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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 September 30, 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
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
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
October 29, 2018
Hertz Global Holdings, Inc.
 
Common Stock, par value $0.01 per share
 
83,932,275
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)
 
September 30,
2018
 
December 31,
2017
ASSETS
 
 
 
Cash and cash equivalents
$
761

 
$
1,072

Restricted cash and cash equivalents:
 
 
 
Vehicle
236

 
386

Non-vehicle
29

 
46

Total restricted cash and cash equivalents
265

 
432

Total cash, cash equivalents, restricted cash and restricted cash equivalents
1,026

 
1,504

Receivables:
 
 
 
Vehicle
796

 
531

Non-vehicle, net of allowance of $29 and $33, respectively
1,009

 
834

Total receivables, net
1,805

 
1,365

Prepaid expenses and other assets
991

 
687

Revenue earning vehicles:
 
 
 
Vehicles
16,972

 
14,574

Less accumulated depreciation
(3,395
)
 
(3,238
)
Total revenue earning vehicles, net
13,577

 
11,336

Property and equipment:
 
 
 
Land, buildings and leasehold improvements
1,214

 
1,233

Service equipment and other
786

 
763

Less accumulated depreciation
(1,219
)
 
(1,156
)
Total property and equipment, net
781

 
840

Other intangible assets, net
3,197

 
3,242

Goodwill
1,083

 
1,084

Total assets(a)
$
22,460

 
$
20,058

LIABILITIES AND STOCKHOLDERS' EQUITY
 
 
 
Accounts payable:
 
 
 
Vehicle
$
239

 
$
294

Non-vehicle
765

 
652

Total accounts payable
1,004

 
946

Accrued liabilities
1,306

 
920

Accrued taxes, net
181

 
160

Debt:
 
 
 
Vehicle
12,737

 
10,431

Non-vehicle
4,421

 
4,434

Total debt
17,158

 
14,865

Public liability and property damage
439

 
427

Deferred income taxes, net
1,145

 
1,220

Total liabilities(a)
21,233

 
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
2,256

 
2,243

Accumulated deficit
(819
)
 
(506
)
Accumulated other comprehensive income (loss)
(135
)
 
(118
)
Treasury Stock, at cost, 2 shares and 2 shares
(100
)
 
(100
)
Total stockholders' equity attributable to Hertz Global
1,203

 
1,520

Noncontrolling interest
24

 

Total stockholders' equity
1,227

 
1,520

Total liabilities and stockholders' equity
$
22,460

 
$
20,058

(a)
Hertz Global Holdings, Inc.'s consolidated total assets as of September 30, 2018 and December 31, 2017 include total assets of variable interest entities (“VIEs”) of $800 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 September 30, 2018 and December 31, 2017 include total liabilities of VIEs of $776 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 6, "Debt," and "Other Relationships" in Note 12, "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
September 30,
 
Nine Months Ended
September 30,
 
2018
 
2017
 
2018
 
2017
Revenues:
 
 
 
 
 
 
 
Worldwide vehicle rental
$
2,584

 
$
2,413

 
$
6,694

 
$
6,240

All other operations
174

 
159

 
515

 
473

Total revenues
2,758

 
2,572

 
7,209

 
6,713

Expenses:
 
 
 
 
 
 
 
Direct vehicle and operating
1,459

 
1,348

 
4,043

 
3,735

Depreciation of revenue earning vehicles and lease charges, net
672

 
700

 
2,020

 
2,144

Selling, general and administrative
265

 
217

 
765

 
661

Interest expense, net:
 
 
 
 
 
 
 
Vehicle
115

 
90

 
336

 
242

Non-vehicle
73

 
86

 
218

 
223

Total interest expense, net
188

 
176

 
554

 
465

Intangible asset impairments

 

 

 
86

Other (income) expense, net
(7
)
 
(12
)
 
(36
)
 
19

Total expenses
2,577

 
2,429

 
7,346

 
7,110

Income (loss) before income taxes
181

 
143

 
(137
)
 
(397
)
Income tax (provision) benefit
(41
)
 
(50
)
 
12

 
108

Net income (loss)
140

 
93

 
(125
)
 
(289
)
Net (income) loss attributable to noncontrolling interests
1

 

 
1

 

Net income (loss) attributable to Hertz Global
$
141

 
$
93

 
$
(124
)
 
$
(289
)
Weighted average shares outstanding:
 
 
 
 
 
 
 
