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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_______________________________________________________________________________
FORM 10-Q
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2018
OR
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

HERTZ GLOBAL HOLDINGS, INC.
THE HERTZ CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE
 
001-37665
 
61-1770902
DELAWARE
 
001-07541
 
13-1938568
(State or other jurisdiction of
incorporation or organization)
 
(Commission File Number)
 
(I.R.S Employer Identification No.)
 
 
 
 
 
 
 
8501 Williams Road
Estero, Florida 33928
(239) 301-7000
 
 
 
 
8501 Williams Road
Estero, Florida 33928
(239) 301-7000
 
 
 
 
(Address, including Zip Code, and
telephone number, including area code,
of registrant's principal executive offices)
 
 
 
 
 
 
 
 
 
Not Applicable
 
 
 
 
Not Applicable
 
 
 
 
(Former name, former address and
former fiscal year, if changed since last report.)
 
 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Hertz Global Holdings, Inc.    Yes x No o
The Hertz Corporation    Yes x No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). 
Hertz Global Holdings, Inc.    Yes x No o
The Hertz Corporation    Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer", "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Hertz Global Holdings, Inc.
Large accelerated filer 
o
Accelerated filer 
x
Non-accelerated filer

(Do not check if a smaller reporting company)
o

 
Smaller reporting company 
o
Emerging growth company
o
 
 
 
If an emerging growth company, indicate by check mark if the registrant has not elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
o
 
 
The Hertz Corporation
Large accelerated filer 
o
Accelerated filer 
o
Non-accelerated filer

(Do not check if a smaller reporting company)
x
 
Smaller reporting company 
o
Emerging growth company
o
 
 
 
If an emerging growth company, indicate by check mark if the registrant has not elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
o
 
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Hertz Global Holdings, Inc.    Yes o No x
The Hertz Corporation    Yes o No x

Indicate the number of shares outstanding as of the latest practicable date.
 
 
Class
 
Shares Outstanding at
April 30, 2018
Hertz Global Holdings, Inc.
 
Common Stock, par value $0.01 per share
 
84,065,852
The Hertz Corporation
 
Common Stock, par value $0.01 per share
 
100 (100% owned by
Rental Car Intermediate Holdings, LLC)
 
 
 
 
 
 


Table of Contents
HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
THE HERTZ CORPORATION AND SUBSIDIARIES


TABLE OF CONTENTS

 
 
 
 
 
Page
 
 


Table of Contents
HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
THE HERTZ CORPORATION AND SUBSIDIARIES


PART I—FINANCIAL INFORMATION
ITEM 1.   CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Index

 
 
Page
Hertz Global Holdings, Inc. and Subsidiaries
 
The Hertz Corporation and Subsidiaries
 
Notes to the Condensed Consolidated Financial Statements
 


1


Table of Contents



HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
Unaudited
(In millions, except par value)
 
March 31,
2018
 
December 31,
2017
ASSETS
 
 
 
Cash and cash equivalents
$
1,046

 
$
1,072

Restricted cash and cash equivalents:
 
 
 
Vehicle
862

 
386

Non-vehicle
32

 
46

Total restricted cash and cash equivalents
894

 
432

Total cash, cash equivalents, restricted cash and restricted cash equivalents
1,940

 
1,504

Receivables:
 
 
 
Vehicle
391

 
531

Non-vehicle, net of allowance of $31 and $33, respectively
941

 
834

Total receivables, net
1,332

 
1,365

Prepaid expenses and other assets
1,110

 
687

Revenue earning vehicles:
 
 
 
Vehicles
16,102

 
14,574

Less accumulated depreciation
(3,278
)
 
(3,238
)
Total revenue earning vehicles, net
12,824

 
11,336

Property and equipment:
 
 
 
Land, buildings and leasehold improvements
1,225

 
1,233

Service equipment and other
786

 
763

Less accumulated depreciation
(1,184
)
 
(1,156
)
Total property and equipment, net
827

 
840

Other intangible assets, net
3,204

 
3,242

Goodwill
1,084

 
1,084

Total assets(a)
$
22,321

 
$
20,058

LIABILITIES AND STOCKHOLDERS' EQUITY
 
 
 
Accounts payable:
 
 
 
Vehicle
$
736

 
$
294

Non-vehicle
722

 
652

Total accounts payable
1,458

 
946

Accrued liabilities
1,172

 
920

Accrued taxes, net
163

 
160

Debt:
 
 
 
Vehicle
12,379

 
10,431

Non-vehicle
4,432

 
4,434

Total debt
16,811

 
14,865

Public liability and property damage
438

 
427

Deferred income taxes, net
1,141

 
1,220

Total liabilities(a)
21,183

 
18,538

Commitments and contingencies


 


Stockholders' equity:
 
 
 
Preferred Stock, $0.01 par value, no shares issued and outstanding

 

Common Stock, $0.01 par value, 86 and 86 shares issued and 84 and 84 shares outstanding
1

 
1

Additional paid-in capital
2,250

 
2,243

Accumulated deficit
(897
)
 
(506
)
Accumulated other comprehensive income (loss)
(121
)
 
(118
)
Treasury Stock, at cost, 2 shares and 2 shares
(100
)
 
(100
)
Total stockholders' equity attributable to Hertz Global
1,133

 
1,520

Non-controlling interest
5

 

Total stockholders' equity
1,138

 
1,520

Total liabilities and stockholders' equity
$
22,321

 
$
20,058

(a)
Hertz Global Holdings, Inc.'s consolidated total assets as of March 31, 2018 and December 31, 2017 include total assets of variable interest entities (“VIEs”) of $718 million and $524 million, respectively, which can only be used to settle obligations of the VIEs. Hertz Global Holdings, Inc.'s consolidated total liabilities as of March 31, 2018 and December 31, 2017 include total liabilities of VIEs of $713 million and $524 million, respectively, for which the creditors of the VIEs have no recourse to Hertz Global Holdings, Inc. See "Special Purpose Entities" in Note 5, "Debt" and "Other Relationships" in Note 11, "Related Party Transactions," for further information.

The accompanying notes are an integral part of these financial statements.

2


Table of Contents


HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Unaudited
(In millions, except per share data)
 
Three Months Ended
March 31,
 
2018
 
2017
Revenues:
 
 
 
Worldwide vehicle rental
$
1,894

 
$
1,764

All other operations
169

 
152

Total revenues
2,063

 
1,916

Expenses:
 
 
 
Direct vehicle and operating
1,236

 
1,132

Depreciation of revenue earning vehicles and lease charges, net
661

 
701

Selling, general and administrative
234

 
220

Interest expense, net:
 
 
 
Vehicle
94

 
71

Non-vehicle
72

 
59

Total interest expense, net
166

 
130

Other (income) expense, net
(3
)
 
27

Total expenses
2,294

 
2,210

Income (loss) before income taxes
(231
)
 
(294
)
Income tax (provision) benefit
29

 
71

Net income (loss)
$
(202
)
 
$
(223
)
Weighted average shares outstanding:
 
 
 
Basic
83

 
83

Diluted
83

 
83

Earnings (loss) per share - basic and diluted:
 
 
 
Basic earnings (loss) per share
$
(2.43
)
 
$
(2.69
)
Diluted earnings (loss) per share
$
(2.43
)
 
$
(2.69
)

The accompanying notes are an integral part of these financial statements.

3


Table of Contents


HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
Unaudited
(In millions)
 
Three Months Ended
March 31,
 
2018
 
2017
Net income (loss)
$
(202
)
 
$
(223
)
Other comprehensive income (loss):
 
 
 
Foreign currency translation adjustments

 
16

Reclassification of realized gain on securities to other (income) expense

 
(3
)
Net gain (loss) on defined benefit pension plans
(3
)

(1
)
Reclassification from other comprehensive income (loss) to selling, general and administrative expense for amortization of actuarial (gains) losses on defined benefit pension plans

 
1

Total other comprehensive income (loss) before income taxes
(3
)
 
13

Income tax (provision) benefit related to net gains and losses on defined benefit pension plans

 

Income tax (provision) benefit related to reclassified amounts of net periodic costs on defined benefit pension plans

 

Total other comprehensive income (loss)
(3
)
 
13

Total comprehensive income (loss)
$
(205
)
 
$
(210
)

The accompanying notes are an integral part of these financial statements.

