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

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

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

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 2002-200

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
Fleet Interest(2)
Adjusted EBITDA

1,358.0
805.1
552.9
228.0
0.0
324.9

1,493.8
863.1
630.7
249.5
0.0
381.1

1,613.3
919.0
694.3
269.5
0.0
424.8

1,710.1
968.8
741.3
285.7
0.0
455.6

1,787.1
999.5
787.6
298.5
0.0
489.1

1,840.7
1,031.3
809.4
307.5
0.0
501.9

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

Hertz Corporation (HertzCo)

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

Corporate EBITDA(3)

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
(1)

total interest expense).

Projected Balance Sheet ($ millions)(1)

2005 PF (2)

2006

2007

2008

2009

Assets
Cash and Equivalents
300
161
172
182
191
Fleet Cash Enhancement
317
342
366
388
407
Accounts Receivable
1,004
1,088
1,166
1,236
1,297
Manufacturer Receivables
630
666
713
756
794
Inventories
93
100
108
114
120
Prepaid Expenses
113
123
131
139
146
Other Assets
37
40
42
45
47
Total Current Assets
2,493
2,520
2,699
2,861
3,002
Fleet
9,767
10,960
11,750
12,455
13,065
RAC Fleet
7,701
8,733
9,344
9,905
10,400
HERC Fleet
2,066
2,227
2,405
2,550
2,665
PP&E, Net
1,355
1,445
1,463
1,460
1,474
Goodwill & Intangibles
3,915
3,915
3,915
3,915
3,915
Total Assets
17,530
18,841
19,827
20,691
21,456
Liabilities & Stockholders Equity
Accounts Payable
758
821
880
933
979
Accrued Liabilities
820
888
952
1,009
1,059
Accrued Taxes
129
140
150
159
167
Total Current Liabilities
1,707
1,850
1,983
2,102
2,205
Long-term Debt:
Term Loan facility (RAC), 8.0%
1,800
1,856
1,876
1,778
1,568
U.S. ABS notes, 4.5% (3)
4,300
4,902
5,258
5,585
5,873
International ABS notes, 4.9%(3)
1,800
2,096
2,272
2,433
2,575
Existing ABS debt, 4.0%
600
600
600
600
600
Fleet (ABS) financing facilty
0
0
0
0
0
Senior ABL Facility, 7.0%
400
400
400
400
400
Senior Euro notes, 7.88%
200
200
200
200
200
Senior unsecured notes, 8.875%
2,000
2,000
2,000
2,000
2,000
Existing senior subordinated notes, 7.0%
800
800
800
800
800
Senior subordinated notes, 10.5%
600
600
600
600
600
Total Long-Term Debt
12,500
13,454
14,006
14,395
14,616
Public Liability & Property Damage
374
374
374
374
374
Deferred Taxes
636
689
739
783
821
Minority Interest
13
13
13
13
13
Total Liabilities
15,230
16,380
17,115
17,667
18,029
Total Equity
2,300
2,461
2,713
3,024
3,427
Total Liabilities & Equity
17,530
18,841
19,827
20,691
21,456
(1)
Small differences in the totals and the sum of individual line items are due to rounding.
(2)
Reflects 2005 balance sheet in Exhibit 3 adjusted for LBO capital structure.
(3)
ABS debt balances increase over time due to increases in RAC fleet from growth and rising vehicle costs.

2010
199
426
1,352
829
125
152
49
3,132
13,613
10,868
2,745
1,516
3,915
22,177
1,020
1,103
174
2,298
1,319
6,146
2,709
600
0
400
200
2,000
800
600
14,775
374
856
13
18,316
3,861
22,177

2005PF
Cost of debt
5.76%
Cost of equity
17.31%
Debt
Equity
Wd
We
Equity Beta
WACC

12,500
2,300
84.46%
15.54%
2.72
5.85%

Unlevered Beta of Comparables

0.6
Beta
2.72
Risk free rate
4.26%
RM-Rfr
4.80%
Spread for BBB comapny in 200
2%

In Case

In case
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https://research.stlouisfed.org/fred2/series/BAMLC0A4CBBB

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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
Cash Flow available to pay down debt(2)
Add: operating company interest after tax
Free Cash Flow to Capital (unlevered)
Terminal Value
Total cash flow
Years
Discounted Cash flow
Firm Value

2006
160.5
53.2
249.5
196.2
410.7
287.0
-115.8
134.2
-56.5
309.9
253.5

2007
252.2
49.5
269.5
202.0
447.7
219.8
46.3
79.5
-20.0
312.8
292.8

2008
311.0
44.3
285.7
206.0
430.0
202.6
43.0
72.9
98.6
313.8
412.4

2009
403.4
38.4
298.5
209.0
413.3
223.2
38.3
64.4
210.1
308.8
518.9

2010
433.7
34.7
307.5
212.0
387.4
254.2
37.0
60.8
248.3
298.0
546.3
14463.5

253.5
1
239
12556

292.8
2
261

412.4
3
348

518.9
4
413

15009.8
5
11294

Year
Discount & Growth Rates
WACC
5.85%
Long term Growth Ra
2.00%

2010
2011
2012
2013
2014
Average

*http://www.statista.com/statistics/263614/gr
*http://www.usinflationcalculator.com/inflatio

GDP growth Rate Inflation Rate

2.53%
1.60%
2.32%
2.22%
2.39%

1.50%
3%
1.70%
1.50%
0.80%

2.21%

1.70%

www.statista.com/statistics/263614/gross-domestic-product-gdp-growth-rate-in-the-united-states/
www.usinflationcalculator.com/inflation/current-inflation-rates/

Comparable Company Analysis ($ millions)

LTM Financials
Company

(1)

Stock
Price
(8/15/05)

Equity
Value

Enterprise Value
(EV) (2)

Revenue

Price Earnings

EBITDA

EBITDA
Margin

2005E

Car Rental
Amerco
Cendant
Dollar-Thrifty

$58.01
$20.54
$32.30

$1,236

$1,929

$2,047

$298

14.60%

19.1

$22,117
$846

$26,417
$661

$20,454
$1,481

$3,119
$107

15.20%
7.20%

14.6
15

$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

Equipment Rental
United Rentals
Ashtead Group
Atlas Copco
(1)

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

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 value
debt is fleet-based (there is no operating company debt) and because Dollar Thrifty has $185 million in excess cash.
(2)

Treasury and Corporate Rates - August 2005

3-month T-bill
5-year Treasury Bond
10-year Treasury Bond
Corporate BBB Bonds

3.44%
4.12%
4.26%
5.98%

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

HERC
Revenue
Direct Op Ex & SG&A
Gross EBITDA
Fleet Depreciation
Fleet Interest(2)
Adjusted EBITDA

1,358.0
805.1
552.9
228.0
0.0
324.9

EBIDTA Multiple of RAC

EBIDTA Multiple of HREC

2005

Multiple EBIDTA Enterprise Value

7.040
478.3
3367.30
6.548
324.9
2127.43

Price Earnings
2006E

Value/LTM
Revenue EBITDA
Multiple

15.7

0.94

12.3
13.7

1.29
0.45

6.473
8.470
6.178
7.040

8.7
11.8
15.2

1.4
1.37
1.89

5.366
6.370
7.908
6.548

d multiples represent the multiples for the

alue is less than equity value because all of its
ash.

3367.3