Copyright (c) 2008 by the University of Virginia Darden School Foundation, Charlottesville, VA. All rights reserved.

This spreadsheet supports STUDENT analysis of the case, "Bidding For Hertz: Leveraged Buyout" (UVA-F-1560)

Copyright (c) 2008 by the University of Virginia Darden School Foundation, Charlottesville, VA. All rights reserved.

Hertz Historical Consolidated Income Statement ($ millions)

2002

2003

2004

2005E (1)

RAC
Revenue
Direct Op Ex & SG&A
Gross EBITDA
Fleet Depreciation
Fleet Interest
Adjusted EBITDA

$4,542.7
2,676.3
1,866.4
1,216.7
270.9
378.8

$4,852.2
2,943.9
1,908.3
1,256.4
276.2
375.7

$5,490.1
3,393.9
2,096.2
1,231.9
310.2
554.1

$6,051.7
3,845.2
2,206.5
1,362.2
380.1
464.2

HERC
Revenue
Direct Op Ex & SG&A
Gross EBITDA
Fleet Depreciation
Fleet Interest
Adjusted EBITDA

1,095.7
722.2
373.5
282.8
95.4
-4.7

1,081.5
717.9
363.6
267.0
78.9
17.7

1,185.9
749.6
436.3
231.4
74.3
130.6

1,358.0
805.1
552.9
228.0
96.6
228.3

Total Adjusted EBITDA

Non-Fleet Depreciation
Operating Company Interest Expense

374.1
157.6
0.0

393.4
156.0
0.0

684.7
182.7
0.0

692.5
184.7
0.0

Pretax Income
Book Taxes
Minority Interest

216.5
77.9
0.0

237.4
85.5
0.0

502.0
180.7
3.2

507.8
182.9
9.7

$138.6

$151.9

$321.3

$324.9

Net Income
(1)

Reflects pre-LBO estimated net income for 2005.

Hertz Historical Consolidated Balance Sheet ($ millions)

2002
Assets
Cash and Equivalents
Fleet Cash Enhancement
Accounts Receivable
Manufacturer Receivables
Inventories
Prepaid Expenses
Other Assets
Total Current Assets

2003

2004

2005E (1)

601.3
0.0
799.1
473.8
71.8
83.8
42.3
2,072.1

1,110.1
0.0
1,308.2
511.9
73.4
90.3
45.6
3,139.5

1,237.9
0.0
1,225.1
600.1
83.3
100.1
44.1
3,290.6

1,102.9
0.0
1,004.2
629.7
92.7
113.1
36.5
2,979.1

7,425.8
1,111.8
519.0
0.0
11,128.7

7,793.3
1,169.8
536.9
0.0
12,639.5

9,122.9
1,236.2
544.4
0.0
14,194.1

9,767.3
1,354.6
534.6
0.0
14,635.6

Liabilities & Stockholders Equity

Accounts Payable
Accrued Liabilities
Accrued Taxes
Total Current Liabilities
Total Long-Term Debt

506.2
789.4
52.8
1,348.4
7,043.2

757.9
736.4
111.4
1,605.7
7,627.9

786.0
835.7
130.1
1,751.8
8,428.0

758.0
819.7
129.3
1,707.0
9,180.3

Public Liability & Property Damage

Deferred Taxes
Commitments & Contingencies
Minority Interest
Total Liabilities

353.5
462.1
0.0
0.0
9,207.2

398.8
721.2
0.0
0.0
10,353.6

391.7
849.7
0.0
4.9
11,426.1

374.3
636.0
0.0
12.7
11,910.3

1,921.8
11,129.0

2,285.8
12,639.4

2,767.9
14,194.0

2,725.9
14,636.2

Fleet, Net
PP&E Net
Existing Goodwill & Intangibles
New Goodwill & Intangibles
Total Assets

Total Equity
Total Liabilities & Equity
(1)

Reflects pre-LBO estimated balance sheet for 2005. Small differences in historical total assets and total liabilities and equity in 2002-20

total liabilities and equity in 2002-2004 are due to rounding.