Basic
84

 
83

 
83

 
83

Diluted
84

 
83

 
83

 
83

Earnings (loss) per share:
 
 
 
 
 
 
 
Basic earnings (loss) per share
$
1.68

 
$
1.12

 
$
(1.49
)
 
$
(3.48
)
Diluted earnings (loss) per share
$
1.68

 
$
1.12

 
$
(1.49
)
 
$
(3.48
)



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
September 30,
 
Nine Months Ended
September 30,
 
2018
 
2017
 
2018
 
2017
Net income (loss)
$
140

 
$
93

 
$
(125
)
 
$
(289
)
Other comprehensive income (loss):
 
 
 
 
 
 
 
Foreign currency translation adjustments
1

 
9

 
(18
)
 
21

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

 

 

 
(3
)
Reclassification of foreign currency items to other (income) expense, net
(1
)
 
8

 
(1
)
 
8

Net gain (loss) on defined benefit pension plans
(1
)

(3
)

1


(7
)
Reclassification from other comprehensive income (loss) to selling, general and administrative expense for amortization of actuarial (gains) losses on defined benefit pension plans

 
1

 

 
3

Reclassification from other comprehensive income (loss) to other income/expense for amortization of actuarial (gains) losses on defined benefit pension plans
2

 

 
2

 

Total other comprehensive income (loss) before income taxes
1

 
15

 
(16
)
 
22

Income tax (provision) benefit related to reclassified amounts of net periodic costs on defined benefit pension plans
(1
)
 

 
(1
)
 
(1
)
Total other comprehensive income (loss)

 
15

 
(17
)
 
21

Total comprehensive income (loss)
140

 
108

 
(142
)
 
(268
)
Comprehensive (income) loss attributable to noncontrolling interests
1

 

 
1

 

Comprehensive income (loss) attributable to Hertz Global
$
141

 
$
108

 
$
(141
)
 
$
(268
)

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)


 
Nine Months Ended
September 30,
 
2018
 
2017
Cash flows from operating activities:
 
 
 
Net income (loss)
$
(125
)
 
$
(289
)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
 
 
 
Depreciation of revenue earning vehicles, net
1,952

 
2,089

Depreciation and amortization, non-vehicle
166

 
182

Amortization of deferred financing costs and debt discount (premium)
36

 
33

Loss on extinguishment of debt
22

 
8

Stock-based compensation charges
10

 
16

Provision for receivables allowance
29

 
28

Deferred income taxes, net
(39
)
 
(138
)
Impairment charges and asset write-downs

 
116

(Gain) loss on marketable securities
(21
)
 
(3
)
Gain on sale of Brazil Operations

 
(6
)
Other
1

 
(12
)
Changes in assets and liabilities:
 
 
 
Non-vehicle receivables
(217
)
 
(184
)
Prepaid expenses and other assets
(58
)
 
(25
)
Non-vehicle accounts payable
119

 
140

Accrued liabilities
106

 
(5
)
Accrued taxes, net
21

 
9

Public liability and property damage
15

 
18

Net cash provided by (used in) operating activities
2,017

 
1,977

Cash flows from investing activities:
 
 
 
Revenue earning vehicles expenditures
(10,076
)
 
(8,683
)
Proceeds from disposal of revenue earning vehicles
5,378

 
5,285

Capital asset expenditures, non-vehicle
(119
)
 
(124
)
Proceeds from property and other equipment disposed of or to be disposed of
47

 
18

Proceeds from sale of Brazil Operations, net of retained cash

 
94

Purchases of marketable securities
(60
)
 

Sales of marketable securities
36

 
9

Other
(5
)
 
(4
)
Net cash provided by (used in) investing activities
(4,799
)
 
(3,405
)

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)

 
Nine Months Ended
September 30,
 
2018
 
2017
Cash flows from financing activities:
 
 
 
Proceeds from issuance of vehicle debt
11,871

 
6,907

Repayments of vehicle debt
(9,525
)
 
(5,887
)
Proceeds from issuance of non-vehicle debt
387

 
2,100

Repayments of non-vehicle debt
(398
)
 
(986
)
Payment of financing costs
(30
)
 
(43
)
Early redemption premium payment
(19
)
 
(5
)
Contributions from noncontrolling interest owners
25

 

Other
(3
)
 
(1
)
Net cash provided by (used in) financing activities
2,308

 
2,085

Effect of foreign currency exchange rate changes on cash, cash equivalents, restricted cash and restricted cash equivalents
(4
)
 