4


Table of Contents
HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Unaudited
(In millions)


 
Three Months Ended
March 31,
 
2018
 
2017
Cash flows from operating activities:
 
 
 
Net income (loss)
$
(202
)
 
$
(223
)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
 
 
 
Depreciation of revenue earning vehicles, net
641

 
684

Depreciation and amortization, non-vehicle
58

 
58

Amortization of deferred financing costs and debt discount (premium)
13

 
10

Stock-based compensation charges
3

 
7

Provision for receivables allowance
9

 
8

Deferred income taxes, net
(36
)
 
(71
)
Impairment charges and asset write-downs

 
30

Other
4

 
(6
)
Changes in assets and liabilities:
 
 
 
Non-vehicle receivables
(107
)
 
23

Prepaid expenses and other assets
(64
)
 
(35
)
Non-vehicle accounts payable
73

 
29

Accrued liabilities
4

 
(30
)
Accrued taxes, net
2

 
8

Public liability and property damage
3

 
(7
)
Net cash provided by (used in) operating activities
401

 
485

Cash flows from investing activities:
 
 
 
Revenue earning vehicles expenditures
(3,565
)
 
(2,837
)
Proceeds from disposal of revenue earning vehicles
1,782

 
1,935

Capital asset expenditures, non-vehicle
(44
)
 
(41
)
Proceeds from disposal of property and other equipment
4

 
7

Other
(27
)
 
9

Net cash provided by (used in) investing activities
(1,850
)
 
(927
)

The accompanying notes are an integral part of these financial statements.

5


Table of Contents
HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
Unaudited
(In millions)

 
Three Months Ended
March 31,
 
2018
 
2017
Cash flows from financing activities:
 
 
 
Proceeds from issuance of vehicle debt
5,181

 
2,098

Repayments of vehicle debt
(3,283
)
 
(1,692
)
Proceeds from issuance of non-vehicle debt
127

 
100

Repayments of non-vehicle debt
(131
)
 
(102
)
Payment of financing costs
(19
)
 
(12
)
Other
2

 
(1
)
Net cash provided by (used in) financing activities
1,877

 
391

Effect of foreign currency exchange rate changes on cash, cash equivalents, restricted cash and restricted cash equivalents
8

 
8

Net increase (decrease) in cash, cash equivalents, restricted cash and restricted cash equivalents during the period
436

 
(43
)
Cash, cash equivalents, restricted cash and restricted cash equivalents at beginning of period
1,504

 
1,094

Cash, cash equivalents, restricted cash and restricted cash equivalents at end of period
$
1,940

 
$
1,051

 


 


Supplemental disclosures of cash flow information:
 
 
 
Cash paid during the period for:
 
 
 
Interest, net of amounts capitalized:
 
 
 
Vehicle
$
82

 
$
67

Non-vehicle
28

 
30

Income taxes, net of refunds
6

 
2

Supplemental disclosures of non-cash information:
 
 
 
Purchases of revenue earning vehicles included in accounts payable and accrued liabilities, net of incentives
$
613

 
$
437

Sales of revenue earning vehicles included in receivables
268

 
215

Purchases of non-vehicle capital assets included in accounts payable
42

 
30

Revenue earning vehicles and non-vehicle capital assets acquired through capital lease
9

 
2




The accompanying notes are an integral part of these financial statements.

6


Table of Contents



THE HERTZ CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
Unaudited
(In millions, except par value and share data)
 
March 31,
2018
 
December 31,
2017
ASSETS
 
 
 
Cash and cash equivalents
$
1,046

 
$
1,072

Restricted cash and cash equivalents:
 
 
 
Vehicle
862

 
386

Non-vehicle
32

 
46

Total restricted cash and cash equivalents
894

 
432

Total cash, cash equivalents, restricted cash and restricted cash equivalents
1,940

 
1,504

Receivables:
 
 
 
Vehicle
391

 
531

Non-vehicle, net of allowance of $31 and $33, respectively
941

 
834

Total receivables, net
1,332

 
1,365

Prepaid expenses and other assets
1,110

 
687

Revenue earning vehicles:
 
 
 
Vehicles
16,102

 
14,574

Less accumulated depreciation
(3,278
)
 
(3,238
)
Total revenue earning vehicles, net
12,824

 
11,336

Property and equipment:
 
 
 
Land, buildings and leasehold improvements
1,225

 
1,233

Service equipment and other
786

 
763

Less accumulated depreciation
(1,184
)
 
(1,156
)
Total property and equipment, net
827

 
840

Other intangible assets, net
3,204

 
3,242

Goodwill
1,084

 
1,084

Total assets(a)
$
22,321

 
$
20,058

LIABILITIES AND STOCKHOLDER'S EQUITY
 
 
 
Accounts payable:
 
 
 
Vehicle
$
736

 
$
294

Non-vehicle
722

 
652

Total accounts payable
1,458

 
946

Accrued liabilities
1,172

 
920

Accrued taxes, net
163

 
160

Debt:
 
 
 
Vehicle
12,379

 
10,431

Non-vehicle
4,432

 
4,434

Total debt
16,811

 
14,865

Public liability and property damage
438

 
427

Deferred income taxes, net
1,141

 
1,220

Total liabilities(a)
21,183

 
18,538

Commitments and contingencies


 


Stockholder's equity:
 
 
 
Common Stock, $0.01 par value, 100 shares issued and outstanding

 

Additional paid-in capital
3,176

 
3,166

Due from affiliate
(46
)
 
(42
)
Accumulated deficit
(1,876
)
 
(1,486
)
Accumulated other comprehensive income (loss)
(121
)
 
(118
)
Total stockholder's equity attributable to Hertz
1,133

 
1,520

Non-controlling interest
5

 

Total stockholder's equity
1,138

 
1,520

Total liabilities and stockholder's equity
$
22,321

 
$
20,058

(a)
The Hertz Corporation's consolidated total assets as of March 31, 2018 and December 31, 2017 include total assets of variable interest entities (“VIEs”) of $718 million and $524 million, respectively, which can only be used to settle obligations of the VIEs. The Hertz Corporation's consolidated total liabilities as of March 31, 2018 and December 31, 2017 include total liabilities of VIEs of $713 million and $524 million, respectively, for which the creditors of the VIEs have no recourse to the Hertz Corporation. See "Special Purpose Entities" in Note 5, "Debt," and "Other Relationships" in Note 11, "Related Party Transactions," for further information.

The accompanying notes are an integral part of these financial statements.

7


Table of Contents


THE HERTZ CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Unaudited
(In millions)
 
Three Months Ended
March 31,
 
2018
 
2017
Revenues:
 
 
 
Worldwide vehicle rental
$
1,894

 
$
1,764

All other operations
169

 
152

Total revenues
2,063

 
1,916

Expenses:
 

 
 

Direct vehicle and operating
1,236

 
1,132

Depreciation of revenue earning vehicles and lease charges, net
661

 
701

Selling, general and administrative
234

 
220

Interest expense, net:
 
 
 
Vehicle
94

 
71

Non-vehicle
71

 
58

Total interest expense, net
165

 
129

Other (income) expense, net
(3
)
 
27

Total expenses
2,293

 
2,209

Income (loss) before income taxes
(230
)
 
(293
)
Income tax (provision) benefit
29

 
71

Net income (loss)
$
(201
)
 
$
(222
)


The accompanying notes are an integral part of these financial statements.

8


Table of Contents


THE HERTZ CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
Unaudited
(In millions)
 
Three Months Ended
March 31,
 
2018
 
2017
Net income (loss)
$
(201
)
 
$
(222
)
Other comprehensive income (loss):
 
 
 
Foreign currency translation adjustments

 
16

Reclassification of realized gain on securities to other (income) expense

 
(3
)
Net gain (loss) on defined benefit pension plans
(3
)
 
(1
)
Reclassification from other comprehensive income (loss) to selling, general and administrative expense for amortization of actuarial (gains) losses on defined benefit pension plans

 
1

Total other comprehensive income (loss) before income taxes
(3
)
 
13

Income tax (provision) benefit related to net gains and losses on defined benefit pension plans

 

Income tax (provision) benefit related to reclassified amounts of net periodic costs on defined benefit pension plans

 

Total other comprehensive income (loss)
(3
)
 
13

Total comprehensive income (loss)
$
(204
)
 
$
(209
)

The accompanying notes are an integral part of these financial statements.

