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, 2019
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
 
 
 
 
(Address, including Zip Code, and
telephone number, including area code,
of registrant's principal executive offices)
 
 
 
 
 
 
 
 
 
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 every Interactive Data File required to be submitted 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 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 
x
Accelerated filer 
o
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 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 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
Securities registered pursuant to Section 12(b) of the Act:
 
 
Title of Each Class
 
Trading Symbol(s)
 
Name of Each Exchange on which Registered
Hertz Global Holdings, Inc.
 
Common Stock, Par Value $0.01 per share
 
HTZ
 
New York Stock Exchange
The Hertz Corporation
 
None
 
None
 
None

Indicate the number of shares outstanding as of the latest practicable date.
 
 
Class
 
Shares Outstanding at
April 29, 2019
Hertz Global Holdings, Inc.
 
Common Stock, par value $0.01 per share
 
84,119,340
The Hertz Corporation
 
Common Stock, par value $0.01 per share
 
100 (100% owned by
Rental Car Intermediate Holdings, LLC)
 
 
 
 
 
 

HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
THE HERTZ CORPORATION AND SUBSIDIARIES

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



HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
Unaudited
(In millions, except par value)
 
March 31,
2019
 
December 31,
2018
ASSETS
 
 
 
Cash and cash equivalents
$
554

 
$
1,127

Restricted cash and cash equivalents:
 
 
 
Vehicle
425

 
257

Non-vehicle
27

 
26

Total restricted cash and cash equivalents
452

 
283

Total cash, cash equivalents, restricted cash and restricted cash equivalents
1,006

 
1,410

Receivables:
 
 
 
Vehicle
583

 
625

Non-vehicle, net of allowance of $27 and $27, respectively
980

 
962

Total receivables, net
1,563

 
1,587

Prepaid expenses and other assets
1,107

 
902

Revenue earning vehicles:
 
 
 
Vehicles
16,979

 
15,703

Less: accumulated depreciation
(3,211
)
 
(3,284
)
Total revenue earning vehicles, net
13,768

 
12,419

Property and equipment, net
771

 
778

Operating lease right-of-use assets
1,514

 
—

Intangible assets, net
3,218

 
3,203

Goodwill
1,083

 
1,083

Total assets (a)
$
24,030

 
$
21,382

LIABILITIES AND STOCKHOLDERS' EQUITY
 
 
 
Accounts payable:
 
 
 
Vehicle
$
649

 
$
284

Non-vehicle
630

 
704

Total accounts payable
1,279

 
988

Accrued liabilities
1,330

 
1,304

Accrued taxes, net
146

 
136

Debt:
 
 
 
Vehicle
12,827

 
11,902

Non-vehicle
4,430

 
4,422

Total debt
17,257

 
16,324

Operating lease liabilities
1,513

 
—

Public liability and property damage
411

 
418

Deferred income taxes, net
1,089

 
1,092

Total liabilities (a)
23,025

 
20,262

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, respectively and 84 and 84 shares outstanding, respectively
1

 
1

Additional paid-in capital
2,262

 
2,261

Accumulated deficit
(1,056
)
 
(909
)
Accumulated other comprehensive income (loss)
(185
)
 
(192
)
Treasury stock, at cost, 2 shares and 2 shares, respectively
(100
)
 
(100
)
Stockholders' equity attributable to Hertz Global
922

 
1,061

Noncontrolling interests
83

 
59

Total stockholders' equity
1,005

 
1,120

Total liabilities and stockholders' equity
$
24,030

 
$
21,382

(a)
Hertz Global Holdings, Inc.'s consolidated total assets as of March 31, 2019 and December 31, 2018 include total assets of variable interest entities (“VIEs”) of $1.1 billion and $1.0 billion , respectively, which can only be used to settle obligations of the VIEs. Hertz Global Holdings, Inc.'s consolidated total liabilities as of March 31, 2019 and December 31, 2018 include total liabilities of VIEs of $1.0 billion and $947 million , respectively, for which the creditors of the VIEs have no recourse to Hertz Global Holdings, Inc. See "Special Purpose Entities" in Note 3 , " Debt ," and "Other Relationships" in Note 9 , " Related Party Transactions ," for further information.

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

2


HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Unaudited
(In millions, except per share data)
 
Three Months Ended
March 31,
 
2019
 
2018
Revenues:
 
 
 
Worldwide vehicle rental
$
1,953

 
$
1,894

All other operations
154

 
169

Total revenues
2,107

 
2,063

Expenses:
 
 
 
Direct vehicle and operating
1,266

 
1,236

Depreciation of revenue earning vehicles and lease charges
592

 
661

Selling, general and administrative
234

 
234

Interest expense, net:
 
 
 
Vehicle
112

 
94

Non-vehicle
71

 
72

Total interest expense, net
183

 
166

Other (income) expense, net
(19
)
 
(3
)
Total expenses
2,256

 
2,294

Income (loss) before income taxes
(149
)
 
(231
)
Income tax (provision) benefit
1

 
29

Net income (loss)
(148
)
 
(202
)
Net (income) loss attributable to noncontrolling interests
1

 
—

Net income (loss) attributable to Hertz Global
$
(147
)
 
$
(202
)
Weighted average shares outstanding:
 
 
 
Basic
84

 
83

Diluted
84

 
83

Earnings (loss) per share:
 
 
 
Basic earnings (loss) per share
$
(1.75
)
 
$
(2.43
)
Diluted earnings (loss) per share
$
(1.75
)
 
$
(2.43
)



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

3


HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
Unaudited
(In millions)
 
Three Months Ended
March 31,
 
2019
 
2018
Net income (loss)
$
(148
)
 
$
(202
)
Other comprehensive income (loss):
 
 
 
Foreign currency translation adjustments
8

 
—

Net gain (loss) 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
1

 
—

Total other comprehensive income (loss) before income taxes
8

 
(3
)
Income tax (provision) benefit related to reclassified amounts of net periodic costs on defined benefit pension plans
(1
)
 
—

Total other comprehensive income (loss)
7

 
(3
)
Total comprehensive income (loss)
(141
)
 
(205
)
Comprehensive (income) loss attributable to noncontrolling interests
1

 
—

Comprehensive income (loss) attributable to Hertz Global
$
(140
)
 
$
(205
)

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

4


HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Unaudited
(In millions)
 
Preferred Stock
Shares
 
Common Stock Shares
 
Common Stock Amount
 
Additional
Paid-In Capital
 
Accumulated
Deficit
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Treasury Stock Shares
 
Treasury Stock Amount
 
Stockholders'
Equity
Attributable to
Hertz Global
 
Non-
controlling Interests
 
Total Stockholders' Equity
Balance as of:
 
 
 
 
 
December 31, 2017
—

 
84

 
$
1

 
$
2,243

 
$
(506
)
 
$
(118
)
 
2

 
$
(100
)
 
$
1,520

 
$
—

 
$
1,520

Change in accounting principle
—

 
—

 
—

 
—

 
(189
)
 
—

 
—

 
—

 
(189
)
 
—

 
(189
)
January 1, 2018 (as adjusted)
—

 
84

 
1

 
2,243

 
(695
)
 
(118
)
 
2

 
(100
)
 
1,331

 
—

 
1,331

Net income (loss)
—

 
—

 
—

 
—

 
(202
)
 
—

 
—

 
—

 
(202
)
 
—

 
(202
)
Other comprehensive income (loss)
—

 
—

 
—

 
—

 
—

 
(3
)
 
—

 
—

 
(3
)
 
—

 
(3
)
Net settlement on vesting of restricted stock
—

 
—

 
—

 
(3
)
 
—

 
—

 
—

 
—

 
(3
)
 
—

 
(3
)
Stock-based compensation charges
—

 
—

 
—

 
10

 
—

 
—

 
—

 
—

 
10

 
—

 
10

Contributions from noncontrolling interests
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
5

 
5

March 31, 2018
—

 
84

 
$
1

 
$
2,250

 
$
(897
)
 
$
(121
)
 
2

 
$
(100
)
 
$
1,133

 
$
5

 
$
1,138

 
Preferred Stock
Shares
 
Common Stock Shares
 
Common Stock Amount
 
Additional
Paid-In Capital
 
Accumulated
Deficit
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Treasury Stock Shares
 
Treasury Stock Amount
 
Stockholders'
Equity
Attributable to
Hertz Global
 
Non-
controlling Interests
 
Total Stockholders' Equity
Balance as of:
 
 
 
 
 
December 31, 2018
—

 
84

 
$
1

 
$
2,261

 
$
(909
)
 
$
(192
)
 
2

 
$
(100
)
 
$
1,061

 
$
59

 
$
1,120

Net income (loss)
—

 
—

 
—

 
—

 
(147
)
 
—

 
—

 
—

 
(147
)
 
(1
)
 
(148
)
Other comprehensive income (loss)
—

 
—

 
—

 
—

 
—

 
7

 
—

 
—

 
7

 
—

 
7

Net settlement on vesting of restricted stock
—

 
—

 
—

 
(2
)
 
—

 
—

 
—

 
—

 
(2
)
 
—

 
(2
)
Stock-based compensation charges
—

 
—

 
—

 
3

 
—

 
—

 
—

 
—

 
3

 
—

 
3

Contributions from noncontrolling interests
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
25

 
25

March 31, 2019
—

 
84

 
$
1

 
$
2,262

 
$
(1,056
)
 
$
(185
)
 
2

 
$
(100
)
 
$
922

 
$
83

 
$
1,005




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

5

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


 
Three Months Ended
March 31,
 
2019
 
2018
Cash flows from operating activities:
 
 
 
Net income (loss)
$
(148
)
 
$
(202
)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
 
 
 
Depreciation and reserves for revenue earning vehicles
644

 
641

Depreciation and amortization, non-vehicle
48

 
58

Amortization of deferred financing costs and debt discount (premium)
14

 
13

Stock-based compensation charges
3

 
3

Provision for receivables allowance
10

 
9

Deferred income taxes, net
(4
)
 
(36
)
(Gain) loss on marketable securities
(11
)
 
—

Other
(13
)
 
4

Changes in assets and liabilities:
 
 
 
Non-vehicle receivables
(33
)
 
(107
)
Prepaid expenses and other assets
(55
)
 
(64
)
Operating lease right-of-use assets
90

 
—

Non-vehicle accounts payable
32

 
73

Accrued liabilities
28

 
4

Accrued taxes, net
10

 
2

Operating lease liabilities
(94
)
 
—

Public liability and property damage
(7
)
 
3

Net cash provided by (used in) operating activities
514

 
401

Cash flows from investing activities:
 
 
 
Revenue earning vehicles expenditures
(3,973
)
 
(3,565
)
Proceeds from disposal of revenue earning vehicles
2,153

 
1,782

Capital asset expenditures, non-vehicle
(54
)
 
(44
)
Proceeds from property and other equipment disposed of or to be disposed of
19

 
4

Other
—

 
(27
)
Net cash provided by (used in) investing activities
(1,855
)
 
(1,850
)

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

6

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


 
Three Months Ended
March 31,
 
2019
 
2018
Cash flows from financing activities:
 
 
 
Proceeds from issuance of vehicle debt
3,667

 
5,181

Repayments of vehicle debt
(2,736
)
 
(3,283
)
Proceeds from issuance of non-vehicle debt
341

 
127

Repayments of non-vehicle debt
(344
)
 
(131
)
Payment of financing costs
(12
)
 
(19
)
Contributions from noncontrolling interests
25

 
5

Other
(2
)
 
(3
)
Net cash provided by (used in) financing activities
939

 
1,877

Effect of foreign currency exchange rate changes on cash, cash equivalents, restricted cash and restricted cash equivalents
(2
)
 
8

Net increase (decrease) in cash, cash equivalents, restricted cash and restricted cash equivalents during the period
(404
)
 
436

Cash, cash equivalents, restricted cash and restricted cash equivalents at beginning of period
1,410

 
1,504

Cash, cash equivalents, restricted cash and restricted cash equivalents at end of period
$
1,006

 
$
1,940

 


 


Supplemental disclosures of cash flow information:
 
 
 
Cash paid during the period for:
 
 
 
Interest, net of amounts capitalized:
 
 
 
Vehicle
$
87

 
$
82

Non-vehicle
29

 
28

Income taxes, net of refunds
6

 
6

Operating lease liabilities
140

 
—

Supplemental disclosures of non-cash information:
 
 
 
Purchases of revenue earning vehicles included in accounts payable and accrued liabilities, net of incentives
$
431

 
$
613

Sales of revenue earning vehicles included in receivables
365

 
268

Sales of revenue earning vehicles included in other receivables
78

 
—

Purchases of non-vehicle capital assets included in accounts payable
45

 
42

Operating lease right-of-use assets obtained in exchange for lease liabilities
20

 
—




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

7



THE HERTZ CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
Unaudited
(In millions, except par value and share data)
 
March 31,
2019
 
December 31,
2018
ASSETS
 
 
 
Cash and cash equivalents
$
554

 
$
1,127

Restricted cash and cash equivalents:
 
 
 
Vehicle
425

 
257

Non-vehicle
27

 
26

Total restricted cash and cash equivalents
452

 
283

Total cash, cash equivalents, restricted cash and restricted cash equivalents
1,006

 
1,410

Receivables:
 
 
 
Vehicle
583

 
625

Non-vehicle, net of allowance of $27 and $27, respectively
980

 
962

Total receivables, net
1,563

 
1,587

Prepaid expenses and other assets
1,107

 
902

Revenue earning vehicles:
 
 
 
Vehicles
16,979

 
15,703

Less: accumulated depreciation
(3,211
)
 
(3,284
)
Total revenue earning vehicles, net
13,768

 
12,419

Property and equipment, net
771

 
778

Operating lease right-of-use assets
1,514

 
—

Intangible assets, net
3,218

 
3,203

Goodwill
1,083

 
1,083

Total assets (a)
$
24,030

 
$
21,382

LIABILITIES AND STOCKHOLDER'S EQUITY
 
 
 
Accounts payable:
 
 
 
Vehicle
$
649

 
$
284

Non-vehicle
630

 
704

Total accounts payable
1,279

 
988

Accrued liabilities
1,330

 
1,304

Accrued taxes, net
146

 
136

Debt:
 
 
 
Vehicle
12,827

 
11,902

Non-vehicle
4,430

 
4,422

Total debt
17,257

 
16,324

Operating lease liabilities
1,513

 
—

Public liability and property damage
411

 
418

Deferred income taxes, net
1,091

 
1,094

Total liabilities (a)
23,027

 
20,264

Commitments and contingencies


 


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

 
—

Additional paid-in capital
3,190

 
3,187

Due from affiliate
(56
)
 
(52
)
Accumulated deficit
(2,029
)
 
(1,884
)
Accumulated other comprehensive income (loss)
(185
)
 
(192
)
Stockholder's equity attributable to Hertz
920

 
1,059

Noncontrolling interests
83

 
59

Total stockholder's equity
1,003

 
1,118

Total liabilities and stockholder's equity
$
24,030

 
$
21,382

(a)
The Hertz Corporation's consolidated total assets as of March 31, 2019 and December 31, 2018 include total assets of variable interest entities (“VIEs”) of $1.1 billion and $1.0 billion , respectively, which can only be used to settle obligations of the VIEs. The Hertz Corporation's consolidated total liabilities as of March 31, 2019 and December 31, 2018 include total liabilities of VIEs of $1.0 billion and $947 million , respectively, for which the creditors of the VIEs have no recourse to The Hertz Corporation. See "Special Purpose Entities" in Note 3 , " Debt ," and "Other Relationships" in Note 9 , " Related Party Transactions ," for further information.

