Hertz Global Holdings, Inc.
Q4 2007 Earnings Call Transcript

Published: 21 Feb 2008

[Operator:]

Ladies and gentlemen thank you for standing by, and welcome to the Hertz Global Holdings Fourth Quarter 2007 Earnings Call. At this time all participants are in a listen-only-mode. Later we will conduct a question-and-answer session and instructions will be given that time. (Operator Instructions) The company has asked me to remind you that certain statements made on this call contain forward-looking-statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking-statements are not guarantees of performance, and by their nature are subject to inherent uncertainties. Actual results may differ materially. Any forward-looking information relayed on this call speaks only as of this date and the company undertakes no obligations 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 earlier today, and the risk factors and forward-looking-statements sections of the company 2006 10-K and third quarter 2007 10-Q filings with the SEC. Copies of these material are available from the SEC, the Hertz website, or from the company's investor relations department. I also want to remind you that this conference call is being recorded by the company. I would now like the turn the call over to your host Ms. Lauren Babus. Please go ahead.

[Lauren Babus:]

Good morning and welcome to Hertz Global Holdings fourth quarter and full year 2007 conference call. You should all have our press release and associated financial information. We have also provided slide to accompany our conference call. You can access these documents 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, Hertz's Chief Financial Officer. In addition, we have Joe Nothwang, Executive Vice President and President, Vehicle Rental and Leasing, The Americas and Pacific; Michel Taride, Executive Vice President and President, Hertz Europe Limited; and Gerry Plescia, Executive Vice President and President of Hertz with us for the Q&A session. Today we will use certain non-GAAP financial measures, all of which are reconciled with GAAP numbers in our press release posted on our website. We believe that our profitability and improved performance is better demonstrated using these non-GAAP metrics. In response to analyst feedback, we've added a table to help reconcile adjusted pretax income to corporate EBITDA. 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. And now I will turn the call over to Mark Frissora.

[Mark Frissora:]

Thanks, Lauren and good morning everyone and thanks for joining us today. Let's start with Slide number 5. We are pleased to report such strong results for the fourth quarter and full year 2007. Our story is particularly gratifying, given that we face the headwinds of a weaker US economy in the quarter, and the threat of recession. As you can see, Hertz exceeded the high range of our full year guidance on four of five key financial measurements. Number one; the revenues which increased 7.8% year-over-year. Number two; on adjusted pretax income which grew 35.8%. Number three; on adjusted net income up 36.7%, and finally on number four, adjusted earnings per share which increased 37%. Corporate EBITDA at $1.541 billion, an increase of 11.8% was in line with our guidance. Our cash performance was very strong in 2007. Early in the year, we set a target of $1 billion in positive cash flow over a two to three year period. In 2007, we delivered over half of our target and reduced net corporate debt by $553 million. A key component of that was reducing the working capital requirement, resulting in a 12 day improvement in day sales outstanding through intense focus on the balance sheet. Cash management is now a priority for the business units as well, and we have set additional goals for 2008. In fact, full year cash flow per share, which is levered after tax cash flow, after pre-growth divided by 324.8 million shares, almost doubled year-over-year, and more than matched our adjusted EPS improvement for the same period. I would like to now transition into a discussion around our revenue diversification and efficiency initiatives to show you what truly differentiates us from our competitors. This is on Slide 6. With the slowing US economy, our strong revenue diversification will be a key element of our performance in 2008. We have two major businesses, car rental and equipment rental, which represent 80% and 20% of our revenues, respectively. We also have strong domestic and international operations in each business. Our operations outside of US, which constitutes 33% of our overall revenues, experienced strong revenue growth in operating profits. Within each of our operating segments, there is further diversification by customer type and through product line. The US off-airport market generated almost $1 billion of revenue in 2007, driven by a 10.6% transaction day growth. Additionally in Europe more than half of our car rental activity comes from off-airport transactions, and that market is growing faster than the on-airport business. Off-airport is an important source of revenue for us and that it represents a significant growth sector that is less susceptible to seasonal volatility and economic cycles. Our equipment rental operations are also differentiated from our competitors, primarily through our geographical footprint which includes the US, Canada and Europe. We believe that the breadth of our product offerings, traditional rental business, general rental, specialty pumps, power generation, airual, trench shoring and plant services, helps insulate us from reduced demand in any one specific area. I want to highlight our growth initiatives that will also strengthen the diversity of our revenue base. Please turn the Slide 7; we are pleased with the initial performance of Simply Wheelz, our new low cost leisure brand, which we are piloting in Orlando and Spain. This offering appeals to value-oriented customers. We continue to penetrate the online leisure market and booked over 37% of fourth quarter worldwide reservations through hertz.com and third party websites, an increase of 10% year-over-year. Our Prestige, Fun and Green Collections, and our brand new motorbike collection in Spain, highlight the rich diversity of our rental fleet, and target customers with specific vehicle preferences. These collections produced total revenues of $700 million in 2007, significantly higher than the $382 million they delivered in 2006. We also offer hourly and monthly rentals, so that we can meet the vehicle rental needs of highly diverse groups of customers. We also have ansill rate revenue growth opportunities. 2007 revenue from NeverLost, our satellite navigation unit increased 19% year-over-year. In Hertz, we further diversified our revenues stream in 2007 through strong growth in industrial sector and product initiatives such as pump and power generation. Our specialty initiatives broaden the range of customers we serve and generated double-digit revenue growth in 2007. During 2007 we added on a net basis over 360 corporate locations to our worldwide rental car and equipment rental networks. This includes the 12 car rental licensee acquisitions we made during the year, which represents $36 million of revenue brought under corporate control. This gives us greater control of our growth in those geographies, enhances our business footprint, and creates a more efficient sales platform in overall segments. We are also considering other licensee acquisitions. Across the divisions, we are signing up new accounts and extending our portfolio, our travel partnerships and affiliations. Additionally, we plan to expand our networks further in 2008, to fuel additional growth. Later this year, we will give you an update on our expansions into Asia, particularly China and India. Let's now turn to Slide 8 on our efficiency initiatives which were a second key factor that differentiates Hertz from our competitors. In November 2006, we set a target to raise our adjusted pretax margins from 5.2% to 10% to 12% within three years, and outline some major initiatives to achieve that goal. We have made good progress thus far. The adjusted pretax margins for 2007 increased by 240 basis points, from that starting point to 7.6% and total company employee productivity measured by dividing revenue by average headcount was over 14% higher in 2006. In 2008, we expect to realize annualized net savings of at least $250 million from the many initiatives we have discussed with investors, about $75 million of which is built in to our adjusted pretax income guidance. We also expect to incur restructuring charges of between $30 million and $40 million in the first half of the year. The full $250 million that now flow through, is pretax income, because we will be using some of the savings to invest in new stores and other growth initiatives. Some will offset increased fleet depreciation and fleet interest expense and inflation in products and services we used to run our businesses. Regarding the $75 million baked in to our current projection, we will update you in subsequent conference calls and if we changed assessment as our visibility improves throughout the year. These savings will affect all expenses, all expense lines of the income statement; direct operating, SG&A and depreciation. Interest expense should improve as we de-lever with the additional cash generated. Since 2008 will be a transition period, these benefits will be phased-in over the year and the impact of these initiatives should be even greater in 2009. Much of the savings is driven by process improvement, so we can maximize the financial benefit without impairing the customer experience, and in some cases improving the customer experience. Importantly, we believe our cost reduction plan can be achieved even in the current economic environment. You may recall that in January of 2007, we introduced a new customer satisfaction measurement system which is linked to our employee compensation plans. We continue to monitor performance closely and set new targets each year. Our scores coupled with 18 unsolicited awards received by Hertz this past year, tell us we are doing a very good job meeting and exceeding customer expectations. And now let me update you on our progress. First, the Hertz improvement process. Our Lean/Six Sigma program is now alive in 250 locations worldwide, representing over 50% of total Rent-A-Car revenue, and 30% of the equipment rental revenue. Our employees have designated numerous process improvements which are then cascaded as standardized work throughout the organization. Secondly, in 2007, we also delayered and streamlined our operations, and announced a $165 million of annualized savings in North America with additional savings to come from our European operations. Third, we launched project Genesis. This is our global strategic initiative to re-engineer our processes to best in class, reorganize our company into cross functional, worldwide centers of expertise, and outsource non-core processes, and cases where we find companies able to perform the work better and at a lower cost than we can. To this end, we've reviewed 207 processes representing over $6 billion of cost to identify re-engineering and outsourcing opportunities, and bids were solicited for information technology, property, procurement and selected areas of finance and some human resources. Other processes are also being retained in centers of expertise where they will be re-engineered and standardized. While we are reviewing and still reviewing some proposals for a number of these domains, we are quite far along on redesigning property management, which is a good example to share with you. We have retained internal control of airport negotiations and bids, facility project design, lease administration, and facility environmental compliance in a global center of expertise. We are partnering with CB Richard Ellis, a leading provider of global, commercial, real estate services to handle the facility management of current locations, acquisition of new properties and construction and maintenance. We will be able to accelerate new location and openings, an important part of our growth strategy, free up Hertz management time, and apply consistent design standards throughout the company. In addition to those soft benefits, we expect to achieve net annual savings of $8 million on a run rate basis over the next few years. This is just one small example; we expect other outsourcing opportunities to generate even larger savings. On the reengineering side we have entered disciplinary teams in place looking at major processes such as vehicle damage to improve our collection in repair cost. Overtime we expect this effort alone to realize annualize savings of $16 million for US Rent-A-Car. These efficiency initiatives will include additional headcount reductions during 2008, in addition to staff reductions due to macro economic factors. As before, we will limit the impact on customer basing personnel, and plan to improve customer service levels. Global supply chain is another important source of savings for Hertz. In addition to sourcing non-fleet purchases at lower cost, we are focusing on reducing the holding cost of our revenue earning equipment for Rent-A-Car in Hertz. This cost depreciation and fleet interest, represents some largest single expense in our cost structure or about 30% of revenues. This initiative is a cradle-to-grave review of our current fleet management processes and a subsequent implementation and efficiency actions on every phase of our fleet cost in the initial purchase to the ultimate disposition of our fleet assets. Finally CMS, Hertz state-of-the-art global car rental supply and demand forecast system continues to be implemented through Rent-A-Car. In 2008, we will rollout the fleet rotation module, which joins fleet acquisition and distribution, to drive us towards an optimal vehicle mix and distribution of fleet. We will also export existing forecasting and pricing modules to Canada and Europe. You've heard a lot about efficiency improvement and cost reduction of Hertz to drive bottom-line results. But these programs will enable us to continue investing in the company. In 2007 we attained our financial performance goals by spending over $65 million more on our brand, our operations and our people. We expect to continue these investments in 2008 and beyond to ensure our successful growth and performance. During the past quarter, we added several new positions to our senior management team. Bob Stuart is our Head of Global Sales, a new position that had previously been combined with marketing. Bob joins us from General Electric, where we had held several various sales and marketing positions, and has a strong consumer brand experience. Lois Boyd with whom I worked closely at Tenneco was brought into oversee process improvement and project management as we cascade the efficiency and other initiatives throughout Hertz. Jeff Zimmerman, who is now our General Counsel, also is from Tenneco, where he served as Vice President, Law, with strong commercial and employment law practice. Earlier we announced the appointment of John Thomas, as our new Head of Global Supply Chain Management. John comes to Hertz from Donnelley & GE and will deliver our cost saving initiatives and procurement and asset dispositions. Each of these executives brings a wealth of experience and enthusiasm to our company, and will help us achieve our growth agenda and profit enhancement goals. With that strategic overview, let me turn the call over to Elyse.