9


Table of Contents
THE HERTZ CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Unaudited
(In millions)

 
Three Months Ended
March 31,
 
2018
 
2017
Cash flows from operating activities:
 
 
 
Net income (loss)
$
(201
)
 
$
(222
)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
 
 
 
Depreciation of revenue earning vehicles, net
641

 
684

Depreciation and amortization, non-vehicle
58

 
58

Amortization of deferred financing costs and debt discount (premium)
13

 
10

Stock-based compensation charges
3

 
7

Provision for receivables allowance
9

 
8

Deferred income taxes, net
(36
)
 
(71
)
Impairment charges and asset write-downs

 
30

Other
4

 
(6
)
Changes in assets and liabilities:
 

 
 

Non-vehicle receivables
(107
)
 
23

Prepaid expenses and other assets
(64
)
 
(35
)
Non-vehicle accounts payable
73

 
29

Accrued liabilities
4

 
(30
)
Accrued taxes, net
2

 
8

Public liability and property damage
3

 
(7
)
Net cash provided by (used in) operating activities
402

 
486

Cash flows from investing activities:
 

 
 

Revenue earning vehicles expenditures
(3,565
)
 
(2,837
)
Proceeds from disposal of revenue earning vehicles
1,782

 
1,935

Capital asset expenditures, non-vehicle
(44
)
 
(41
)
Proceeds from disposal of property and other equipment
4

 
7

Other
(27
)
 
9

Net cash provided by (used in) investing activities
(1,850
)
 
(927
)

The accompanying notes are an integral part of these financial statements.

10


Table of Contents
THE HERTZ CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Unaudited
(In millions)

 
Three Months Ended
March 31,
 
2018
 
2017
Cash flows from financing activities:
 
 
 
Proceeds from issuance of vehicle debt
5,181

 
2,098

Repayments of vehicle debt
(3,283
)
 
(1,692
)
Proceeds from issuance of non-vehicle debt
127

 
100

Repayments of non-vehicle debt
(131
)
 
(102
)
Payment of financing costs
(19
)
 
(12
)
Advances to Hertz Holdings
(4
)
 
(2
)
Other
5

 

Net cash provided by (used in) financing activities
1,876

 
390

Effect of foreign currency exchange rate changes on cash, cash equivalents, restricted cash and restricted cash equivalents
8

 
8

Net increase (decrease) in cash, cash equivalents, restricted cash and restricted cash equivalents during the period
436

 
(43
)
Cash, cash equivalents, restricted cash and restricted cash equivalents at beginning of period
1,504

 
1,094

Cash, cash equivalents, restricted cash and restricted cash equivalents at end of period
$
1,940

 
$
1,051

 
 
 
 
Supplemental disclosures of cash flow information:
 
 
 
Cash paid during the period for:
 
 
 
Interest, net of amounts capitalized:
 
 
 
Vehicle
$
82

 
$
67

Non-vehicle
28

 
30

Income taxes, net of refunds
6

 
2

Supplemental disclosures of non-cash information:
 

 
 

Purchases of revenue earning vehicles included in accounts payable and accrued liabilities, net of incentives
$
613

 
$
437

Sales of revenue earning vehicles included in receivables
268

 
215

Purchases of non-vehicle capital assets included in accounts payable
42

 
30

Revenue earning vehicles and non-vehicle capital assets acquired through capital lease
9

 
2




 


The accompanying notes are an integral part of these financial statements.

11


Table of Contents
HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
THE HERTZ CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Unaudited


Note 1Background

Hertz Global Holdings, Inc. ("Hertz Global" when including its subsidiaries and variable interest entities and "Hertz Holdings" excluding its subsidiaries and variable interest entities) was incorporated in Delaware in 2015 to serve as the top-level holding company for Rental Car Intermediate Holdings, LLC, which wholly owns The Hertz Corporation ("Hertz" and interchangeably with Hertz Global, the "Company"), Hertz Global's primary operating company. Hertz was incorporated in Delaware in 1967 and is a successor to corporations that have been engaged in the vehicle rental and leasing business since 1918. Hertz operates its vehicle rental business globally primarily through the Hertz, Dollar and Thrifty brands from company-owned, licensee and franchisee locations in the United States ("U.S."), Africa, Asia, Australia, Canada, the Caribbean, Europe, Latin America, the Middle East and New Zealand. Through its Donlen subsidiary, Hertz provides vehicle leasing and fleet management services.

Note 2Basis of Presentation and Recently Issued Accounting Pronouncements

Basis of Presentation

The Company's unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). In the opinion of management, the unaudited condensed consolidated financial statements reflect all adjustments of a normal recurring nature that are necessary for a fair presentation of the results for the interim periods presented. Interim results are not necessarily indicative of results for a full year.

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and footnotes. Actual results could differ materially from those estimates.

The December 31, 2017 unaudited condensed consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by U.S. GAAP. The information included in this Quarterly Report on Form 10-Q should be read in conjunction with information included in the Company's Form 10‑K for the year ended December 31, 2017 (the "2017 Form 10-K"), as filed with the Securities and Exchange Commission ("SEC") on February 27, 2018. Certain prior period amounts have been reclassified to conform with current period presentation.

As disclosed below in "Recently Issued Accounting Pronouncements," the Company adopted the financial statement disclosure guidance "Restricted Cash" on January 1, 2018.

Principles of Consolidation

The unaudited condensed consolidated financial statements of Hertz Global include the accounts of Hertz Global and its wholly owned and majority owned U.S. and international subsidiaries. The unaudited condensed consolidated financial statements of Hertz include the accounts of Hertz and its wholly owned and majority owned U.S. and international subsidiaries. The Company is the primary beneficiary of certain variable interest entities, therefore, the assets, liabilities, results of operations and cash flows of the variable interest entities are included in the Company's unaudited condensed consolidated financial statements. The Company accounts for its investment in joint ventures using the equity method when it has significant influence but not control and is not the primary beneficiary. All significant intercompany transactions have been eliminated in consolidation.

Correction of Errors

The Company identified classification errors within the operating and investing sections of its unaudited condensed consolidated statement of cash flows for the three months ended March 31, 2017. One of the errors relates to its previous operations in Brazil and was previously disclosed in the Company's 2017 Form 10-K. The second error relates to $13 million of intangible software assets for which no payment was made as of March 31, 2017.

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Table of Contents
HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
THE HERTZ CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Unaudited


The Company considered both quantitative and qualitative factors in assessing the materiality of the classification errors individually, and in the aggregate, and determined that the classification errors were not material and revised the accompanying unaudited condensed consolidated statement of cash flows for the three months ended March 31, 2017, accordingly. Correction of the errors decreased cash provided by operating activities for changes in non-vehicle accounts payable by $13 million and decreased cash used in investing activities by $13 million, comprised of a decrease in revenue earning vehicles expenditures of $25 million, a decrease in proceeds from disposals of revenue earning vehicles of $25 million and a decrease in capital asset expenditures, non-vehicle of $13 million. Also, there was a $13 million increase in the non-cash supplemental disclosure for purchases of non-vehicle capital assets included in accounts payable. These revisions had no impact to cash flows from financing activities. Additionally, these revisions had no impact on the Company's unaudited condensed consolidated balance sheet as of December 31, 2017 or its unaudited condensed consolidated statement of operations for the three months ended March 31, 2017.