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

8


THE HERTZ CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Unaudited
(In millions)
 
Three Months Ended
March 31,
 
2019
 
2018
Revenues:
 
 
 
Worldwide vehicle rental
$
1,953

 
$
1,894

All other operations
154

 
169

Total revenues
2,107

 
2,063

Expenses:
 

 
 

Direct vehicle and operating
1,266

 
1,236

Depreciation of revenue earning vehicles and lease charges
592

 
661

Selling, general and administrative
234

 
234

Interest expense, net:
 
 
 
Vehicle
112

 
94

Non-vehicle
69

 
71

Total interest expense, net
181

 
165

Other (income) expense, net
(19
)
 
(3
)
Total expenses
2,254

 
2,293

Income (loss) before income taxes
(147
)
 
(230
)
Income tax (provision) benefit
1

 
29

Net income (loss)
(146
)
 
(201
)
Net (income) loss attributable to noncontrolling interests
1

 
—

Net income (loss) attributable to Hertz
$
(145
)
 
$
(201
)


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

9


THE HERTZ CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
Unaudited
(In millions)
 
Three Months Ended
March 31,
 
2019
 
2018
Net income (loss)
$
(146
)
 
$
(201
)
Other comprehensive income (loss):
 
 
 
Foreign currency translation adjustments
8

 
—

Net gain (loss) 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
1

 
—

Total other comprehensive income (loss) before income taxes
8

 
(3
)
Income tax (provision) benefit related to reclassified amounts of net periodic costs on defined benefit pension plans
(1
)
 
—

Total other comprehensive income (loss)
7

 
(3
)
Total comprehensive income (loss)
(139
)
 
(204
)
Comprehensive (income) loss attributable to noncontrolling interests
1

 
—

Comprehensive income (loss) attributable to Hertz
$
(138
)
 
$
(204
)

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

10



THE HERTZ CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY
Unaudited
(In millions, except share data)
 
Common Stock Shares
 
Common Stock Amount
 
Additional
Paid-In Capital
 
Due From Affiliate
 
Accumulated
Deficit
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Stockholder's Equity Attributable to Hertz
 
Noncontrolling Interests
 
Total Stockholder's Equity
Balance at:
 
 
 
 
 
 
 
December 31, 2017
100

 
$
—

 
$
3,166

 
$
(42
)
 
$
(1,486
)
 
$
(118
)
 
$
1,520

 
$
—

 
$
1,520

Change in accounting principle
—

 
—

 
—

 
—

 
(189
)
 
—

 
(189
)
 
—

 
(189
)
January 1, 2018 (as adjusted)
100

 
—

 
3,166

 
(42
)
 
(1,675
)
 
(118
)
 
1,331

 
—

 
1,331

Net income (loss)
—

 
—

 
—

 
—

 
(201
)
 
—

 
(201
)
 
—

 
(201
)
Due from Hertz Holdings
—

 
—

 
—

 
(4
)
 
—

 
—

 
(4
)
 
—

 
(4
)
Other comprehensive income (loss)
—

 
—

 
—

 
—

 
—

 
(3
)
 
(3
)
 
—

 
(3
)
Stock-based compensation charges
—

 
—

 
10

 
—

 
—

 
—

 
10

 
—

 
10

Contributions from noncontrolling interests
—

 
—

 
—

 
—

 
—

 
—

 
—

 
5

 
5

March 31, 2018
100

 
$
—

 
$
3,176

 
$
(46
)
 
$
(1,876
)
 
$
(121
)
 
$
1,133

 
$
5

 
$
1,138

 
Common Stock Shares
 
Common Stock Amount
 
Additional
Paid-In Capital
 
Due From Affiliate
 
Accumulated
Deficit
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Stockholder's Equity Attributable to Hertz
 
Noncontrolling Interests
 
Total Stockholder's Equity
Balance at:
 
 
 
 
 
 
 
December 31, 2018
100

 
$
—

 
$
3,187

 
$
(52
)
 
$
(1,884
)
 
$
(192
)
 
$
1,059

 
$
59

 
$
1,118

Net income (loss)
—

 
—

 
—

 
—

 
(145
)
 
—

 
(145
)
 
(1
)
 
(146
)
Due from Hertz Holdings
—

 
—

 
—

 
(4
)
 
—

 
—

 
(4
)
 
—

 
(4
)
Other comprehensive income (loss)
—

 
—

 
—

 
—

 
—

 
7

 
7

 
—

 
7

Stock-based compensation charges
—

 
—

 
3

 
—

 
—

 
—

 
3

 
—

 
3

Contributions from noncontrolling interests
—

 
—

 
—

 
—

 
—

 
—

 
—

 
25

 
25

March 31, 2019
100

 
$
—

 
$
3,190

 
$
(56
)
 
$
(2,029
)
 
$
(185
)
 
$
920

 
$
83

 
$
1,003




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

11

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

 
Three Months Ended
March 31,
 
2019
 
2018
Cash flows from operating activities:
 
 
 
Net income (loss)
$
(146
)
 
$
(201
)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
 
 
 
Depreciation and reserves for revenue earning vehicles
644

 
641

Depreciation and amortization, non-vehicle
48

 
58

Amortization of deferred financing costs and debt discount (premium)
14

 
13

Stock-based compensation charges
3

 
3

Provision for receivables allowance
10

 
9

Deferred income taxes, net
(4
)
 
(36
)
(Gain) loss on marketable securities
(11
)
 
—

Other
(13
)
 
4

Changes in assets and liabilities:
 

 
 

Non-vehicle receivables
(33
)
 
(107
)
Prepaid expenses and other assets
(55
)
 
(64
)
Operating lease right-of-use assets
90

 
—

Non-vehicle accounts payable
32

 
73

Accrued liabilities
28

 
4

Accrued taxes, net
10

 
2

Operating lease liabilities
(94
)
 
—

Public liability and property damage
(7
)
 
3

Net cash provided by (used in) operating activities
516

 
402

Cash flows from investing activities:
 

 
 

Revenue earning vehicles expenditures
(3,973
)
 
(3,565
)
Proceeds from disposal of revenue earning vehicles
2,153

 
1,782

Capital asset expenditures, non-vehicle
(54
)
 
(44
)
Proceeds from property and other equipment disposed of or to be disposed of
19

 
4

Other
—

 
(27
)
Net cash provided by (used in) investing activities
(1,855
)
 
(1,850
)

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

12

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

 
Three Months Ended
March 31,
 
2019
 
2018
Cash flows from financing activities:
 
 
 
Proceeds from issuance of vehicle debt
3,667

 
5,181

Repayments of vehicle debt
(2,736
)
 
(3,283
)
Proceeds from issuance of non-vehicle debt
341

 
127

Repayments of non-vehicle debt
(344
)
 
(131
)
Payment of financing costs
(12
)
 
(19
)
Advances to Hertz Holdings
(4
)
 
(4
)
Contributions from noncontrolling interests
25

 
5

Net cash provided by (used in) financing activities
937

 
1,876

Effect of foreign currency exchange rate changes on cash, cash equivalents, restricted cash and restricted cash equivalents
(2
)
 
8

Net increase (decrease) in cash, cash equivalents, restricted cash and restricted cash equivalents during the period
(404
)
 
436

Cash, cash equivalents, restricted cash and restricted cash equivalents at beginning of period
1,410

 
1,504

Cash, cash equivalents, restricted cash and restricted cash equivalents at end of period
$
1,006

 
$
1,940

 
 
 
 
Supplemental disclosures of cash flow information:
 
 
 
Cash paid during the period for:
 
 
 
Interest, net of amounts capitalized:
 
 
 
Vehicle
$
87

 
$
82

Non-vehicle
29

 
28

Income taxes, net of refunds
6

 
6

Operating lease liabilities
140

 
—

Supplemental disclosures of non-cash information:
 

 
 

Purchases of revenue earning vehicles included in accounts payable and accrued liabilities, net of incentives
$
431

 
$
613

Sales of revenue earning vehicles included in receivables
365

 
268

Sales of revenue earning vehicles included in other receivables
78

 
—

Purchases of non-vehicle capital assets included in accounts payable
45

 
42

Operating lease right-of-use assets obtained in exchange for lease liabilities
20

 
—




 


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

13

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


Note 1 — Background

Hertz Global Holdings, Inc. ("Hertz Global" when including its subsidiaries and VIEs and "Hertz Holdings" excluding its subsidiaries and VIEs) 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 2 — Basis 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 March 31, 2019 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 U.S. (“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, 2018 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, 2018 (the "2018 Form 10‑K"), as filed with the Securities and Exchange Commission ("SEC") on February 25, 2019.

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, and its VIEs, as applicable. The unaudited condensed consolidated financial statements of Hertz include the accounts of Hertz, its wholly owned and majority owned U.S. and international subsidiaries, and its VIEs, as applicable. The Company consolidates a VIE when it is deemed the primary beneficiary. 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.


14

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

Recently Issued Accounting Pronouncements

Adopted

Leases

In February 2016, the Financial Accounting Standards Board (the "FASB") issued guidance that replaced the existing lease guidance in U.S. GAAP and in 2018 and 2019 issued amendments and updates to the new lease standard (collectively "Topic 842"). Topic 842 established 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. Leases are classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. Topic 842 also expanded 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.

The Company adopted this guidance effective January 1, 2019 using a simplified transition approach for both lessees and lessors. Prior periods have not been retrospectively adjusted and are in conformance with the then existing guidance under U.S. GAAP ("Topic 840"). The Company utilized the package of practical expedients for existing or expired contracts and did not reassess whether such contracts contain leases, the lease classification or the initial direct costs. Additionally, the Company utilized the historical lease term and did not utilize the practical expedient allowing the use of hindsight in determining the lease term and in assessing impairment of its ROU assets. To determine the present value of its lease payments as of January 1, 2019, the Company utilized the interest rate implicit in the lease agreement. If the implicit interest rate was not provided in the lease agreement, the Company utilized the Company's collateralized incremental borrowing rate as of January 1, 2019. Also, with respect to the Company's real estate leases, vehicle leases and fleet leases, the Company availed itself of the practical expedient for lessees and lessors and elected an accounting policy by class of underlying asset to combine lease and non-lease components.

As of January 1, 2019, the Company accounts for revenue earned from vehicle rentals and rental related activities wherein an identified asset is transferred to the customer and the customer has the ability to control that asset under Topic 842. Prior to the adoption of Topic 842, the Company accounted for such revenue under Revenue from Contracts with Customers ("Topic 606").

The cumulative effect of applying the new guidance to all leases as of January 1, 2019 that were not completed and with lease terms in excess of twelve months has been recorded as of the adoption date as follows:

Hertz Global
(In millions)
Operating Lease Right-of-Use Assets
 
Prepaid and Other Assets
 
Total Assets
 
Operating Lease Liabilities
 
Accrued Liabilities
 
Total Liabilities
 
Total Liabilities and Stockholders' Equity
As of December 31, 2018
$
—

 
$
902

 
$
21,382

 
$
—

 
$
1,304

 
$
20,262

 
$
21,382

Effect of Adopting Topic 842
1,585

 
(45
)
 
1,540

 
1,588

 
(48
)
 
1,540

 
1,540

As of January 1, 2019
$
1,585

 
$
857

 
$
22,922

 
$
1,588

 
$
1,256

 
$
21,802

 
$
22,922


15

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


Hertz
(In millions)
Operating Lease Right-of-Use Assets
 
Prepaid and Other Assets
 
Total Assets
 
Operating Lease Liabilities
 
Accrued Liabilities
 
Total Liabilities
 
Total Liabilities and Stockholder's Equity
As of December 31, 2018
$
—

 
$
902

 
$
21,382

 
$
—

 
$
1,304

 
$
20,264

 
$
21,382

Effect of Adopting Topic 842
1,585

 
(45
)
 
1,540

 
1,588

 
(48
)
 
1,540

 
1,540

As of January 1, 2019
$
1,585

 
$
857

 
$
22,922

 
$
1,588

 
$
1,256

 
$
21,804

 
$
22,922


Adoption of Topic 842 did not impact the Company's results of operations or cash flows. See Note 4 , " Leases ," for information regarding the Company’s accounting policies for leases, as well as other required disclosures under Topic 842.

Not Yet Adopted

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 intends to adopt this guidance when effective, on January 1, 2020, using a prospective transition method and is in the process of assessing the overall impact of adopting this guidance on its financial position, results of operations and cash flows.
  
Note 3 — Debt

The Company's debt, including its available credit facilities, consists of the following ($ in millions):
Facility
 
Weighted Average Interest Rate
as of
March 31, 2019
 
Fixed or
Floating
Interest
Rate
 
Maturity
 
March 31,
2019
 
December 31,
2018
Non-Vehicle Debt
 
 
 
 
 
 
 
 
 
 
Senior Term Loan
 
5.25%
 
Floating
 
6/2023
 
$
670

 
$
674

Senior RCF
 
N/A
 
Floating
 
6/2021
 
—

 
—


16

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, 2019
 
Fixed or
Floating
Interest
Rate
 
Maturity
 
March 31,
2019
 
December 31,
2018
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
 
6.14%
 
Fixed
 
Various
 
13

 
4

Unamortized Debt Issuance Costs and Net (Discount) Premium
 
 
 
 
 
 
 
(30
)
 
(33
)
Total Non-Vehicle Debt
 
 
 
 
 
 
 
4,430

 
4,422

Vehicle Debt
 
 
 
 
 
 
 
 
 
 
HVF II U.S. ABS Program
 
 
 
 
 
 
 
 
 
 
HVF II U.S. Vehicle Variable Funding Notes
 
 
 
 
 
 
 
 
HVF II Series 2013-A (2)
 
3.67%
 
Floating
 
3/2021
 
3,570

 
2,940

HVF II Series 2019-A (2)
 
N/A
 
Floating
 
10/2019
 
—

 
—

 
 
 
 
 
 
 
 
3,570

 
2,940

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

 
780

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

 
371

HVF II Series 2016-1 (2)
 
N/A
 
N/A
 
N/A
 
—

 
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

 
1,000

HVF II Series 2018-2 (2)
 
3.80%
 
Fixed
 
6/2021
 
200

 
200

HVF II Series 2018-3 (2)
 
4.15%
 
Fixed
 
7/2023
 
200

 
200

HVF II Series 2019-1 (2)
 
3.85%
 
Fixed
 
3/2022
 
700

 
—

 
 
 
 
 
 
 
 
5,494

 
5,260

Donlen ABS Program
 
 
 
 
 
 
 
 
 
 
HFLF Variable Funding Notes
 
 
 
 
 
 
 
 
 
 
HFLF Series 2013-2 (2)
 
3.86%
 
Floating
 
3/2021
 
482

 
320

 
 
 
 
 
 
 
 
482

 
320

HFLF Medium Term Notes
 
 
 
 
 
 
 
 
 
 
HFLF Series 2015-1 (3)
 
N/A
 
N/A
 
N/A
 
—

 
33

HFLF Series 2016-1 (3)
 
3.81%
 
Both
 
4/2019-2/2020
 
136

 
171

HFLF Series 2017-1 (3)
 
2.86%
 
Both
 
4/2019-4/2021
 
352

 
397

HFLF Series 2018-1 (3)
 
3.28%
 
Both
 
7/2019-6/2021
 
550

 
550

 
 
 
 
 
 
 
 
1,038

 
1,151


17

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, 2019
 
Fixed or
Floating
Interest
Rate
 
Maturity
 
March 31,
2019
 
December 31,
2018
Vehicle Debt - Other
 
 
 
 
 
 
 
 
 
 
U.S. Vehicle RCF
 
4.98%
 
Floating
 
6/2021
 
146

 
146

European Vehicle Notes (4)
 
5.07%
 
Fixed
 
10/2021-3/2023
 
815

 
829

European ABS (2)
 
1.75%
 
Floating
 
10/2020
 
585

 
600

Canadian Securitization (2)
 
3.57%
 
Floating
 
3/2020
 
261

 
220

Australian Securitization (2)
 
3.56%
 
Floating
 
3/2020
 
155

 
155

New Zealand RCF
 
4.60%
 
Floating
 
3/2020
 
41

 
40

U.K. Financing Facility
 
3.08%
 
Floating
 
4/2019-9/2021
 
244

 
242

Other Vehicle Debt
 
3.98%
 
Floating
 
4/2019-10/2022
 
39

 
42

 
 
 
 
 
 
 
 
2,286

 
2,274

Unamortized Debt Issuance Costs and Net (Discount) Premium
 
 
 
 
 
 
 
(43
)
 
(43
)
Total Vehicle Debt
 
 
 
 
 
 
 
12,827

 
11,902

Total Debt
 
 
 
 
 
 
 
$
17,257

 
$
16,324

N/A - Not applicable

(1)
References to the "Senior Notes" include the series of Hertz's unsecured senior notes set forth in 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, 2019
 
December 31, 2018
5.875% Senior Notes due October 2020
$
700

 
$
700

7.375% Senior Notes due January 2021
500

 
500

6.250% Senior Notes due October 2022
500

 
500

5.500% 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.

(3)
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 2019. 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.


18

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

(4)
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 1.12 to 1 and 1.14 to 1 as of March 31, 2019 and December 31, 2018 , respectively) set forth in the table below. Outstanding principal amounts for each such series of the European Vehicle Notes is also specified below:
(In millions)
Outstanding Principal
European Vehicle Notes
March 31, 2019
 
December 31, 2018
4.125% Senior Notes due October 2021
$
253

 
$
257

5.500% Senior Notes due March 2023
562

 
572

 
$
815

 
$
829


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 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, 2019 , approximately $2.6 billion of vehicle debt and $19 million of non-vehicle debt is due to mature between April 1, 2019 and March 31, 2020. 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-A Notes : In February 2019, HVF II increased the commitments under the HVF II Series 2013-A Notes by $400 million .

HVF II Series 2019-A Notes : In February 2019, HVF II issued the Series 2019-A Variable Funding Rental Car Asset Backed Notes in an aggregate maximum principal amount of $500 million .