[Elyse Douglas:]

Thank you Mark, and good morning everyone. Our 2007 operating data is in our press release, so I will focus my remarks on the operating environment and outlooks of car rental and equipment rental. Let's turn to Slide 9. Starting with US Rent-A- Car, on our October conference call, we discussed the positive pricing outlook for the industry for the balance of the year. As you will recall, the industry had experienced multiple price increases in the third quarter and the momentum carried into the fourth quarter. However, volume and pricing proved challenging in November and December, as business and leisure rental volumes were impacted by reductions in airline traffic and economic concern. Airport leisure pricing eroded, as the industry's post-summer supply outweighed demand, and pricing remained below prior year, despite attempts by Hertz and others to raise prices on a market-by-market basis. In our corporate account negotiations in the fourth quarter, however, we achieved rate increases of about 2.4% together with very high account retention. About 45% of our total revenues come from business transaction, with almost 60% of that from our corporate accounts and the remainder from other business category. Looking at another important operating metric, average rental links in the US, increased by 3.2% in the fourth quarter, reflecting a shift away from traditional booking sources to online leisure rental sources and growth in the off-airport sector, particularly insurance related business. These transactions tend to be longer in length which reduces operating costs. As we have pointed out in earlier calls while rentals rates are lower, these rentals are profitable due to lower transaction and vehicle costs. I am happy to report though, that pricing in reservation bills at our airport locations currently are above prior year for the March forward period. For 2008 generally, we anticipate that industry behavior will be rational as participants adjust supply relative to demand trends. We also expect to maintain double-digit transaction day growth in off-airports as we seek to expand our network, gain new insurance accounts, and increase market share in existing accounts. As we continue to focus on growing the off-airport and online leisure components of our revenue base, we expect that mix shifts in our business will continue to impact overall rental rate revenue per day or RPD. International car rental, experienced good year-over-year revenue growth driven primarily by Europe, which experienced a mix shift due to the growth in longer length rental products, such as van and monthly rentals, improved leisure penetration, and increased inbound rental volume from the United States. In Europe, rental volume growth was strong all year, but slowed in December around the holiday period. Since year-end, however advance reservations are above last year, which is encouraging. Until we have greater visibility, we are being prudent about adding fleet in order to increase utilization levels above last year. Car cost increases across the industry are producing pressure for rental price improvement. We also expect our RPD to reflect product mix shift as we further increase penetration into longer rental length, but lower RPD factors such as leisure, van and truck. Turning to equipment rental; Slide 10. During the fourth quarter, we continued to be impacted by the softening US construction market, both residential and non-residential. Demand for earth moving rental equipment continued to decline overall, particularly in Florida and California. However, we benefited from strong industrial and oil-related volume in Western Canada, Texas and the Gulf Coast. In these locales, we also experienced rental growth from ancillary construction projects. Strong growth in both our equipment rental initiatives and in our international business more than offset softness in the US-based construction business and further diversified our revenue mix. Our objective is to continue increasing industrial revenue in North America from 20% of the total in 2007, to 25% over the next one to two years. In building our plans for 2008, however, we have been cautious in our assumptions. Our expectation is for continued growth in the industrial and fragmented sector for the economy and negative growth in construction related spending. Compared to fourth quarter 2006, worldwide pricing declined by about 60 basis points, and moved positive pricing in Canada, offsetting a 1% decline in the US and Europe. This pricing pressure is primarily related to earth moving equipment. We had said that supply and demand of equipment are better matched than in previous economic slowdown, and the pricing environment reflects that balance. At December 31, the average age of our worldwide fleet was 29.1 month versus 26.4 month at year-end 2006. You should expect our fleet to age a few months in 2008, but from a competitive and customer satisfaction perspective the fleet is still relatively young. In 2007, as reported in our levered after-tax cash flow statement, equipment rentals spent $273 million in maintenance CapEx and $282 million in growth CapEx. These numbers include a foreign exchange impact of approximately $90 million. The 2007 investment in equipment was primarily to support our industrial growth, new business initiatives, and network expansion. For 2008 depending on economic conditions, we expect total equipment, rental fleet, net capital expenditures to be no more than $200 million - $250 million. We plan to fleet new green field by redeploying existing equipment which will increase utilization in the softening economic environment and the US and also serve capital. Let me now turn to our financial results shown on Slide 11. We had a strong fourth quarter with consolidated revenue of $2.1 billion, an increase of 7.4% year-over-year. We were especially encouraged that in light of a difficult economic environment, worldwide equipment rental was able to deliver a 7.4% year-over-year improvement, and the worldwide rate improved 7.5%. Our profit measures also showed significant improvement in comparison to fourth quarter 2006. Our GAAP pretax income and net income in the quarter were 90% and 103% higher, and earnings of $0.25 per share on a diluted basis, represented an increase of 79%. Adjusted pretax income and adjusted net income were 15% higher on a year-over-year basis. Adjusted EPS using the pro forma fully diluted post-IPO share count of $324.8 million was $0.29, an improvement of 16% compared to 2006. For the fourth quarter, our corporate EBITDA was $385.2 million, an increase of 5.2%. In the fourth quarter, direct operating, selling, general and administrative and corporate interest expenses on an adjusted basis declined by a 190 basis points of the percent of revenue. This improvement was achieved in spite of a $5 million increase in advertising spends in that period. This margin improvement was partially offset by higher fleet caring cost due to higher per unit cost and larger fleets in the quarter. The net result is an improvement of 40 basis points year-over-year in our adjusted pretax margin. Total cash interest expense during the quarter increased 3.3% year-over-year. The increase in net fleet related interest is partially offset by the reduction in net corporate interest expense, due to lower net corporate debt balances and reduced borrowing margins in our bank financings as a result of re-pricing actions we took earlier in 2007. Adjustments to our GAAP results totaled $71.2 million in the fourth quarter, due to restructuring cost, purchase accounting and non-cash debt charges partly offset by a $7.7 million credit relating to the change in vacation accrual. Now I would like to take a few minutes to discuss fleet utilization and residual value. Fleet efficiency during the quarter in both worldwide car rental and equipment rental was below the prior fourth quarter. In US car rental, we maintained fleet levels throughout the quarter to capture volume from improved demand we saw around the Christmas holidays to benefit from the higher yield opportunity. In equipment rental, with a continued slowdown in construction activity, we have been rebalancing our fleet away from earth moving equipment, and that