of our European restructuring program targeted at streamlining and consolidating regional operations, centralizing work and de-layering the organization, continue to flow in. This brought adjusted direct operating and SG&A expenses down 9.9% in the quarter, while generating a 17.5% improvement in monthly net depreciation per vehicle, in part due to stabilizing residual values across the continent.

On the next slide, in our equipment rental business, the volume decline is moderating. In the fourth quarter, equipment rental volume was down 24.2%, an improvement from the 2009 third quarter's negative 28.7%. Pricing is still a concern, declining 9.5% in the fourth quarter. We were optimistic at the end of the year when we saw a long awaited sign of rational pricing behavior in the market. Unfortunately in January, the desperate pricing tactics of a couple of competitors returned in full force. We are pushing back on all fronts, managing rates through our national accounts initiative and being selective in the business we participate in as governed by our new yield management system. Our focus is solely on maintaining market share, with the accounts and business activities that give us the best return.

Our recently modified incentive programs are going a long way to reinforce disciplined pricing throughout our sales force. Geographically, there are pockets of recovery. For example in Florida, one of the first markets to enter the recession, equipment rental volume is beginning to actually turn positive year over year. And in Canada, we're benefiting from stable oil prices and the resumption of various plant refurbishment projects. Recently, we announced a joint venture with Dayim Holdings based in Saudi Arabia. The equipment rental market there is strong as commercial construction and petrochem projects continue to grow.

As a balance to pursuing new topline strategies in industrial and entertainment markets, we're further tightening Hertz's cost structure by rationalizing locations and implementing long-term process improvements. Through this two-pronged approach, we achieved a corporate EBITDA margin of 40.5% for equipment rental in the fourth quarter. Adjusted pre-tax profit margin was 9.4%, by far the best in the industry. This business is typically the strongest contributor to total Company profit. Our equipment rental division has the ability to create a dramatic change in the Company's profitability on just a small amount of revenue growth, especially now, given its excess fleet. As today's negative volumes continue moving in the right direction, we could see some of that growth by the second half of 2010, as year-over-year comparisons gets much easier and the industrial markets continues its recovery. Our diversification of businesses, markets and products is a long-term competitive advantage for Hertz that will protect us from the economic shocks to a single business product or market.

As you can see on slide 12, Hertz is a growth Company with initiatives to serve every type of customer in the mobility market, including hourly renters, value conscious travelers, business accounts, multimonth renters and off-airport insurance replacement customers. Let me give you an update on a few of the initiatives we're implementing to address these customers groups before turning the call over to Elyse for a detailed financial review.

For the urban hourly renters, we continue to expand Connect By Hertz, opening new locations in Madrid and Berlin in the fourth quarter, and as we added five new universities to our car sharing program, including the University of North Carolina and Illinois State University, bringing now the total to 17 schools, our Connect membership now encompasses 13,000 subscribers worldwide. For the value conscious traveler, our U.S. prepaid rental program continued to build momentum, generating $18.2 million of revenue in the fourth quarter. After launching in December of '08, this program delivered $81.9 million in revenue in 2009.

Our Advantage Value Leisure offering, which we acquired in April of 2009, has surpassed our expectations for market share, margin and volume. For 2009, we achieved an annual run rate per revenue of just over $100 million. Today Advantage is profitable, with 25 airport locations, encompassing every major leisure destination in the U.S. You'll recall that when we purchased this brand last spring, there were only four locations in operation. In the fourth quarter, demand for Advantage was strong, especially during the holidays. And after only eight months in operation, Advantage has already captured 1% of the U.S. airport market share. In 2010, we'll continue to advance our leisure brand strategy with plans to have 50 airport locations open by year end. In the $10 billion off-airport market, we have an 11% share today with huge opportunities to capture a greater stake over the next two to three years.

Off-airport is made up of insurance replacement rentals, leisure and local business rentals, and monthly or multimonth rentals. These rentals are typically discounted due to the high utilization achieved, but with a much lower cost structure than airport rentals. They generate an equally profitable growth in mature markets for us. Our US multimonth rental offering, which is being promoted as a monthly lease alternative, generated 24% higher revenue in the fourth quarter versus the prior year, a 14.4% increase for all of 2009. Insurance replacement revenue, which makes up about a quarter of our off-airport revenue was up 9.7% in the fourth quarter. Off-airport leisure demand continues at a stable pace as airlines cut capacity and consumers opt to drive to their leisure or local business destinations.

Finally, as I mentioned last quarter, another growth area for us is ancillary product sales. We're increasing our efforts to upsell car classes and market additional products like insurance, child seats, ski racks and DVD players. This is a big area of opportunity for us, especially on airport where we have new programs and training in place. In the fourth quarter in the US, revenue from ancillary items increased 15% year over year. We expect strong returns from this revitalized initiative throughout 2010.

In concert with building on our upselling expertise at the airports, we are implementing the new programs at our off-airport locations beginning this quarter. In the meantime, we continue to be strategic with our marketing initiatives and innovative with our product offerings. We're already seeing our service scores climb, and the plans we have in place for growth will position us to deliver even more for our customers. With that, I'll turn it over to Elyse for a more detailed financial view.

Thanks, Mark, and good morning everyone. Let me begin by summarizing the consolidated results for the fourth quarter and full year starting on slide 13. In the fourth quarter, while consolidated revenue declined 2.7% over the prior year period, our profitability improved significantly. We earned $39.2 million in adjusted pre-tax income, which was an increase of $142.9 million or 137.8% over last year. The quarter's 2.3% adjusted pre-tax margin was an improvement of more than 800 basis points, and we delivered $221 million of corporate EBITDA, a 12.7% margin. This is almost double the previous year's levels in both dollars and as a percent of revenue. These improvements are due to the strength in the rental car business, which is offsetting the challenges faced in equipment rentals, and our continued focus on cost. Evidence of is this is the 4.3% and 8.6% decline in adjusted direct operating and SG&A expenses respectively in the fourth quarter year over year.

Consolidated expenses were -- also were down as a percent of revenue due to a number of factors, including aligning operations to market conditions, 25% lower damage costs in worldwide rental car, reduced corporate overhead through process efficiencies that drove an 8% reduction in corporate staffing levels, a 4.2% increase in labor productivity as measured by total Company rental revenue per employee and a value added tax refund in Europe, which reduced direct operating and net interest expense by $8.2 million and $10.3 million respectively. And even with additional shares outstanding due to the May equity offering, we delivered adjusted EPS of $0.06 in the quarter versus an adjusted net loss of $0.22 per share a year earlier. For 2009, outlined on slide 14, consolidated revenue declined $1.4 billion, but adjusted pre-tax fell by only $38.3 million. Adjusted diluted earnings per share was $0.29 for the year which exceeded our guidance as a result of better than expected US rental car performance in the fourth quarter, offsetting the expected weakness in equipment rental.