HVF II U.S. Vehicle Medium Term Notes

HVF II Series 2019-1 Notes : In February 2019, HVF II issued the Series 2019-1 Rental Car Asset Backed Notes, Class A, Class B, Class C and Class D in an aggregate principal amount of $745 million . An affiliate of HVF II purchased the Class D Notes of such series at the time of issuance, and as a result, approximately $45 million of the aggregate principal amount is eliminated in consolidation. There is subordination within the HVF II Series 2019-1 Notes based on class.

Canadian Securitization

In April 2019, TCL Funding Limited Partnership ("Funding LP"), a bankruptcy remote, indirect, wholly owned, special purpose subsidiary of Hertz, amended its supplemental indenture for its Series 2015-A Variable Funding Rental Car Asset Backed Notes (the "Funding LP Series 2015-A Notes") to provide for incremental seasonal capacity (subject to borrowing base availability) of up to CAD$ 90 million from June 2019 to October 2019. Following the expiration of the seasonal commitment period, aggregate maximum borrowings available under the Funding LP Series 2015-A Notes will revert to CAD $350 million (subject to borrowing base availability). Additionally, the Canadian Securitization was amended to extend the maturity of the aggregate maximum borrowings of CAD$ 350 million to March 2021.


19

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

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 (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 availability for issuances of letters of credit under the Letter of Credit Facility are not subject to a borrowing base.

The following facilities were available to the Company as of March 31, 2019 and are presented net of any outstanding letters of credit:
(In millions)
Remaining
Capacity
 
Availability Under
Borrowing Base
Limitation
Non-Vehicle Debt
 
 
 
Senior RCF
$
459

 
$
459

Letter of Credit Facility
2

 
2

Total Non-Vehicle Debt
461

 
461

Vehicle Debt
 

 
 

U.S. Vehicle RCF
—

 
—

HVF II U.S. Vehicle Variable Funding Notes
995

 
—

HFLF Variable Funding Notes
18

 
2

European ABS
540

 
68

Canadian Securitization
—

 
—

Australian Securitization
22

 
—

U.K. Financing Facility
85

 
—

New Zealand RCF
—

 
—

Total Vehicle Debt
1,660

 
70

Total
$
2,121

 
$
531


Letters of Credit

As of March 31, 2019 , there were outstanding standby letters of credit totaling $714 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, $403 million was issued under the Senior RCF and $304 million was issued under the Letter of Credit Facility. As of March 31, 2019 , none of the issued letters of credit have been drawn upon.


20

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

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, HVF II GP Corp., 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 II ("IFF No. 2"), 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 VIE 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, 2019 and December 31, 2018 , IFF No. 2 had total assets of $1.0 billion and $946 million , respectively, primarily comprised of loans receivable, and total liabilities of $1.0 billion and $946 million , respectively, primarily comprised of debt.

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 may not exceed a ratio of 3.00 to 1.00 (the "Covenant Leverage Ratio"). As of March 31, 2019 , Hertz was in compliance with the Covenant Leverage Ratio.

Note 4 — Leases

As disclosed in the Leases section of Note 2 , “ Basis of Presentation and Recently Issued Accounting Pronouncements ” ("Note 2"), the Company adopted Topic 842 in accordance with the effective date on January 1, 2019. Note 2 includes disclosures regarding the Company’s method of adoption and the impact upon adoption to its financial position, results of operations and cash flows.

The Company enters into agreements as a lessor under which it rents vehicles and leases fleets to customers. The Company enters into agreements as a lessee to rent real estate, vehicles and other equipment and to conduct its vehicle rental operations under concession agreements. If any of the following criteria is met, the Company classifies the lease as a financing lease (as a lessee) or as a direct financing or sales-type lease (as a lessor):
 
•
The lease transfers ownership of the underlying asset to the lessee by the end of the lease term;
•
The lease grants the lessee an option to purchase the underlying asset that the Company is reasonably certain to exercise;
•
The lease term is for 75% or more of the remaining economic life of the underlying asset, unless the commencement date falls within the last 25% of the economic life of the underlying asset;
•
The present value of the sum of the lease payments equals or exceeds 90% of the fair value of the underlying asset; or
•
The underlying asset is of such a specialized nature that it is expected to have no alternative use to the lessor at the end of the lease term.
Leases that do not meet any of the above criteria are accounted for as operating leases.

The Company combines lease and non-lease components in its contracts under Topic 842.

The following further describes the Company's leasing transactions.


21

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

Lessor

The Company's operating leases for vehicle rentals have rental periods that are typically short term in nature (e.g., daily or weekly) and can generally be extended for up to one month or terminated at the customer's discretion. Rental charges are computed on a limited or unlimited mileage rate, or on a time rate plus a mileage charge. In connection with the vehicle rental, the Company offers supplemental equipment rentals (e.g., child seats and ski racks) and issues loyalty points to customers enrolled in its Hertz Gold Plus Rewards program, which are deemed lease components. The Company also offers value-added services in connection with the vehicle rental, which are deemed non-lease components, such as loss or collision damage waiver, theft protection, liability and personal accident/effects insurance coverage, premium emergency roadside service and satellite radio. Additionally, the Company charges for variable services primarily consisting of charges for the fueling of vehicles and tolls incurred during the rental period, and for fees associated with the early or late termination of the vehicle lease. The Company mitigates residual value risk of its revenue earning vehicles by utilizing manufacturer repurchase and guaranteed depreciation programs, using sophisticated vehicle diagnostic and repair equipment to maintain the condition of its vehicles, and through periodic reviews of vehicle depreciation rates based on management's ongoing assessment of present and estimated future market conditions.

The Company's operating leases for fleets have lease periods that are typically for twelve months, after which the lease converts to a month-to-month lease, allowing the vehicle to be surrendered any time thereafter. The Company's fleet leases contain a terminal rental adjustment clause ("TRAC lease") where, upon sale of the vehicle following the termination of the lease, a TRAC adjustment may result through which the lessee is credited or charged with the gain or loss on the vehicle. Such TRAC adjustments are considered variable charges.
 
The following table summarizes the amount of operating lease income and other income included in total revenues in the accompanying condensed consolidated statement of operations for the three months ended March 31, 2019:
(In millions)
Three Months
Ended
March 31, 2019
Operating lease income from vehicle rentals
$
1,800

Operating lease income from fleet leasing
158

Variable operating lease income
67

Revenue accounted for under Topic 842
2,025

Revenue accounted for under Topic 606
82

Total revenues
$
2,107


Lessee

As a lessee, the Company has the following types of operating leases:

•
Concession agreements which grant the Company the right to conduct its vehicle rental operations at airports, hotels and train stations and to use building space such as terminal counters and parking garages;
•
Real estate leases for its off airport vehicle rental locations and other premises;
•
Revenue earning vehicle leases; and
•
Other equipment leases.

22

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

The Company's lease terms generally range from one month to thirty-five years and a number of agreements contain escalation clauses, which increase the payment obligation based on a fixed or variable rate, and renewal options. The length of renewals vary and may result in different payment terms. Payment terms are based on fixed rates explicit in the lease, including guaranteed minimums, and/or variable rates based on:

•
Operating expenses, such as common area charges, real estate taxes and insurance;
•
A percentage of revenues or sales arising at the relevant premises; and/or
•
Periodic inflation adjustments.

The Company recognizes a ROU asset and lease liability in its condensed consolidated balance sheet for leases with a term greater than twelve months. Options to extend or terminate a lease are included in the Company's ROU asset and lease liability when it is reasonably certain that such options will be exercised. The Company does not recognize ROU assets or lease liabilities for short-term leases (i.e., those with a term of twelve months or less) and recognizes lease expense on a straight-line basis over the lease term.

To determine the present value of its lease payments, the Company utilizes the interest rate implicit in the lease agreement. If the implicit interest rate was not provided in the lease agreement, the Company utilizes the Company's collateralized incremental borrowing rate as of the beginning of the reporting period or the commencement date of the lease, whichever is later.

The following table summarizes the amount of lease costs incurred by the Company:
(In millions)
Three Months
Ended
March 31, 2019
 
Year Ended
December 31,
2018
Minimum fixed lease costs (1) :
 
 
 
Short-term lease costs
$
30

 
N/A

Other operating lease costs
134

 
N/A

Total
$
164

 
$
577

Variable lease costs
63

 
438

Total lease costs
$
227

 
$
1,015

(1) Topic 842, which was adopted on January 1, 2019, requires the Company to disclose the short term portion of minimum fixed lease costs. For the year ended December 31, 2018, under the then existing guidance in Topic 840, the Company was only required to disclose minimum fixed costs in total.

The following summarizes the weighted average remaining lease term and weighted average discount rate for the Company's operating leases as a lessee:
 
As of March 31, 2019
Weighted average remaining lease term (in years)
9

Weighted average discount rate
10.9
%


23

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

The following table summarizes the Company's minimum fixed lease obligations under existing agreements as a lessee, excluding variable concession obligations and short-term leases, as of March 31, 2019 :
(In millions)
 
April 1, 2019 - March 31, 2020
$
465

April 1, 2020 - March 31, 2021
379

April 1, 2021 - March 31, 2022
305

April 1, 2022 - March 31, 2023
226

April 1, 2023 - March 31, 2024
166

After March 31, 2024
930

Total lease payments
2,471

Interest
(958
)
Operating lease liabilities at March 31, 2019
$
1,513


Note 5 — Income Tax (Provision) Benefit

Hertz Global

The effective tax rate for the three months ended March 31, 2019 and 2018 is 1% and 13% , respectively.

The Company recorded a tax benefit of $1 million for the three months ended March 31, 2019 , compared to $29 million for the three months ended March 31, 2018 . The effective income tax rate and related tax benefit are lower for the three months ended March 31, 2019 driven by overall improvement in results from operations, primarily due to lower losses in the U.S. where an income tax benefit was recognized, and the composition of earnings by jurisdiction.

Hertz

The effective tax rate for the three months ended March 31, 2019 and 2018 is 1% and 13% , respectively.

The Company recorded a tax benefit of $1 million for the three months ended March 31, 2019 , compared to $29 million for the three months ended March 31, 2018 . The effective income tax rate and related tax benefit are lower for the three months ended March 31, 2019 driven by overall improvement in results from operations, primarily due to lower losses in the U.S. where an income tax benefit was recognized, and the composition of earnings by jurisdiction.

Note 6 — Earnings (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.


24

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

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)
2019
 
2018
Basic and diluted earnings (loss) per share:
 
 
 
Numerator:
 
 
 
Net income (loss)
$
(148
)
 
$
(202
)
Net (income) loss attributable to noncontrolling interests
1

 
—

Net income (loss) attributable to Hertz Global
$
(147
)
 
$
(202
)
Denominator:
 
 
 
Basic weighted average shares outstanding
84

 
83

Dilutive stock options, RSUs and PSUs
—

 
—

Weighted average shares used to calculate diluted earnings (loss) per share
84

 
83

Antidilutive stock options, RSUs, PSUs and PSAs
2

 
3

Earnings (loss) per share:
 
 
 
Basic earnings (loss) per share
$
(1.75
)
 
$
(2.43
)
Diluted earnings (loss) per share
$
(1.75
)
 
$
(2.43
)

Note 7 — Fair Value Measurements

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The fair value of cash, restricted cash, accounts receivable, accounts payable and accrued expenses, to the extent the underlying liability will be settled in cash, approximates the carrying values because of the short-term nature of these instruments.

Cash Equivalents, Restricted Cash Equivalents and Investments

The Company’s cash equivalents and restricted cash equivalents primarily consist of investments in money market funds and time deposits. The Company determines the fair value of cash equivalents using a market approach based on quoted prices in active markets (Level 1 inputs).

Investments in equity securities that are measured at fair value on a recurring basis consist of marketable securities.

The following table summarizes the ending balances of the Company's cash equivalents, restricted cash equivalents and investments:
 
March 31, 2019
 
December 31, 2018
(In millions)
Level 1
 
Level 2
 
Level 3
 
Total
 
Level 1
 
Level 2
 
Level 3
 
Total
Money market funds and time deposits
$
250

 
$
—

 
$
—

 
$
250

 
$
701

 
$
—

 
$
—

 
$
701

Equity securities
55

 
—

 
—

 
55

 
44

 
—

 
—

 
44


25

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


Debt Obligations

The fair value of debt is estimated based on quoted market rates as well as borrowing rates currently available to the Company for loans with similar terms and average maturities (Level 2 inputs).
 
As of March 31, 2019
 
As of December 31, 2018
(In millions)
Nominal Unpaid Principal Balance
 
Aggregate Fair Value
 
Nominal Unpaid Principal Balance
 
Aggregate Fair Value
Non-Vehicle Debt
$
4,460

 
$
4,304

 
$
4,455

 
$
4,011

Vehicle Debt
12,870

 
12,885

 
11,945

 
11,891

Total
$
17,330

 
$
17,189

 
$
16,400

 
$
15,902



Note 8 — Contingencies and Off-Balance Sheet Commitments

Legal Proceedings

Public Liability and Property Damage

The Company is currently a defendant in numerous actions and has received numerous claims on which actions have not yet commenced for public liability and property damage arising from the operation of motor vehicles rented from the Company. The obligation for public liability and property damage on self-insured U.S. and international vehicles, as stated on the accompanying unaudited condensed consolidated balance sheets, represents an estimate for both reported accident claims not yet paid and claims incurred but not yet reported. The related liabilities are recorded on a non-discounted basis. Reserve requirements are based on rental volume and actuarial evaluations of historical accident claim experience and trends, as well as future projections of ultimate losses, expenses, premiums and administrative costs. As of March 31, 2019 and December 31, 2018 , the Company's liability recorded for public liability and property damage matters is $411 million and $418 million , respectively. The Company believes that its analysis is based on the most relevant information available, combined with reasonable assumptions, and that the Company may prudently rely on this information to determine the estimated liability. The liability is subject to significant uncertainties. The adequacy of the liability reserve is regularly monitored based on evolving accident claim history and insurance related state legislation changes. If the Company's estimates change or if actual results differ from these assumptions, the amount of the recorded liability is adjusted to reflect these results.

Loss Contingencies

From time to time the Company is a party to various legal proceedings, typically involving operational issues common to the vehicle rental business, including claims by employees and former employees and governmental investigations. The Company has summarized below the most significant legal proceedings to which the Company was and/or is a party during the three months ended March 31, 2019 or the period after March 31, 2019 , but before the filing of this Quarterly Report on Form 10‑Q.

Governmental Investigations  - The Company previously identified certain activities in Brazil that raised issues under the Foreign Corrupt Practices Act (the "FCPA") and other federal and local laws, which the Company self-reported to appropriate government entities. The matters associated with the FCPA and other federal matters have been resolved without further action by the applicable U.S. government entities. The Company is continuing its cooperation with respect to matters under local Brazilian laws. The Company has accrued a loss contingency with respect to the ongoing Brazil-related matters that is not material. However, it is possible that an adverse outcome with respect to the ongoing matters in Brazil could result in losses that could be material to the Company's consolidated financial condition, results of operations or cash flows in any particular reporting period.


26

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

In re Hertz Global Holdings, Inc. Securities Litigation  - In November 2013, a purported shareholder class action, Pedro Ramirez, Jr. v. Hertz Global Holdings, Inc., et al., was commenced in the U.S. District Court for the District of New Jersey naming Old Hertz Holdings and certain of its officers as defendants and alleging violations of the federal securities laws. The complaint alleged that Old Hertz Holdings made material misrepresentations and/or omissions of material fact in certain of its public disclosures in violation of Section 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended, and Rule 10b-5 promulgated thereunder. The complaint sought an unspecified amount of monetary damages on behalf of the purported class and an award of costs and expenses, including counsel fees and expert fees. The complaint, as amended, was dismissed with prejudice on April 27, 2017 and on September 20, 2018, the Third Circuit affirmed the dismissal of the complaint with prejudice.  On February 5, 2019, the plaintiffs filed a motion asking the federal district court to exercise its discretion and allow the plaintiffs to reinstate their claims to include additional allegations from the Administrative Order.

In addition to the matters described above, the Company maintains an internal compliance program through which it from time to time identifies other potential violations of laws and regulations applicable to the Company. When the Company identifies such matters, the Company conducts an internal investigation and otherwise cooperates with governmental authorities, as appropriate.

The Company has established reserves for matters where the Company believes that losses are probable and can be reasonably estimated. Other than the aggregate reserve established for claims for public liability and property damage, none of those reserves are material. For matters, including certain of those described above, where the Company has not established a reserve, the ultimate outcome or resolution cannot be predicted at this time, or the amount of ultimate loss, if any, cannot be reasonably estimated. These matters are subject to many uncertainties and the outcome of the individual litigated matters is not predictable with assurance. It is possible that certain of the actions, claims, inquiries or proceedings, including those discussed above, could be decided unfavorably to the Company or any of its subsidiaries involved. Accordingly, it is possible that an adverse outcome from such a proceeding could exceed the amount accrued in an amount that could be material to the accompanying consolidated financial condition, results of operations or cash flows in any particular reporting period.