reduces fleet efficiency. We have heard a lot of concern about residual values for our domestic rental fleet in recent months. Let me address the point and have you turn to Slide 12. Used car sales volumes and residuals are seasonally lower in the fourth quarter and 2007 was no exception. However, seasonality is only one factor. Our deletion plan considered the mix, mileage and fleetage needed to satisfy customer needs, and drive higher levels of customer satisfaction. Residual value performances specific to manufacturer, make, and model. Our fleet diversity is a natural hedge, and we have limited exposure to any single manufacturer or type of vehicle. In the US our largest single brand supplier only accounted for 27% of cars purchased during 2007. Similarly, our large sport utility vehicle, a category which has been under pressure in the used car markets are almost all programmed cars. Currently no single risk model represents more than 5% of our total domestic fleet, and we expect that to continue in 2008. Residual values on our risk cars were approximately 74% in Q4, 2007, reflecting a seasonal impact and some market pressure, and 75% for the full year. For the full year 2007, we sold over 111,000 cars, which are twice as many vehicles as in 2006. The average age of the cars sold in the quarter is consistent with the prior year at approximately 14 months. In the current quarter, we are seeing some continued market pressure on residuals, but expect this to dissipate during the year. Given the strong unit sales performance at stable residuals and our accelerated transitions were predominantly risk free versus our competitors, we believe the management of the fleet disposals, and residual risk, is another strong capability we will utilize to manage throughout the difficult economic environment. In the US, the percentage of non-programmed cars in the fleet increased year-over-year from 52% to 73% at December 31, 2007. From a fleet planning perspective, the benefit is that we control the timing of disposal in regard to age and mileage and can optimize optimal equipment selections. The downside is the disposing of a risk vehicle takes us 15 to 21 days longer than a comparable programmed vehicle. Our Hertz improvement process is focused on streamlining the disposal period and we expect significant progress in 2008 in closing the gap. As Mark mentioned, in 2008, we will continue to develop alternative sales channels, particularly online, which will allow us to maximize our residuals and dispose the vehicles more quickly. In Europe, about 75% of our fleet purchases are on a program basis, and we primarily sell our non-programmed vehicles to wholesalers or through our small retail car sales network in France. For the year, residual values were fairly stable, though there was some softening during the fourth quarter as well. At equipment rental, the used equipment market remains fairly strong and is still maintaining good residual among almost all categories of equipment, although earth moving remains under pressure. As you may know, equipment rental typically sells most of its equipment through retail or wholesale channel, which provides better residuals and net sales proceeds on the auctions. Although this our strategy, we may decide to sell more fleeted auction to expedite our fleet balancing initiatives, which would reduce used equipment sales profits in the short-term. Let me assure you, that in both Rent-A-Car and equipment rental, we review depreciation rates and assets life every quarter and make adjustments as appropriate so that we can minimize gain or loss on sale. Because we are constantly in the market, we can monitor residual value trends on a real time basis. Looking in to 2008, we expect US Rent-A-Car vehicle depreciation expense per unit to increase 2% to 4% year-over-year. Internationally, for the 2008 model year that starts in January, manufactures are implementing mid single-digit price increases and are limiting supply of certain models. Absolute vehicle depreciation per unit for Europe remains below that of the US. We will continue to manage the mix of cars to reduce the financial impact of higher car cost. And the last point I would to like to make on fleet, is that, we do not foresee any issue in obtaining adequate fleet for 2008. Turning now the Slide 13; our balance sheet continues to improve. At year-end our consolidated leverage ratio was 2.9 times and the consolidated interest coverage ratio was 3.7 times. These are improvements over the prior year and well within the covenant limits set in our financing agreement. We believe we have more than ample liquidity to support our total 2008 debt maturities of $214 million as well as anticipated growth. Subject to borrowing base availability at December 31, we had additional capacity of $5.4 billion consisting of $3.1 billion in fleet financing, $1.6 billion in corporate credit facilities, and $700 million in cash. Approximately 35% of our average debt during 2007 had interest calculated on a floating rate basis. So we expect to benefit from lower base interest rates in 2008. In December 2007 we closed on a sale and lease backed financing facility in the UK to provide about $270 million of fleet borrowing capacity for our car rental operations. This is a cost effective financing and demonstrates the array of financing vehicles in the market. Let me spend a minute on the concerns in the market regarding our US fleet financing on Slide 14. At December 31, there was $4.6 billion outstanding under various US asset-backed notes, and we have a variable funding note facility of $1.5 billion which was unused at year-end. Our upcoming fleet debt maturities are a $165 million in May 2008 and $1 billion in February 2009. Although as is typical with asset-backed securitization; there is an amortization leading up to the maturity date. While we have historically utilized non-aligned insured financing structures, in the event this became too expensive or impractical. There are other alternative plans in vehicles in the market place that we can use. We continually look at various financing alternatives, and we will take advantage of opportunities as deemed appropriate given the market condition. Moving to Slide 15. For the full year 2007, our GAAP affected income tax rate was 26.5%, and cash taxes paid totaled $28 million. For 2008, the projected affected tax rate is 34% with cash taxes of $65 million. Earlier this month Congress passed the Fiscal Stimulus Package that includes a bonus provision for certain property acquired in 2008. Were we to let bonus appreciation is part of our lifetime exchange program, our current projection of not paying material US Federal income taxes until 2011 would not be significantly changed. Total company net capital expenditures for property, plant, and equipment that is investment in our facilities, systems and service vehicles are $97 million for the year. We expect to spend at least this much in 2008 to maintain our facilities and operations. Now let us turn to Slide 16. On a consolidated basis, cash flow from operating activities was $3.1 billion for 2007 compared to $2.6 billion in the prior year, primarily due to year-over-year improvements in working capital and cash earnings. As Mark mentioned earlier, an important focus for Hertz is cash flow and deleveraging. We generate cash flow in good times from earnings, but unlike other companies, we also generate cash in periods of reduced demand as we de-fleet. Our revenue earning equipment assets are quite liquid and the disposal channels well developed. Given the seasonality of our businesses, it is best to look at cash flow over a 12-month period. For the year levered after tax cash flow after fleet growth was $553 million, an increase of $268 million compared to 2006. This was driven by a $163 million of higher earnings, $268 million in improved working capital, and $111 million in lower investment in Hertz fleet, partly offset by $254 million increase in the car rental net equity requirement reflecting the higher fleet balances and lower program manufacturer receivables collections in the prior year. As you can see our balance sheet is strong and we believe we are well positioned for growth. And now let me turn the call back to Mark.