Now, let's review the performance trends by business unit. On slide 16 in the fourth quarter, worldwide rental car revenue increased 3.4%. Total adjusted direct operating and SG&A expenses were 1.0% lower than last year's level, and we reduced fleet depreciation and interest by 17.6% from the 2008 fourth quarter. All of this led to a 6.6% worldwide adjusted pre-tax profit margin and a $163.6 million improvement in adjusted pre-tax income over the prior year.

Similarly, the 8% corporate EBITDA margin generated by worldwide rental car was $153.2 million increase in profit year over year. For the year, worldwide rental car revenues decreased 12.8%. Total adjusted direct operating and SG&A expenses were down an even greater 14.3%, and fleet depreciation and interest expense declined by 18.9% in 2009. So while revenue declined by $879.2 million, adjusted pre-tax profit increased by $176.2 million. Corporate EBITDA improved $157.3 million year over year driving a corporate EBITDA 9.4% margin for worldwide rental car.

Now on slide 17, you can see our worldwide rental car fleet efficiency held steady at 75.3% in the fourth quarter but improved by 140 basis points to 78.4% for the full year. As we managed through the uncertain economy this year with a goal to preserve liquidity and cash flow, we were very conservative with the fleet rotation in the first half of 2009, which together with our lean initiatives led to better fleet efficiency. This, however, resulted in an aged fleet with fewer premium features to meet demand, particularly from the corporate customer perspective. So during the third quarter, as the economy improved, we took advantage of favorable OEM deals, and in the fourth quarter began refreshing our fleet. The result was improved car costs and a richer fleet mix. This, coupled with an increase in corporate transactions, which are characteristically shorter in rental length stabilized utilization levels at year end.

There's still a lot of opportunity to further improve fleet efficiency in 2010. One area where we're particularly focused is on more profitable car sales. For example, we've increased dealer direct sales as a percent of total US car sales to 18% in 2009 from less than 2% in 2007. Our use of the auction channel with its higher service fees and wholesale pricing has declined to 67% in 2009 from 85% in 2007. We'll continue to pursue more profitable remarketing channels, like dealer direct, retail and online auctions. Retail, through our rent to buy online offering, and the online auctions enable us to keep our cars on rent up until the day they're purchased, allowing for better utilization and lower holding costs.

Let's talk for a minute about car costs or monthly net fleet depreciation per unit. Worldwide rental car costs were 10.1% lower in the last quarter and 3% lower on a full-year basis. In the US we reduced total car costs 14% compared with the 2008 fourth quarter. As you can see on slide 18, our domestic monthly depreciation costs have been decreasing sequentially since December of 2008 when used car residual values were at a historic low. The improvements in car costs since then are attributable to strategic fleet buying, a better portfolio mix and the improvement in the domestic use car market.

For the full year 2009, US monthly depreciation per unit was down 4.3%. We anticipate that these improvements will continue throughout 2010 as we add new cars into the fleet at a lower initial cost, continue to optimize car class mix to serve customer preferences and pursue the higher return used car sales channels. In Europe, monthly depreciation per unit improved dramatically in the fourth quarter with a 17.5% decline versus 2008's fourth quarter . However, for the full year, monthly depreciation per unit was up 6.7% due to the slower economic recovery overseas and government incentives for new car purchasing programs which pressure used car residual values. We do, however, expect monthly depreciation per unit in Europe to improve this year as the incentive programs wind down and the benefits from strategic buying in our latest round of fleet negotiations are realized.

On a worldwide basis, our fleet at year end 2009 was 68% risk, with an average overall fleet age of 9.2 months, which is slightly younger than our average overall fleet age at the end of 2008. At December 31, 2009, risk cars in our U.S. fleet represented 67% of the domestic fleet, and the average age of the overall US fleet was 8.5 months compared with 9.7 months at December 31, 2008. The US risk cars at the time of sale currently average 21 months.

Now turning to equipment rental on slide 19, Hertz generated revenue of $274 million in the quarter down 26.1% year over year, but an improvement from the third quarter's 35.2% decline. As Mark mentioned, while the decline in volumes has lessened, industry pricing continues to be under pressure due to excess industry fleet and significant competitor discounting. Yet even facing these challenges all year, Hertz was able to report solid margin improvement achieved through continued aggressive cost actions.

Since the third quarter of 2008, we've aligned our labor and network footprint with a decline in demand. Hertz worldwide headcount is down approximately 20% since the end of 2008 and more than 35% since the end of 2007. Work hours in many locations have been reduced, and furloughs were mandated. Additionally, we closed or consolidated a net 23 under-performing locations last year.

On the next slide, you can see that for the fourth quarter, our fleet was down year over year as measured by the average acquisition cost of the equipment, and relatively flat versus the third quarter, as we sold very little fleet in the last three month of the year. What we did sell, we sold predominantly to retail customers. Residuals at auction have improved since mid year but continue to be at historically weak levels. Fourth quarter equipment fleet purchases needed to satisfy new business and growth in new markets were $29.5 million versus disposals on a first cost basis of $56.4 million. This compares to additions and disposals on a first cost basis of $25.8 million and $196.5 million respectively in the fourth quarter of 2008 when we were aggressively selling into stronger auction conditions.

For the full year 2009, our equipment rental business delivered an adjusted pre-tax margin of 6.9% and a corporate EBITDA margin of 41.3% despite a 33% decline in revenues. We were able to offset more than half of the negative effects of price and volume through lean Six Sigma process improvements allowing us to operate effectively with fewer employees and a smaller number of locations. At December 31, our worldwide equipment fleet age was 45 months, a two and a half month increase from the end of the third quarter. We are comfortable holding our fleet longer as we increase our mix of industrial equipment, which tends to have longer useful life than our declining mix of construction equipment. Furthermore, with lower utilization rates, the fleet is not experiencing as much wear and tear, therefore extending its useful life even as the absolute age increases. Having said that, we expect to accelerate the purchase of new equipment in the back half of 2010 in line with our expectation of an improving commercial construction market.

For 2009 on slide 21, our equipment rental fleet was down 10.2% and 16.3% year over year on a first cost and a net book value basis respectively. Full-year equipment sales on a first cost basis of $399.4 million exceeded additions of $88.6 million in actual FX rates. This compares with first-cost disposals of $590 million, $1.5 million and additions of $267.3 million in 2008.