Other Proceedings

Litigation Against Former Executives - On March 25, 2019, the Company filed a petition against Mark Frissora, Elyse Douglas and John Jeffrey Zimmerman, all former senior executive officers of the former Hertz Global Holdings, Inc. ("Old Hertz Holdings"), in the U.S. District Court for the District of New Jersey alleging four causes of action for breach of contract, with a fifth cause of action seeking a declaratory judgment denying the defendants' entitlement to advances of fees and expenses under the Company's indemnification bylaws. On March 28, 2019, the Company filed a petition against Scott Sider, a former senior executive of Old Hertz Holdings, in the Circuit Court of the Twentieth Judicial Circuit alleging three causes of action for breach of contract, with a fourth cause of action seeking a declaratory judgment denying the defendants' entitlement to advances of fees and expenses under the Company's indemnification bylaws. The Company is seeking repayment of incentive-based compensation received by the defendants in connection with the restatements included in the Old Hertz Holdings Form 10-K for the year ended December 31, 2014 and related accounting for prior periods. The Company is also seeking recovery for the costs of the SEC investigation that resulted in an administrative order on December 31, 2018 with respect to events generally involving the restatements included in Old Hertz Holdings Form 10-K for the year ended December 31, 2014 and other damages resulting from the necessity of the restatements. The Company is pursuing these legal proceedings in accordance with its clawback policy and contractual rights. Pursuant to the agreements governing the separation of Herc Holdings from Hertz Global that occurred on June 30, 2016, Herc Holdings is entitled to 15% of the net proceeds of any such repayment or recovery.

Indemnification Obligations

In the ordinary course of business, the Company has executed contracts involving indemnification obligations customary in the relevant industry and indemnifications specific to a transaction such as the sale of a business. These indemnification obligations might include claims relating to the following: environmental matters; intellectual property rights; governmental regulations and employment-related matters; customer, supplier and other commercial contractual

27

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

relationships; and financial matters. Specifically, the Company has indemnified various parties for the costs associated with remediating numerous hazardous substance storage, recycling or disposal sites in many states and, in some instances, for natural resource damages. The amount of any such expenses or related natural resource damages for which the Company may be held responsible could be substantial. In addition, Hertz entered into customary indemnification agreements with Hertz Holdings and certain of the Company's stockholders and their affiliates pursuant to which Hertz Holdings and Hertz will indemnify those entities and their respective affiliates, directors, officers, partners, members, employees, agents, representatives and controlling persons, against certain liabilities arising out of performance of a consulting agreement with Hertz Holdings and each of such entities and certain other claims and liabilities, including liabilities arising out of financing arrangements or securities offerings. The Company has entered into customary indemnification agreements with each of its directors and certain of its officers. Performance under these indemnification obligations would generally be triggered by a breach of terms of the contract or by a third-party claim. In connection with the Spin-Off, the Company executed an agreement with Herc Holdings that contains mutual indemnification clauses and a customary indemnification provision with respect to liability arising out of or resulting from assumed legal matters. The Company regularly evaluates the probability of having to incur costs associated with these indemnification obligations and has accrued for expected losses that are probable and estimable.

Note 9 — Related Party Transactions

Agreements with the Icahn Group

In the normal course of business, the Company purchases goods and services and leases property from entities controlled by Carl C. Icahn and his affiliates, including The Pep Boys - Manny, Moe & Jack (collectively, the "Icahn Group"). During the three months ended March 31, 2019 and 2018 , the Company purchased approximately $12 million and $6 million , respectively, worth of goods and services from these related parties.

Transactions and agreements between Hertz Holdings and Hertz

In June 2017, Hertz entered into a master loan agreement with Hertz Holdings for a facility size of $425 million with an expiration in June 2018 (the "2017 Master Loan"). The interest rate is based on the U.S. Dollar LIBOR rate plus a margin.

In June 2018, upon expiration of the 2017 Master Loan, Hertz entered into a new master loan agreement with Hertz Holdings for a facility size of $425 million with an expiration in June 2019 (the "2018 Master Loan") where amounts outstanding under the 2017 Master Loan were transferred to the 2018 Master Loan. The interest rate is based on the U.S. Dollar LIBOR rate plus a margin. As of March 31, 2019 and December 31, 2018 , there was $121 million and $117 million , respectively, outstanding under the 2018 Master Loan representing advances and any accrued but unpaid interest. Additionally, Hertz has a due to an affiliate in the amount of $65 million , which represents a tax-related liability to Hertz Holdings.

The net impact of the above amounts are included in stockholder's equity in the accompanying unaudited condensed consolidated balance sheets of Hertz.


28

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

767 Auto Leasing LLC

In January 2018, Hertz entered into a Master Motor Vehicle Lease and Management Agreement (the “767 Lease Agreement”) pursuant to which Hertz granted 767 Auto Leasing LLC (“767”), an entity affiliated with the Icahn Group, the option to acquire certain vehicles from Hertz at rates aligned with the rates at which Hertz sells vehicles to third parties. Hertz leases the vehicles purchased by 767 under the 767 Lease Agreement or from third parties, under a mutually developed fleet plan and Hertz manages, services, repairs, sells and maintains those leased vehicles on behalf of 767. Hertz rents the leased vehicles to drivers of transportation network companies ("TNC"), including Lyft, Inc. drivers, from rental counters within locations leased or owned by affiliates of 767, including locations operated under a master lease agreement with The Pep Boys - Manny, Joe & Jack. The 767 Lease Agreement has an initial term of 18 months and is subject to automatic six month renewals thereafter, unless terminated by either party (with or without cause) prior to the start of any such six month renewal. 767’s payment obligations under the 767 Lease Agreement are guaranteed by American Entertainment Properties Corp. ("American"), an entity affiliated with the Icahn Group.

The Company is entitled to 25% of the profit from the rental of the leased vehicles, as specified in the 767 Lease Agreement, which is variable and based primarily on the rental revenue, less certain vehicle related costs, such as depreciation, licensing and maintenance expenses. The Company has determined that it is the primary beneficiary of 767 due to its power to direct the activities of 767 that most significantly impact 767's economic performance and the Company's obligation to absorb 25% of 767's gains/losses. Accordingly, 767 is consolidated by the Company as a VIE.

Note 10 — Segment Information

The Company has identified three reportable segments, which are organized based on the products and services provided by its operating segments and the geographic areas in which its operating segments conduct business, as follows:

•
U.S. Rental Car ("U.S. RAC") - rental of vehicles (cars, crossovers and light trucks), as well as sales of value-added services, in the U.S. and consists of the Company's U.S. operating segment;

•
International Rental Car ("International RAC") - rental and leasing of vehicles (cars, vans, crossovers and light trucks), as well as sales of value-added services, internationally and consists of the Company's Europe and Other International operating segments, which are aggregated into a reportable segment based primarily upon similar economic characteristics, products and services, customers, delivery methods and general regulatory environments;

•
All Other Operations - primarily consists of the Company's Donlen business, which provides vehicle leasing and fleet management services, together with other business activities which represent less than 1% of revenues and expenses of the segment.

In addition to the above reportable segments, the Company has corporate operations ("Corporate") which includes general corporate assets and expenses and certain interest expense (including net interest on non-vehicle debt).

29

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


The following tables provide significant statement of operations and balance sheet information by segment for each of Hertz Global and Hertz, as well as Adjusted Pre-tax Income (Loss), the segment measure of profitability.
 
Three Months Ended
March 31,
(In millions)
2019
 
2018
Revenues
 
 
 
U.S. Rental Car
$
1,520

 
$
1,426

International Rental Car
433

 
468

All Other Operations
154

 
169

Total Hertz Global and Hertz
$
2,107

 
$
2,063

Depreciation of revenue earning vehicles and lease charges
 
 
 
U.S. Rental Car
$
386

 
$
434

International Rental Car
97

 
102

All Other Operations
109

 
125

Total Hertz Global and Hertz
$
592

 
$
661

Adjusted Pre-tax Income (Loss) (a)
 
 
 
U.S. Rental Car
$
25

 
$
(48
)
International Rental Car
(18
)
 
(6
)
All Other Operations
25

 
22

Corporate
(143
)
 
(143
)
Total Hertz Global
(111
)
 
(175
)
Corporate - Hertz
2

 
1

Total Hertz
$
(109
)
 
$
(174
)

(In millions)
March 31, 2019
 
December 31, 2018
Total assets
 
 
 
U.S. Rental Car
$
16,375

 
$
13,983

International Rental Car
4,590

 
4,057

All Other Operations
1,934

 
1,843

Corporate
1,131

 
1,499

Total Hertz Global and Hertz
$
24,030

 
$
21,382


(a)
Adjusted Pre-tax Income (Loss), the Company's segment profitability measure, is calculated as income (loss) before income taxes plus non-cash acquisition accounting charges, debt-related charges relating to the amortization and write-off of debt financing costs and debt discounts and premiums, goodwill, intangible and tangible asset impairments and write downs, information technology and finance transformation costs, income or loss attributable to noncontrolling interests, and certain other miscellaneous or non-recurring items.

Reconciliations of Adjusted Pre-tax Income (Loss) by segment to consolidated amounts are summarized below.


30

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

Hertz Global
 
Three Months Ended
March 31,
(In millions)
2019
 
2018
Adjusted Pre-tax Income (Loss):
 
 
 
U.S. Rental Car
$
25

 
$
(48
)
International Rental Car
(18
)
 
(6
)
All Other Operations
25

 
22

Total reportable segments
32

 
(32
)
Corporate (1)
(143
)
 
(143
)
Adjusted Pre-tax Income (Loss)
(111
)
 
(175
)
Adjustments:
 
 
 
Acquisition accounting (2)
(14
)
 
(15
)
Debt-related charges (3)
(14
)
 
(16
)
Restructuring and restructuring related charges (4)
(7
)
 
(4
)
Information technology and finance transformation costs (5)
(23
)
 
(23
)
Other (6)
20


2

Income (loss) before income taxes
$
(149
)
 
$
(231
)

Hertz
 
Three Months Ended
March 31,
(In millions)
2019
 
2018
Adjusted Pre-tax Income (Loss):
 
 
 
U.S. Rental Car
$
25

 
$
(48
)
International Rental Car
(18
)
 
(6
)
All Other Operations
25

 
22

Total reportable segments
32

 
(32
)
Corporate (1)
(141
)
 
(142
)
Adjusted Pre-tax Income (Loss)
(109
)
 
(174
)
Adjustments:
 
 
 
Acquisition accounting (2)
(14
)
 
(15
)
Debt-related charges (3)
(14
)
 
(16
)
Restructuring and restructuring related charges (4)
(7
)
 
(4
)
Information technology and finance transformation costs (5)
(23
)
 
(23
)
Other (6)
20


2

Income (loss) before income taxes
$
(147
)
 
$
(230
)

(1)
Represents general corporate expenses, non-vehicle interest expense, as well as other business activities.
(2)
Represents incremental expense associated with amortization of other intangible assets and depreciation of property and equipment relating to acquisition accounting.
(3)
Represents debt-related charges relating to the amortization of deferred financing costs and debt discounts and premiums.
(4)
Represents charges incurred under restructuring actions as defined in U.S. GAAP, excluding impairments and asset write-downs. Also includes restructuring related charges such as incremental costs incurred directly supporting business transformation initiatives. Such costs include transition costs incurred in connection with business process outsourcing arrangements and incremental costs incurred to facilitate business process re-engineering initiatives that involve significant organization redesign and extensive operational process changes. In 2018, also includes consulting costs, legal fees, and other expenses related to the previously disclosed accounting review and investigation.

31

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

(5)
Represents costs associated with the Company’s information technology and finance transformation programs, both of which are multi-year initiatives to upgrade and modernize the Company’s systems and processes.
(6)
Represents miscellaneous or non-recurring items, and includes amounts attributable to noncontrolling interests. In 2019, also includes an $11 million gain on marketable securities, and an $8 million gain on the sale of non-vehicle capital assets.

Note 11 — Guarantor and Non-Guarantor Condensed Consolidating Financial Information - Hertz

The following tables present the Condensed Consolidating Balance Sheets as of March 31, 2019 and December 31, 2018 , the Condensed Consolidating Statements of Operations and Comprehensive Income (Loss) for the three months ended March 31, 2019 and 2018 and the Condensed Consolidating Statements of Cash Flows for the three months ended March 31, 2019 and 2018 of (a) The Hertz Corporation, ("Parent”); (b) the Parent's subsidiaries that guarantee the Senior Notes issued by the Parent ("Guarantor Subsidiaries"); (c) the Parent's subsidiaries that do not guarantee the Senior Notes issued by the Parent ("Non-Guarantor Subsidiaries"); (d) elimination entries necessary to consolidate the Parent with the Guarantor Subsidiaries and Non-Guarantor Subsidiaries ("Eliminations"); and (e) Hertz on a consolidated basis.

Investments in subsidiaries are accounted for using the equity method for purposes of the consolidating presentation. The principal elimination entries relate to investments in subsidiaries and intercompany balances and transactions. The Guarantor Subsidiaries are 100% owned by the Parent and all guarantees are full and unconditional and joint and several. Additionally, substantially all of the assets of the Guarantor Subsidiaries are pledged under the Senior Facilities and Senior Second Priority Secured Notes, and consequently will not be available to satisfy the claims of Hertz general creditors. In lieu of providing separate unaudited financial statements for the Guarantor Subsidiaries, Hertz has included the accompanying condensed consolidating financial statements based on Rule 3-10 of the SEC's Regulation S-X. Management of Hertz does not believe that separate financial statements of the Guarantor Subsidiaries are material to Hertz's investors; therefore, separate financial statements and other disclosures concerning the Guarantor Subsidiaries are not presented.


32

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

THE HERTZ CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEET
March 31, 2019
(In millions)

 
Parent
(The Hertz
Corporation)
 
Guarantor
Subsidiaries
 
Non-
Guarantor
Subsidiaries
 
Eliminations
 
The Hertz
Corporation &
Subsidiaries
ASSETS
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
173

 
$
3

 
$
378

 
$
—

 
$
554

Restricted cash and cash equivalents
130

 
11

 
311

 
—

 
452

Total cash, cash equivalents, restricted cash and restricted cash equivalents
303

 
14

 
689

 
—

 
1,006

Receivables, net of allowance
461

 
167

 
935

 
—

 
1,563

Due from affiliates
3,224

 
4,138

 
7,505

 
(14,867
)
 
—

Prepaid expenses and other assets
5,085

 
28

 
300

 
(4,306
)
 
1,107

Revenue earning vehicles, net
268

 
—

 
13,500

 
—

 
13,768

Property and equipment, net
611

 
62

 
98

 
—

 
771

Operating lease right-of-use assets
943

 
198

 
373

 
—

 
1,514

Investment in subsidiaries, net
7,569

 
1,560

 
—

 
(9,129
)
 
—

Intangible assets, net
188

 
3,026

 
4

 
—

 
3,218

Goodwill
102

 
943

 
38

 
—

 
1,083

Total assets
$
18,754

 
$
10,136

 
$
23,442

 
$
(28,302
)
 
$
24,030

LIABILITIES AND STOCKHOLDER'S EQUITY
 
 
 
 
 
 
 
 
 
Due to affiliates
$
10,833

 
$
990

 
$
3,044

 
$
(14,867
)
 
$
—

Accounts payable
395

 
112

 
772

 
—

 
1,279

Accrued liabilities
824

 
50

 
456

 
—

 
1,330

Accrued taxes, net
81

 
17

 
2,389

 
(2,341
)
 
146

Debt
4,575

 
—

 
12,682

 
—

 
17,257

Operating lease liabilities
940

 
199

 
374

 
—

 
1,513

Public liability and property damage
186

 
41

 
184

 
—

 
411

Deferred income taxes, net
—

 
1,732

 
1,324

 
(1,965
)
 
1,091

Total liabilities
17,834

 
3,141

 
21,225

 
(19,173
)
 
23,027

Stockholder's equity:
 
 
 
 
 
 
 
 
 
Total stockholder's equity attributable to Hertz
920

 
6,995

 
2,134

 
(9,129
)
 
920

Noncontrolling interests
—

 
—

 
83

 
—

 
83

Total stockholder's equity
920

 
6,995

 
2,217

 
(9,129
)
 
1,003

Total liabilities and stockholder's equity
$
18,754

 
$
10,136

 
$
23,442

 
$
(28,302
)
 
$
24,030



33

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

THE HERTZ CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEET
December 31, 2018
(In millions)
 
Parent
(The Hertz
Corporation)
 