Projected Income Statement ($ millions)

2005 PF(1)

2006

2007

2008

2009

2010

Business Segments:
RAC
Revenue
Direct Op Ex & SG&A
Gross EBITDA
Fleet Depreciation
Fleet Interest
Adjusted EBITDA

6,051.7
3,845.2
2,206.5
1,362.2
366
478.3

6,535.8
4,032.8
2,503.0
1,544.7
408.1
550.2

6,993.3
4,231.0
2,762.3
1,652.9
449.5
660.0

7,412.9
4,455.1
2,957.8
1,752.0
479.0
726.8

7,783.6
4,605.6
3,178.0
1,839.6
505.6
832.7

8,133.9
4,828.2
3,305.7
1,922.4
529.9
853.4

HERC
Revenue
Direct Op Ex & SG&A
Gross EBITDA
Fleet Depreciation

1,358.0
805.1
552.9
228.0

1,493.8
863.1
630.7
249.5

1,613.3
919.0
694.3
269.5

1,710.1
968.8
741.3
285.7

1,787.1
999.5
787.6
298.5

1,840.7
1,031.3
809.4
307.5

Fleet Interest(2)
Adjusted EBITDA

0.0
324.9

0.0
381.1

0.0
424.8

0.0
455.6

0.0
489.1

0.0
501.9

Hertz Corporation (HertzCo)

Total Adjusted EBITDA
RAC Non-Fleet Depreciation
HERC Non-Fleet Depreciation
Operating Company (total) EBIT

803.2
145.9
38.8
618.5

931.3
154.4
41.8
735.1

1,084.8
159.0
43.0
882.8

1,182.3
161.0
45.0
976.3

1,321.8
163.0
46.0
1,112.8

1,355.3
165.0
47.0
1,143.3

Op Co Interest Expense:
Term Loan facility (RAC), 8.0%
Senior ABL facility, 7%
Euro notes, 7.88%
Senior unsecured notes, 8.875%
Existing senior notes, 7.00%
Senior subordinated notes, 10.5%
Total Op Co interest expense

460.8

144.0
28.0
15.8
177.5
56.0
63.0
484.3

148.5
28.0
15.8
177.5
56.0
63.0
488.8

150.1
28.0
15.8
177.5
56.0
63.0
490.4

142.2
28.0
15.8
177.5
56.0
63.0
482.5

125.4
28.0
15.8
177.5
56.0
63.0
465.7

Pretax Income
Book Taxes (36%)
Net Income

157.7
56.8
100.9

250.8
90.3
160.5

394.0
141.8
252.2

486.0
174.9
311.0

630.3
226.9
403.4

677.6
243.9
433.7

1,031.2

1,180.9

1,354.3

1,468.0

1,620.3

1,662.8

Corporate EBITDA(3)
(1)

Reflects 2005PF income statement in Exhibit 2 adjusted for LBO capital structure (and associated increase in total interest expense).
Transaction costs are excluded for simplicity.

(2)

Fleet interest exceeds the interest rate times the average year-end balances on the fleet debt due to additional
ABS debt incurred intra-year to meet seasonal peaks in automobile rentals.

(3)

Sum of RAC adjusted EBITDA and HERC gross EBITDA

Projected Income Statement ($ millions)

2005 PF(1)

2006

2007

2008

2009

2010

Business Segments:
RAC
Revenue
Direct Op Ex & SG&A
Gross EBITDA
Fleet Depreciation
Fleet Interest
Adjusted EBITDA

6,051.7
63.54%
36.46%
17.69%
6.05%
7.90%

6,535.8
61.70%
38.30%
17.69%
6.24%
8.42%

6,993.3
60.50%
39.50%
17.69%
6.43%
9.44%

7,412.9
60.10%
39.90%
17.69%
6.46%
9.80%

7,783.6
59.17%
40.83%
17.69%
6.50%
10.70%

8,133.9
59.36%
40.64%
17.69%
6.51%
10.49%

HERC
Revenue
Direct Op Ex & SG&A
Gross EBITDA
Fleet Depreciation

1,358.0
59.29%
40.71%
11.04%

1,493.8
57.78%
42.22%
11.20%

1,613.3
56.96%
43.04%
11.20%

1,710.1
56.65%
43.35%
11.20%

1,787.1
55.93%
44.07%
11.20%

1,840.7
56.03%
43.97%
11.20%

Fleet Interest(2)
Adjusted EBITDA

0.0
23.92%

0.0
25.52%

0.0
26.33%

0.0
26.64%

0.0
27.37%

0.0
27.27%

10.84%

11.60%

12.60%

12.96%

13.81%

13.59%

8.35%

9.15%

10.26%

10.70%

11.63%

11.46%

Op Co Interest Expense:
Term Loan facility (RAC), 8.0%
Senior ABL facility, 7%
Euro notes, 7.88%
Senior unsecured notes, 8.875%
Existing senior notes, 7.00%
Senior subordinated notes, 10.5%
Total Op Co interest expense