Now let's move on to slide 22 to touch on where we are with the rental car fleet refinancing. As Mark mentioned in 2009, we completed several financings to renew our expiring US fleet debt at favorable terms and conditions. We're now in the midst of negotiating financing for the international fleet debt, which comes due in December of this year. For this piece, our plan is to optimize the refinancing by utilizing various financing vehicles including asset-backed securitizations, private placement bond offering, revolving asset-backed loan facilities and leasing structures. We're in discussions with multiple banks in various countries working to secure favorable transaction terms. Based on our conversations, we remain confident that we'll be as successful overseas as we were in the US.

As a result of the refinancings and expected growth in rental car fleets, I think it's worthwhile to spend a few minutes on interest expense on slide 23. In the fourth quarter, net fleet interest expense was $99.9 million versus $148.4 million a year earlier. The lower fleet interest expense is due to a number of factors. First, fleet levels are down 1.3% worldwide. Secondly, LIBOR rates are at historic low levels impacting primarily European fleet debt, which is floating. And thirdly, we utilized a portion of the proceeds from the May equity offering to repay fleet debt. These factors were partially offset by a $7.5 million of interest expense related to prefunding the ABS notes in advance of their 2010 maturity date.

Corporate net interest expense, which consists of the ABL revolving credit, a term loan, high yield note and the new convertible debt, was $70.3 million compared with $80 million in the 2008 fourth quarter. This decrease resulted from lower borrowings under the ABL due to a smaller equipment rental fleet year over year, the buyback of our high yield notes earlier in the year, lower LIBOR rates and interest received related to the VAT refund. All of this was primarily offset by the amount of convertible debt proceeds used to repay fleet debt. Total interest expense net of interest income declined 25.5% for the quarter and 21.4% for the full year. For this year, we expect total cash interest expense to be $90 million to $110 million higher than in 2009, reflecting an increase in rates as we refinance the balance of the fleet debt, a full year's interest impact from our May convertible debt issuance, higher fleet debt to fund growth in the rental car fleet to meet expected demand and an increase in floating base rates such as LIBOR.

It is important to note that as we fully transition through our fleet refinancing, our global blended advance rate at the end of 2010 will be approximately 9 points lower than at the end of 2009.

On the next slide, restructuring and restructuring related charges in the fourth quarter were $34.5 million of which $26.1 million was cash. The recent charges mainly were due to severance expense, facility closing costs and losses on the sale of surplus equipment. For the full year, restructuring and restructuring related charges were $153.3 million compared with $142.5 million in 2008. With the bulk of our restructuring efforts behind us, we anticipate less than $50 million in restructuring in 2010. Cash taxes paid in Q4 '09 were $10.6 million, compared with $10.8 million paid in the prior year's fourth quarter. The effective tax rate for the 2009 full year was 34.9%. Cash taxes paid were $31.3 million in 2009 compared with $33.4 million paid in the prior year.

For modeling the 2010 effective tax rate on an adjusted basis, a tax rate of 34% is used to reflect a more normalized tax rate over the long term. Cash taxes are expected to be $40 million to $47 million in 2010, the increase being driven by improved profits.

Now if you turn to slide 25, I'll give you an update on our financial covenants. At year end, our corporate consolidated leverage ratio was 3.85 times, well below the ceiling of 5 times. The corporate interest coverage ratio was 3.16 times, comfortably above the minimum requirement of 2.25 times. As a reminder, the convertible debt issued by Hertz Global Holdings in May is not counted in these covenant calculations, since the covenants only apply to the Hertz Corporation results.

Now let's look at our cash and debt position on slide 26. Levered cash, which is cash available to pay down corporate debt was a source of $5.3 million for the last quarter of 2009 compared with a source of $430.5 million a year earlier. The decline was driven by the fleet actions I discussed earlier to meet improving demand compared to aggressive de-fleeting actions taken in Q4 2008. On a full-year basis, levered cash flow generated was $183.4 million, a $15.7 million improvement over 2008 due to proceeds generated from the capital markets transactions including the equity offering, partially offset by lower earnings and a 4.6 point deterioration in advance rates.

At December 31, 2009, we had total net corporate debt of $3.6 billion, down 4.8% from 2008. Total net fleet debt was 7.7% lower at $5.4 billion. And we had $985 million of unrestricted cash on our balance sheet. Based on the financing actions taken this year, we continue to maintain more than $1.9 billion of corporate liquidity. With that, I'll turn it back to

Thanks, Elyse. Let's move on to the next slide if we can. The global economy is in the early stages of recovery, following the sharpest contractions since the great depression, but progress is uneven. Some regions of the world are already seeing a revival while others continue to struggle. The worst appears to be over for the US economy. The International Monetary Fund expects 2010 to be a year of transition and modest growth, reflecting a 3% gain in GDP. In the European economy, although signs of improvement have appeared recently, recovery remains uncertain and fragile. The IMF forecasts less than 1% growth in Europe for 2010, though in a few countries, notably Ireland, Greece and Spain, the recession is expected to continue.

Within the confines of this global environment, we're focused on doing everything we can to drive the top line and ensure we operate as efficiently as possible. Innovation, lean business practices and a strong commitment to marketing our brands are the cornerstone of our efforts. In 2010, we'll pursue targeted growth initiatives and reinvest in our business to support future expansion. We also plan to further develop our global presence for rental car and equipment rental in India, China and the Middle East. We'll continue to evaluate acquisition opportunities and have sufficient cash and access to capital if opportunities become available at attractive valuations. The scope of our business model is unique and allows us to look at a rental market opportunity very broadly.

Going forward, we'll pass -- we'll build on past accomplishments by capitalizing on the operating leverage of our global network by maintaining disciplined pricing practices and by leveraging the power of our brand. In 2010, our plan calls for a profit improvement of at least 28% driven by our expectation for slightly higher rates of underlying growth in the U.S. and European rental car markets. The economic recovery should be gradual, and in the second half, we should benefit from easier year over year comps for equipment rental as well, as the renewal of demand for industrial equipment as deferred projects are reinitiated.

Now let me review our guidance for 2010 on slide 28 and the assumptions behind our projections. On revenue, we expect to generate consolidated revenue of between $7.4 billion and $7.6 billion which is a 4.2% to 7% growth rate. In the rental car segment, revenues should increase at a rate of 2 times GDP growth with the US improving a little more than Europe. For equipment rental, the first quarter of 2010 will be its most challenging period since the recession began due to a difficult comp and continued pricing pressure. You remember that the equipment rental business wasn't significantly impacted by the economic downturn until the second quarter of 2009. We expect HERC volumes to improve on a sequential quarterly basis throughout the year with the potential for year-over-year growth in the second half.

Moving on to our adjusted pre-tax income expectation of growth between 26% and 33% or $250 million to $265 million, driven by higher revenue and better cost management, will help us improve over 2009. There are puts and takes that I should point out. Let's start with the good guy.