26

Net increase (decrease) in cash, cash equivalents, restricted cash and restricted cash equivalents during the period
(478
)
 
683

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
$
1,026

 
$
1,777

 


 


Supplemental disclosures of cash flow information:
 
 
 
Cash paid during the period for:
 
 
 
Interest, net of amounts capitalized:
 
 
 
Vehicle
$
268

 
$
212

Non-vehicle
171

 
164

Income taxes, net of refunds
15

 
40

Supplemental disclosures of non-cash information:
 
 
 
Purchases of revenue earning vehicles included in accounts payable and accrued liabilities, net of incentives
$
101

 
$
69

Sales of revenue earning vehicles included in receivables
658

 
443

Purchases of non-vehicle capital assets included in accounts payable
43

 
49

Sales of non-vehicle capital assets included in receivables
3

 
1

Receivable on sale of Brazil Operations

 
13

Revenue earning vehicles and non-vehicle capital assets acquired through capital lease
17

 
24




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)
 
September 30,
2018
 
December 31,
2017
ASSETS
 
 
 
Cash and cash equivalents
$
761

 
$
1,072

Restricted cash and cash equivalents:
 
 
 
Vehicle
236

 
386

Non-vehicle
29

 
46

Total restricted cash and cash equivalents
265

 
432

Total cash, cash equivalents, restricted cash and restricted cash equivalents
1,026

 
1,504

Receivables:
 
 
 
Vehicle
796

 
531

Non-vehicle, net of allowance of $29 and $33, respectively
1,009

 
834

Total receivables, net
1,805

 
1,365

Prepaid expenses and other assets
991

 
687

Revenue earning vehicles:
 
 
 
Vehicles
16,972

 
14,574

Less accumulated depreciation
(3,395
)
 
(3,238
)
Total revenue earning vehicles, net
13,577

 
11,336

Property and equipment:
 
 
 
Land, buildings and leasehold improvements
1,214

 
1,233

Service equipment and other
786

 
763

Less accumulated depreciation
(1,219
)
 
(1,156
)
Total property and equipment, net
781

 
840

Other intangible assets, net
3,197

 
3,242

Goodwill
1,083

 
1,084

Total assets(a)
$
22,460

 
$
20,058

LIABILITIES AND STOCKHOLDER'S EQUITY
 
 
 
Accounts payable:
 
 
 
Vehicle
$
239

 
$
294

Non-vehicle
765

 
652

Total accounts payable
1,004

 
946

Accrued liabilities
1,306

 
920

Accrued taxes, net
181

 
160

Debt:
 
 
 
Vehicle
12,737

 
10,431

Non-vehicle
4,421

 
4,434

Total debt
17,158

 
14,865

Public liability and property damage
439

 
427

Deferred income taxes, net
1,146

 
1,220

Total liabilities(a)
21,234

 
18,538

Commitments and contingencies


 


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

 

Additional paid-in capital
3,183

 
3,166

Due from affiliate
(50
)
 
(42
)
Accumulated deficit
(1,796
)
 
(1,486
)
Accumulated other comprehensive income (loss)
(135
)
 
(118
)
Total stockholder's equity attributable to Hertz
1,202

 
1,520

Noncontrolling interest
24

 

Total stockholder's equity
1,226

 
1,520

Total liabilities and stockholder's equity
$
22,460

 
$
20,058

(a)
The Hertz Corporation's consolidated total assets as of September 30, 2018 and December 31, 2017 include total assets of variable interest entities (“VIEs”) of $800 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 September 30, 2018 and December 31, 2017 include total liabilities of VIEs of $776 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 6, "Debt," and "Other Relationships" in Note 12, "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
September 30,
 
Nine Months Ended
September 30,
 
2018
 
2017
 
2018
 
2017
Revenues:
 
 
 
 
 
 
 
Worldwide vehicle rental
$
2,584

 
$
2,413

 
$
6,694

 
$
6,240

All other operations
174

 
159

 
515

 
473

Total revenues
2,758

 
2,572

 
7,209

 
6,713

Expenses:
 

 
 

 
 

 
 

Direct vehicle and operating
1,459

 
1,348

 
4,043

 
3,735

Depreciation of revenue earning vehicles and lease charges, net
672

 
700

 
2,020

 
2,144

Selling, general and administrative
265

 
217

 
765

 
661

Interest expense, net:
 
 
 
 
 
 
 