Guarantor
Subsidiaries
 
Non-
Guarantor
Subsidiaries
 
Eliminations
 
The Hertz
Corporation &
Subsidiaries
ASSETS
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
576

 
$
3

 
$
548

 
$
—

 
$
1,127

Restricted cash and cash equivalents
137

 
8

 
138

 
—

 
283

Total cash, cash equivalents, restricted cash and restricted cash equivalents
713

 
11

 
686

 
—

 
1,410

Receivables, net of allowance
421

 
174

 
992

 
—

 
1,587

Due from affiliates
3,522

 
5,312

 
9,101

 
(17,935
)
 
—

Prepaid expenses and other assets
4,863

 
34

 
269

 
(4,264
)
 
902

Revenue earning vehicles, net
421

 
1

 
11,997

 
—

 
12,419

Property and equipment, net
590

 
64

 
124

 
—

 
778

Investment in subsidiaries, net
7,648

 
1,526

 
—

 
(9,174
)
 
—

Intangible assets, net
160

 
3,039

 
4

 
—

 
3,203

Goodwill
102

 
943

 
38

 
—

 
1,083

Total assets
$
18,440

 
$
11,104

 
$
23,211

 
$
(31,373
)
 
$
21,382

LIABILITIES AND STOCKHOLDER'S EQUITY
 
 
 
 
 
 
 
 
 
Due to affiliates
$
11,351

 
$
2,306

 
$
4,278

 
$
(17,935
)
 
$
—

Accounts payable
388

 
97

 
503

 
—

 
988

Accrued liabilities
823

 
69

 
412

 
—

 
1,304

Accrued taxes, net
67

 
15

 
2,359

 
(2,305
)
 
136

Debt
4,567

 
—

 
11,757

 
—

 
16,324

Public liability and property damage
185

 
41

 
192

 
—

 
418

Deferred income taxes, net
—

 
1,729

 
1,324

 
(1,959
)
 
1,094

Total liabilities
17,381

 
4,257

 
20,825

 
(22,199
)
 
20,264

Stockholder's equity:
 
 
 
 
 
 
 
 
 
Total stockholder's equity attributable to Hertz
1,059

 
6,847

 
2,327

 
(9,174
)
 
1,059

Noncontrolling interests
—

 
—

 
59

 
—

 
59

Total stockholder's equity
1,059

 
6,847

 
2,386

 
(9,174
)
 
1,118

Total liabilities and stockholder's equity
$
18,440

 
$
11,104

 
$
23,211

 
$
(31,373
)
 
$
21,382




34

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

THE HERTZ CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
For the Three Months Ended March 31, 2019
(In millions)

 
Parent
(The Hertz
Corporation)
 
Guarantor
Subsidiaries
 
Non-
Guarantor
Subsidiaries
 
Eliminations
 
The Hertz
Corporation &
Subsidiaries
Total revenues
$
1,151

 
$
320

 
$
2,074

 
$
(1,438
)
 
$
2,107

Expenses:
 
 
 
 
 
 
 
 
 
Direct vehicle and operating
812

 
157

 
297

 
—

 
1,266

Depreciation of revenue earning vehicles and lease charges
1,394

 
74

 
562

 
(1,438
)
 
592

Selling, general and administrative
157

 
16

 
61

 
—

 
234

Interest (income) expense, net
107

 
(46
)
 
120

 
—

 
181

Other (income) expense, net
(19
)
 
—

 
—

 
—

 
(19
)
Total expenses
2,451

 
201

 
1,040

 
(1,438
)
 
2,254

Income (loss) before income taxes and equity in earnings (losses) of subsidiaries
(1,300
)
 
119

 
1,034

 
—

 
(147
)
Income tax (provision) benefit
42

 
(4
)
 
(37
)
 
—

 
1

Equity in earnings (losses) of subsidiaries, net of tax
1,112

 
25

 
—

 
(1,137
)
 
—

Net income (loss)
(146
)
 
140

 
997

 
(1,137
)
 
(146
)
Net (income) loss attributable to noncontrolling interests
—

 
—

 
1

 
—

 
1

Net income (loss) attributable to Hertz
(146
)
 
140

 
998

 
(1,137
)
 
(145
)
Total other comprehensive income (loss), net of tax
8

 
2

 
6

 
(9
)
 
7

Comprehensive income (loss) attributable to Hertz
$
(138
)
 
$
142

 
$
1,004

 
$
(1,146
)
 
$
(138
)

For the Three Months Ended March 31, 2018
(In millions)

 
Parent
(The Hertz
Corporation)
 
Guarantor
Subsidiaries
 
Non-
Guarantor
Subsidiaries
 
Eliminations
 
The Hertz
Corporation &
Subsidiaries
Total revenues
$
1,056

 
$
319

 
$
1,489

 
$
(801
)
 
$
2,063

Expenses:
 
 
 
 
 
 
 
 
 

Direct vehicle and operating
751

 
172

 
313

 
—

 
1,236

Depreciation of revenue earning vehicles and lease charges
766

 
84

 
612

 
(801
)
 
661

Selling, general and administrative
161

 
12

 
61

 
—

 
234

Interest (income) expense, net
102

 
(33
)
 
96

 
—

 
165

Other (income) expense, net
(2
)
 
—

 
(1
)
 
—

 
(3
)
Total expenses
1,778

 
235

 
1,081

 
(801
)
 
2,293

Income (loss) before income taxes and equity in earnings (losses) of subsidiaries
(722
)
 
84

 
408

 
—

 
(230
)
Income tax (provision) benefit
122

 
(14
)
 
(79
)
 
—

 
29

Equity in earnings (losses) of subsidiaries, net of tax
399

 
25

 
—

 
(424
)
 
—

Net income (loss)
(201
)
 
95

 
329

 
(424
)
 
(201
)
Total other comprehensive income (loss), net of tax
(3
)
 
(2
)
 
(3
)
 
5

 
(3
)
Comprehensive income (loss)
$
(204
)
 
$
93

 
$
326

 
$
(419
)
 
$
(204
)

35

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

THE HERTZ CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
For the Three Months Ended March 31, 2019
(In millions)

 
Parent
(The Hertz
Corporation)
 
Guarantor
Subsidiaries
 
Non-
Guarantor
Subsidiaries
 
Eliminations
 
The Hertz
Corporation &
Subsidiaries
Net cash provided by (used in) operating activities
$
83

 
$
5

 
$
1,421

 
$
(993
)
 
$
516

Cash flows from investing activities:
 
 
 
 
 
 
 
 
 
Revenue earning vehicles expenditures
(102
)
 
—

 
(3,871
)
 
—

 
(3,973
)
Proceeds from disposal of revenue earning vehicles
48

 
—

 
2,105

 
—

 
2,153

Capital asset expenditures, non-vehicle
(45
)
 
(2
)
 
(7
)
 
—

 
(54
)
Proceeds from property and other equipment disposed of or to be disposed of
17

 
—

 
2

 
—

 
19

Capital contributions to subsidiaries
(376
)
 
—

 
—

 
376

 
—

Return of capital from subsidiaries
406

 
—

 
—

 
(406
)
 
—

Proceeds from/repayments of intercompany loan
—

 
—

 
434

 
(434
)
 
—

Net cash provided by (used in) investing activities
(52
)
 
(2
)
 
(1,337
)
 
(464
)
 
(1,855
)
Cash flows from financing activities:
 
 
 
 
 
 
 
 
 
Proceeds from issuance of vehicle debt
195

 
—

 
3,472

 
—

 
3,667

Repayments of vehicle debt
(195
)
 
—

 
(2,541
)
 
—

 
(2,736
)
Proceeds from issuance of non-vehicle debt
341

 
—

 
—

 
—

 
341

Repayments of non-vehicle debt
(344
)
 
—

 
—

 
—

 
(344
)
Payment of financing costs
—

 
—

 
(12
)
 
—

 
(12
)
Advances to Hertz Holdings
(4
)
 
—

 
—

 
—

 
(4
)
Contributions from noncontrolling interests

—

 
—

 
25

 
—

 
25

Capital contributions received from parent
—

 
—

 
376

 
(376
)
 
—

Payment of dividends and return of capital
—

 
—

 
(1,399
)
 
1,399

 
—

Proceeds from/repayments of intercompany loan
(434
)
 
—

 
—

 
434

 
—

Net cash provided by (used in) financing activities
(441
)
 
—

 
(79
)
 
1,457

 
937

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

 
—

 
(2
)
 
—

 
(2
)
Net increase (decrease) in cash, cash equivalents, restricted cash and restricted cash equivalents during the period
(410
)
 
3

 
3

 
—

 
(404
)
Cash, cash equivalents, restricted cash and restricted cash equivalents at beginning of period
713

 
11

 
686

 
—

 
1,410

Cash, cash equivalents, restricted cash and restricted cash equivalents at end of period
$
303

 
$
14

 
$
689

 
$
—

 
$
1,006


36

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

THE HERTZ CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
For the Three Months Ended March 31, 2018
(In millions)

 
Parent
(The Hertz
Corporation)
 
Guarantor
Subsidiaries
 
Non-
Guarantor
Subsidiaries
 
Eliminations
 
The Hertz
Corporation &
Subsidiaries
Net cash provided by (used in) operating activities
$
(221
)
 
$
7

 
$
957

 
$
(341
)
 
$
402

Cash flows from investing activities:
 
 
 
 
 
 
 
 
 
Revenue earning vehicles expenditures
(129
)
 
—

 
(3,436
)
 
—

 
(3,565
)
Proceeds from disposal of revenue earning vehicles
48

 
—

 
1,734

 
—

 
1,782

Capital asset expenditures, non-vehicle
(28
)
 
(3
)
 
(13
)
 
—

 
(44
)
Proceeds from property and other equipment disposed of or to be disposed of
—

 
—

 
4

 
—

 
4

Other
(24
)
 
—

 
(3
)
 
—

 
(27
)
Capital contributions to subsidiaries
(877
)
 
—

 
—

 
877

 
—

Return of capital from subsidiaries
1,307

 
—

 
—

 
(1,307
)
 
—

Proceeds from/repayments of intercompany loan
—

 
—

 
235

 
(235
)
 
—

Net cash provided by (used in) investing activities
297

 
(3
)
 
(1,479
)
 
(665
)
 
(1,850
)
Cash flows from financing activities:
 
 
 
 
 
 
 
 
 
Proceeds from issuance of vehicle debt
554

 
—

 
4,627

 
—

 
5,181

Repayments of vehicle debt
(607
)
 
—

 
(2,676
)
 
—

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

 
—

 
—

 
—

 
127

Repayments of non-vehicle debt
(131
)
 
—

 
—

 
—

 
(131
)
Payment of financing costs
(1
)
 
—

 
(18
)
 
—

 
(19
)
Advances to Hertz Holdings
(4
)
 
—

 
—

 
—

 
(4
)
Contributions from noncontrolling interests
—

 
—

 
5

 
—

 
5

Capital contributions received from parent
—

 
—

 
877

 
(877
)
 
—

Payment of dividends and return of capital
—

 
—

 
(1,648
)
 
1,648

 
—

Proceeds from/repayments of intercompany loan
(235
)
 
—

 
—

 
235

 
—

Net cash provided by (used in) financing activities
(297
)
 
—

 
1,167

 
1,006

 
1,876

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
(221
)
 
4

 
653

 
—

 
436

Cash, cash equivalents, restricted cash and restricted cash equivalents at beginning of period
911

 
16

 
577

 
—

 
1,504

Cash, cash equivalents, restricted cash and restricted cash equivalents at end of period
$
690

 
$
20

 
$
1,230

 
$
—

 
$
1,940



37

HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
THE HERTZ CORPORATION AND SUBSIDIARIES

ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS


Hertz Global Holdings, Inc. (together with its consolidated subsidiaries and variable interest entities, "Hertz Global") is a holding company and its principal, wholly owned subsidiary is The Hertz Corporation (together with its consolidated subsidiaries and variable interest entities, "Hertz"). Hertz Global consolidates Hertz for financial statement purposes, and Hertz comprises approximately the entire balance of Hertz Global's assets, liabilities and operating cash flows. In addition, Hertz's operating revenues and operating expenses comprise nearly 100% of Hertz Global's revenues and operating expenses. As such, Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") that follows herein is for Hertz and also applies to Hertz Global in all material respects, unless noted. Differences between the operations and results of Hertz and Hertz Global are separately disclosed and explained. We sometimes use the words "we," "our," "us," and the "Company" in this MD&A for disclosures that relate to all of Hertz and Hertz Global.

This MD&A should be read in conjunction with the MD&A presented in our 2018 Form 10‑K and the unaudited condensed consolidated financial statements and accompanying notes included in Part I, Item 1 of this Report on Form 10-Q for the quarterly period ended March 31, 2019 (this "Report"), which include additional information about our accounting policies, practices and the transactions underlying our financial results. The preparation of our unaudited condensed consolidated financial statements in conformity with U.S. GAAP requires us to make estimates and assumptions that affect the reported amounts in our unaudited condensed consolidated financial statements and the accompanying notes including vehicle depreciation and various claims and contingencies related to lawsuits, taxes and other matters arising during the normal course of business. We apply our best judgment, our knowledge of existing facts and circumstances and our knowledge of actions that we may undertake in the future in determining the estimates that will affect our unaudited condensed consolidated financial statements. We evaluate our estimates on an ongoing basis using our historical experience, as well as other factors we believe to be appropriate under the circumstances, such as current economic conditions, and adjust or revise our estimates as circumstances change. As future events and their effects cannot be determined with precision, actual results may differ from these estimates.

In this MD&A we refer to certain key metrics and non-GAAP measures, including the following:
•
Adjusted Pre-tax Income (Loss) - important to management because it allows management to assess the operational performance of our business, exclusive of certain items, and allows management to assess the performance of the entire business on the same basis as the segment measure of profitability. Management believes that it is important to investors for the same reasons it is important to management and because it allows them to assess our operational performance on the same basis that management uses internally.
•
Depreciation Per Unit Per Month - important to management and investors as depreciation of revenue earning vehicles and lease charges is one of our largest expenses for the vehicle rental business and is driven by the number of vehicles, expected residual values at the expected time of disposal and expected hold period of the vehicles. Depreciation Per Unit Per Month is reflective of how we are managing the costs of our vehicles and facilitates a comparison with other participants in the vehicle rental industry.
•
Total Revenue Per Transaction Day ("Total RPD," also referred to as "pricing") - important to management and investors as it represents a measurement of the changes in underlying pricing in the vehicle rental business and encompasses the elements in vehicle rental pricing that management has the ability to control.
•
Total Revenue Per Unit Per Month ("Total RPU") - important to management and investors as it provides a measure of revenue productivity relative to the total number of vehicles in our fleet whether owned or leased ("Average Vehicles" or "fleet capacity").
•
Transaction Days - important to management and investors as it represents the number of revenue generating days ("volume"). It is used as a component to measure Total RPD and Vehicle Utilization. Transaction Days represent the total number of 24-hour periods, with any partial period counted as one Transaction Day, that vehicles were on rent (the period between when a rental contract is opened and closed) in a given period. Thus, it is possible for a vehicle to attain more than one Transaction Day in a 24-hour period.
•
Vehicle Utilization - important to management and investors because it is the measurement of the proportion of our vehicles that are being used to generate revenues relative to fleet capacity. Higher Vehicle Utilization means more vehicles are being utilized to generate revenue.

38

HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
THE HERTZ CORPORATION AND SUBSIDIARIES

ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)


Key metrics and non-GAAP measures should not be considered in isolation and should not be considered superior to, or a substitute for, financial measures calculated in accordance with U.S. GAAP. The above key metrics and non-GAAP measures are defined, and the non-GAAP measures are reconciled to their most comparable U.S. GAAP measure, in the "Footnotes to the Results of Operations and Selected Operating Data by Segment Tables" section of this MD&A.

OUR COMPANY

Hertz Holdings was incorporated in Delaware in 2015 to serve as the top-level holding company for Rental Car Intermediate Holdings, LLC, which wholly owns Hertz, 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.

We operate our vehicle rental business globally primarily through the Hertz, Dollar and Thrifty brands from approximately 10,200 company-owned, licensee and franchisee locations in North America, Europe, Latin America, Africa, Asia, Australia, the Caribbean, the Middle East and New Zealand. We are one of the largest worldwide vehicle rental companies and our Hertz brand name is one of the most recognized globally, signifying leadership in quality rental services and products. We have an extensive network of airport and off airport rental locations in the U.S. and in all major European markets. We are also a provider of integrated vehicle leasing and fleet management solutions through our Donlen subsidiary.