We expect that our 2010 US monthly net fleet depreciation per unit will be 4% to 5% lower than in 2009 and notably lower as a percent of revenue despite the fact that we believe we have the most appealing richest mix of vehicles in our industry. Next I mentioned earlier we have a goal of delivering an incremental $300 million in cost savings this year, which should help offset onetime compensation costs that were eliminated last year as we managed through the recession, as well as an increase in marketing spending to support our brands in particular. We restored across the board wage reductions taken in the beginning of the second quarter last year. This represents about $18 million of incremental costs in 2010, given the timing of the reductions and the restorations.

Our 401(k) matching contribution and tuition reimbursement benefits were also reinstated at the beginning of 2010, and merit increases are expected to resume sometime in the second quarter after having frozen salaries for about 16,440 employees last year. Raises are typically in line with inflation. So this would represent about $16.2 million of incremental costs over the last three quarters of 2010. Global marketing expenses will be up about 35% this year, which as a percent of revenue is roughly 1.9%, compared with 2009's 1.6% level and 2008's 1.9% ratio. As we carefully managed cash last year, we had to cut our advertising and marketing budget significantly. Now with the economy improving, and as we continue to grow our brands and product portfolio, marketing will be critical to our success. We have a new TV campaign launching in March call Journey On. You should look for it and let us know what you think.

Finally, another item to be offset is the $90 million to $110 million of higher incremental interest expense this year, primarily as a result of refinancings and fleet growth, which Elyse just walked you through. Despite the added cost, adjusted pre-tax operating margins should increase for 2010 as a result of the flow-through from the $1.1 billion in cost savings we generated since the end of 2006. With improved revenue and lower operating expenses, we expect to generate adjusted corporate EBITDA in the range of $1.045 billion to $1.06 billion this year. And with an expected full-year diluted share count of about $410 million for 2010, we project adjusted earnings per share to be in the range of $0.37 to $0.39, an increase year over year of 28% to 36%.

On the next slide, while we don't give specific cash flow guidance, let me run through our plans with you. In 2010, our philosophy regarding the use of cash flow remains unchanged. Our first priority is to reinvest in the business. After that, we would expect to pay down debt balances as part of our global goal of becoming an investment grade Company. In light of the improving US economy and our growth trajectory, we have a non-fleet capital investment plan in the range of $240 million to $290 million this year, the majority allocated to US rent a car and Europe rent a car. We believe that this capital plan provides prudent reinvestment in the areas to provide the most benefit to our operating companies and that produce the greatest returns.

This year, in addition to investing in fleet, we're completely revamping our top US airport locations -- 20 top US airport locations -- which represent 50% of our total rental car revenue. In Europe, we're also modernizing our largest facilities. Our airport locations are the primary gateway to our brand, and we want to make sure our facilities reflect Hertz quality and dedication to customer satisfaction. The planned improvements to the exteriors of the locations include a new more modern logo, new Number 1 Club Gold signage and gold boards for our most loyal members, some new fuel efficient buses, more efficient instant return areas and contemporary signage to facilitate the rental car process. Interior enhancements will include the modernization of the lobbies with new seating areas, improved lighting, state of the art plasma TVs and counters designed for ease customer interaction.

Innovation and growth are all about challenging the status quo, something we're doing by enhancing brands and service experiences. We're confident investments like these will enable us to serve more consumers in more parts of the world more completely. Overall, we've taken a very conservative approach to guidance. With the economy, it's anyone's guess what could happen. And as you know, there are a lot of guesses out there. Despite the IMF outlook I cited earlier, the pace and degree of the recovery is debatable among economy experts. As such, there could easily be upside to our guidance.

Take a look at slide 29, where we put together a sensitivity analysis for you. Based on a 1% improvement in pricing, volume, net depreciation per unit and cost efficiencies, we could have an opportunity of nearly $152 million of pre-tax profit on top of our current forecast. Our best opportunity for upside comes from higher volume and pricing in Worldwide Rent a Car based on a better than expected economic recovery and by capitalizing on our fleet management expertise. There could also be incremental cost efficiency benefits if you consider our track record for operational excellence and the growing number of lean projects in the pipeline. As you can see in the equipment rental, we're more cautious. It's still difficult to get a good read on the macro drivers there. Until we have more visibility, we don't expect much more upside on this business until the second half of the year. All in all, a much better operating environment for the Company versus 2009. With that, let's open it up to questions. Operator?

Our first question is from the line of Rich Kwas from Wells Fargo Security.

Hi. Good morning.

Good morning.

Mark, just -- I know you went through this sensitivity here. First of all, how should we think about -- it's a pretty tight range here, $0.37 to $0.39 for 2010. What are really the major risks, aside from, you know, macro issues there that, that you're seeing in the industry right now?

On the rent a car side, you know, we feel pretty good about U.S. rent a car. Obviously, I said that, right? So, you know, there are -- we see probably more upside in that business than any of the other two. In Europe, we've got the recovery of the European economy, and again, that's anyone's guess, but I feel like our assumptions built in there are fairly good in terms of the way we provide guidance. And then on the Hertz side, visibility in the second half of the year is very cloudy, as you know. So, you know, until we really get into it, it's really hard to provide any upside, you know, on that business based on the assumptions we built in. So we tried to give you what the assumptions were, and we tried to show you what the upside was in what areas, and on costs, we always seem to over-deliver on that, so I feel confident the team always finds a way to hit and exceed their cost targets. So I feel that there could be some upside there.

So that's stating what I said, I guess, maybe in a little bit more colloquial fashion, but we feel like the operating environment is -- for about half the company is very positive. We've seen rental demand midweek for U.S., up significantly, kind of mid double digits, you know, so in the neighborhood of 15% to 20%. You know, on Tuesday through Thursdays, those are big numbers. Now, we don't know if that's going to continue to hold through the rest of the year. But certainly if it does, then that's a big upside, right? So maybe that gives you a little flavor, but there is a pretty strong operating environment in the U.S. right now. We're finding business travel is up significantly in our top 20 accounts, and that's really what drove a lot of our RPD issues in the back half and the front half of last year, and so -- we feel leisure pricing frankly in January -- we'll say this -- in January our on-airport leisure pricing was up, and, you know, leisure is our biggest segment, Rich, on-airport, right? And leisure pricing was up I think, what was it, Mike?

6.9%.

6.9% on-airport. So we felt pretty good about that. You know, so, again, the risk -- I guess the risk that we have would be competitive behavior on the equipment rental side. I think that's our number-one risk, competitive behavior on the equipment rental side.

Okay, and then just on the business or, you know, corporate account, you talk about buying getting better. What's going on with pricing? I think you're facing a relatively benign comp versus 2009. How should we think about the assumption for corporate account pricing for 2010?