Vehicle
115

 
90

 
336

 
242

Non-vehicle
71

 
85

 
213

 
219

Total interest expense, net
186

 
175

 
549

 
461

Intangible asset impairments

 

 

 
86

Other (income) expense, net
(7
)
 
(12
)
 
(36
)
 
19

Total expenses
2,575

 
2,428

 
7,341

 
7,106

Income (loss) before income taxes
183

 
144

 
(132
)
 
(393
)
Income tax (provision) benefit
(42
)
 
(50
)
 
10

 
107

Net income (loss)
141

 
94

 
(122
)
 
(286
)
Net (income) loss attributable to noncontrolling interests
1

 

 
1

 

Net income (loss) attributable to Hertz
$
142

 
$
94

 
$
(121
)
 
$
(286
)


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
September 30,
 
Nine Months Ended
September 30,
 
2018
 
2017
 
2018
 
2017
Net income (loss)
$
141

 
$
94

 
$
(122
)
 
$
(286
)
Other comprehensive income (loss):
 
 
 
 
 
 
 
Foreign currency translation adjustments
1

 
9

 
(18
)
 
21

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

 

 

 
(3
)
Reclassification of foreign currency items to other (income) expense, net
(1
)
 
8

 
(1
)
 
8

Net gain (loss) on defined benefit pension plans
(1
)
 
(3
)
 
1

 
(7
)
Reclassification from other comprehensive income (loss) to selling, general and administrative expense for amortization of actuarial (gains) losses on defined benefit pension plans

 
1

 

 
3

Reclassification from other comprehensive income (loss) to other income/expense for amortization of actuarial (gains) losses on defined benefit pension plans
2

 

 
2

 

Total other comprehensive income (loss) before income taxes
1

 
15

 
(16
)
 
22

Income tax (provision) benefit related to reclassified amounts of net periodic costs on defined benefit pension plans
(1
)
 

 
(1
)
 
(1
)
Total other comprehensive income (loss)

 
15

 
(17
)
 
21

Total comprehensive income (loss)
141

 
109

 
(139
)
 
(265
)
Comprehensive (income) loss attributable to noncontrolling interests
1

 

 
1

 

Comprehensive income (loss) attributable to Hertz
$
142

 
$
109

 
$
(138
)
 
$
(265
)

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)

 
Nine Months Ended
September 30,
 
2018
 
2017
Cash flows from operating activities:
 
 
 
Net income (loss)
$
(122
)
 
$
(286
)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
 
 
 
Depreciation of revenue earning vehicles, net
1,952

 
2,089

Depreciation and amortization, non-vehicle
166

 
182

Amortization of deferred financing costs and debt discount (premium)
36

 
33

Loss on extinguishment of debt
22

 
8

Stock-based compensation charges
10

 
16

Provision for receivables allowance
29

 
28

Deferred income taxes, net
(38
)
 
(137
)
Impairment charges and asset write-downs

 
116

(Gain) loss on marketable securities
(21
)
 
(3
)
Gain on sale of Brazil Operations

 
(6
)
Other
1

 
(12
)
Changes in assets and liabilities:
 

 
 

Non-vehicle receivables
(217
)
 
(184
)
Prepaid expenses and other assets
(58
)
 
(25
)
Non-vehicle accounts payable
119

 
140

Accrued liabilities
106

 
(5
)
Accrued taxes, net
21

 
9

Public liability and property damage
15

 
18

Net cash provided by (used in) operating activities
2,021

 
1,981

Cash flows from investing activities:
 

 
 

Revenue earning vehicles expenditures
(10,076
)
 
(8,683
)
Proceeds from disposal of revenue earning vehicles
5,378

 
5,285

Capital asset expenditures, non-vehicle
(119
)
 
(124
)
Proceeds from property and other equipment disposed of or to be disposed of
47

 
18

Proceeds from sale of Brazil Operations, net of retained cash

 
94

Purchases of marketable securities
(60
)
 

Sales of marketable securities
36

 
9

Other
(5
)
 
(4
)
Net cash provided by (used in) investing activities
(4,799
)
 
(3,405
)

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

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

 
Nine Months Ended
September 30,
 
2018
 
2017
Cash flows from financing activities:
 
 
 
Proceeds from issuance of vehicle debt
11,871

 
6,907

Repayments of vehicle debt
(9,525
)
 
(5,887
)
Proceeds from issuance of non-vehicle debt
387

 
2,100

Repayments of non-vehicle debt
(398
)
 