OVERVIEW OF OUR BUSINESS AND OPERATING ENVIRONMENT

We are engaged principally in the business of renting vehicles primarily through our Hertz, Dollar and Thrifty brands. In addition to vehicle rental, we provide, integrated vehicle leasing and fleet management solutions through our Donlen subsidiary. We have a diversified revenue base and a highly variable cost structure and are able to adjust fleet capacity, the most significant determinant of our costs, over time to meet expectations of market demand. Our profitability is primarily a function of the volume, mix and pricing of rental transactions and the utilization of vehicles, the related ownership cost of vehicles and other operating costs. Significant changes in the purchase price or residual values of vehicles or interest rates can have a significant effect on our profitability depending on our ability to adjust pricing for these changes. We continue to balance our mix of non-program and program vehicles based on market conditions, including residual values. Our business requires significant expenditures for vehicles, and consequently we require substantial liquidity to finance such expenditures. See "Liquidity and Capital Resources" below.
 
Our strategy includes optimization of our vehicle rental operations, disciplined performance management and evaluation of all locations and the pursuit of same-store sales growth.

Our total revenues primarily are derived from rental and related charges and consist of:
•
Worldwide vehicle rental revenues - revenues from all company-operated vehicle rental operations, including charges to customers for the reimbursement of costs incurred relating to airport concession fees and vehicle license fees, the fueling of vehicles and revenues associated with value-added services, including the sale of loss or collision damage waivers, liability insurance coverage, parking and other products and fees. Also included are ancillary revenues associated with retail vehicle sales and certain royalty fees from our franchisees (such fees are less than 2% of total revenues each period); and
•
All other operations revenues - revenues from vehicle leasing and fleet management services by our Donlen business and other business activities.

39

HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
THE HERTZ CORPORATION AND SUBSIDIARIES

ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

Our expenses primarily consist of:
•
Direct vehicle and operating expense ("DOE") (primarily wages and related benefits; commissions and concession fees paid to airport authorities, travel agents and others; facility, self-insurance and reservation costs; and other costs relating to the operation and rental of revenue earning vehicles, such as damage, maintenance and fuel costs);
•
Depreciation expense and lease charges relating to revenue earning vehicles;
•
Selling, general and administrative expense ("SG&A"), which includes costs for information technology and finance transformation programs; and
•
Interest expense, net.

Our Business Segments

We have identified three reportable segments, which are organized based on the products and services provided by our operating segments and the geographic areas in which our operating segments conduct business, as follows:
•
U.S. RAC - Rental of vehicles, as well as sales of value-added services, in the U.S.;
•
International RAC - Rental and leasing of vehicles, as well as sales of value-added services, internationally; and
•
All Other Operations - Comprised primarily of our Donlen business, which provides vehicle leasing and fleet management services, and other business activities.
In addition to the above reportable segments, we have Corporate operations. We assess performance and allocate resources based upon the financial information for our operating segments.

Revenue Earning Vehicles

Revenue earning vehicles used in our rental and leasing operations are stated at cost, net of related discounts and incentives from manufacturers. Holding periods typically range from six to thirty-six months. Also included in revenue earning vehicles are vehicles placed on the Company's retail lots for sale or are actively in the process of being sold through other disposition channels.

Program vehicles are purchased under repurchase or guaranteed depreciation programs with vehicle manufacturers wherein the manufacturers agree to repurchase vehicles at a specified price or guarantee the depreciation rate on the vehicles during established repurchase or auction periods, subject to, among other things, certain vehicle condition, mileage and holding period requirements. Guaranteed depreciation programs guarantee on an aggregate basis the residual value of the program vehicle upon sale. Program vehicles generally provide us with flexibility to increase or reduce the size of our fleet based on economic demand. When we increase the percentage of program vehicles, the average age of our fleet decreases since the average holding period for program vehicles is shorter than for non-program vehicles.

When a revenue earning vehicle is acquired outside of a vehicle repurchase program, the Company estimates the period that it will hold the asset, primarily based on historical measures of the amount of rental activity (e.g.,   automobile mileage). The Company also estimates the residual value of the applicable revenue earning vehicles at the expected time of disposal, taking into consideration factors such as make, model and options, age, physical condition, mileage, sale location, time of the year and channel of disposition (e.g.,   auction, retail, dealer direct) and market conditions. The vehicle is depreciated using a rate based on these estimates. 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 expected time of disposal and the estimated holding period of the vehicle. Differences between actual residual values and those estimated result in an adjustment to depreciation upon disposition of the vehicle. The Company's depreciation of revenue earning vehicles and lease charges also includes costs associated with the disposal of vehicles and rents paid for vehicles leased.


40

HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
THE HERTZ CORPORATION AND SUBSIDIARIES

ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

We dispose of our non-program vehicles via auction, dealer-direct and our retail locations. Non-program vehicles disposed of through our retail outlets allow us the opportunity for value-added revenue, such as warranty, financing and title fees. We periodically review and adjust the mix between program and non-program vehicles in our fleet based on contract negotiations and the economic environment pertaining to our industry in an effort to optimize the mix of vehicles.

Seasonality

Our vehicle rental operations are a seasonal business, with decreased levels of business in the winter months and heightened activity during the spring and summer peak ("our peak season") for the majority of countries where we generate our revenues. To accommodate increased demand, we increase our available fleet and staff during the second and third quarters of the year. As business demand declines, vehicles and staff are decreased accordingly. A number of our other major operating costs, including airport concession fees, commissions and vehicle liability expenses, are directly related to revenues or transaction volumes. In addition, our management expects to utilize enhanced process improvements, including utilization initiatives and the use of our information technology systems, to help manage our variable costs. Generally, between 70% and 75% of our annual operating costs represent variable costs, while the remaining costs are fixed or semi-fixed. We also maintain a flexible workforce, with a significant number of part-time and seasonal workers. Certain operating expenses, including real estate taxes, rent, insurance, utilities, maintenance and other facility-related expenses, the costs of operating our information technology systems and minimum staffing costs, remain fixed and cannot be adjusted for seasonal demand.


41

HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
THE HERTZ CORPORATION AND SUBSIDIARIES

ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

Adoption of the new Lease Standard

Effective January 1, 2019, we adopted the new lease standard, Topic 842 which did not have a significant impact to our results of operations for the three months ended March 31, 2019. See the section in Note 2 , " Basis of Presentation and Recently Issued Accounting Pronouncements " for further information.

2019 Operating Overview

The following provides an overview of our business and financial performance and key factors influencing our results:
•
U.S. RAC
◦
1Q 2019 versus 1Q 2018 :
▪
Total revenues increase d $94 million , or 7%
▪
Total RPD and Total RPU increase d 2%
▪
Transaction Days increase d 4%
▪
Depreciation of revenue earning vehicles and lease charges decrease d 11% to $386 million
▪
Depreciation Per Unit Per Month decrease d 15% to $256
▪
Vehicle Utilization was comparable at 79%
▪
DOE as a percentage of total revenues decrease d 80 bps ( 64% versus 65% )
▪
SG&A as a percentage of total revenues increase d 100 bps ( 8% versus 7% )

• International RAC
◦
1Q 2019 versus 1Q 2018 :
▪
Total revenues decrease d $35 million , or 7% , and were flat, excluding the impact of foreign currency exchange at average rates ("fx")
▪
Total RPD decrease d 2% , and Total RPU decrease d 3%
▪
Transaction Days increase d 2%
▪
Depreciation of revenue earning vehicles and lease charges decrease d 5% to $97 million , and increase d $3 million , or 3% , excluding fx
▪
Depreciation Per Unit Per Month was comparable ( $212 versus $211 )
▪
Vehicle Utilization decrease d 90 bps ( 74% versus 75% )
▪
DOE as a percentage of total revenues increase d 150 bps ( 66% versus 64% ).
▪
SG&A as a percentage of total revenues decrease d 40 bps ( 12% versus 13% )

•
Recorded $23 million in expenses during the first quarter of 2019 and 2018 associated with our information technology and finance transformation programs, both of which are multi-year initiatives to upgrade and modernize the company's systems and processes.

For more information on the above, see the discussion of our results on a consolidated basis and by segment that follows herein.



42

HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
THE HERTZ CORPORATION AND SUBSIDIARIES

ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

CONSOLIDATED RESULTS OF OPERATIONS - HERTZ
 
Three Months Ended March 31,
 
Percent Increase/(Decrease)
($ in millions)
2019
 
2018
 
Total revenues
$
2,107

 
$
2,063

 
2
 %
Direct vehicle and operating expenses
1,266

 
1,236

 
2

Depreciation of revenue earning vehicles and lease charges
592

 
661

 
(10
)
Selling, general and administrative expenses
234

 
234

 
—

Interest expense, net:
 
 
 
 
 
Vehicle
112

 
94

 
19

Non-vehicle
69

 
71

 
(3
)
Interest expense, net
181

 
165

 
10

Other (income) expense, net
(19
)
 
(3
)
 
NM

Income (loss) before income taxes
(147
)
 
(230
)
 
(36
)
Income tax (provision) benefit
1

 
29

 
(97
)
Net income (loss)
(146
)
 
(201
)
 
(27
)
Net (income) loss attributable to noncontrolling interests
1

 
—

 
—

Net income (loss) attributable to Hertz
$
(145
)
 
$
(201
)
 
(28
)
Adjusted Pre-tax Income (Loss) (a)
$
(109
)
 
$
(174
)
 
(37
)
Footnotes to the table above are shown in the "Footnotes to the Results of Operations and Selected Operating Data by Segment Tables" section of this MD&A.
NM - Not meaningful

Three Months Ended March 31, 2019 Compared with Three Months Ended March 31, 2018

Total revenues increase d $44 million , or 2% , in the first quarter of 2019 compared to 2018 primarily due to an increase of $94 million in our U.S. RAC segment, partially offset by a decrease of $35 million and $15 million in our International RAC and All Other Operations segments, respectively. U.S. RAC revenues increase d due to higher volume and Total RPD. Revenues for the International RAC segment decreased primarily due to the impact of fx.

DOE increase d $30 million , or 2% , in the first quarter of 2019 compared to 2018 primarily due to an increase of $49 million in our U.S. RAC segment, partially offset by a decrease of $16 million in our International RAC segment. The increase in our U.S. RAC segment was partly due to volume growth. Excluding a $23 million fx impact, DOE for International RAC increase d $7 million .

Depreciation of revenue earning vehicles and lease charges decrease d $69 million , or 10% , in the first quarter of 2019 compared to 2018 primarily due to a $48 million decrease in our U.S. RAC segment and a $16 million decrease in our All Other Operations segment. The decrease in our U.S. RAC segment resulted from continued strength in residual values and increases in dispositions through higher-yielding dealer direct and retail sales channels.

SG&A was down slightly due to decreased incentive compensation charges in our Corporate operations and the impact of fx in our International RAC segment, mostly offset by increased advertising and restructuring related expenses in our U.S. RAC segment.

Vehicle interest expense, net increase d $18 million , or 19% , in the first quarter of 2019 compared to 2018 due to an increase in debt levels resulting from higher average fleet and higher market interest rates.

Non-vehicle interest expense, net in the first quarter of 2019 was comparable to the prior year quarter.


43

HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
THE HERTZ CORPORATION AND SUBSIDIARIES

ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

We had other income of $19 million for the first quarter of 2019 compared to $3 million in the first quarter of 2018 . Other income in 2019 was primarily comprised of an $11 million gain on marketable securities and an $8 million gain on the sale of non-vehicle capital assets.

The effective tax rate in the first quarter of 2019 was 1% compared to 13% in the first quarter of 2018 . We recorded a tax benefit of $1 million in the first quarter of 2019 compared to $29 million in the first quarter of 2018 . The effective income tax rate and related tax benefit were lower driven by overall improvement in our results of operations, primarily due to lower losses in the U.S. where an income tax benefit was recognized, and the impact of the composition of earnings by jurisdiction.

Adjusted Pre-tax Loss was $109 million in the first quarter of 2019 compared to $174 million in the first quarter of 2018 . See footnote (a) in the "Footnotes to the Results of Operations and Selected Operating Data by Segment Tables" for a summary and description of reconciling adjustments on a consolidated basis.

CONSOLIDATED RESULTS OF OPERATIONS - HERTZ GLOBAL

The above discussion for Hertz also applies to Hertz Global.

Hertz Global had $2 million and $1 million of interest expense, net for the first quarter of 2019 and 2018, respectively that was incremental to the amounts shown for Hertz. This amount represents interest associated with amounts outstanding under a master loan agreement between the companies. Hertz includes this amount as interest income in its statement of operations, but this amount is eliminated in consolidation for purposes of presenting Hertz Global.


44

HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
THE HERTZ CORPORATION AND SUBSIDIARIES

ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

RESULTS OF OPERATIONS AND SELECTED OPERATING DATA BY SEGMENT

U.S. Rental Car
 
Three Months Ended
March 31,
 
Percent Increase/(Decrease)
 
($ in millions, except as noted)
2019
 
2018
 
 
Total revenues
$
1,520

 
$
1,426

 
7
 %

Depreciation of revenue earning vehicles and lease charges
$
386

 
$
434

 
(11
)%
 
Direct vehicle and operating expenses
$
976

 
$
927

 
5

 
Selling, general and administrative expenses
$
121

 
$
99

 
22

 
Income (loss) before income taxes
$
14

 
$
(68
)
 
NM


Adjusted Pre-tax Income   (Loss) (a)
$
25

 
$
(48
)
 
NM


Transaction Days (in thousands) (b)
35,582

 
34,203

 
4

 
Average Vehicles (in whole units) (c)
501,767

 
478,600

 
5

 
Vehicle Utilization (c)
79
%
 
79
%
 
(60
)
bps
Total RPD (in whole dollars) (d)
$
41.90

 
$
40.93

 
2

 
Total RPU Per Month (in whole dollars) (e)
$
990

 
$
975

 
2

 
Depreciation Per Unit Per Month (in whole dollars) (f)
$
256

 
$
302

 
(15
)
 
Percentage of program vehicles at period end
9
%
 
9
%
 
(90
)
bps
Footnotes to the table above are shown in the "Footnotes to the Results of Operations and Selected Operating Data by Segment Tables" section of this MD&A.
NM - Not meaningful

Three Months Ended March 31, 2019 Compared with Three Months Ended March 31, 2018

Total U.S. RAC revenues increase d $94 million  from the first quarter of 2018 due to higher volume and pricing. The 4% increase in Transaction Days was driven by growth in TNC rentals. The 2% increase in Total RPD was driven by leisure and TNC rentals. Off airport revenues comprised 33% of total revenues for the segment in the first quarter of 2019 as compared to 31% in the first quarter of 2018 .

Depreciation of revenue earning vehicles and lease charges for U.S. RAC decrease d by $48 million in the first quarter of 2019 compared to 2018 primarily due to continued strength in residual values and more dispositions through higher-yielding dealer direct and retail sales channels. Depreciation Per Unit Per Month decrease d to $256 in the first quarter of 2019 compared to $302 in the first quarter of 2018 .

DOE for U.S. RAC increase d $49 million of which $28 million was driven by growth in TNC rentals, $28 million due to increased other vehicle operating expenses, and $7 million due to increased commissions and other personnel related expenses. The above were partially offset by a $20 million decrease in facility and other charges.

SG&A increase d $22 million primarily due to advertising and restructuring related charges.

There was income before income taxes for U.S. RAC of $14 million in the first quarter of 2019 compared to loss before income taxes of $68 million in the first quarter of 2018 . The $82 million year over year favorable variance was primarily due to the impact of increased revenues and decreased depreciation expense on our revenue earning vehicles. The favorable variance was partially offset by the increase in DOE and SG&A and a $12 million increase in vehicle related interest expense due to an increase in debt levels resulting from higher average fleet and higher market interest rates.
 
Adjusted Pre-tax Income for U.S. RAC was $25 million in the first quarter of 2019 compared to Adjusted Pre-tax Loss of $48 million in the first quarter of 2018 . See footnote (a) in the "Footnotes to the Results of Operations and Selected Operating Data by Segment Tables" for a summary and description of reconciling adjustments on a consolidated basis.


45

HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
THE HERTZ CORPORATION AND SUBSIDIARIES

ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

International Rental Car
 
Three Months Ended
March 31,
 
Percent Increase/(Decrease)
 
($ in millions, except as noted)
2019
 
2018
 
 
Total revenues
$
433

 
$
468

 
(7
)%

Depreciation of revenue earning vehicles and lease charges
$
97

 
$
102

 
(5
)
 
Direct vehicle and operating expenses
$
284

 
$
300

 
(5
)
 
Selling, general and administrative expenses
$
54

 
$
60

 
(10
)
 
Income (loss) before income taxes
$
(24
)
 
$
(12
)
 
100


Adjusted Pre-tax Income (loss) (a)
$
(18
)
 
$
(6
)
 
200


Transaction Days (in thousands) (b)
10,127

 
9,974

 
2

 
Average Vehicles (in whole units) (c)
152,747

 
148,700

 
3

 
Vehicle Utilization (c)
74
%
 
75
%
 
(90
)
bps
Total RPD (in whole dollars) (d)
$
42.56

 
$
43.41

 
(2
)
 
Total RPU Per Month (in whole dollars) (e)
$
941

 
$
971

 
(3
)
 
Depreciation Per Unit Per Month (in whole dollars) (f)
$
212

 
$
211

 
—

 
Percentage of program vehicles at period end
39
%
 
41
%
 
(250
)
bps
Footnotes to the table above are shown in the "Footnotes to the Results of Operations and Selected Operating Data by Segment Tables" section of this MD&A.