Recently Issued Accounting Pronouncements

Adopted

Revenue from Contracts with Customers

In May 2014, the Financial Accounting Standards Board (the "FASB") issued guidance that replaced most existing revenue recognition guidance in U.S. GAAP. The FASB also issued several amendments and updates to the new revenue standard (collectively, “Topic 606”). Topic 606 applies to all contracts with customers except for leases, insurance contracts, financial instruments, certain nonmonetary exchanges and certain guarantees. The core principle of Topic 606 is that an entity should recognize revenue from customers for the transfer of goods or services equal to the amount that it expects to be entitled to receive for those goods or services, as well as when an entity should recognize revenue gross as a principal or net as an agent and how an entity should identify performance obligations. Topic 606 requires disclosures about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments. The Company adopted Topic 606 on the effective date, January 1, 2018, using a modified retrospective approach applied to all contracts. Prior periods were not retrospectively adjusted.

The impact to the Company’s financial position, results of operations and cash flows is primarily for revenue associated with the redemption of points earned by customers under the Company’s loyalty programs (“loyalty points”). For transactions that generate loyalty points to the customer, a portion of revenue is deferred until the loyalty points are redeemed by the customer. The amount of revenue deferred is equivalent to the retail value of each loyalty point less an estimated amount representing loyalty points that are not expected to be redeemed.

The cumulative effect of applying the new guidance to all contracts with customers that were not completed as of January 1, 2018 was recorded as an adjustment to accumulated deficit, net of tax, as of the adoption date as follows:

Hertz Global
(In millions)
Deferred income taxes, net
 
Accrued liabilities
 
Total liabilities
 
Accumulated deficit
 
Total equity
 
Total liabilities and equity
As of December 31, 2017
$
1,220

 
$
920

 
$
18,538

 
$
(506
)
 
$
1,520

 
$
20,058

Effect of Adopting ASC 606
(51
)
 
240

 
189

 
(189
)
 
(189
)
 

As of January 1, 2018
$
1,169

 
$
1,160

 
$
18,727

 
$
(695
)
 
$
1,331

 
$
20,058



13


Table of Contents
HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
THE HERTZ CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Unaudited

Hertz
(In millions)
Deferred income taxes, net
 
Accrued liabilities
 
Total liabilities
 
Accumulated deficit
 
Total equity
 
Total liabilities and equity
As of December 31, 2017
$
1,220

 
$
920

 
$
18,538

 
$
(1,486
)
 
$
1,520

 
$
20,058

Effect of Adopting ASC 606
(51
)
 
240

 
189

 
(189
)
 
(189
)
 

As of January 1, 2018
$
1,169

 
$
1,160

 
$
18,727

 
$
(1,675
)
 
$
1,331

 
$
20,058


As disclosed above, the Company adopted Topic 606 on a modified retrospective basis, therefore, historical financial information has not been restated for comparative purposes and continues to be reported under the accounting standards in effect for those periods (“legacy guidance”). The following table presents the amounts for line items in the Company’s unaudited condensed consolidated balance sheet, statement of operations and cash flows impacted by the adoption of Topic 606 as compared to the amounts that would have been recognized in accordance with legacy guidance. The impact to the Company's unaudited condensed consolidated statement of comprehensive income (loss) is comprised solely of the impact to net income (loss) as shown in the table below:

Hertz Global
 
As of or for the Three Months Ended March 31, 2018
(In millions, except per share data)
As Reported
 
Effect of Adoption Increase (Decrease)
 
Balances Without Adoption
Unaudited Condensed Consolidated Balance Sheet:
Accrued liabilities
$
1,172

 
$
238

 
$
934

Deferred income taxes, net
1,141

 
(51
)
 
1,192

Total liabilities
21,183

 
187

 
20,996

Accumulated deficit
(897
)
 
(187
)
 
(710
)
Total stockholders' equity
1,138

 
(187
)
 
1,325

Unaudited Condensed Consolidated Statement of Operations:
Worldwide vehicle rental revenues
1,894

 
3

 
1,891

Selling, general and administrative expense
234

 
1

 
233

Income (loss) before income taxes
(231
)
 
2

 
(233
)
Income tax (provision) benefit
29

 

 
29

Net income (loss)
(202
)
 
2

 
(204
)
Basic earnings (loss) per share
(2.43
)
 
0.03

 
(2.46
)
Diluted earnings (loss) per share
(2.43
)
 
0.03

 
(2.46
)
Unaudited Condensed Consolidated Statement of Cash Flow:
Cash flows from operating activities:
 
 
 
 
 
Net income (loss)
(202
)
 
2

 
(204
)
Deferred income taxes, net
(36
)
 

 
(36
)
Accrued liabilities
4

 
(2
)
 
6



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Table of Contents
HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
THE HERTZ CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Unaudited

Hertz
 
As of or for the Three Months Ended March 31, 2018
(In millions, except per share data)
As Reported
 
Effect of Adoption Increase (Decrease)
 
Balances Without Adoption
Unaudited Condensed Consolidated Balance Sheet:
Accrued liabilities
$
1,172

 
$
238

 
$
934

Deferred income taxes, net
1,141

 
(51
)
 
1,192

Total liabilities
21,183

 
187

 
20,996

Accumulated deficit
(1,876
)
 
(187
)
 
(1,689
)
Total stockholders' equity
1,138

 
(187
)
 
1,325

Unaudited Condensed Consolidated Statement of Operations:
Worldwide vehicle rental revenues
1,894

 
3

 
1,891

Selling, general and administrative expense
234

 
1

 
233

Income (loss) before income taxes
(230
)
 
2

 
(232
)
Income tax (provision) benefit
29

 

 
29

Net income (loss)
(201
)
 
2

 
(203
)
Unaudited Condensed Consolidated Statement of Cash Flow:
Cash flows from operating activities:
 
 
 
 
 
Net income (loss)
(201
)
 
2

 
(203
)
Deferred income taxes, net
(36
)
 

 
(36
)
Accrued liabilities
4

 
(2
)
 
6


See Note 6, "Revenue," for information regarding the Company’s accounting policies for revenue recognition, including the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers, as well as other required disclosures under Topic 606.

Restricted Cash

In November 2016, the FASB issued guidance that clarifies existing guidance on the classification and presentation of restricted cash in the statement of cash flows. The guidance requires entities to show the changes in the total of cash, cash equivalents, restricted cash and restricted cash equivalents in the statement of cash flows. Additionally, entities will no longer present transfers between cash and cash equivalents and restricted cash and restricted cash equivalents in the statement of cash flows. The Company adopted this guidance retrospectively in accordance with the effective date on January 1, 2018.

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Table of Contents
HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
THE HERTZ CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Unaudited


Adoption of this guidance had no impact on the Company's financial position or results of operations. The impact to the unaudited condensed consolidated statement of cash flows of adopting this guidance was as follows:

Hertz Global
 
Three months ended March 31, 2017
(In millions)
As Previously Reported
 
Adjustments
 
As Adjusted
Net change in restricted cash and cash equivalents, vehicle
$
14

 
$
(14
)
 
$

Net cash provided by (used in) investing activities (a)
(913
)
 
(14
)
 
(927
)
Effect of foreign currency exchange rate changes on cash, cash equivalents, restricted cash and restricted cash
6

 
2

 
8

Cash, cash equivalents, restricted cash and restricted cash equivalents at beginning of period
816

 
278

 
1,094

Cash, cash equivalents, restricted cash and restricted cash equivalents at end of period
785

 
266

 
1,051


Hertz
 
Three months ended March 31, 2017
(In millions)
As Previously Reported
 
Adjustments
 
As Adjusted
Net change in restricted cash and cash equivalents, vehicle
$
14

 
$
(14
)
 
$

Net cash provided by (used in) investing activities (a)
(913
)
 
(14
)
 
(927
)
Effect of foreign currency exchange rate changes on cash, cash equivalents, restricted cash and restricted cash
6

 
2

 
8

Cash, cash equivalents, restricted cash and restricted cash equivalents at beginning of period
816

 
278

 
1,094

Cash, cash equivalents, restricted cash and restricted cash equivalents at end of period
785

 
266

 
1,051


(a)
Amount previously reported includes the $13 million revision to correct for an error as disclosed above in "Correction of Errors."