(986
)
Payment of financing costs
(30
)
 
(43
)
Early redemption premium payment
(19
)
 
(5
)
Advances to Hertz Holdings
(7
)
 
(4
)
Contributions from noncontrolling interest owners
25

 

Other

 
(1
)
Net cash provided by (used in) financing activities
2,304

 
2,081

Effect of foreign currency exchange rate changes on cash, cash equivalents, restricted cash and restricted cash equivalents
(4
)
 
26

Net increase (decrease) in cash, cash equivalents, restricted cash and restricted cash equivalents during the period
(478
)
 
683

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
$
1,026

 
$
1,777

 
 
 
 
Supplemental disclosures of cash flow information:
 
 
 
Cash paid during the period for:
 
 
 
Interest, net of amounts capitalized:
 
 
 
Vehicle
$
268

 
$
212

Non-vehicle
171

 
164

Income taxes, net of refunds
15

 
40

Supplemental disclosures of non-cash information:
 

 
 

Purchases of revenue earning vehicles included in accounts payable and accrued liabilities, net of incentives
$
101

 
$
69

Sales of revenue earning vehicles included in receivables
658

 
443

Purchases of non-vehicle capital assets included in accounts payable
43

 
49

Sales of non-vehicle capital assets included in receivables
3

 
1

Receivable on sale of Brazil Operations

 
13

Revenue earning vehicles and non-vehicle capital assets acquired through capital lease
17

 
24




 


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

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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

This Quarterly Report on Form 10-Q combines the quarterly reports on Form 10-Q for the quarterly period ended September 30, 2018 of Hertz Global and Hertz. Hertz Global consolidates Hertz for financial statement purposes, therefore, disclosures that relate to activities of Hertz also apply to Hertz Global. In the sections that combine disclosure of Hertz Global and Hertz, this report refers to actions as being actions of the Company, or Hertz Global, which is appropriate because the business is one enterprise and Hertz Global operates the business through Hertz. When appropriate, Hertz Global and Hertz are named specifically for their individual disclosures and any significant differences between the operations and results of Hertz Global and Hertz are separately disclosed and explained.

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 is 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.


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

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.

Out of Period Adjustments

The Company identified a misstatement in its 2016 financial statements, related to the income tax provision, that it corrected in the second quarter of 2017. The cumulative impact of the adjustment was an increase in net loss of approximately $10 million. There was no impact to loss before income taxes. The misstatement related to an error in the tax provision for U.S. income of a foreign equity investment transaction for fiscal year 2016. The Company considered both quantitative and qualitative factors in assessing the materiality of the item and determined that the misstatement was not material to any prior period and not material to the nine months ended September 30, 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 have not been 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.


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

The cumulative effect of applying the new guidance to all contracts with customers that were not completed as of January 1, 2018 has been 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


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:

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


Hertz Global
(In millions, except per share data)
As Reported
 
Effect of Adoption Increase (Decrease)
 
Balances Without Adoption
Unaudited Condensed Consolidated Balance Sheet as of September 30, 2018:
Accrued liabilities
$
1,306

 
$
245

 
$
1,061

Deferred income taxes, net
1,145

 
(53
)
 
1,198

Total liabilities
21,233

 
192

 
21,041

Accumulated deficit
(819
)
 
(192
)
 
(627
)
Total stockholders' equity
1,227

 
(192
)
 
1,419

Unaudited Condensed Consolidated Statement of Operations for the Three Months Ended September 30, 2018:
Worldwide vehicle rental revenues
$
2,584

 
$
(7
)
 
$
2,591

Selling, general and administrative expense
265

 
(1
)
 
266

Income (loss) before income taxes
181

 
(6
)
 
187

Income tax (provision) benefit
(41
)
 

 
(41
)
Net income (loss)
140

 
(6
)
 
146

Net (income) loss attributable to noncontrolling interests
1

 

 
1

Net income (loss) attributable to Hertz Global
141

 
(6
)
 
147

Basic earnings (loss) per share
1.68

 
(0.07
)
 
1.75

Diluted earnings (loss) per share
1.68

 
(0.07
)
 
1.75

Unaudited Condensed Consolidated Statement of Operations for the Nine Months Ended September 30, 2018:
Worldwide vehicle rental revenues
$
6,694

 
$
(6
)
 
$
6,700

Selling, general and administrative expense
765

 
(1
)
 
766

Income (loss) before income taxes
(137
)
 
(5
)
 