6.22%

0.0
0.0
0.0
0
0.0
0.0
6.03%

0.0
0.0
0.0
0
0.0
0.0
5.68%

0.0
0.0
0.0
0
0.0
0.0
5.38%

0.0
0.0
0.0
0
0.0
0.0
5.04%

0.0
0.0
0.0
0
0.0
0.0
4.67%

Pretax Income
Book Taxes (36%)
Net Income

2.13%
0.0
1.36%

3.12%
0.0
2.00%

4.58%
0.0
2.93%

5.33%
0.0
3.41%

6.59%
0.0
4.21%

6.79%
0.0
4.35%

Hertz Corporation (HertzCo)

Total Adjusted EBITDA
RAC Non-Fleet Depreciation
HERC Non-Fleet Depreciation
Operating Company (total) EBIT

ncrease in total interest expense).

Projected Balance Sheet ($ millions)(1)

2005 PF (2)
Assets
Cash and Equivalents
Fleet Cash Enhancement
Accounts Receivable
Manufacturer Receivables
Inventories
Prepaid Expenses
Other Assets
Total Current Assets
Fleet
RAC Fleet
HERC Fleet
PP&E, Net
Goodwill & Intangibles
Total Assets
Liabilities & Stockholders Equity
Accounts Payable
Accrued Liabilities
Accrued Taxes
Total Current Liabilities
Long-term Debt:
Term Loan facility (RAC), 8.0%
U.S. ABS notes, 4.5% (3)
(3)

International ABS notes, 4.9%

Existing ABS debt, 4.0%
Fleet (ABS) financing facilty
Senior ABL Facility, 7.0%
Senior Euro notes, 7.88%
Senior unsecured notes, 8.875%
Existing senior subordinated notes, 7.0%
Senior subordinated notes, 10.5%
Total Long-Term Debt
Public Liability & Property Damage
Deferred Taxes
Minority Interest
Total Liabilities
Total Equity
Total Liabilities & Equity
(1)
(2)
(3)

2006

2007

2008

2009

2010

300
317
1,004
630
93
113
37
2,493
9,767
7,701
2,066
1,355
3,915
17,530

161
342
1,088
666
100
123
40
2,520
10,960
8,733
2,227
1,445
3,915
18,841

172
366
1,166
713
108
131
42
2,699
11,750
9,344
2,405
1,463
3,915
19,827

182
388
1,236
756
114
139
45
2,861
12,455
9,905
2,550
1,460
3,915
20,691

191
407
1,297
794
120
146
47
3,002
13,065
10,400
2,665
1,474
3,915
21,456

199
426
1,352
829
125
152
49
3,132
13,613
10,868
2,745
1,516
3,915
22,177

758
820
129
1,707

821
888
140
1,850

880
952
150
1,983

933
1,009
159
2,102

979
1,059
167
2,205

1,020
1,103
174
2,298

1,800

1,856

1,876

1,778

1,568

1,319

4,300

4,902

5,258

5,585

5,873

6,146

1,800
600
0
400
200
2,000
800
600
12,500
374
636
13
15,230
2,300
17,530

2,096
600
0
400
200
2,000
800
600
13,454
374
689
13
16,380
2,461
18,841

2,272
600
0
400
200
2,000
800
600
14,006
374
739
13
17,115
2,713
19,827

2,433
600
0
400
200
2,000
800
600
14,395
374
783
13
17,667
3,024
20,691

2,575
600
0
400
200
2,000
800
600
14,616
374
821
13
18,029
3,427
21,456

2,709
600
0
400
200
2,000
800
600
14,775
374
856
13
18,316
3,861
22,177

Small differences in the totals and the sum of individual line items are due to rounding.
Reflects 2005 balance sheet in Exhibit 3 adjusted for LBO capital structure.
ABS debt balances increase over time due to increases in RAC fleet from growth and rising vehicle costs.