I think, in general, we hope it to be flat to positive. So that's kind of what we've said, and we still feel that way, maybe slightly up.

And are you seeing -- what you seeing right now? I know those negotiations are ongoing, and each month there's new ones happening, but what are the trends there right now?

Yeah. Well, I mean, in the quarter, corporate was up 6/10ths of a percent. So, that's an actual for fourth quarter, right? So that gives you the best indicator, right, that I have right now as a fact.

And you were down 5% -- I think for all of 2009, you were down 5% in corporate pricing?

I think overall corporate pricing was down about 3% -- 2.7% to be exact.

Okay great, and then last question: In terms of HERC -- just going back to that -- it looks like you're looking for flat pricing for the year, volume down a little bit. First quarter is going to be the toughest. What does that imply for the second half of the year in terms of pricing? It seems to imply there's an up tick positive growth in the second half of 2010. Is that fair? And how substantial of an increase on a year over year basis?

The assumption was that pricing would turn positive in the back half of the year, slightly more in the fourth quarter than the third quarter, and was built on the notion that volume will actually improve, you know? Start to improve. Right now everyone's got excess equipment. We think that's what's driving some of the irrational behavior we see from competitors. We're in a protect-share mode. So, we've got to respond accordingly. The bottom line is the industry has the capacity to improve pricing very quickly if, in fact, people started acting in a rational manner.

Thank you, we now go to the line of Chris Agnew from MKM Partners. Please go ahead.

Thank you. Good morning. Could you provide a little context around pre-tax margins? I mean, I guess I was a little bit surprised to see only 50 or 70 basis points improvement on 4% to 7% growth. You used to have, I think, 10% to 12% pre-tax margin targets, and you've since taken out $1.2 billion in costs. Is there anything structurally different about profitability of the new products and services that you're now currently growing? Thanks.

Are you talking about on U.S. rent a car or worldwide rent a car margins, or what?

Full year, fourth quarter?

What are you looking at?

Just the full company, the overall organization. I mean, am I incorrect in saying that?

Are you talking about guidance for the year, though? Is that what you're talking about?

I guess I'm just trying to ask to put into context your pre-tax margin guidance, which is I think indicating 3.3% to 3.5% pre-tax margin. You used to have a 10% to 12.7% pre-tax margin goal, and to put it into some context, is there anything structurally different about the new products and services you're offering that keep it lower?

Chris, the best way to answer that, I guess, is to say Hertz pre-tax margin is down year over year. So that is driving, you know, the issue. Why we don't have more improvement. We're showing improvement obviously, significant improvement year over year.

Your question is why is it not up more, and I think structurally the difference is Hertz's pre-tax margin ends up actually being down year over year, not on a dollar basis. Pre-tax margins actually improved. I mean, pre-tax dollars improve, but the margins actually are down, and that's -- that would be the best answer to give you. The only other one to tell you is, as you look at the upside, that would improve the margins as well. We have a very -- we have about 300 basis points lower fixed-cost basis so the revenues we do get provide upside on pre-tax margins. So, I try to explain to people that the guidance is conservative, tried to show you what the upside would be on a 1-point basis of improvement, in those categories on the last slide. And I think if you were to take those and then look at the pre-tax margins, accordingly you'd see a more robust pre-tax margin, right?

Okay. And on the volume that you're looking for, how much -- can you break that out with your expectation for just your more traditional core on-airport business?

Say that again. Repeat it if you would I'm sorry. It broke up a little in this room.

Apologies. The volume guidance -- approximate guidance assumption that you provided, can you just break that out for your core on-airport business?

I don't have it broken out for you. We could probably do that later. I don't know if anyone's got it right handy. Airport would be up what?

5-6.

5-6. So airport would be up how much? 6.2%, so -- on-airport

U.S.

U.S.

Okay. Great.

That's what I've got here in the room. That's what's built into the guidance right now.

Thank you. We now go to the line of Himanshu Patel from JPMorgan. Please go ahead.

Hi. This is Ryan Brinkman for HImanshu Patel. You mentioned that there's potential upside to the $300 million cost savings. I would just like to know in the $0.37 to $0.39 EPS guidance, does that assume the $300 million cost is fully offset by the return of costs that were cut in the previous year?

No.

There is a net benefit there?

In the slide that details that, you can see it's not -- that the $300 million of cost reduction, obviously some of it flows through to the bottom line. But there are some one-offs that don't. And we talk about the SG&A as one of those. We talked about the interest expense as another. Those were the two primary drivers.

Right, but the cost increase is less than $300 million. I mean, it says 35% increase.

Absolutely, yes.

And then also in regards to monthly racked depreciation per vehicle, given the sequential flattening in used vehicle prices, is $316 per month -- is that a decent rate to use going forward, or is there any reason why that should trend differently than used vehicle prices?

Well, we've said it's going to go down 4% to 5%. So that's what we told you, that it will go down at least 4% to 5%. You'll notice it's also on our upside slide on page 29.

Okay. And then, in regards to the $1.7 billion of fleet financing, I guess international, are you still looking at doing some of the more creative things that you discussed in early 2009, or would it just be the more amend and extend or potential ABS deals?

No. I think it's a number of different things. I'm not sure what you're referring to when you say the creative things. I mean, the ABS structure -- there is a piece of it that is amend and extend, and then there's some new structures. I wouldn't say they're particularly unique. Bond offering is what we said on page 22 in the presentation. It's really just a combination of the asset-backed securitization, which is an amend and extend bond offering. We're looking at some asset-based loan structures and some leasing structures. It's really a combination of those four things.

Okay, thank you very much.

Thank you. We now go to the line of Emily Shanks from Barclays Capital. Please go ahead.

Good morning.

Good morning.

Thanks for all the details. I have a question around the [HERC] business. What is -- and apologies if I missed this -- but what is the industrial piece of it make up now? What's that mix?

Industrial, I think, is up to, let's say, 24?

It's up to 24%

24%.

Okay. And it looks to me like at least on a year over year basis, you out performed your peers in that particular segment, and I wanted to get a sense from you what you attribute that to, and specifically do you think you're taking market share?

You know, when we look at the revenue growth, we're slightly better than one of our competitors and not as good as another one, but I think that primarily our better cost management through yield management systems that we put in place, discipline around our sales organization, our revenues per branch are much higher. So, we're able to, I guess, collect a lot of our costs on what we call regional fleets, and we share a lot our fleets with each other, so I just say SG&A management, coupled with direct operating expense management, all combined. Plus we have a national account base that's probably second to none in the industry, and we believe that corporate structure provides more efficiency and better pricing than, let's just say, small little one offs in local communities.

Great. So that's helpful. Thanks, Mark. And my final question is for Elyse. As we look at the revolver which is maturing at the end of this year, how should we think about that, or can you comment on what your plans are around potential amend and extend?