[Mark Frissora:]

Thanks, Elyse. As you can see we finished 2007 with a solid fourth quarter and strong full year performance, despite economic headwinds. We met our full year guidance for all metrics, and exceeded it for revenue, adjusted pretax income, adjusted debt income, and adjusted EPS. For the full year 2008, we are expecting improvement in all of our guidance metrics as shown on Slide 17. We are forecasting total revenues to increase to between $8.9 billion to $9 billion with car rental and equipment rental revenues growing at about the same pace. This did not change our previous Hertz guidance of growth between 3% to 8%. Corporate EBITDA is projected to improve as well to $1.575 billion to $1.615 billion. We expect adjusted pretax and adjusted net income to also improve year-over-year, and should be between $725 million and $750 million and between $450 million and $470 million, respectively. Using the notional tax rate of 34%, and 325.5 million shares, the number of diluted shares outstanding as of the year ended December 31, 2007, adjusted earnings per share is expected to grow to between $1.38 to $1.44 per share. These earnings projections are weighted towards the back half of the year, as we expect the first half of 2008 to be a tough operating environment, particularly the first quarter. We project 2008 will be another year of improved cash flow with levered after tax cash flow after fleet growth to be between $550 million and $650 million in 2008. Looking ahead in to the 2008, we have set a real estate growth agenda for the Rent-A-Car and Hertz businesses, with further expansion in to new geographies, increased penetration in to new and under served products and markets and network extension through a combination of green field openings and acquisitions. Our focus on efficiency and cost reduction has intensified, as programs initiated in 2007 are now cascading throughout the organization and cost savings are flowing through our income statement. Against the current economic backdrop, our cost actions will include staff reductions, and will help improve profits during what will be a challenging year. Despite a slowing economy that will impact our top and bottom line growth, we believe there are sufficient diversification in our appliance to limit that impact and allow us to achieve the targets we have set for 2008. Project Genesis will transform Hertz's business model giving us a stronger platform to fuel growth, further reduce cost, operate even more efficiently, and of course deliver increased value to our shareholders. And now operator we will take questions.

[Operator:]

(Operator Instructions). Our first question comes from Jeff Kessler from Lehman Brothers. Please go ahead.

[Jeff Kessler:]

Thank you. A quick question about your tax rate for next year. It's up a little bit from what you have been estimating historically on an accrued basis from 30%, to 34%. And to the extent that it's taking perhaps your estimate down a little bit by a couple of cent each way, could you explain where the higher tax or at least the higher accrued tax rate is coming from?

[Elyse Douglas:]

Yes Jeff, this is Elyse. Let me talk a little bit about the 2007 rate which was 26.5%, which really is driven by a couple of facts, one being valuation allowance adjustments in the year, as well as reduced both state and foreign tax rate. So in 2008, basically we're not factoring in any of those valuation allowances obviously which is going to have an impact and so it becomes a more normalized rate upto 24%.