Not Yet Adopted

Leases

In February 2016, the FASB issued guidance that replaces the existing lease guidance in U.S. GAAP. The new guidance (Topic "842") establishes a right-of-use (“ROU”) model that requires a lessee to record on the balance sheet a ROU asset and corresponding lease liability based on the present value of future lease payments for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. Topic 842 also expands the requirements for lessees to record leases embedded in other arrangements. Additionally, enhanced quantitative and qualitative disclosures surrounding leases are required which provide financial statement users the ability to assess the amount, timing and uncertainty of cash flows arising from leases. Topic 842 is effective for annual periods beginning after December 15, 2018 and interim periods within those annual periods with early adoption permitted. The Company intends to adopt this guidance, in accordance with the effective date, on January 1, 2019. A modified retrospective transition approach is required for both lessees and lessors for existing leases at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. The Company is still in the process of evaluating whether to avail itself of allowable practicable expedients during transition.


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Table of Contents
HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
THE HERTZ CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Unaudited

The Company is evaluating the Proposed Accounting Standards Update, Leases (Topic 842) Targeted Improvements that were tentatively affirmed by the FASB at its March 2018 meetings. The update provides a transition method that would allow the Company to only apply the new lease standard in the year of adoption. Additionally, it provides a practical expedient for lessors to combine non-lease components with the related lease components if certain conditions are met. This could allow the Company to account for all revenue earned from the operations of rental vehicles and from other forms of rental related activities under the new lease guidance.

Lessee

Adoption of Topic 842 will result in a material increase in the Company's lease-related assets and liabilities on its balance sheet, primarily for leases of rental locations and other assets. Additionally, adoption of this guidance will impact the statement of cash flows with respect to the presentation of the Company's operating activities, but is not expected to impact its presentation of investing or financing activities. Adoption of Topic 842 is not expected to have a material impact on the Company’s results of operations. The Company has reached conclusions on key accounting assessments related to its leases and is performing an analysis of its lease portfolio to ensure proper application of the new guidance including implementation of internal controls over financial reporting.

Lessor

The Company has concluded that revenue earned from the rental and leasing of vehicles and from other forms of rental related activities wherein an identified asset is transferred to the customer and the customer has the ability to control that asset is within the scope of this guidance and that additional disclosures regarding lease revenue are required upon adoption. The Company is in the process of evaluating the breakdown of its vehicle rental revenues into lease and non-lease components. There is no impact to the nature, timing or recognition of rental lease revenue upon adoption of this guidance.

Reporting Comprehensive Income

In February 2018, the FASB issued guidance that allows a reclassification from accumulated other comprehensive income to retained earnings for the stranded tax effects resulting from the U.S. Tax Cuts and Jobs Act ("TCJA"). The guidance is effective for annual periods beginning after December 15, 2018, and interim periods within those annual periods. The guidance should be applied either in the period of adoption or retrospectively to each period in which the effect of the change in the U.S. federal corporate income tax rate in the TCJA is recognized. Early adoption is permitted, including adoption in any interim period. Adoption of this guidance will result in a reclassification of certain amounts from accumulated other comprehensive income to retained earnings as of the date adopted.

Note 3Acquisitions and Divestitures

Divestitures

Equity Investment

The Company had an investment that was accounted for under the equity method. In March 2017, the Company determined it had an other than temporary loss in value of its investment and recorded an impairment charge of $30 million, which is included in other (income) expense, net in the accompanying unaudited condensed consolidated statement of operations for the three months ended March 31, 2017. In September 2017, the investee was dissolved and the Company no longer has an ownership interest in the entity.


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Table of Contents
HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
THE HERTZ CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Unaudited


Note 4Revenue Earning Vehicles

The components of revenue earning vehicles, net are as follows:
(In millions)
March 31, 2018
 
December 31, 2017
Revenue earning vehicles
$
15,680

 
$
14,209

Less: Accumulated depreciation
(3,147
)
 
(3,123
)
 
12,533

 
11,086

Revenue earning vehicles held for sale, net
291

 
250

Revenue earning vehicles, net
$
12,824

 
$
11,336


Depreciation of revenue earning vehicles and lease charges, net includes the following:
 
Three Months Ended
March 31,
(In millions)
2018
 
2017
Depreciation of revenue earning vehicles
$
594

 
$
605

(Gain) loss on disposal of revenue earning vehicles(a)
47

 
79

Rents paid for vehicles leased
20

 
17

Depreciation of revenue earning vehicles and lease charges, net
$
661

 
$
701


(a)    (Gain) loss on disposal of revenue earning vehicles by segment is as follows:
 
Three Months Ended
March 31,
(In millions)
2018
 
2017
U.S. Rental Car(i)
$
45

 
$
78

International Rental Car
2

 
1

Total
$
47

 
$
79


(i)
Includes costs associated with the Company's U.S. vehicle sales operations of $36 million and $30 million for the three months ended March 31, 2018 and 2017, respectively.

Depreciation rates are reviewed on a quarterly basis based on management's ongoing assessment of present and estimated future market conditions, their effect on residual values at the time of disposal and the estimated holding periods for the vehicles. The impact of depreciation rate changes is as follows:
Increase (decrease)
Three Months Ended
March 31,
(In millions)
2018
 
2017
U.S. Rental Car
$
9

 
$
26

International Rental Car
2

 

Total
$
11

 
$
26



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Table of Contents
HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
THE HERTZ CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Unaudited

Note 5Debt

The Company's debt, including its available credit facilities, consists of the following ($ in millions):
Facility
 
Weighted Average Interest Rate
as of
March 31, 2018
 
Fixed or
Floating
Interest
Rate
 
Maturity
 
March 31,
2018
 
December 31,
2017
Non-Vehicle Debt
 
 
 
 
 
 
 
 
 
 
Senior Term Loan
 
4.63%
 
Floating
 
6/2023
 
$
684

 
$
688

Senior RCF
 
N/A
 
Floating
 
6/2021
 

 

Senior Notes(1)
 
6.13%
 
Fixed
 
10/2020-10/2024
 
2,500

 
2,500

Senior Second Priority Secured Notes
 
7.63%
 
Fixed
 
6/2022
 
1,250

 
1,250

Promissory Notes
 
7.00%
 
Fixed
 
1/2028
 
27

 
27

Other Non-Vehicle Debt
 
1.92%
 
Fixed
 
Various
 
11

 
11

Unamortized Debt Issuance Costs and Net (Discount) Premium
 
 
 
 
 
 
 
(40
)
 
(42
)
Total Non-Vehicle Debt
 
 
 
 
 
 
 
4,432

 
4,434

Vehicle Debt
 
 
 
 
 
 
 
 
 
 
HVF U.S. Vehicle Medium Term Notes
 
 
 
 
 
 
 
 
HVF Series 2010-1(2)
 
N/A
 
N/A
 
N/A
 

 
39

HVF Series 2013-1(2)
 
1.91%
 
Fixed
 
8/2018
 
521

 
625

 
 
 
 
 
 
 
 
521

 
664

HVF II U.S. ABS Program
 
 
 
 
 
 
 
 
 
 
HVF II U.S. Vehicle Variable Funding Notes
 
 
 
 
 
 
 
 
HVF II Series 2013-A(2)
 
3.20%
 
Floating
 
3/2020
 
2,590

 
1,970

HVF II Series 2013-B(2)
 
3.11%
 
Floating
 
3/2020
 
68

 
123

 
 
 
 
 
 
 
 
2,658

 
2,093

HVF II U.S. Vehicle Medium Term Notes
 
 
 
 
 
 
 
 
HVF II Series 2015-1(2)
 
2.93%
 
Fixed
 
3/2020
 
780

 
780

HVF II Series 2015-2(2)
 
2.45%
 
Fixed
 
9/2018
 
265

 
265

HVF II Series 2015-3(2)
 
3.10%
 
Fixed
 
9/2020
 
371

 
371

HVF II Series 2016-1(2)
 
2.89%
 
Fixed
 
3/2019
 
466

 
466

HVF II Series 2016-2(2)
 
3.41%
 
Fixed
 
3/2021
 
595

 
595

HVF II Series 2016-3(2)
 
2.72%
 
Fixed
 
7/2019
 
424

 
424

HVF II Series 2016-4(2)
 
3.09%
 
Fixed
 
7/2021
 
424

 
424

HVF II Series 2017-1(2)
 
3.38%
 
Fixed
 
10/2020
 
450

 
450

HVF II Series 2017-2(2)
 