The corporate revolver that's in 2012 maturity?

Yeah. I thought there were -- maybe I'm wrong -- I thought the term loan was 2012 and the revolver itself was due December 21, 2010. Do I have that wrong?

They're both 2012, and we are looking at amend and extend strategies. But we have no plans to do anything right now.

Okay. Thank you.

Thank you. We now move to the line of James Ellman from Seacliff Capital. Please go ahead.

Could you tell us a little bit about the demand you're seeing in HERC, certainly in terms of pricing and demand? We're seeing something a bit more conservative coming from RSC. Could you comment on maybe where your business is different and why would you be a bit more optimistic about the back half of the year? And if you can just comment on the irrational pricing you were mentioning. Is this pricing irrational in light of potentially some customers liquidating their fleets? Thank you.

I think RSD, from what I've read in their transcripts, said the same thing we did. Second half improves year over year. There's potential to improve in the second half of the year. In terms of buying levels by region, you know, our strongest areas right now, believe it or not, are Florida and the western half of Canada. That's due to the fact that Florida was first into the recession. We think it's first out. We're doing some really good things there as well.

We have a much better industrial base there than we used to have. Beyond that we're focusing on power generation and a better mix of equipment. So, again, we're actually seeing Florida be up year over year, and that is one of our biggest markets for non-RES. However western -- what we call our western region which would be California and even going up to northwest. That region still is under a lot of pressure, so we haven't really seen any improvement there. But we've seen improvement everywhere else, and the biggest, I guess, positive is, as the weather starts to get a little warmer, we've seen some nice activity, again, in Florida and some of the midwest and northeast as well. So that gives you contextually what we're seeing today. And why it gives us some confidence that there could be based on, again, very weak comps, some improvement year over year in the third and fourth quarter.

In terms of the irrational pricing activities, there's not a whole much more I can say about that, right? We're all governed by the same antitrust issues. I'm not going to signal at all. Just to say that competitors continue to really be predatory, we think. in a large extent and go after business, and try to gain market share in an environment where no one is going to give up market share. Everyone's fighting for the same market share because we all have extra equipment. So to have pricing levels that would be below the marketplace seems to be a stupid strategy. So that's the best way I can put it. So I have been surprised by stupidity of a lot of competitors.

If we could switch gears just for a moment to the retail business. Could you comment on Simply Wheels, since that was a relatively big initiative last year, and we didn't hear anything about it yet today. And also, could you just comment on -- when you were talking about ancillary rental equipment for the GPS. I would imagine that most people have a GPS on their smart phone now. What's happening to the trends there and what sort of depreciation rate do you take on that equipment?

So, you know, the Advantage brand, we basically folded Simply Wheels right into the Advantage brand. I think we announced that on a previous call. So not a whole lot to talk about Simply Wheels because it's part of the Advantage now.. It didn't make sense to have two different leisure brands so we immediately consolidated it. In terms of -- your other question was -- what was it?

Just GPS equipment, and other lost equipment that you have, in terms of people having GPS built into their smart phone now potentially leading to a decline of demand there. Is that taking place in line with your expectations, and what sort of depreciation do you have built into that equipment?

We've got a three-year depreciation life built into the equipment. In terms of what trends are, when you look at GPS, ours are hardwired into the car. You don't have to worry about signals other than when it first starts up -- it hits the satellite system. But, everything is hard-wired, so you don't have sticky things slipping all over the place. It's a very -- NeverLost is considered a very strong brand. We are a joint venture partner with Magellan on that -- about 65% ownership by Hertz. That business has always grown.

It's flattened out in the recession, because people de-selecting what they thought was, you know, an $11 a day feature, right? So corporate customers had to actually -- they were given directions that they couldn't upgrade to NeverLost in some cases. So in general, it's also been an area where we haven't focused strongly enough on ancillary revenues. So we don't look at NeverLost as being something that's going to be a big decline for us. We've been seeing it be more flattish, and we expect to get it growing again, because we've introduced a new version that is a touch screen, very similar to what you would get on most PDAs today. It's a touch screen. It's online trip planning. It has, weather and flight information immediately available to you. So you can actually put in the thing whatever your flight number is and know, on a real-time basis, what your flight is.

So, we've actually increased the functionality of it. Invested some money in it. And, we think it's the best in class in the industry right now. So we believe people will continue to upgrade to that as things move forward. So we're not seeing any pressure at this point. It had been increasing double digit every year up until the recession, and now it's a little bit more flattish, so I don't know if that answers your question, but we feel pretty decent about it being something that will continue to be an ancillary revenue upside for us.

Thanks for the color on that. I appreciate it. Take care.

Thank you. We now go to the line of Todd [Hilowitz] from Philadelphia Financial. Please go ahead.

Thank you. I just want to commend you guys on the slide 29. It's very helpful. On the pricing, can you just break out U.S. versus corporate if you don't mind for your assumption for rental car for this year in just the U.S., actually? .

I doubt -- I doubt if we'll do that. We never have done that. That's a very detailed breakout, right? So we...

Well, you just said the U.S. in the quarter was up 9% in leisure and down 6% in corporate, so you did it in the quarter.

No. I said that we were up 9.6% on-airport in leisure.

That's what I'm asking for the same assumptions for this year.

Yes, but we don't give that. We'll give it to you as it occurs. I don't give guidance on that, and I'm not going to. We went a long way on page 29 to giving what our pricing -- one point pricing improvement is. We gave you the exact pre-tax opportunity on it. But we're not going to give segment guidance, if you will, on pricing.

That's reasonable. Let me ask the question then this way: if you look at the year over year price increases, they really started last February and March and have been pretty stable since then. So you've had good year over year price growth that's now anniversarying in February and March. Do you think that there will still be price increases post the February and March time frame this year? In other words when you look out your six to eight weeks, do you still see U.S. domestic leisure price increases?

I would -- let me -- let me answer that question this way. We believe that the pricing environment continues to be positive because of tight fleets, and that the industry is still very tightly fleeted. Many of our competitors are tightly fleeted and continue to act very rational. And, we have a period of increasing demand with tighter fleets, which yields better pricing opportunity. So the answer is, the industry today in the U.S. and even we're seeing some pretty good pricing dynamics in Europe continues to be favorable for as far as we can see it.

And my other question is you're using auctions less and less, which I commend you on. You guys save what about $500 by not using auctions? If we look out three or four years in the future, what percentage of your cars would you hope not to go through auction?

It's $400 to $500 we save. The bigger opportunity for us is to sell more cars obviously direct to dealers as well as direct to consumers. We're actually building up a capability of that, and for me to forecast where we're going to be would be probably erroneous at this point. But I would say, it's fair to say we'd like to get some number, about half -- less than half of our cars would go through auction.