[Jeff Kessler:]

Because you weren’t figuring 26.5% to begin with for 2007 anyway. The question is, it possible that you're going to get some of these valuation allowances as the year goes on?

[Elyse Douglas:]

No, I think.

[Mark Frissora:]

Jeff, listen. The tax rate's down, okay. Understand that, I think, we are saying in the wrong figure. Effectively the tax rate in 2007 was 35%. That's what we told people to put in.

[Elyse Douglas:]

That's a normalized rate.

[Mark Frissora:]

(inaudible) Normalized rates.

[Jeff Kessler:]

Sure. Okay.

[Elyse Douglas:]

Correct.

[Mark Frissora:]

And now we are saying, you can reduce it to 34%. So we are reducing the normalized rate of effective tax. Now the actual performance, as you know, was, I think, 26.5%. And the reason why it was lower was a lot of one time benefits that we got. Plus in addition to those one-time benefits, we do expect to have a lower tax rate due to our effective tax strategies that we've been implementing over the last 12 to 18 months.

[Jeff Kessler:]

Great, I apologies for misunderstanding. Can we go to, disposal efficiency and disposal time on your at risk vehicles at auctions. You say you are beginning to - one of the problems obviously historically with that at-risk vehicle is the disposal time relative to guarantee buyback programs. And you mentioned briefly online disposals. Could you go through not just online disposal, but what you can do to make that disposable more efficient and there and hopefully improve, actually improve the margin a little bit on those at risk vehicles?

[Mark Frissora:]

Jeff, I guess, yes. First of all, just to clarify to the fact that, as you move to a higher risk of vehicle mix, there is an increased two week period of maybe holding time. But at the same time, we have found this year, being '07 that I am talking about, we have found that there has been no real issue in terms of getting rid of the fleet that we want. In other words, we have been able to sell cars at an all time record rate quickly within the company as needed. And to your point, what we are trying to do is develop new alternative outlets. New channels if you will. And one of those new channels, that we will announce a little bit later, is an online service that allows to sell to consumers direct. There is Manheim Online, as well, and then there is Dealer Direct, which is another program outlet that we have been developing and expanding on. So these things, these new, if you will, three new channels will allow us to get better pricing than you may get in a wholesale channel. The wholesale channel has pressure. So we are adding more auction sites, that's another thing that we are doing to increase if you will not only the ability to sell cars quickly, but also get higher prices, if one channel is getting lower prices than another. So it just really helps us to have a real balanced approach, and we have been increasing our capability to do this over the last 12 months, and a lot of those efforts come to fruition in 2008.

[Jeff Kessler:]

Okay. One final question and that is, if you could update us on where your thoughts are on going off-airport in 2008 in to 2009? What types of targets do you have with regard to both overall off-airport business, and particularly the insurance replacement business with regard to what types of, what percentage of insurance covers you intend to get, and how many offices do you expect to have out there.

[Mark Frissora:]

Okay, our current plans are to add about 200 more off-airport sites in the United States this year, and that would be additional incremental over what we have today. In terms of penetration of insurance replacement accounts, roughly, I think we've have reported about 159 out of the top 207, 208. We expect to continue to have further penetration of that. We don’t want to really talk about that until we actually regain those accounts, but as you know, we have been pretty fast at putting those numbers up, and will continue to have pretty good growth rate on getting business where we are listed at secondary source. So currently, if you add the number of locations we opened, I just want to give you the location count. In 2007, we had 202 opened, and in 2008, if you add that, the total would be 1750 stores, okay?

[Jeff Kessler:]

All right. And approximately what percentage of your revenue base will that be?

[Mark Frissora:]

Well, right now, its.

[Jeff Kessler:]

Of the RAC revenue base.

[Mark P. Frissora:]

Off-airport in the US is about $1 billion. Joe, you want to answer what the percent is of the total?

[Joe Nothwang:]

Yeah. In revenue, it's about 23%, and in transaction days that will be about 29%.

[Jeff Kessler:]

Okay. And then at off-airport in Europe, we’ve got Michel Taride on the call. It's over 50% of our business in Europe. And like the US actually, that off-airport business is much more resilient to any kind of recessionary issues.

[Jeff Kessler:]

Is the off-airport business in Europe generally used, or is there any insurance replacement business in there?

[Mark Frissora:]

No, there's not. I mean there is some insurance replacement, but it's generally used. It's in downtown locations in cities, metropolitan areas, and it's driven around local usage, if you will. Michel, do you want to expand on that?

[Michel Taride:]

Sure, quickly. It's commercial, leisure, individual use. You know when we operate vans and trucks; it’s a pretty significant chunk of our revenue there. I would say, between 25% and 50%, depending on the countries and that's uncyclical. And I just wanted to add to that, that we will add about 75 to 80 new branches in Europe off-airport in 2008, after another almost a 100 branches we've opened in 2007. So also here we have many more, modest but also network expansion.

[Jeff Kessler:]

And then will you give a total of how many branches opened?

[Michel Taride:]

In Europe?

[Jeff Kessler:]

Yes.

[Michel Taride:]

Well, I don't have the exact figures, but it's going to be above the 1000 corporate. Then we also have licensee branches which are also expanding, and I would think that with our licenses, it's about 2500 branches.

[Jeff Kessler:]

Okay, great. Okay thank you very much and thanks for a good - congratulations on a very good quarter.

[Mark Frissora:]

Thanks a lot Jeff.

[Operator:]

Our next question comes from Chris Agnew from Goldman Sachs, please go ahead.

[Chris Agnew:]

Thank you. Good morning.

[Mark Frissora:]

Good morning Chris.

[Chris Agnew:]

First question, can I ask you about, or can you help me to think about fleet cost in 2008 both in terms of fleet growth and as net cost inflation on a per car basis? Thanks.

[Mark Frissora:]

I guess, I'll let Joe - I will turn it over to Joe on that. But it's going to be roughly about 2%. Any color on that Joe?

[Joe Nothwang:]

It's a combination of inflation, very close to that, approximately 2.5% to 2.7%, and continued process improvements to bring the net down to the 2%, and I believe that there is a upside opportunity for improvement there.

[Mark Frissora:]

We had indicated before, Chris, I think numbers between 2% and 4% to you before. So this represents an improvement of what we’ve told you in the past.

[Chris Agnew:]

Okay. And on the -- how should we think about the fleet growth in the overall fleet, and is that something that we should continue to think that transaction day should grow something inline with fleet growth?