3.57%
 
Fixed
 
10/2022
 
350

 
350

HVF II Series 2018-1(2)
 
3.41%
 
Fixed
 
2/2023
 
1,000

 

 
 
 
 
 
 
 
 
5,125

 
4,125

Donlen ABS Program
 
 
 
 
 
 
 
 
 
 
HFLF Variable Funding Notes
 
 
 
 
 
 
 
 
 
 
HFLF Series 2013-2(2)
 
2.59%
 
Floating
 
3/2020
 
474

 
380

 
 
 
 
 
 
 
 
474

 
380


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Table of Contents
HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
THE HERTZ CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Unaudited

Facility
 
Weighted Average Interest Rate
as of
March 31, 2018
 
Fixed or
Floating
Interest
Rate
 
Maturity
 
March 31,
2018
 
December 31,
2017
HFLF Medium Term Notes
 
 
 
 
 
 
 
 
 
 
HFLF Series 2015-1(4)
 
2.57%
 
Floating
 
4/2018-5/2019
 
116

 
145

HFLF Series 2016-1(4)
 
2.87%
 
Both
 
4/2018-2/2020
 
280

 
318

HFLF Series 2017-1(4)
 
2.46%
 
Both
 
6/2018-5/2020
 
500

 
500

 
 
 
 
 
 
 
 
896

 
963

Vehicle Debt - Other
 
 
 
 
 
 
 
 
 
 
U.S. Vehicle RCF
 
4.32%
 
Floating
 
6/2021
 
133

 
186

European Revolving Credit Facility
 
2.95%
 
Floating
 
3/2020
 
123

 
184

European Vehicle Notes(3)
 
4.82%
 
Fixed
 
1/2019–3/2023
 
1,416

 
773

European Securitization(2)
 
1.70%
 
Floating
 
3/2020
 
366

 
367

Canadian Securitization(2)
 
2.98%
 
Floating
 
3/2020
 
209

 
237

Australian Securitization(2)
 
3.45%
 
Floating
 
3/2020
 
146

 
155

New Zealand RCF
 
4.60%
 
Floating
 
3/2020
 
43

 
42

U.K. Financing Facility
 
2.86%
 
Floating
 
2/2021
 
268

 
251

Other Vehicle Debt
 
3.92%
 
Floating
 
4/2018-7/2022
 
54

 
51

 
 
 
 
 
 
 
 
2,758

 
2,246

Unamortized Debt Issuance Costs and Net (Discount) Premium
 
 
 
 
 
 
 
(53
)
 
(40
)
Total Vehicle Debt
 
 
 
 
 
 
 
12,379

 
10,431

Total Debt
 
 
 
 
 
 
 
$
16,811

 
$
14,865

N/A - Not applicable

(1)
References to the "Senior Notes" include the series of Hertz's unsecured senior notes set forth on the table below. Outstanding principal amounts for each such series of the Senior Notes is also specified below:
(In millions)
Outstanding Principal
Senior Notes
March 31, 2018
 
December 31, 2017
5.875% Senior Notes due October 2020
$
700

 
$
700

7.375% Senior Notes due January 2021
500

 
500

6.25% Senior Notes due October 2022
500

 
500

5.50% Senior Notes due October 2024
800

 
800

 
$
2,500

 
$
2,500


(2)
Maturity reference is to the earlier "expected final maturity date" as opposed to the subsequent "legal final maturity date." The expected final maturity date is the date by which Hertz and investors in the relevant indebtedness expect the outstanding principal of the relevant indebtedness to be repaid in full. The legal final maturity date is the date on which the outstanding principal of the relevant indebtedness is legally due and payable in full.


20


Table of Contents
HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
THE HERTZ CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Unaudited

(3)
References to the "European Vehicle Notes" include the series of Hertz Holdings Netherlands B.V.'s, an indirect wholly-owned subsidiary of Hertz organized under the laws of The Netherlands (“HHN BV”), unsecured senior notes (converted from Euros to U.S. dollars at a rate of 1.23 to 1 and 1.19 to 1 as of March 31, 2018 and December 31, 2017, respectively) set forth on the table below. Outstanding principal amounts for each such series of the European Vehicle Notes is also specified below:
(In millions)
Outstanding Principal
European Vehicles Notes
March 31, 2018
 
December 31, 2017
4.375% Senior Notes due January 2019
$
523

 
$
505

4.125% Senior Notes due October 2021
277

 
268

5.50% Senior Notes due March 2023
616

 

 
$
1,416

 
$
773

(4)
In the case of the Hertz Fleet Lease Funding LP ("HFLF") Medium Term Notes, such notes are repayable from cash flows derived from third-party leases comprising the underlying HFLF collateral pool. The initial maturity date referenced for each series of HFLF Medium Term Notes represents the end of the revolving period for such series, at which time the related notes begin to amortize monthly by an amount equal to the lease collections payable to that series. To the extent the revolving period already has ended, the initial maturity date reflected is April 2018. The second maturity date referenced for each series of HFLF Medium Term Notes represents the date by which Hertz and the investors in the related series expect such series of notes to be repaid in full, which is based upon various assumptions made at the time of pricing of such notes, including the contractual amortization of the underlying leases as well as the assumed rate of prepayments of such leases. Such maturity reference is to the “expected final maturity date” as opposed to the subsequent “legal final maturity date.” The legal final maturity date is the date on which the relevant indebtedness is legally due and payable. Although the underlying lease cash flows that support the repayment of the HFLF Medium Term Notes may vary, the cash flows generally are expected to approximate a straight-line amortization of the related notes from the initial maturity date through the expected final maturity date.

The Company is highly leveraged and a substantial portion of its liquidity needs arise from debt service on its indebtedness and from the funding of its costs of operations, acquisitions and capital expenditures. The Company’s practice is to maintain sufficient liquidity through cash from operations, credit facilities and other financing arrangements, to mitigate any adverse impact on its operations resulting from adverse financial market conditions. As of March 31, 2018, approximately $2.6 billion of vehicle debt and $23 million of non-vehicle debt was due to mature between April 1, 2018 and March 31, 2019.

The Company has reviewed its debt facilities and determined that it is probable that the Company will be able, and has the intent, to refinance these facilities at such times as the Company determines appropriate prior to their respective maturities.

Vehicle Debt

HVF II U.S. Vehicle Variable Funding Notes

HVF II Series 2013 Notes: In April 2018, HVF II increased the maximum commitments under the HVF II Series 2013-A Notes and HVF II 2013-B Notes (the "HVF II Series 2013 Notes") by $250 million, such that after giving effect to such increase, the aggregate maximum principal amount of the HVF II Series 2013 Notes was approximately $3.7 billion.

HVF II Series 2017-A Notes: In March 2018, HVF II terminated all $500 million of commitments under the HVF II Series 2017-A Notes.

HVF II U.S. Vehicle Medium Term Notes

HVF II Series 2018-1 Notes: In January 2018, HVF II issued the Series 2018-1 Rental Car Asset Backed Notes, Class A, Class B, Class C and Class D ("the HVF II Series 2018-1 Notes") in an aggregate principal amount of approximately $1.1 billion. Hertz purchased the Class D Notes of such series and as a result, approximately $58 million of the aggregate principal amount is eliminated in consolidation. There is subordination within the HVF II Series 2018-1 Notes based on class.


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HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
THE HERTZ CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Unaudited

HFLF Medium Term Notes

HFLF Series 2018-1 Notes: In May 2018, HFLF issued the Series 2018-1 Asset-Backed Notes, Class A, Class B, Class C, Class D, and Class E (collectively, the “HFLF Series 2018-1 Notes”) in an aggregate principal amount of $550 million. The HFLF Series 2018-1 Notes are fixed rate, except for the Class A-1 Notes which are floating rate and carry an interest rate based upon a spread to one-month LIBOR. The net proceeds of this issuance were used to reduce amounts outstanding under the HFLF Series 2013-2 Notes.