Okay, and are you going to open more of your own dealerships as well?

Do what?

Are you going to open more of your own dealerships?

No, we're not going to do that.

Well, you have a couple now.

Oh no, I know. We have about eight stores, and what we're really trying to do, rather than do it through stores, we're trying to do it through the Internet. We have a program called Rent-to-Buy, and we're now licensed in 13 states, and that program -- we have to gain scale and capability in it, so we need more cars it in. So, as we get more states and we gain more capability and experience, we'll be advertising that more to the consumer and marketing it more. We're hopeful that grows to be a significant percentage of our overall marketing effort.

We're also, you should know, adding a lot of people in the field as well as at headquarters to sell cars. You have to have the people that are good and experienced at it, and, you know, our average profit per car hasn't been as great, as in some cases our competitors, because we haven't sold direct to the consumer or direct to the dealers. We've not had the infrastructure. We've been building that infrastructure in 2009 and we continue to make a big investment in it in 2010, and we actually believe, as we ship that, our depreciation per vehicle, actually net depreciation per vehicle, which is a composite of both the acquisition price as well as the selling price -- that's going to improve and that's upside potential for us.

And what was the dollar gains on vehicle sales in the quarter? You said it was very small. Can you give the exact number? I know it's in the queue.

In the U.S., it's $12 million. For the quarter. For the fourth quarter.

For the fourth quarter it was $12 million.

In the U.S. On a consolidated basis it will be slightly negative.

It will be slightly negative on a consolidated basis.

And then, on the equipment rental side, what was the gain from selling used equipment?

I don't know. Do you guys have that? I'm asking one of the guys in the room here if they have that.

I think it was $3.6 million.

It was $3 million.

$3 million.

Thank you, guys. And again, a much bitter disclosure. Thank you.

We now go to the line of Mick Millman from Millman Research Associates. Please go ahead.

Thank you. It's Mike. Sort of the same vein. In the fourth quarter, you indicated 9.6% leisure airport pricing. Was that basically price? Was that basically mix? And I was curious --

That's RPD -- that would be RPD increase of 9.6%, which is both price and mix combined. So it -- we didn't have a favorable mix, so it would have been higher, probably a little bit higher. But 9.6% was the actual RPD number.

And can you talk about the leisure price was higher than the business price, which I think is unusual.

No. I mean, you know, in terms of what happens for us, leisure pricing has always been a very good, you know, mix of our business, right? You're able to price it up, you know, at the airport much better than you can do it maybe at an off airport location, but again, we've always had fairly high RPD on leisure. If I were to look at the last 10 years, you'd see numbers at the corporate level are higher most of the time.

Higher than the business?

That's correct.

And that's --

Not the airport, Mike. Remember everything I'm qualifying is at the airport.

Yes, at the airport. And, did that 9.6% include Advantage?

No. Does not include Advantage. We report Advantage separately.

And can you give us what that was -- number was?

I don't know. Do you have the RPD for Advantage? It was averaging around $29 a day.

Yes, the RPD for Advantage is about $30.

Yes, so I guess -- it's about $30. Advantage on-airport was $30.

And you said that on-airport leisure in January was 6.9%, and I think you said that March was looking even better.

No, I didn't say that. I just told you what January was. But I did tell you that March volume looks good, and I did say that inner week, we're getting very nice spikes in demand driven by business travel as well as leisure being fairly strong. And inner week, you know, Tuesday through Thursday business is where we peak up on demand because of business travel, and in those peak periods, what I did say was that we were having 15% to 20% increases in volume the last couple of weeks in that peak period, and that's very encouraging for us. That's much higher than we thought it would be.

And is it fair to say that when you have higher volume, it gives you an opportunity to have increase your price on the leisure because you have less leisure cars?

Absolutely.

And your full-year guidance of 0.6 seems a little bit out of joint with volume going up 7.4. It would seem to suggest -- squeeze the volume a bit, and raise the price a bit.

This is why we gave you the upside on the last chart, you know, on page 29, I think it was. If I remember right.

Twenty-nine.

Yes, it's page 29. We say that pricing has an opportunity -- in fact, if we improve our pricing by 1 point it's $50 million of pre-tax. So absolutely an opportunity for us; and again, this is based on the competitive, you know, reaction. We can't predict to some extent what's going to occur.

But you're predicting you'll be up 7.4% in volumes. Do you see the industry being up 7.4%?

Don't know. I have no idea. This is for obviously worldwide rent a car which includes Europe as well. We predict it based on kind of a 2 times GDP growth rate. We think the volume, again, in days, is conservatively set.

And getting back to Advantage, some -- in the resources suggesting that Advantage pricing seems to be awful low at times, competing with tertiary pricing, as opposed to value pricing. Could you talk about your pricing strategy with Advantage?

I think the only thing I can tell you -- I can't comment on pricing strategy, other than to tell you that -- what we have historically done with Advantage is price on top of what we consider to be one of the lower competitors on airport, and we don't try to go below that lower competitor. We try to stay right on top of that lower competitor. I've said that before and I'll say it again. That's our strategy is to price on top of what we consider to be the lower competitor on airport.

And I think in the past you suggested that was Enterprise?

I don't know if I suggested that or not.

Well, assuming Enterprise, for example, it would seem the reverse. That Enterprise is reaching down to meet Advantage.

Michael, we can't get into a pricing discussion. Those are the very reasons why we cannot get into a pricing discussion. Our strategy has been to price on top of the lower competitor. That's it. Period. That's all I can say on it.

On Toyota, looking out, is it conservative to assume that residual prices will continue to be where they were?

Okay. On Toyota, in terms of residuals, we see very little impact to our profit plan this year due to the Toyota recall. Best way I can say it. I can get into a lot of detail on this, but the bottom line is we see very little residual impact at all. And in fact, residuals on those vehicles are up right now because of a shortage of supply on those vehicles. You know, if it goes down further, it goes down further.

All I can tell you is that we will adjust and age those vehicles, we'll trade in for those vehicles with making them maybe a program car versus a risk car -- there's a lot of different tools that we have. It's a small group of vehicles for us. It was 13% vehicles we had in the fleet at the time. We've already made a lot of actions on those now. So we feel pretty good. We don't feel like it's any risk, if you will, to our mix and our profit impact for the year.

Great, thank you.

Thank you. We now go to the line of Chris Doherty from Oppenheimer and Company. Please go ahead.

Good morning. In terms of the HERC, I'm just trying to understand the comment that you expect to accelerate cap back in the back half of the year, If you look at where volume was for the quarter, it was down 24%, but yet your fleet size was only down 10%. That would say that your time utilization was probably down. What is your time utilization, and is the pick up in CapEx more of a mix issue in that you have to re-jigger the mix for the difference in cycles?