[Mark Frissora:]

Yeah, I guess we expect to give at least a full point of utilization in our fleet plan this year in 2008, and because of that we'll be a little bit more productive in terms of funding the growth that we see at this point in time. In general, if you had 4% transaction day growth, you would usually need 2% more fleet. That’s just a guideline, a general guideline. We’re trying to break that paradigm so that we need less fleet than to fund that transaction day growth and we believe we'll make progress on that in 2008. So that makes sense. We're actually going to have probably in 2008- -

[Elyse Douglas:]

Positive transaction growth - transaction day growth in 2008.

[Mark Frissora:]

Fleet and - go ahead Joe.

[Joe Nothwang:]

Yeah. Fleet in the US was down about 1% year-over-year because of the efficiency gain, and we have upward flexibility built into the planning as volume increases.

[Mark Frissora:]

So for your model itself, you could almost model sleeping down 1%?

[Joe Nothwang:]

Right. Just for the full year?

[Mark Frissora:]

For the full year, that’s back.

[Chris Agnew:]

Okay, great. And one of the slides you talked about mentioned current pricing has improved. Could you add some color there, and maybe share with us what you and Hertz have observed historically and what happens in the slowing economics, slowing travel environment in terms of pricing and volume dynamics? Thanks.

[Mark Frissora:]

Certainly from a general historic perspective, and this is something that I had said on previous calls, the industry is usually moved in fairly good units. And as it relates to soft demand, when soft demand occurs, fleets tighten up. As those fleets tighten up, again the industry seems to move in parallel paths. As it relates to pricing, price improvement occurs once fleets tighten. So again we saw that phenomena, and had talked about it during the call in the script that we had seen more favorable conditions on pricing overall. Anything other than that, I really can't comment on. You know pricing is very sensitive issue for me legally. So I don’t want to say anything other than what I have said before, that a general [background.]

[Chris Agnew:]

Okay, great. And then, final question. I mean, you gave revenue growth guidance. You said HERC and RAC would grow similarly, and can you just clarify how that fits in consistent with your previous guidance of 3% to 8% for HERC. I guess it's you're just pointing towards lower end of that. I mean, is there anything that you are observing causing you to be more cautious.

[Mark Frissora:]

But no. I guess I know we said the 3 to 8. I mean, I think if you do the math on it, you will find that that 3 to 8 guideline, you pick up middle or even up in to that curve. HERC represents about what percent of our revenues Gerry?

[Gerry Plescia:]

20% of our revenues. So even if they grow at a faster rate, the impact of the whole is not that great. So we are comfortable stating in our guidance what the overall corporation will look like, and still being able to guide HERC at 3 day percent. So nothing's changed there. I know you are asking if it changed, and we sort of know that we still feel the same as we did before.

[Chris Agnew:]

Great, thanks a lot.

[Mark Frissora:]

Thank you.

[Operator:]

Our next question comes from Rich Kwas from Wachovia. Please go ahead.

[Rich Kwas:]

Hi good morning.

[Mark Frissora:]

Hey, Rich how are you?

[Rich Kwas:]

All right. Mark on the 75 million that's included in the pretax guidance income guidance, what are the swing factors that could drive that higher for '08?

[Elyse Douglas:]

Well I think timing is one. As Mark said, there is a significant amount of headcount reduction [sessions], so there is headcount reduction in that number. So the timing of when those events occur would certainly affect that number. I think

[Mark Frissora:]

The issue really boils to – Rich, it's a difficult question to answer because it can be more than $75 million based on what economics we are able to offset, based on issues of pricing, for example. I mean, for us that 250 million we've said we are committing to that cost reduction number, we are sure that number being delivered in 2008. That’s $250 million in '08 you'll actually get. The question is how much of it offsets industry conditions, any issues that you may have with economics on goods and services. For example we buy day in and day out, some of those goods and services may be up, some down, we are negotiating contracts as we speak. Everyday contract renewals come up. So a lot of it is just put in there just to make sure that we have insurance to cover economics that generally occur. We are also reinvesting a lot in new facilities. We talked about some pretty good growth plans on new stores, so some of that cost savings are going to go into those growth plans as well. And as the year unfolds, again, and we have better visibility in to economic conditions and goods and services contracts, we'll be able to say, how much of that 250 will be used to offset things, versus baked in to the bottom line. So what we are saying to you now is, we can bake 75 million in the bottom line of that.

[Rich Kwas:]

Okay. That’s very helpful.

[Elyse Douglas:]

I mean, the only thing I would add is, there are a number of re-engineering projects, and the timing of those would affect it, and thirdly, we always look at potentially doing some tuck in acquisition. We might use some of the cash flow for that as well.

[Rich Kwas:]

Okay. And then on Genesis, how far you, how long are you on that on the $6 billion. What would you characterize, in terms of the total valuation of that?

[Mark Frissora:]

On the $6 billion on cost structure, we have completed really the bulk of the work on deciding how much of that six will go into, lets say, buckets for re-engineering versus outsourcing. We completed that work but we have not begun all of the contracts, the outsourcing contracts, we have not completed the reengineering efforts. All of that work will be completed probably over the next 18 months, and we'll get a big chunk of it done this year and then we'll improve a lot of the savings in the 2009. So what we've committed to you for is $250 million obviously this year savings that comes from those variety of projects ,and then again we haven’t announced we'll have in the 2009 but if we get more visibility throughout '08 we'll be able to tell you other installments of that, that would unfold into 2009.

[Rich Kwas:]

Okay, so the 250 though, that includes the portion of Genesis, but there sounds like there's still lot more to go in it.

[Mark Frissora:]

That’s correct.

[Rich Kwas:]

Okay.

[Mark Frissora:]

And our restructuring cost, we've talked about that range, and depending on what happens in attrition those cost may be a lower as well.

[Rich Kwas:]

Right, okay. And then on the ABS market at least LIBOR rates have come in since the beginning of the year, but spreads are still wide and the asset backed market. It sounds like you're still viewing the securitization market as reasonably attractive. What do you expect as the year progresses in terms of spreads, and what would make you kind of consider those alternative strategies you detailed.

[Elyse Douglas:]

We've actually- when we saw spreads coming almost back to normalized levels. So with respect to our conduit financing, we’ve seen the level really normalized, just a slight premium over historical - over the crisis period in the fourth quarter. I think that if the market unfolds, I think that there is an opportunity to do transaction in the marketplace probably we are on the unwrapped style versus a model line type financing, and as I said we'll continually look at those alternatives, and we'll take advantages of those opportunities as we do them appropriately.

[Rich Kwas:]

Okay.

[Mark Frissora:]

Yes, thank you so much.

[Operator:]

Our next question is from Emily Shanks from Lehman Brothers. Please go ahead.

[Emily Shanks:]

Hi, good morning and nice quarter to a strong year. I've got a couple of questions, the first one maybe for Gerry. I was hoping that that you could breakout for us. What your CapEx expectations on maintenance versus growth at the [heard] business?

[Mark Frissora:]

For 2008?

[Emily Shanks:]

Yeah.