(132
)
Income tax (provision) benefit
12

 
2

 
10

Net income (loss)
(125
)
 
(3
)
 
(122
)
Net (income) loss attributable to noncontrolling interests
1

 

 
1

Net income (loss) attributable to Hertz Global
(124
)
 
(3
)
 
(121
)
Basic earnings (loss) per share
(1.49
)
 
(0.04
)
 
(1.45
)
Diluted earnings (loss) per share
(1.49
)
 
(0.04
)
 
(1.45
)
Unaudited Condensed Consolidated Statement of Cash Flow for the Nine Months Ended September 30, 2018:
Cash flows from operating activities:
 
 
 
 
 
Net income (loss)
$
(125
)
 
$
(3
)
 
$
(122
)
Deferred income taxes, net
(39
)
 
(2
)
 
(37
)
Accrued liabilities
106

 
5

 
101



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

Hertz
(In millions, except per share data)
As Reported
 
Effect of Adoption Increase (Decrease)
 
Balances Without Adoption
Unaudited Condensed Consolidated Balance Sheet as of September 30, 2018:
Accrued liabilities
$
1,306

 
$
245

 
$
1,061

Deferred income taxes, net
1,146

 
(53
)
 
1,199

Total liabilities
21,234

 
192

 
21,042

Accumulated deficit
(1,796
)
 
(192
)
 
(1,604
)
Total stockholders' equity
1,226

 
(192
)
 
1,418

Unaudited Condensed Consolidated Statement of Operations for the Three Months Ended September 30, 2018:
Worldwide vehicle rental revenues
$
2,584

 
$
(7
)
 
$
2,591

Selling, general and administrative expense
265

 
(1
)
 
266

Income (loss) before income taxes
183

 
(6
)
 
189

Income tax (provision) benefit
(42
)
 

 
(42
)
Net income (loss)
141

 
(6
)
 
147

Net (income) loss attributable to noncontrolling interests
1

 

 
1

Net income (loss) attributable to Hertz
142

 
(6
)
 
148

Unaudited Condensed Consolidated Statement of Operations for the Nine Months Ended September 30, 2018:
Worldwide vehicle rental revenues
$
6,694

 
$
(6
)
 
$
6,700

Selling, general and administrative expense
765

 
(1
)
 
766

Income (loss) before income taxes
(132
)
 
(5
)
 
(127
)
Income tax (provision) benefit
10

 
2

 
8

Net income (loss)
(122
)
 
(3
)
 
(119
)
Net (income) loss attributable to noncontrolling interests
1

 

 
1

Net income (loss) attributable to Hertz
(121
)
 
(3
)
 
(118
)
Unaudited Condensed Consolidated Statement of Cash Flow for the Nine Months Ended September 30, 2018:
Cash flows from operating activities:
 
 
 
 
 
Net income (loss)
$
(122
)
 
$
(3
)
 
$
(119
)
Deferred income taxes, net
(38
)
 
(2
)
 
(36
)
Accrued liabilities
106

 
5

 
101


See Note 7, "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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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 is as follows:

Hertz Global
 
Nine Months Ended September 30, 2017
(In millions)
As Previously Reported
 
Adjustments
 
As Adjusted
Net change in restricted cash and cash equivalents, vehicle
$
89

 
$
(89
)
 
$

Net cash provided by (used in) investing activities
(3,316
)
 
(89
)
 
(3,405
)
Net change in restricted cash and cash equivalents, non-vehicle
(833
)
 
833

 

Net cash provided by (used in) financing activities
1,252

 
833

 
2,085

Effect of foreign currency exchange rate changes on cash, cash equivalents, restricted cash and restricted cash(1)
19

 
7

 
26

Cash, cash equivalents, restricted cash and restricted cash equivalents at beginning of period(1)
816

 
278

 
1,094

Cash, cash equivalents, restricted cash and restricted cash equivalents at end of period(1)
748

 
1,029

 
1,777


Hertz
 
Nine Months Ended September 30, 2017
(In millions)
As Previously Reported
 
Adjustments
 
As Adjusted
Net change in restricted cash and cash equivalents, vehicle
$
89

 
$
(89
)
 
$

Net cash provided by (used in) investing activities
(3,316
)
 
(89
)
 
(3,405
)
Net change in restricted cash and cash equivalents, non-vehicle
(833
)
 
833

 

Net cash provided by (used in) financing activities
1,248

 
833

 
2,081

Effect of foreign currency exchange rate changes on cash, cash equivalents, restricted cash and restricted cash(1)
19

 
7

 
26

Cash, cash equivalents, restricted cash and restricted cash equivalents at beginning of period(1)
816

 
278

 
1,094

Cash, cash equivalents, restricted cash and restricted cash equivalents at end of period(1)
748

 
1,029

 
1,777


(1)
The amounts as previously reported were comprised of cash and cash equivalents and did not include restricted cash and restricted cash equivalents.