Vehicle Debt - Other

European Vehicle Notes

In March 2018, HHN BV issued 5.50% Senior Notes due March 2023 in an aggregate original principal amount of €500 million (the "2023 Notes") and issued a notice of conditional full redemption for all of its outstanding 4.375% Senior Notes due January 2019 (the "2019 Notes"). As of March 31, 2018, €425 million, or $523 million, of the proceeds from the 2023 Notes were included in restricted cash in the accompanying unaudited condensed consolidated balance sheet in connection with the redemption of the 2019 Notes in April 2018.

European Revolving Credit Facility

In March 2018, HHN BV amended its credit agreement ("European Revolving Credit Facility") to provide for aggregate maximum borrowing capacity (subject to borrowing base availability) of up to €438 million during the peak rental season, for a seasonal commitment period through October 2018. Following the expiration of the seasonal commitment period, aggregate maximum borrowings available under the European Revolving Credit Facility will revert to up to €235 million (subject to borrowing base availability).

Borrowing Capacity and Availability

Borrowing capacity and availability comes from the Company's "revolving credit facilities," which are a combination of variable funding asset-backed securitization facilities, cash-flow-based revolving credit facilities, asset-based revolving credit facilities and a standalone $400 million letter of credit facility that the Company entered into in 2017 (the "Letter of Credit Facility"). Creditors under each such asset-backed securitization facility and asset-based revolving credit facility have a claim on a specific pool of assets as collateral. The Company's ability to borrow under each such asset-backed securitization facility and asset-based revolving credit facility is a function of, among other things, the value of the assets in the relevant collateral pool. With respect to each such asset-backed securitization facility and asset-based revolving credit facility, the Company refers to the amount of debt it can borrow given a certain pool of assets as the borrowing base.

The Company refers to "Remaining Capacity" as the maximum principal amount of debt permitted to be outstanding under the respective facility (i.e., with respect to a variable funding asset-backed securitization facility or asset-based revolving credit facility, the amount of debt the Company could borrow assuming it possessed sufficient assets as collateral) less the principal amount of debt then-outstanding under such facility. With respect to a variable funding asset-backed securitization facility or asset-based revolving credit facility, the Company refers to "Availability Under Borrowing Base Limitation" as the lower of Remaining Capacity or the borrowing base less the principal amount of debt then-outstanding under such facility (i.e., the amount of debt that can be borrowed given the collateral possessed at such time). With respect to the Senior RCF and the Letter of Credit Facility, "Availability Under Borrowing Base Limitation" is the same as "Remaining Capacity" since borrowings under the Senior RCF and the Letter of Credit Facility are not subject to a borrowing base.


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HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
THE HERTZ CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Unaudited

The following facilities were available to the Company as of March 31, 2018, and are presented net of any outstanding letters of credit:
(In millions)
Remaining
Capacity
 
Availability Under
Borrowing Base
Limitation
Non-Vehicle Debt
 
 
 
Senior RCF
$
519

 
$
519

Letter of Credit Facility

 

Total Non-Vehicle Debt
519

 
519

Vehicle Debt
 

 
 

U.S. Vehicle RCF

 

HVF II U.S. Vehicle Variable Funding Notes
757

 

HFLF Variable Funding Notes
26

 
1

European Revolving Credit Facility
416

 

European Securitization
200

 

Canadian Securitization
62

 

Australian Securitization
46

 

U.K. Financing Facility
84

 
1

New Zealand RCF

 

Total Vehicle Debt
1,591

 
2

Total
$
2,110

 
$
521


Letters of Credit

As of March 31, 2018, there were outstanding standby letters of credit totaling $661 million. Such letters of credit have been issued primarily to support the Company's insurance programs, vehicle rental concessions and leaseholds as well as to provide credit enhancement for its asset-backed securitization facilities. Of this amount, $648 million was issued under the Senior RCF and none were issued under the Letter of Credit Facility. As of March 31, 2018, there was no availability under the $400 million letter of credit facility (the "Letter of Credit Facility") and no letters of credit were issued thereunder. As of March 31, 2018, none of the issued letters of credit have been drawn upon.

Special Purpose Entities

Substantially all of the Company's revenue earning vehicles and certain related assets are owned by special purpose entities, or are encumbered in favor of the lenders under the various credit facilities, other secured financings and asset-backed securities programs. None of such assets (including the assets owned by Hertz Vehicle Financing II LP, Hertz Vehicle Financing LLC, Rental Car Finance LLC, DNRS II LLC, HFLF, Donlen Trust and various international subsidiaries that facilitate the Company's international securitizations) are available to satisfy the claims of general creditors.

The Company has a 25% ownership interest in International Fleet Financing No. 2 B.V. ("IFF No. 2"), a special purpose entity whose sole purpose is to provide commitments to lend in various currencies subject to borrowing bases comprised of revenue earning vehicles and related assets of certain of Hertz International, Ltd.'s subsidiaries. IFF No. 2 is a variable interest entity and the Company is the primary beneficiary, therefore, the assets, liabilities, and results of operations of IFF No. 2 are included in the Company's unaudited condensed consolidated financial statements. As of March 31, 2018 and December 31, 2017, IFF No. 2 had total assets of $713 million and $524 million, respectively, primarily comprised of loan receivables, and total liabilities of $713 million and $524 million, respectively, primarily comprised of debt and loan payables.

Covenant Compliance

The financial covenant provides that Hertz’s consolidated first lien net leverage ratio, as defined in the credit agreements governing the Senior RCF and the Letter of Credit Facility, as of the last day of any fiscal quarter following and including

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HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
THE HERTZ CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Unaudited

fiscal quarter ending December 31, 2017 (the "Covenant Leverage Ratio"), may not exceed a ratio of 3.00 to 1.00. As of March 31, 2018, Hertz was in compliance with the Covenant Leverage Ratio.

Note 6Revenue

The Company recognizes two types of revenue; (i) revenue from contracts with customers, and (ii) lease revenue, which is generated through the fleet leasing operations of its Donlen subsidiary.
As disclosed in the Revenue from Contracts with Customers section of Note 2, “Basis of Presentation and Recently Issued Accounting Pronouncements” ("Note 2"), the Company adopted Topic 606 in accordance with the effective date on January 1, 2018. Note 2 includes disclosures regarding the Company’s method of adoption and the impact on the Company’s financial position, results of operations and cash flows. In the Leases section of Note 2, the Company discloses that it has concluded that revenue earned from vehicle rentals, and from other forms of rental related activities wherein an identified asset is transferred to the customer and the customer has the ability to control that asset, will be accounted for under Topic 842 upon its adoption. Until the Company adopts Topic 842, vehicle rental and rental related revenues are recognized in accordance with Topic 606.

The Company recognizes revenue net of any taxes or non-concession fees collected from customers on behalf of governmental authorities.

Revenue from Contracts with Customers

The Company operates at airport rental locations in the U.S. and internationally ("airport") and at off airport locations also in the U.S. and internationally ("off airport"). For the Company's airport company-operated rental locations, the Company has obtained concessions or similar leasing agreements or arrangements, granting it the right to conduct a vehicle rental business at the respective airport. The terms of an airport concession typically require the Company to pay the airport's operator concession fees based upon a specified percentage of the revenues it generates at the airport, subject to a minimum annual guarantee. The terms of the Company's concessions typically do not forbid it from seeking, and in a few instances actually require it to seek, reimbursement from customers for concession fees it pays; however, in certain jurisdictions the law limits or forbids the Company from doing so. Where the Company is required or permitted to seek such reimbursement, it is its general practice to do so. The Company's airport rental customers are typically airline travelers; whereas the Company's off airport rental customers include people who prefer to rent vehicles closer to their home or place of work for business or leisure purposes, as well as those needing to travel to or from airports. The Company's off airport customers also include people who have been referred by, or whose rental costs are being wholly or partially reimbursed by, insurance companies following accidents in which their vehicles were damaged, those expecting to lease vehicles that are not yet available from their leasing companies and replacement renters. In addition, the Company's off airport customers include drivers for transportation network companies ("TNC").