[Gerry Plescia:]

Actually, we have slightly negative growth CapEx, but the maintenance CapEx should be about a [vertical] north of the 250 for maintenance CapEx. I am sorry that's 2007, about 250 to 350 in 2008 or about 300 on average, and the growth about a negative 125 and that's essentially where you are going to be able to drive better utilizations on the existing fleet platform.

[Emily Shanks:]

Great, that's very helpful. And then just a question around what's happened with the [ADR] and your fleet level since the end of the year? Could you let us know what your balance is on your [ADR] today?

[Michel Taride:]

About $1.450 available.

[Joe Nothwang:]

[Available] by $1.450 billion.

[Emily Shanks:]

Okay, great. And then if I could just one last question. Around potential debt reduction for this coming year, would you or have you started to contemplate any open market repurchases of your bonds, given that there are pretty nice discount right now?

[Elyse Douglas:]

Yeah, we are certainly looking at it. We do have some restrictions within our bank facilities, but we are looking at that as a potential opportunity.

[Emily Shanks:]

Great. Thank you very much.

[Mark Frissora:]

Thanks, Emily.

[Operator:]

Our next question is from Christina Woo from Morgan Stanley. Please go ahead.

[Christina Woo:]

Thanks. I was hoping you could clarify for me the [restructuring] charges. In your prepared comments you had said, you take about $30 million to $40 million in the first half of the year, and I understand that might be a little bit lighter, it might be lighter than that. Is that in addition to the restructuring charges you have been taking, or is that the full amount that we should consider for the first half of the year.

[Elyse Douglas:]

That should be the full amount for the first half of the year.

[Christina Woo:]

Okay. And will there be any restructuring in the second half, or this is it for '08?

[Elyse Douglas:]

Well right now this is all we have planned, but obviously as the year goes on we'll reevaluate alternatives in our possibilities.

[Christina Woo:]

Okay, great. You've also mentioned that your higher depreciation and amortization costs per vehicle are a bit lower in Europe. Is the cost of acquiring vehicles overseas starting to come under pressure as we have seen in the US during the past two years, or has that remained fairly steady for you?

[Mark Frissora:]

We have seen Europe. It has been tougher in Europe the last couple of years than it has been in the US.

[Christina Woo:]

Okay.

[Mark Frissora:]

So I mean, just in general, car costs are a little bit higher there than what you would see in the US. I think, in general, it's fair to say and I'll let Michel add to this. That mid single-digit is the kind of increases we have been able to [obliterate] the demand to, so you will get inflationary pressures on just the apples-to-apples based on car costs. It is car inflation itself we can usually bring that down at a mid-single digit range. Michel you want to add to that?

[Michel Taride:]

No, it is correct, Mark. I mean the conditions offered by the manufacturers increase in the region of about 7% to 8% but two additions as we said we are capable of bringing that down. For example in '07 it was just about 6%. So it is the…

[Christina Woo:]

Okay. That's helpful. And one last question. You've commented a bit about the macro environment slowing. I was just wondering if you could be a bit more specific about what you are seeing, what your view is on the macro environment in 2008. Mark, I think you had commented that you would expect the first quarter to be a bit softer. Are you expecting a pickup in the macro environment in the second half of the year, or softness throughout?

[Mark Frissora:]

First of all, I'll comment in two ways. One is, our advance reservations, which we use as an indicator have been improving into the positive territory. That’s recent, in the last several weeks we've seen a general strengthening in the overall environment for the first half of the year. Having said that, we still say that the first quarter is probably the toughest quarter in terms of what we have seen both from a future standpoint. We are building our plan that there would be a more normalized environment in the back half. So to answer your question, yes, more of a normalized environment in the back half, good news is that we are seeing a little bit of improvement in the first half as well.

[Christina Woo:]

Okay. Thanks so much.

[Operator:]

Our next question comes from Zafar Nazim from JPMorgan. Please go ahead.

[Zafar Nazim:]

Yes, thank you. Elyse just, first of all, one quick follow-up. What kind of dollar restrictions do you have under your credit facility to buy back bonds from the market?

[Elyse Douglas:]

What kind of dollar restriction? It's limited to an excess cash flow recapture amount.

[Zafar Nazim:]

Okay. And would you have a number given your --.

[Elyse Douglas:]

Well, less than a $100 million.

[Zafar Nazim:]

Okay, okay. And then just on your guidance, you are going to reduce CapEx by roughly $300 million year-over-year, your EBITDA is going to be up 2% to 4% according to guidance, cash interest expense is probably going to be down given deduction in LIBOR and (inaudible) yet your free cash flow balance for the next year is going to be flat to slightly up? Is this on account, I mean I would have thought the number would have been higher.

[Elyse Douglas:]

Yeah. Well, it's probably a little bit of a conservative number, but you have to keep in mind that a lot of the improvement in 2007 was driven by working capital improvements. And it's very hard to continue to [leverage] that number. So if you look at our 2007 cash flow year-over-year improvements, easily $200 million to $300 million driven by working capital. We're going to continue to look to get efficiencies in working capital. We just won't see the positive cash flow impacted in 2008.

[Mark Frissora:]

But you don't (inaudible) the range. Just to be clear, just to be clear the range is flat to up 17.6%, so 17% is pretty good improvement in cash year-over-year, and as you know we're able to take that. It's best to look at the cash flow after fleet growth and apply to debt. So again if we achieve what we say we are going to achieve here, we hit that $1 billion ahead a schedule okay.

[Zafar Nazim:]

Okay, good. And just one last question. So I guess since your basket for bond buyback is less that $100 million, we should assume that the remainder of the free cash flow will primarily be use to bid on bank debts?

[Elyse Douglas:]

Yes.

[Mark Frissora:]

That's correct.

[Zafar Nazim:]

Great, thank you. Operator Our next question comes from Michael Millman from Soleil Securities. Please go ahead.

[Michael Millman:]

Thank you it's Soleil Securities. I guess a couple of questions. Just to clarify it looks like your forecast for '08 growth is basically all from the savings and not necessarily dollar for dollar but sort of netting everything out. Is that correct?

[Mark Frissora:]

That would be, I mean, that would be very linear to look at it that way. We have so many different moving pieces on the P&L that whether its volume pricing etcetera issues we've purposely said that it would tie into that pre-tax improvement. That doesn’t mean that we are not going to have improvement in margin overall due to things beyond that. Obviously our guidance, we make sure that we exceed our guidance and we dump and able to do that pretty much every single quarter for five quarters in a row. So our guidance certainly is in a range where we feel comfortable telling investors that would be able to hit it.

[Michael Millman:]

Okay. Could you talk about -- in the fourth quarter there was a deceleration in off-airport gross substantially, what was behind that or is that the level we should be looking at?

[Joe Nothwang:]

This is Joe Nothwang. We did see some weakening in December only, and in January it has popped right back up to the double digit transaction day growth levels and we will be expect -- to be able to continue that throughout '08.