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

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

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 intends to avail itself of the allowable practical expedients for existing or expired contracts of lessees and lessors wherein the Company would not be required to reassess whether such contracts contain leases, the lease classification or the initial direct costs. Additionally, with respect to its real estate and fleet leases, the Company intends to avail itself of the practical expedient for lessees which allows it to elect an accounting policy by class of underlying asset to combine lease and non-lease components. The Company does not intend to utilize the practical expedient which allows the use of hindsight by lessees and lessors in determining the lease term and in assessing impairment of its ROU assets. The Company is in the process of evaluating whether to avail itself of other allowable practicable expedients during transition.

In July 2018, the FASB issued guidance related to Topic 842 that provides an additional transition method that would allow the Company to only apply the new lease standard in the year of adoption. Additionally, the guidance provides a practical expedient for lessors that would allow the Company to elect as an accounting policy, by class of underlying asset, 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. The Company plans to adopt the new transition method which allows the application of the standard at the adoption date, January 1, 2019, and will recognize a cumulative-effect adjustment to the opening balances of retained earnings in the period of adoption. The Company intends to avail itself of the practical expedient for lessors which allows it to elect an accounting policy by class of underlying asset to combine lease and non-lease components, with respect to its real estate and fleet leases.

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 which includes an accounting policy election to not recognize ROU assets or lease liabilities for short-term leases (i.e. those with a term of 12 months or less). The Company 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 to determine if the recognition timing and pattern of transfer of the non-lease components meet the practical expedient requirements. 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. The Company will adopt this guidance on January 1, 2019, in accordance with the effective date. 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.


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

Changes to Disclosure Requirements for Defined Benefit Plans

In August 2018, the FASB issued guidance that modifies disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans to remove disclosures no longer considered cost beneficial, add disclosures identified as relevant and clarify certain disclosure requirements. The guidance is effective for annual periods beginning after December 15, 2020 using a retrospective transition method. Early adoption is permitted. The Company is in the process of determining the timing of adoption and assessing the overall impact of adopting this guidance on its disclosures.

Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement

In August 2018, the FASB issued guidance on a customer's accounting for implementation fees paid in a cloud computing service contract arrangement that addresses which implementation costs to capitalize as an asset and which costs to expense. Capitalized implementation fees are to be expensed over the term of the cloud computing arrangement, and the expense is required to be recognized in the same line item in the income statement as the associated hosting service expenses. The entity is also required to present the capitalized implementation fees on the balance sheet in the same line item as the prepayment for hosting service fees associated with the cloud computing arrangement.

The guidance is effective for annual periods beginning after December 15, 2019, and interim periods within those annual periods using a retrospective or prospective transition method. Early adoption is permitted, including adoption in any interim period. The Company is in the process of determining the method and timing of adoption and assessing the overall impact of adopting this guidance on its financial position, results of operations and cash flows.
  
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 nine months ended September 30, 2017. In September 2017, the investee was dissolved and the Company no longer has an ownership interest in the entity.

Brazil Operations

In August 2017, the Company completed the sale of Car Rental Systems do Brasil Locação de Veiculos Ltd., a wholly owned subsidiary of the Company located in Brazil ("Brazil Operations"), to Localiza Fleet S.A., a corporation headquartered in Brazil, and received proceeds of $115 million, of which $13 million was placed in escrow to secure certain indemnification obligations. Prior to the sale, the Brazil Operations were reported in the Company's International Rental Car Segment. As a result of the sale, the Company recorded a $6 million gain, net of the impact of foreign currency adjustments, which is included in other (income) expense, net in the accompanying unaudited condensed consolidated statements of operations for the three and nine months ended September 30, 2017. As part of the sale, both companies entered into referral and brand cooperation agreements to govern their ongoing relationship which have an initial term of twenty years with an option to extend for another twenty years. The alliance also involves the exchange of knowledge in areas of technology, customer service and operational excellence.