I guess, first of all, we're not going to accelerate, okay? We're not going to buy any equipment unless we have demand for it. We're a very strict capital plan on equipment rental. We do have aging of fleet, though. And so, once your fleet gets to a certain age, you don't want to have it, if you're going to use it, because the maintenance is way too high. So, what we do, do is with new equipment, we've been able to trade out old fleet for new fleet. But, we will be very prudent on fleet CapEx for the back half of the year. We've built a little bit into the plan, and we're hopeful that develops. That's not to say that it will. If it doesn't, we will not buy it, I promise you. So, we're very prudent on the way we manage our equipment and in the way we buy our equipment. So it will only be there if, in fact, the demand is there for it. Does that make it more clear?

No, it was just a comment of increased CapEx on the back half. It's more just to do replacement stuff. That's understandable.

That's right. That's exactly right.

That's understandable. And then, in terms of the utilization on rack, you talked about how you got some deals at the end of this quarter. Where should we think about a target utilization for that? I mean, you've gone over 80% recently. I mean, is it high 70s, low 80s? What's the variability between quarters ?

In the rent-a-car space, we're kind of planning that this year we might be up a point for the overall worldwide rent a car. If you want to plan for something, I would say we plan for a one-point improvement. We had a big increase, as you know, in 2009. So we're still planning on some slight improvement this year.

Thank you.

Thank you. Our next question is from the line of Jay Leopold from Legg Mason. Please go ahead.

I appreciate your patience answering all these questions this morning. Chris Agnew asked a series of questions earlier. I think one of them slipped through the cracks that I was very interested in asking myself, and that is the 10% to 12% pre-tax margin goal you talked about for years. I understand that we've gone through a very horrible recession. But I'm wondering what pieces you have of the puzzle to continue to move around to achieve that, or I guess the more simple question is, is that still an achievable goal and a reasonable timeframe?

I think that if we get back to 2006 and 2007, either one of those, volume and price levels will definitely exceed those goals. So, we have about 300 basis points of fixed costs we know we have out versus where we were in '07. So, I feel very comfortable -- we get to normalize revenues of about $8.5 billion, we'll easily exceed those goals.

And, the change in your balance in the higher interest expenses won't affect your ability to hit that goal?

No, because our cost reduction programs way overachieve that interest expense, right? Increase. We talked to you on the call about a $300 million number we've committed to. We typically always overdeliver on that. And, the interest expense additional this year is about as bad as it's going to get. It's between a $90 and $110 million number, right? So, I feel pretty confident that, again, we really have a lot of efficiency initiatives yet to play out this year. It's part of our culture. We're building in the DNA of the Company. And,, I believe we've got plenty of room for improvement there. And, that there's still a lot of profit improvement after the interest expense increase due to cost reduction and revenue growth.

So, going from $7.5 billion revenue guidance this year to $8.5 billion is going to get you fairly significant pre-tax profit improvement.Y

Yes, it would and the one thing that you should -- I mean, as you look at the numbers, right, of HERC equipment rental versus rent-a-car, one of the things that should jump out at you that is, in '07, we had a $1.7 billion business in equipment rental, and that business was very profitable --- 47% EBITDA margins, EBIT margins were 25%. And then, in two years, that business is off 55%. We're now $1 billion business. And, the EBITDA went from about $930 million dollars in the equipment rental side to $450 million. So, it's literally cut in half in a period of less than two years. And so, when that business turns again, the pre-tax and EBITDA of earnings potential, or margin improvement potential is very large. And we think we have tremendous operating leverage when that happens. Now rent a-a-car is performing at historically high levels already. High levels in '07. And now, they're almost back to '07 levels on volumes that are down 14% to 15%. So, on pre-tax margins, they're almost at '07 levels. I want to say that again. And volumes down 15%. So, we're very confident that, again, as revenues turn on equipment rental, that'll be a big mobilizer, right? And as they continue to improve on rent-a-car, we'll be able to achieve those pre-tax margin goals that we talked about.

Thank you, that's a good answer.

Thank you, we now go to the line of Stephanie Renegar from JPMorgan.

Hi, Stephanie Renegar from JPMorgan. Just a couple of very quick questions for you. You said that the advance rates next year are going to be around nine points lower than 2009. I just wondered if you could update us on what the weighted average advance rates for 2009 were as of year end. And also, just for the depreciation that you're expecting in 2010, I was hoping that you could break out your thoughts on the depreciation trends per unit for Europe versus the U.S.. And that's it from me.

Okay, so let me start with the first question. You wanted to know what the advance rates were. The end of 2009, our advance rate was around 72%. And then as I said, so we're expecting that to be somewhere in the 63% range. And again, that's an estimate based on what we're seeing today. And what was the second question?

The second question was on the depreciation rates per unit. Just wanted to know what the split was between U.S. versus international, particularly in Europe. Your outlook.

Well we said in the U.S., the outlook is a 4% to 5% improvement. And, if you give me a minute. It'll be a little higher in Europe -- 6% to 7%.

A fall because of improvement in residual values.

Correct, because the European market has, is later to improve, so we've seen a lot of the benefits to date in the U.S. and we haven't yet seen as much in Europe. We do expect that to accelerate.

This isn't just the contracts you have that are on buyback or non-risk vehicles. Are you seeing any increase in depreciation per unit there?

No.

Operator, we'll take one more question.

We have a follow up from the line of Rich Kwas from Wells Fargo Security.

Hey Mark, just on HERC, the 9.5% decline in pricing. It sounds like it gets worse in Q1 and then it gets better. Is that the way to think about it?

I think that's fair. Yes, I think that's fair. Maybe flat to a little worse.

And then, last question. European restructuring -- where are you with that? I know you launched it middle of last year. Where are you in terms of taking the cost and when will you be done?

We'll be done with the European restructuring this year, obviously. Completed. I think that probably another six months of stuff where we're moving pieces around to our headquarters in Dublin, where we had things in country. We have a regional operating center in Geneva that there is some movement going on there, but in general it should be done over the next six months to provide for good year-to-year comparisons all year. But we're pretty much done with the European restructuring. Just some changes yet to be implemented -- small changes over the next six months. Michel Taride's on the call. Michel, is that accurate?

Yes Mark, that's accurate. I would say 85% is completed. As Mark said, an example would be we were setting planning functions in this new operating center we have in Geneva. It's a regional organization in Europe, and the savings announced, which I think were about $30 million annualized are materializing in fact. And as Mark said, the full year affect will start second half. In June, we'll be 100% complete.

Okay, great, thanks.

Okay operator.

Would you like to make any closing comments?

Yes, just thanks for attending the conference call. We look forward to a great 2010, and talk to you next time.