[Michael Millman:]

Okay, thank you. Could you talk about in terms of cost savings, this is more of a 30,000 foot question. Is this an industry that still likely to give back a lot of those cost savings in terms of price rather than, in terms of margins and to the shareholders?

[Mark Frissora:]

No. First of all, you mean pricing is really the key here, that’s what you are talking about, you give those; do you give those things back in the form of price. I think history is my best answer to you. Typically the industry has always been able to pull on average over any cycle 2.5 points of price. That’s been Hertz experience. And I've got 24 years of data that's really granular on this, and that’s just what we see on a cycle basis. That's my best answer to you. And that’s the case if the industry pulls off this year 2.5% on price then obviously cost savings are allowed to accrue to the bottom line and historically that’s what you've seen. I mean we've seen that in this business where we've fleet savings for example and there have been periods of time where the fleets come in lower in costs, year-over-year, that we've been able to accrue that to shareholders. Joe, Joe is been in the industry for 35years and knows the rental car business better than anyone. Joe, would you answer that question as well. Joe Nothwang I just agree with what Mark said. If you go back to that period of time when there has been weakness in transaction day growth we have been able to pull price. When there has been tremendous or even-keel pricing, we are able to grow transaction and the cost reduction has been able to go to the bottom line and accrue to the shareholders and I don't expect any significant change in that going forward.

[Michael Millman:]

Okay. And finally, not sure if you're saying that the first quarter should be below a year ago and that would suggest that possibly you are looking for negative earnings or loss in the first quarter?

[Mark Frissora:]

We've not suggested that, and that's the best way for me to answer that. We've not suggested that. We just said that the fourth quarter was a tough operating environment and we saw in January continuation of that, that we've also seen some improvement also during the quarter.

[Michael Millman:]

Okay. Thank you.

[Operator:]

Our next question comes from Clark Orsky from KDP Investment Advisors. Please go ahead.

[Clark Orsky:]

Thanks. I think you said you saw some softening in residuals in 4Q. And you expect that to continue in to the first quarter, but that it would dissipate later in the year. I'm just wondering what is driving that outlook for the dissipation of the pressure.

[Mark Frissora:]

I think the real factor is the up tick in our total reservation growth. Now, on the positive side, we have seen that accelerate in the last week to 10 days. That’s one factor. I think that stability overall in residuals that we have seen and we believe that the capacity will be there for us to dispose off the car, we need to dispose off residuals even with the macro conditions have been relatively stable. And we expect that to continue. So we have real data to support our optimism about the second half.

[Clark Orsky:]

Okay. And then 73% non programmed, remind me what your sort of longer run target is for that. I thought it was a little lower?

[Mark Frissora:]

If you go through, the year will drop to as low as about 60% in the summer and then move back up to the high 60s, 70% as we get into the Q4 of '08. So there are some seasonal adjustments in the way cars are taken in to the fleet. But our benchmark target is 65% to 78%.

[Clark Orsky:]

Okay. That’s helpful. And I guess a last question. Elyse, I just wanted you, on the $1 billion maturity in 2009, can you remind us what exactly that is? What it is composed of?

[Elyse Douglas:]

It's mostly the US ABS notes. As you recall, when the deal was done back in 2005, the ABS notes were 3, 4 and 5 year notes. So it is the first [turn] of those maturities coming to.

[Clark Orsky:]

Okay. Thanks very much.

[Lauren Babus:]

Operator, we have time for two more questions.

[Operator:]

Okay. And the next question will come from Doug Carson. Please go ahead.

[Doug Carson:]

Great guys, thanks. Quick question on the fleet cost on the debt side, LIBOR at 3.1% now, I mean could we expect '08 cost to fall out on that side, given where LIBOR is and just [sounds] more on audit how much sensitivity do you have there on LIBOR?

[Elyse Douglas:]

Well, as I think we've said in the statement about 35% of debt is floating.

[Doug Carson:]

Alright.

[Elyse Douglas:]

And a rule of the thumb is 1% year-over-year change in interest rates and $10 million in profit. Profit or loss depending on the (inaudible).

[Doug Carson:]

And separately, you guys have done a great job maintaining liquidity here in this market, and hopefully debt is at around I think $6.5 billion and you kind of commented on the ABS market feeling still pretty strong. People are worried about, they will cross the industry and if we kind of look at contingency into that ABS market, you know something happens in it, where it either shuts down or get very limited. What would be the best alternative for you to maintain that liquidity, or how would you?

[Elyse Douglas:]

Well, I mean, obviously, we have a lot of excess liquidity today both in the corporate debt component of our balance sheet as well as free debt. So obviously, we have corporate liquidity that we could cap. But we believe that there's definitely a market for a lot of this equipment, financing this equipment. So I don't necessarily think it's going to go away. I think that there will be new structures that will come out of this, maybe not at the same cost levels at the old structures that were being done and we're seeing that that’s alive and well. So I am confident that there will be fleet financing in the event that there's not there's certainly the corporate liquidity to be [had].

[Doug Carson:]

Okay, great, thanks guys.

[Mark Frissora:]

Thank you.

[Operator:]

Thank you, and have next question is from Jeff Kessler from Lehman Brothers. Please go ahead.

[Jeff Kessler:]

Thank you. One final question on pricing and that is, you alluded to price discipline in the industry at the beginning of this year a very large company in the industry, increased prices 2% or 3% and this apparently went along with that. And I am just wondering, Howard, could you just elaborate a little bit more on price discipline as you're seeing it right now, optimism or no optimism regarding the other companies in the industry sticking with the price increases at these large companies and your industry you're putting in place?

[Howard Hertz:]

Jeffrey, I mean obviously I can't comment on anyone or anything. I can tell you that Hertz generally speaking is the price leader, and that we always try to support any kind of the industry wide increase, but we don't, as a rule ever, we are usually the leader and that, and but in terms of commenting on competitors or what we're going to do or anything else I really can comment on that so I apologies but I really can't answer your question.

[Jeff Kessler:]

All right. You allude to increased optimism with regards to industry discipline?

[Howard Hertz:]

No I think what we're saying is that as the business conditions have softened when that happens particularly see tighter fleets and we didn't say that we had seen we saw that what had happening, I am sorry during the quarter. So that's what we said I think so.

[Jeff Kessler:]

Pardon me.

[Howard Hertz:]

Go ahead tell me what I said?

[Jeff Kessler:]

Historically.

[Mark Frissora:]

Historically, I mean this is historically what we're saying

[Jeff Kessler:]

Okay. All right, very good. Thank you very much.

[Mark Frissora:]

Thanks Jeff.

[Jeff Kessler:]

Yeah.

[Operator:]

There are no further questions in queue at this time.

[Mark Frissora:]

I look forward to sharing our next quarter results with you before long. Thanks you for joining us today

[Operator:]

Thank you. And ladies and gentlemen this conference will be made available for replay up to 12