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HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
THE HERTZ CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Unaudited



The following table presents revenues from contracts with customers by reportable segment and disaggregated by product/service and type of location and customer:

 
Three Months Ending March 31, 2018
(In millions)
U.S. Rental Car
 
International Rental Car
 
All Other Operations
 
Consolidated
Vehicle rental and rental related:
 
 
 
 
 
 
 
Airport
$
982

 
$
251

 
$

 
$
1,233

Off airport
412

 
185

 

 
597

Total vehicle rental and rental related
1,394

 
436

 

 
1,830

 
 
 
 
 
 
 
 
Other:
 
 
 
 
 
 
 
Licensee revenue
6

 
32

 

 
38

Ancillary retail vehicle sales
26

 

 

 
26

Fleet management

 

 
12

 
12

Total other
32

 
32

 
12

 
76

Total revenue from contracts with customers
$
1,426

 
$
468

 
$
12

 
$
1,906


Vehicle Rental and Rental Related Revenues

The Company recognizes revenue from its vehicle rental operations when persuasive evidence of a contract exists, the performance obligations have been satisfied, the transaction price is fixed or determinable and collection is reasonably assured. Performance obligations associated with vehicle rental transactions are satisfied over the rental period, except for the portion associated with loyalty points, as further described below. Rental periods are short-term in nature. Therefore, the Company has elected to apply the practical expedient which eliminates the requirement to disclose information about remaining performance obligations. Performance obligations associated with rental related activities, such as charges to the customer for the fueling of vehicles and value-added services such as loss damage waivers, insurance products, navigation units, supplemental equipment and other consumables, are also satisfied over the rental period. Revenue from charges that are passed through to the customer, such as gasoline, vehicle licensing and airport concession fees, is recorded on a gross basis with a corresponding charge to direct vehicle and operating expense. Sales commissions paid to third parties are generally expensed when incurred due to the short-term nature of the related transaction on which the commission was earned and are recorded within selling, general and administrative expenses. Payments are due from customers at the completion of the rental, except for customers with negotiated payment terms, generally net 30 days or less, which are invoiced and remain as accounts receivable until collected.

Loyalty Programs - The Company offers loyalty programs, primarily Hertz Gold Plus Rewards, wherein customers are eligible to earn loyalty points that are redeemable for free rental days or can be converted to loyalty points for redemption of products and services under loyalty programs of other companies. Each transaction that generates loyalty points results in the deferral of revenue equivalent to the retail value of the redemption of the loyalty points. The associated revenue is recognized when the customer redeems the loyalty points at some point in the future. The retail value of loyalty points is estimated based on the expected retail value of the future vehicle rental to be provided less an estimated amount representing loyalty points that are not expected to be redeemed (“breakage”). Breakage is estimated on a quarterly basis and includes significant assumptions, such as historical breakage trends and internal Company forecasts. During the three months ended March 31, 2018, based on the net impact of loyalty points earned and redeemed by customers, the Company recognized $3 million of revenue. As of March 31, 2018, the value of unredeemed loyalty points was $266 million, which is recorded as a contract liability in accrued liabilities in the accompanying unaudited condensed consolidated balance sheet.


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HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
THE HERTZ CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Unaudited

Customer Rebates - The Company has business customers that rent vehicles based on terms that have been negotiated through contracts with their employers, or other entities with which they are associated (“commercial contracts”), which can differ substantially from the terms on which the Company rents vehicles to the general public. Some of the commercial contracts contain provisions which allow for rebates to the entity based on achieving a specific rental volume threshold. Rebates are treated as variable consideration and are recognized as a reduction of revenue at the time of the rental based on the rebate expected to be earned by the entity.

Licensee Revenue

The Company has franchise agreements which allow an independent entity to rent their vehicles under the Company’s brands, primarily Hertz, Dollar or Thrifty, for a fee (“franchise fee”). Franchise fees are earned over time for the duration of the franchise agreement and are typically based on the larger of a minimum payment or an amount representing a percentage of net sales of the franchised business. Franchise fees are recognized as earned and when collectability is reasonably assured. Franchise fees that relate to a future contract term, such as initial fees or renewal fees, are deferred and recognized over the term of the franchise agreement. The Company has elected to apply one of the practical expedients under Topic 606, and as such the value of unsatisfied performance obligations for sales-based royalty fees from franchisees is not disclosed.

Ancillary Retail Vehicle Sales Revenue

Ancillary retail vehicle sales represent revenues generated from the sale of warranty contracts, financing and title fees, and other ancillary services associated with vehicles disposed of at the Company’s retail outlets. These revenues are recorded at the point in time when the Company sells the product or provides the service to the customer. These revenues exclude the sale price of the vehicle which is a component of the gain or loss on the disposition and is included in depreciation of revenue earning vehicles and lease charges, net.

Fleet Management Revenue

The Company's Donlen subsidiary generates revenue from various fleet management services, such as fuel purchasing and management, preventive maintenance, repair consultation, toll management and accident management. Fleet management revenue is recognized net of any fees collected from customers on behalf of third party service providers, as services are rendered.

Contract Balances

The Company recognizes receivables and liabilities resulting from its contracts with customers. Contract receivables primarily consist of receivables from customers for vehicle rentals. Contract liabilities primarily consist of obligations to customers for prepaid vehicle rentals and related to the Company’s points-based loyalty programs.

The contract liability balance as of March 31, 2018 was $388 million and is included in accrued liabilities in the accompanying unaudited condensed consolidated balance sheet. The contract liability as of January 1, 2018, after giving effect to the adoption of Topic 606, was $345 million and revenue recognized during the three months ended March 31, 2018 for such contract liabilities was $55 million.

Note 7Income Tax (Provision) Benefit

The Company recognized the income tax effects of the tax reform legislation commonly referred to as the Tax Cuts and Jobs Act ("TCJA") in its audited consolidated financial statements included in the Company’s 2017 Form 10-K in accordance with Staff Accounting Bulletin No. 118, which provides SEC staff guidance for the application of Topic 740, Income Taxes, in the reporting period in which the TCJA was signed into law. The guidance also provides for a measurement period of up to one year from the enactment date for the Company to complete the accounting for the U.S. tax law changes. As such, the Company’s 2017 financial results reflected the provisional estimate of the income tax effects of the TCJA. No subsequent adjustments have been made to the amounts recorded as of December 31, 2017, which continue to represent a provisional estimate of the impact of TCJA. The estimate of the impact of TCJA

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THE HERTZ CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Unaudited

is based on certain assumptions and the Company's current interpretation, and may change, as the Company receives additional clarification and implementation guidance and as the interpretation of the TCJA evolves over time.

The Company continues to analyze the impact of TCJA provisions effective January 1, 2018. The income tax provision for the three months ended March 31, 2018 incorporates the TCJA's changes to deductions for executive compensation and meals and entertainment. Other provisions effective January 1, 2018 include global intangible low-tax income ("GILTI"), base erosion anti-avoidance tax ("BEAT"), foreign-derived intangible income ("FDII"), and the interest deduction limitation. As of March 31, 2018, the Company estimates no short-to-medium term tax liability related to GILTI, BEAT, FDII, or the interest deduction limitation. These are estimates and are based on the Company's current interpretation of the TCJA. These assumptions and interpretations may change as additional clarification and implementation guidance are issued as the interpretation of the TCJA evolves over time.

The effective tax rate for the three months ended March 31, 2018 and 2017 was 13% and 24%, respectively. The Company recorded a tax benefit of $29 million for the three months ended March 31, 2018, compared to $71 million for the three months ended March 31, 2017. The lower effective income tax rate and related tax benefit were primarily due to the reduced corporate tax rate as a result of the TCJA and the composition of earnings by jurisdictions.

Note 8Earnings (Loss) Per Share - Hertz Global

Basic earnings (loss) per share has been computed based upon the weighted average number of common shares outstanding. Diluted earnings (loss) per share has been computed based upon the weighted average number of common shares outstanding plus the effect of all potentially dilutive common stock equivalents, except when the effect would be anti-dilutive.

The following table sets forth the computation of basic and diluted earnings (loss) per share:
 
Three Months Ended
March 31,
(In millions, except per share data)
2018
 
2017
Basic and diluted earnings (loss) per share:
 
 
 
Numerator:
 
 
 
Net income (loss), basic and diluted
$
(202
)
 
$
(223
)
Denominator:
 
 
 
Basic weighted average common shares
83

 
83

Dilutive stock options, RSUs, PSUs and conversion shares