Three Months Ended March 31, 2019 Compared with Three Months Ended March 31, 2018

Total revenues for International RAC decrease d $35 million in the first quarter of 2019 compared to 2018 . Excluding a $33 million fx impact, revenues were flat due to a 2% increase in Transaction Days primarily driven by growth in both leisure and business customer segments during the summer peak season in the Asia Pacific region, offset by a 2% decrease in Total RPD due in part to the impact of the timing of the Easter holiday in 2019 versus 2018.

Depreciation of revenue earning vehicles and lease charges for International RAC decrease d $5 million in the first quarter of 2019 compared to 2018 largely due to an $8 million fx impact. Depreciation Per Unit Per Month for International RAC was comparable for the first quarter of 2019 versus 2018 .

DOE for International RAC decrease d $16 million in the first quarter of 2019 compared to the first quarter of 2018 . Excluding a $23 million fx impact, DOE increase d $7 million , or 3% , compared to the first quarter of 2018 primarily driven by higher field compensation and other vehicle operating expenses due in part to higher volumes, partially offset by a decrease in public liability and property damage expense.

SG&A decrease d $6 million in the first quarter of 2019 compared to the first quarter of 2018 largely due to a $5 million fx impact.

Loss before income taxes for International RAC was $24 million in the first quarter of 2019 compared to $12 million in the first quarter of 2018 . The $12 million year over year unfavorable variance was primarily due to the decrease in revenues, partially offset by the decrease in DOE, SG&A and depreciation expense on our revenue earning vehicles.

Adjusted Pre-tax Loss for International RAC was $18 million in the first quarter of 2019 compared to $6 million in the first quarter of 2018 . See footnote (a) in the "Footnotes to the Results of Operations and Selected Operating Data by Segment Tables" for a summary and description of reconciling adjustments on a consolidated basis.


46

HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
THE HERTZ CORPORATION AND SUBSIDIARIES

ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

All Other Operations

The All Other Operations segment is primarily comprised of our Donlen business and, as such, our discussion is limited to Donlen.

Results of operations for this segment are as follows:

 
Three Months Ended
March 31,
 
Percent Increase/(Decrease)
($ in millions)
2019
 
2018
 
Total revenues
$
154

 
$
169

 
(9
)%
Depreciation of revenue earning vehicles and lease charges
$
109

 
$
125

 
(13
)
Direct vehicle and operating expenses
$
6

 
$
9

 
(33
)
Selling, general and administrative expenses
$
7

 
$
10

 
(30
)
Income (loss) before income taxes
$
24

 
$
19

 
26

Adjusted Pre-tax Income (Loss) (a)
$
25

 
$
22

 
14

Average Vehicles - Donlen
192,799

 
191,600

 
1

Footnotes to the table above are shown in the "Footnotes to the Results of Operations and Selected Operating Data by Segment Tables" section of this MD&A.

Lower year-over-year revenue and depreciation of revenue earning vehicles and lease charges were driven by the impact of a change in presentation for certain leased vehicles in the first quarter of 2019 versus 2018.

Footnotes to the Results of Operations and Selected Operating Data by Segment Tables

(a)
Adjusted Pre-tax Income (Loss) is calculated as income (loss) before income taxes plus non-cash acquisition accounting charges, debt-related charges relating to the amortization and write-off of debt financing costs and debt discounts and premiums, goodwill, intangible and tangible asset impairments and write downs, information technology and finance transformation costs, net income or loss attributable to noncontrolling interests, and certain other miscellaneous or non-recurring items. Adjusted Pre-tax Income (Loss) is important because it allows management to assess operational performance of our business, exclusive of the items mentioned above. It also allows management to assess the performance of the entire business on the same basis as the segment measure of profitability. Management believes that it is important to investors for the same reasons it is important to management and because it allows them to assess our operational performance on the same basis that management uses internally. When evaluating our operating performance, investors should not consider Adjusted Pre-tax Income (Loss) in isolation of, or as a substitute for, measures of our financial performance, such as net income (loss) or income (loss) before income taxes. The contribution of our reportable segments to Adjusted Pre-tax Income (Loss) and reconciliation to the most comparable consolidated U.S. GAAP measure are presented below:


47

HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
THE HERTZ CORPORATION AND SUBSIDIARIES

ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

Hertz
 
Three Months Ended
March 31,
(In millions)
2019
 
2018
Adjusted Pre-tax Income (Loss):
 
 
 
U.S. Rental Car
$
25

 
$
(48
)
International Rental Car
(18
)
 
(6
)
All Other Operations
25

 
22

Total reportable segments
32

 
(32
)
Corporate (1)
(141
)
 
(142
)
Adjusted Pre-tax Income (Loss)
(109
)
 
(174
)
Adjustments:
 
 
 
Acquisition accounting (2)
(14
)
 
(15
)
Debt-related charges (3)
(14
)
 
(16
)
Restructuring and restructuring related charges (4)
(7
)
 
(4
)
Information technology and finance transformation costs (5)
(23
)
 
(23
)
Other (6)
20

 
2

Income (loss) before income taxes
$
(147
)
 
$
(230
)

Hertz Global
 
Three Months Ended
March 31,
(In millions)
2019
 
2018
Adjusted Pre-tax Income (Loss):
 
 
 
U.S. Rental Car
$
25

 
$
(48
)
International Rental Car
(18
)
 
(6
)
All Other Operations
25

 
22

Total reportable segments
32

 
(32
)
Corporate (1)
(143
)
 
(143
)
Adjusted Pre-tax Income (Loss)
(111
)
 
(175
)
Adjustments:
 
 
 
Acquisition accounting (2)
(14
)
 
(15
)
Debt-related charges (3)
(14
)
 
(16
)
Restructuring and restructuring related charges (4)
(7
)
 
(4
)
Information technology and finance transformation costs (5)
(23
)
 
(23
)
Other (6)
20

 
2

Income (loss) before income taxes
$
(149
)
 
$
(231
)

(1)
Represents general corporate expenses, non-vehicle interest expense, as well as other business activities.
(2)
Represents incremental expense associated with amortization of other intangible assets and depreciation of property and equipment relating to acquisition accounting.
(3)
Represents debt-related charges relating to the amortization of deferred financing costs and debt discounts and premiums.
(4)
Represents charges incurred under restructuring actions as defined in U.S. GAAP, excluding impairments and asset write-downs. Also includes restructuring related charges such as incremental costs incurred directly supporting business transformation initiatives. Such costs include transition costs incurred in connection with business process outsourcing arrangements and incremental costs incurred to facilitate business process re-engineering initiatives that involve significant organization redesign and extensive operational process changes. In 2018, also includes consulting costs, legal fees, and other expenses related to the previously disclosed accounting review and investigation.
(5)
Represents costs associated with our information technology and finance transformation programs, both of which are multi-year initiatives to upgrade and modernize our systems and processes.
(6)
Represents miscellaneous or non-recurring items, and includes amounts attributable to noncontrolling interests. In 2019, also includes an $11 million gain on marketable securities, and an $8 million gain on the sale of non-vehicle capital assets.


48

HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
THE HERTZ CORPORATION AND SUBSIDIARIES

ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

(b)
Transaction Days represent the total number of 24-hour periods, with any partial period counted as one Transaction Day, that vehicles were on rent (the period between when a rental contract is opened and closed) in a given period. Thus, it is possible for a vehicle to attain more than one Transaction Day in a 24-hour period. 

(c)
Average Vehicles are determined using a simple average of the number of vehicles at the beginning and end of a given period. Among other things, Average Vehicles is used to calculate our Vehicle Utilization which represents the portion of our vehicles that are being utilized to generate revenue. Vehicle Utilization is calculated by dividing total Transaction Days by Available Car Days. The calculation of Vehicle Utilization is shown in the table below:
 
U.S. Rental Car
 
International Rental Car
 
Three Months Ended March 31,
 
2019
 
2018
 
2019
 
2018
Transaction Days (in thousands)
35,582

 
34,203

 
10,127

 
9,974

Average Vehicles
501,767

 
478,600

 
152,747

 
148,700

Number of days in period
90

 
90

 
90

 
90

Available Car Days (in thousands)
45,159

 
43,074

 
13,747

 
13,383

Vehicle Utilization
79
%
 
79
%
 
74
%
 
75
%
 
 
 
 
 
 
 
 

(d)
Total RPD is calculated as total revenue less ancillary retail vehicle sales revenue, with all periods adjusted to eliminate the effect of fluctuations in foreign currency exchange rates ("Total Rental Revenue"), divided by the total number of Transaction Days. Our management believes eliminating the effect of fluctuations in foreign currency exchange rates is useful in analyzing underlying trends. The calculation of Total RPD is shown below:
 
U.S. Rental Car
 
International Rental Car
 
Three Months Ended March 31,
($ in millions, except as noted)
2019
 
2018
 
2019
 
2018
Revenues
$
1,520

 
$
1,426

 
$
433

 
$
468

Ancillary retail vehicle sales revenue
(29
)
 
(26
)
 
—

 
—

Foreign currency adjustment (1)
—

 
—

 
(2
)
 
(35
)
Total Rental Revenue
$
1,491

 
$
1,400

 
$
431

 
$
433

Transaction Days (in thousands)
35,582

 
34,203

 
10,127

 
9,974

Total RPD (in whole dollars)
$
41.90

 
$
40.93

 
$
42.56

 
$
43.41

 
 
 
 
 
 
 
 
(1)
Based on December 31, 2018 foreign currency exchange rates for all periods presented.

(e)
Total RPU is calculated as Total Rental Revenue divided by the Average Vehicles in each period and then divided by the number of months in the period reported. The calculation of Total RPU is shown below:
 
U.S. Rental Car
 
International Rental Car
 
Three Months Ended March 31,
($ in millions, except as noted)
2019
 
2018
 
2019
 
2018
Total Rental Revenue
$
1,491

 
$
1,400

 
$
431

 
$
433

Average Vehicles
501,767

 
478,600

 
152,747

 
148,700

Total revenue per unit (in whole dollars)
$
2,971

 
$
2,925

 
$
2,822

 
$
2,912

Number of months in period
3

 
3

 
3

 
3

Total RPU Per Month (in whole dollars)
$
990

 
$
975

 
$
941

 
$
971

 
 
 
 
 
 
 
 

49

HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
THE HERTZ CORPORATION AND SUBSIDIARIES

ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

(f)
Depreciation Per Unit Per Month represents the amount of average depreciation expense and lease charges per vehicle per month and is calculated as depreciation of revenue earning vehicles and lease charges, with all periods adjusted to eliminate the effect of fluctuations in foreign currency exchange rates, divided by the Average Vehicles in each period and then dividing by the number of months in the period reported. Our management believes eliminating the effect of fluctuations in foreign currency exchange rates is useful in analyzing underlying trends. The calculation of Depreciation Per Unit Per Month is shown below:
 
U.S. Rental Car
 
International Rental Car
 
Three Months Ended March 31,
($ in millions, except as noted)
2019
 
2018
 
2019
 
2018
Depreciation of revenue earning vehicles and lease charges
$
386

 
$
434

 
$
97

 
$
102

Foreign currency adjustment (1)
—

 
—

 
—

 
(8
)
Adjusted depreciation of revenue earning vehicles and lease charges
$
386

 
$
434

 
$
97

 
$
94

Average Vehicles
501,767

 
478,600

 
152,747

 
148,700

Adjusted depreciation of revenue earning vehicles and lease charges divided by Average Vehicles (in whole dollars)
$
769

 
$
907

 
$
635

 
$
632

Number of months in period
3

 
3

 
3

 
3

Depreciation Per Unit Per Month (in whole dollars)
$
256

 
$
302

 
$
212

 
$
211

 
 
 
 
 
 
 
 
(1)
Based on December 31, 2018 foreign currency exchange rates for all periods presented.

LIQUIDITY AND CAPITAL RESOURCES

Our U.S. and international operations are funded by cash provided by operating activities and by extensive financing arrangements maintained by us in the U.S. and internationally.

As of March 31, 2019 , we had $554 million of cash and cash equivalents and $452 million of restricted cash. Of these amounts as of March 31, 2019 , $261 million of cash and cash equivalents and $163 million of restricted cash was held by our subsidiaries outside of the U.S. If not in the form of loan repayments, repatriation of some of these funds under current regulatory and tax law for use in domestic operations could expose us to additional taxes.

We believe that cash and cash equivalents generated by our operations and cash received on the disposal of vehicles, together with amounts available under various liquidity facilities and refinancing options available to us in the capital markets, will be sufficient to fund operating requirements for the next twelve months.

Cash Flows - Hertz

As of March 31, 2019 , Hertz had cash, cash equivalents, restricted cash and restricted cash equivalents of $1.0 billion as compared to $1.4 billion as of December 31, 2018 . The following table summarizes the net change in cash, cash equivalents, restricted cash and restricted cash equivalents for the periods shown:
 
Three Months Ended
March 31,
 
 
(In millions)
2019
 
2018
 
$ Change
Cash provided by (used in):
 
 
 
 
 
Operating activities
$
516

 
$
402

 
$
114

Investing activities
(1,855
)
 
(1,850
)
 
(5
)
Financing activities
937

 
1,876

 
(939
)
Effect of exchange rate changes
(2
)
 
8

 
(10
)
Net change in cash, cash equivalents, restricted cash and restricted cash equivalents
$
(404
)
 
$
436

 
$
(840
)


50

HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
THE HERTZ CORPORATION AND SUBSIDIARIES

ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

During the first quarter of 2019 , there was a $60 million increase in cash flows from certain asset and liability accounts period over period and an increase in cash flows of $54 million from net income (loss), excluding non-cash and non-operating items. Excluding the net cash flow impact from operating leases, the change from certain asset and liability accounts was due to a $115 million increase in cash due in part to value-added tax receivables in our International RAC segment, partially offset by a $51 million decrease in cash due in part to the previously disclosed SEC investigation payment.

Our primary investing activities relate to the acquisition and disposal of revenue earning vehicles. Net fleet acquisitions were comparable year over year.

Net financing cash inflows were $937 million in the first quarter of 2019 compared to $1.9 billion in the first quarter of 2018 . The variance was primarily driven by the issuance of $ 1.0 billion HVF II Series 2018-1 Notes and € 500 million HHN BV 5.50% Senior Notes in the first quarter of 2018, partially offset by the issuance of $ 700 million HVF II Series 2019-1 Notes in the first quarter of 2019.

Cash Flows - Hertz Global

As of March 31, 2019 , Hertz Global had cash, cash equivalents, restricted cash and restricted cash equivalents of $1.0 billion as compared to $1.4 billion as of December 31, 2018 . The following table summarizes the net change in cash, cash equivalents, restricted cash and restricted cash equivalents for the periods shown:
 
Three Months Ended
March 31,
 
 
(In millions)
2019
 
2018
 
$ Change
Cash provided by (used in):
 
 
 
 
 
Operating activities
$
514

 
$
401

 
$
113

Investing activities
(1,855
)
 
(1,850
)
 
(5
)
Financing activities
939

 
1,877

 
(938
)
Effect of exchange rate changes
(2
)
 
8

 
(10
)
Net change in cash, cash equivalents, restricted cash and restricted cash equivalents
$
(404
)
 
$
436

 
$
(840
)

Fluctuations in operating, investing and financing cash flows from period to period are due to the same factors as those disclosed for Hertz above, with the exception of any cash inflows or outflows related to the master loan agreement between Hertz and Hertz Global.

Financing

Substantially all of our revenue earning vehicles and certain related assets are owned by special purpose entities, or are encumbered in favor of our lenders under our various credit facilities, other secured financings and asset-backed securities programs. None of such assets are available to satisfy the claims of our general creditors.

We are highly leveraged, and a substantial portion of our liquidity requirements arise from servicing our indebtedness, funding our operations, including purchases of revenue earning vehicles, and funding non-vehicle capital expenditures. Our practice is to maintain sufficient liquidity through cash from operations, credit facilities and other financing arrangements, to mitigate any adverse effect on operations resulting from adverse financial market conditions.