Projected Cash Flows to Operating Company ($ millions)

Net Income
Add: increase in deferred taxes
Add: HERC fleet depreciation
Add: total non-fleet depreciation
Less: HERC fleet CAP EX
Less: total non-fleet CAP EX
Less: increase in NWC
Less: net fleet equity requirement
(2)

Cash Flow available to pay down debt

Add: operating company interest after tax
Free Cash Flow to Capital (unlevered)
Total cash flow
Years
Discounted Cash flow
Value of the Firm
Less : Debt
Value of Equity
Dividend
IPO Proceeding
Dilution of Stack
Value of the Equity

2006
160.5
53.2
249.5
196.2
410.7
287.0
-115.8
134.2

2007
252.2
49.5
269.5
202.0
447.7
219.8
46.3
79.5

2008
311.0
44.3
285.7
206.0
430.0
202.6
43.0
72.9

2009
403.4
38.4
298.5
209.0
413.3
223.2
38.3
64.4

2010
433.7
34.7
307.5
212.0
387.4
254.2
37.0
60.8

-56.5
309.9
253.5

-20.0
312.8
292.8

98.6
313.8
412.4

210.1
308.8
518.9

248.3
298.0
546.3
12390.7

253.5
292.8
412.4
1
2
3
240.24195 263.38593 350.97049
10948.79
8,428
2,521
$ 1 Billion
$ 1.26 Billion
27.5% Dilution
4.58 Billion

518.9
12937.0
4
5
415.6456 9678.5497

2295

Assumptions for the Long run

WACC
5.98%
Long term Growth
1.50%

Terminal Value

Comparable Company Analysis ($ millions)

(1)

Company

Stock Price
(8/15/05)

Equity
Value

Enterprise Value
(EV) (2)

Revenue

LTM Financials
EBITDA EBITDA
Margin

Price Earnings
2005E

Car Rental
Amerco
Cendant
Dollar-Thrifty

$58.01
$20.54
$32.30

$1,236
$22,117
$846

$1,929
$26,417
$661

$2,047
$20,454
$1,481

$298
$3,119
$107

14.60%
15.20%
7.20%

19.1
14.6
15

Equipment Rental
United Rentals
Ashtead Group
Atlas Copco

$18.49
$2.04
$18.02

$1,440
$675
$10,942

$4,212
$1,567
$11,823

$3,013
$1,144
$6,270

$785
$246
$1,495

26.10%
21.50%
23.80%

10.8
16.9
16.8

(1)

Cendant held Avis and other travel related businesses. RSC Equipment Rentals was a division of Atlas Copco.

(2)

Enterprise Value for car and truck rental represents the value of the operating company, such that the associated multiples represent the mu
operating company. Similarly, EBITDA for car rental represents adjusted EBITDA. Dollar Thriftys enterprise value is less than equity valu
debt is fleet-based (there is no operating company debt) and because Dollar Thrifty has $185 million in excess cash.

Treasury and Corporate Rates - August 2005

3-month T-bill
5-year Treasury Bond
10-year Treasury Bond
Corporate BBB Bonds
Business Segments:
RAC

3.44%
4.12%
4.26%
5.98%

2005

Revenue
Direct Op Ex & SG&A
Gross EBITDA
Fleet Depreciation
Fleet Interest
Adjusted EBITDA

6,051.7
3,845.2
2,206.5
1,362.2
366
478.3

HERC
Revenue
Direct Op Ex & SG&A
Gross EBITDA
Fleet Depreciation

1,358.0
805.1
552.9
228.0

Fleet Interest(2)
Adjusted EBITDA

EBIDTA Multiple of RAC

EBIDTA Multiple of HREC

0.0
324.9
Multiple
EBIDTA Enterprise Value
7.040
478.3
3367.30
6.548
324.9
2127.43

Book Value of Fleet

Fleet Equity
Enterprise Value
Debt
Cash
Equity value

9,767
1269.749
13992
12,500
616.60
2108.88

Price Earnings
2006E

15.7
12.3
13.7

8.7
11.8
15.2

Enterprise
Value/LTM
Revenue EBITDA
Multiple

0.94
1.29
0.45

1.4
1.37
1.89

6.473
8.470
6.178
7.040
5.366
6.370
7.908
6.548

multiples represent the multiples for the

lue is less than equity value because all of its
h.

3367.3

Cost of debt
Cost of equity

2006
2.43%
22.17%

2007
2.38%
22.17%

2008
2.30%
22.17%

2009
2.25%
22.17%

2010
2.18%
22.17%

Debt
Equity
Wd
We

12,500
2,300
84.46%
15.54%

13,454
2,461
84.54%
15.46%

14,006
2,713
83.77%
16.23%

14,395
3,024
82.64%
17.36%

14,616
3,427
81.01%
18.99%

WACC

5.50%

5.44%

5.53%

5.71%

5.98%

Beta
Risk free rate
RM-Rfr

1.62
3.44%
11.56%