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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)
September 30, 2018
 
December 31, 2017
Revenue earning vehicles
$
16,376

 
$
14,209

Less accumulated depreciation
(3,231
)
 
(3,123
)
 
13,145

 
11,086

Revenue earning vehicles held for sale, net
432

 
250

Revenue earning vehicles, net
$
13,577

 
$
11,336


Depreciation of revenue earning vehicles and lease charges, net includes the following:
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
(In millions)
2018
 
2017
 
2018
 
2017
Depreciation of revenue earning vehicles
$
619

 
$
636

 
$
1,847

 
$
1,902

(Gain) loss on disposal of revenue earning vehicles, net(a)
27

 
43

 
105

 
187

Lease charges
26

 
21

 
68

 
55

Depreciation of revenue earning vehicles and lease charges, net
$
672

 
$
700

 
$
2,020

 
$
2,144


(a)    (Gain) loss on disposal of revenue earning vehicles, net by segment is as follows:
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
(In millions)
2018
 
2017
 
2018
 
2017
U.S. Rental Car(i)
$
29

 
$
43

 
$
107

 
$
187

International Rental Car
(2
)
 

 
(2
)
 

Total
$
27

 
$
43

 
$
105

 
$
187


(i)
Includes costs associated with the Company's U.S. vehicle sales operations of $39 million and $36 million for the three months ended September 30, 2018 and 2017, respectively, and $109 million and $99 million for the nine months ended September 30, 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
September 30,
 
Nine Months Ended
September 30,
(In millions)
2018
 
2017
 
2018
 
2017
U.S. Rental Car(a)
$
(32
)
 
$
6

 
$
(20
)
 
$
68

International Rental Car
(1
)
 
4

 
2

 
5

Total
$
(33
)
 
$
10

 
$
(18
)
 
$
73


(a)
The depreciation rate changes in the U.S. Rental Car operations for the three and nine months ended September 30, 2018 include a net decrease in depreciation expense of $30 million based on the review completed during the third quarter of 2018. The depreciation rate changes in the U.S. Rental Car operations for the three and nine months ended September 30, 2017 include a net decrease in depreciation expense of $15 million based on the review completed during the third quarter of 2017.


20


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

Note 5Intangible Asset Impairment

As a result of declines in revenue and profitability of the Company and a decline in the share price of Hertz Global's common stock, the Company performed an impairment analysis of its indefinite-lived intangible assets as of June 30, 2017 using the relief from royalty method, a measurement using level 3 inputs under the U.S. GAAP fair value hierarchy. As a result of the analysis, the Company concluded that there was an impairment of the Dollar Thrifty tradename in its U.S. Rental Car segment and recorded a charge of $86 million. The impairment was largely due to a decrease in long-term revenue projections coupled with an increase in the weighted average cost of capital. The carrying value of the Dollar Thrifty tradename subsequent to recording the impairment charge is approximately $934 million, representing its estimated fair value.

Note 6Debt

The Company's debt, including its available credit facilities, consists of the following ($ in millions):
Facility
 
Weighted Average Interest Rate
as of
September 30, 2018
 
Fixed or
Floating
Interest
Rate
 
Maturity
 
September 30,
2018
 
December 31,
2017
Non-Vehicle Debt
 
 
 
 
 
 
 
 
 
 
Senior Term Loan
 
5.00%
 
Floating
 
6/2023
 
$
677

 
$
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
 
3.08%
 
Fixed
 
Various
 
2

 
11

Unamortized Debt Issuance Costs and Net (Discount) Premium
 
 
 
 
 
 
 
(35
)
 
(42
)
Total Non-Vehicle Debt
 
 
 
 
 
 
 
4,421

 
4,434

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

 
39

HVF Series 2013-1(2)
 
N/A
 
N/A
 
N/A
 

 
625

 
 
 
 
 
 
 
 

 
664

HVF II U.S. ABS Program
 
 
 
 
 
 
 
 
 
 
HVF II U.S. Vehicle Variable Funding Notes
 
 
 
 
 
 
 
 
HVF II Series 2013-A(2)
 
3.68%
 
Floating
 
3/2020
 
3,170

 
1,970

HVF II Series 2013-B(2)
 
3.66%
 
Floating
 
3/2020
 
15

 
123

 
 
 
 
 
 
 
 
3,185

 
2,093


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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
September 30, 2018
 
Fixed or
Floating
Interest
Rate
 
Maturity
 
September 30,
2018
 
December 31,
2017
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)
 
N/A
 
N/A
 
N/A
 

 
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)