Refer to Part I, Item 1, Note 3 , " Debt ," to the Notes to our unaudited condensed consolidated financial statements included in this Quarterly Report on Form 10-Q for information on our outstanding debt obligations and our borrowing capacity and availability under our revolving credit facilities as of March 31, 2019 . Cash paid for interest during the first quarter of 2019 was $29 million for interest on non-vehicle debt and $87 million for interest on vehicle debt. Cash paid for interest during the first quarter of 2018 was $28 million for interest on non-vehicle debt and $82 million for interest on vehicle debt.


51

HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
THE HERTZ CORPORATION AND SUBSIDIARIES

ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

Our corporate liquidity, which excludes unused commitments under our vehicle debt, was as follows:
(In millions)
March 31, 2019
 
December 31, 2018
Cash and cash equivalents
$
554

 
$
1,127

Availability under the Senior RCF
459

 
496

Corporate liquidity
$
1,013

 
$
1,623


Approximately $19 million of non-vehicle debt and $2.6 billion of vehicle debt will mature during the twelve months following the issuance of this Report ("the next twelve months") and we will need to refinance a portion of these obligations. We have reviewed the maturing debt obligations and determined that it is probable that we will be able, and have the intent, to repay or refinance these facilities at such times as we deem appropriate prior to their maturities.

Covenants

The indentures for the Senior Notes and the Senior Second Priority Secured Notes contain covenants that, among other things, limit or restrict the ability of the Hertz credit group to incur additional indebtedness, incur guarantee obligations, prepay certain indebtedness, make certain restricted payments (including paying dividends, redeeming stock or making other distributions to parent entities of Hertz and other persons outside of the Hertz credit group), make investments, create liens, transfer or sell assets, merge or consolidate, and enter into certain transactions with Hertz's affiliates that are not members of the Hertz credit group.

Certain of our other debt instruments and credit facilities (including the Senior Facilities and the Letter of Credit Facility) contain a number of covenants that, among other things, limit or restrict the ability of the borrowers and the guarantors to dispose of assets, incur additional indebtedness, incur guarantee obligations, prepay certain indebtedness, make certain restricted payments (including paying dividends, share repurchases or making other distributions), create liens, make investments, make acquisitions, engage in mergers, fundamentally change the nature of their business, make capital expenditures, or engage in certain transactions with certain affiliates.

The Senior RCF and the Letter of Credit Facility contain a financial maintenance covenant applicable to such facilities. Such covenant provides that Hertz’s consolidated first lien net leverage ratio, as defined in the credit agreements governing such facilities (together, the "Senior Credit Agreement"), as of the last day of any fiscal quarter, may not exceed a ratio of 3.00 to 1.00 (the "Covenant Leverage Ratio").

As of March 31, 2019 , Hertz was in compliance with the Covenant Leverage Ratio with a ratio of 1.21 to 1.00, as calculated in accordance with the Senior Credit Agreement. Consolidated EBITDA, as defined in the Senior Credit Agreement, is a component of the calculation of the Covenant Leverage Ratio and is a non-GAAP financial measure that is not a measure of operating results, but instead is a measure used to determine compliance with the Covenant Leverage Ratio under the Senior Credit Agreement. Consolidated EBITDA is generally defined in the Senior Credit Agreement as consolidated net income plus the sum of income taxes, non-vehicle interest expense, non-vehicle depreciation and amortization expense, and non-cash charges or losses, as further adjusted for certain other items permitted in calculating covenant compliance under the Senior RCF and the Letter of Credit Facility, including add-backs for non-recurring, unusual or extraordinary charges, business optimization expenses or other restructuring charges or reserves.

Based on available liquidity from our expected operating results, the Senior RCF and other financing arrangements, Hertz expects to continue to be in compliance with the Covenant Leverage Ratio for at least the next twelve months.


52

HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
THE HERTZ CORPORATION AND SUBSIDIARIES

ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

Capital Expenditures

Revenue Earning Vehicles Expenditures

The table below sets forth our revenue earning vehicles expenditures and related disposal proceeds for the periods shown:
Cash inflow (cash outflow)
Revenue Earning Vehicles
(In millions)
Capital
Expenditures
 
Disposal
Proceeds
 
Net Capital
Expenditures
2019
 
 
 
 
 
First Quarter
$
(3,973
)
 
$
2,153

 
$
(1,820
)
2018
 
 
 
 
 
First Quarter
$
(3,565
)
 
$
1,782

 
$
(1,783
)

The table below sets forth expenditures for revenue earning vehicles, net of proceeds from disposal, by segment:
Cash inflow (cash outflow)
Three Months Ended
March 31,
 
 
 
 
($ in millions)
2019
 
2018
 
$ Change
 
% Change
U.S. Rental Car
$
(1,696
)
 
$
(1,790
)
 
$
94

 
(5
)%
International Rental Car
58

 
149

 
(91
)
 
(61
)
All Other Operations
(182
)
 
(142
)
 
(40
)
 
28

Total
$
(1,820
)
 
$
(1,783
)
 
$
(37
)
 
2


Capital Assets, Non-Vehicle

The table below sets forth our capital asset expenditures, non-vehicle, and related disposal proceeds from property and other equipment disposed of or to be disposed of for the periods shown:
Cash inflow (cash outflow)
Capital Assets, Non-Vehicle
(In millions)
Capital
Expenditures
 
Disposal
Proceeds
 
Net Capital
Expenditures
2019
 
 
 
 
 
First Quarter
$
(54
)
 
$
19

 
$
(35
)
2018
 
 
 
 
 
First Quarter
$
(44
)
 
$
4

 
$
(40
)

The table below sets forth capital asset expenditures, non-vehicle, net of disposal proceeds, by segment:
Cash inflow (cash outflow)
Three Months Ended
March 31,
 
 
 
 
($ in millions)
2019
 
2018
 
$ Change
 
% Change
U.S. Rental Car
$
(9
)
 
$
(24
)
 
$
15

 
(63
)%
International Rental Car
(4
)
 
(4
)
 
—

 
—

All Other Operations
(1
)
 
(1
)
 
—

 
—

Corporate
(21
)
 
(11
)
 
(10
)
 
91

Total
$
(35
)
 
$
(40
)
 
$
5

 
(13
)


53

HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
THE HERTZ CORPORATION AND SUBSIDIARIES

ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

CONTRACTUAL OBLIGATIONS

As of March 31, 2019 , there have been no material changes outside of the ordinary course of business to our known contractual obligations as set forth in the table included in Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in our 2018 Form 10‑K. Changes to our aggregate indebtedness, including related interest and terms for new issuances, are described in Part I, Item 1, Note 3 , " Debt ," to the Notes to our unaudited condensed consolidated financial statements included in this Report.

OFF-BALANCE SHEET COMMITMENTS AND ARRANGEMENTS

Indemnification Obligations

There have been no significant changes to our indemnification obligations as compared to those disclosed in Note 16, "Contingencies and Off-Balance Sheet Commitments" of the Notes to our consolidated financial statements included in our 2018 Form 10‑K under the caption Item 8, "Financial Statements and Supplementary Data."

We regularly evaluate the probability of having to incur costs associated with indemnification obligations and will accrue for expected losses when they are probable and estimable.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

For a discussion of recent accounting pronouncements, see Note 2 , " Basis of Presentation and Recently Issued Accounting Pronouncements ," to the Notes to our unaudited condensed consolidated financial statements included in this Report.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

Certain statements contained or incorporated by reference in this Report on Form 10‑Q and in reports we subsequently file with the SEC on Forms 10‑K and 10‑Q and file or furnish on Form 8‑K, and in related comments by our management, include "forward-looking statements." Forward-looking statements include information concerning our liquidity and our possible or assumed future results of operations, including descriptions of our business strategies. These statements often include words such as "believe," "expect," "project," "potential," "anticipate," "intend," "plan," "estimate," "seek," "will," "may," "would," "should," "could," "forecasts" or similar expressions. These statements are based on certain assumptions that we have made in light of our experience in the industry as well as our perceptions of historical trends, current conditions, expected future developments and other factors we believe are appropriate in these circumstances. We believe these judgments are reasonable, but you should understand that these statements are not guarantees of performance or results, and our actual results could differ materially from those expressed in the forward-looking statements due to a variety of important factors, both positive and negative, that may be revised or supplemented in subsequent reports on Forms 10‑K, 10‑Q and 8‑K.

Important factors that could affect our actual results and cause them to differ materially from those expressed in forward-looking statements include, among others, those that may be disclosed from time to time in subsequent reports filed with the SEC, those described under "Item 1A—Risk Factors" included in our 2018 Form 10‑K and the following, which were derived in part from the risks set forth in "Item 1A—Risk Factors" of our 2018 Form 10‑K:

•
levels of travel demand, particularly with respect to airline passenger traffic in the United States and in global markets;
•
the effect of our separation of our vehicle and equipment rental businesses, any failure by Herc Holdings Inc. to comply with the agreements entered into in connection with the separation and our ability to obtain the expected benefits of the separation;
•
significant changes in the competitive environment and the effect of competition in our markets on rental volume and pricing, including on our pricing policies or use of incentives;
•
occurrences that disrupt rental activity during our peak periods;

54

HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
THE HERTZ CORPORATION AND SUBSIDIARIES

ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

•
our ability to accurately estimate future levels of rental activity and adjust the number and mix of vehicles used in our rental operations accordingly;
•
increased vehicle costs due to declines in the value of our non-program vehicles;
•
our ability to maintain sufficient liquidity and the availability to us of additional or continued sources of financing for our revenue earning vehicles and to refinance our existing indebtedness;
•
our ability to purchase adequate supplies of competitively priced vehicles and risks relating to increases in the cost of the vehicles we purchase;
•
our ability to adequately respond to changes in technology and customer demands;
•
our ability to retain customer loyalty and market share;
•
our recognition of previously deferred tax gains on the disposition of revenue earning vehicles;
•
an increase in our vehicle costs or disruption to our rental activity, particularly during our peak periods, due to safety recalls by the manufacturers of our vehicles;
•
our access to third-party distribution channels and related prices, commission structures and transaction volumes;
•
our ability to execute a business continuity plan;
•
a major disruption in our communication or centralized information networks;
•
a failure to maintain, upgrade and consolidate our information technology networks;
•
financial instability of the manufacturers of our vehicles;
•
any impact on us from the actions of our franchisees, dealers and independent contractors;
•
our ability to sustain operations during adverse economic cycles and unfavorable external events (including war, terrorist acts, natural disasters and epidemic disease);
•
shortages of fuel and increases or volatility in fuel costs;
•
our ability to maintain favorable brand recognition and a coordinated branding and portfolio strategy;
•
our ability to maintain an effective employee retention and talent management strategy and resulting changes in personnel and employee relations;
•
costs and risks associated with litigation and investigations;
•
risks related to our indebtedness, including our substantial amount of debt, our ability to incur substantially more debt, the fact that substantially all of our consolidated assets secure certain of our outstanding indebtedness and increases in interest rates or in our borrowing margins;
•
our ability to meet the financial and other covenants contained in our senior credit facilities and letter of credit facility, our outstanding unsecured senior notes, our outstanding senior second priority secured notes and certain asset-backed and asset-based arrangements;
•
changes in accounting principles, or their application or interpretation, and our ability to make accurate estimates and the assumptions underlying the estimates, which could have an effect on operating results;
•
risks associated with operating in many different countries, including the risk of a violation or alleged violation of applicable anticorruption or antibribery laws and our ability to repatriate cash from non-U.S. affiliates without adverse tax consequences;
•
our ability to prevent the misuse or theft of information we possess, including as a result of cyber security breaches and other security threats;

55

HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
THE HERTZ CORPORATION AND SUBSIDIARIES

ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

•
changes in the existing, or the adoption of new laws, regulations, policies or other activities of governments, agencies and similar organizations, such as the adoption of new regulations under the Tax Cuts and Jobs Act, where such actions may affect our operations, the cost thereof or applicable tax rates;
•
risks relating to our deferred tax assets, including the risk of an "ownership change" under the Internal Revenue Code of 1986, as amended;
•
our exposure to uninsured claims in excess of historical levels;
•
fluctuations in interest rates and commodity prices;
•
our exposure to fluctuations in foreign currency exchange rates; and
•
other risks and uncertainties described from time to time in periodic and current reports that we file with the SEC.
You should not place undue reliance on forward-looking statements. All forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the foregoing cautionary statements. All such statements speak only as of the date made, and we undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise.


56


HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
THE HERTZ CORPORATION AND SUBSIDIARIES

ITEM 3.     QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK


We are exposed to a variety of market risks, including the effects of changes in interest rates (including credit spreads), foreign currency exchange rates and fluctuations in fuel prices. We manage our exposure to these market risks through our regular operating and financing activities and, when deemed appropriate, through the use of derivative financial instruments. Derivative financial instruments are viewed as risk management tools and have not been used for speculative or trading purposes. In addition, derivative financial instruments are entered into with a diversified group of major financial institutions in order to manage our exposure to counterparty nonperformance on such instruments.

There have been no material changes to the information reported under Part II, Item 7A, "Quantitative and Qualitative Disclosures About Market Risk," included in our 2018 Form 10 ‑ K.

ITEM 4.     CONTROLS AND PROCEDURES

HERTZ GLOBAL

Evaluation of Disclosure Controls and Procedures

Our senior management has evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined under Exchange Act Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this Quarterly Report on Form 10-Q. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that as of March 31, 2019, our disclosure controls and procedures were effective.

Changes in Internal Control over Financial Reporting

During the three months ended March 31, 2019, management implemented control activities related to the adoption and ongoing accounting for Topic 842 at the appropriate level to address the risks of material misstatement, which constituted a material change in a component of our internal control over financial reporting.

There have been no other changes in our internal controls that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting during the three months ended March 31, 2019.

HERTZ

Evaluation of Disclosure Controls and Procedures

Our senior management has evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined under Exchange Act Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this Quarterly Report on Form 10-Q. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that as of March 31, 2019, our disclosure controls and procedures were effective.

Changes in Internal Control over Financial Reporting

During the three months ended March 31, 2019, management implemented control activities related to the adoption and ongoing accounting for Topic 842 at the appropriate level to address the risks of material misstatement, which constituted a material change in a component of our internal control over financial reporting.

There have been no other changes in our internal controls that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting during the three months ended March 31, 2019.



57

HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
THE HERTZ CORPORATION AND SUBSIDIARIES

PART II. OTHER INFORMATION

ITEM 1.    LEGAL PROCEEDINGS

For a description of certain pending legal proceedings see Part I, Item 1, Note 8 , " Contingencies and Off-Balance Sheet Commitments ," to the Notes to our unaudited condensed consolidated financial statements included in this Report.

ITEM 1A.    RISK FACTORS

There are no material amendments or additions to the information reported under Part I, Item 1A “Risk Factors” contained in our 2018 Form 10‑K.

ITEM 2.    UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None.

ITEM 3.    DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 5.    OTHER INFORMATION

None.

ITEM 6.   EXHIBITS

(a)
Exhibits:
The attached list of exhibits in the "Exhibit Index" immediately following the signature page to this Report is filed as part of this Form 10‑Q and is incorporated herein by reference in response to this item.

58

HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
THE HERTZ CORPORATION AND SUBSIDIARIES

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrants have duly caused this report to be signed on their behalf by the undersigned thereunto duly authorized.
Date:
May 7, 2019
HERTZ GLOBAL HOLDINGS, INC.
THE HERTZ CORPORATION
(Registrants)
 
 
By:
/s/ JAMERE JACKSON
 
 
 
Jamere Jackson
Executive Vice President and Chief Financial Officer

59

HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
THE HERTZ CORPORATION AND SUBSIDIARIES

EXHIBIT INDEX
Exhibit
Number
 
Description
10.1
Hertz Holdings Hertz
10.2
Hertz Holdings Hertz
10.3
Hertz Holdings Hertz
10.4
Hertz Holdings Hertz
10.5
Hertz Holdings Hertz
10.6
Hertz Holdings Hertz
10.7
Hertz Holdings Hertz
10.8
Hertz Holdings Hertz
10.9
Hertz Holdings Hertz

10.10
Hertz Holdings Hertz
10.11
Hertz Holdings Hertz
10.12
Hertz Holdings Hertz
31.1
Hertz Holdings
31.2
Hertz Holdings
31.3
Hertz
31.4
Hertz
32.1
Hertz Holdings
32.2
Hertz Holdings
32.3
Hertz
32.4
Hertz
101.INS
Hertz Holdings
Hertz
XBRL Instance Document*
101.SCH
Hertz Holdings
Hertz
XBRL Taxonomy Extension Schema Document*
101.CAL
Hertz Holdings
Hertz
XBRL Taxonomy Extension Calculation Linkbase Document*
101.DEF
Hertz Holdings
Hertz
XBRL Taxonomy Extension Definition Linkbase Document*
101.LAB
Hertz Holdings
Hertz
XBRL Taxonomy Extension Label Linkbase Document*
101.PRE
Hertz Holdings
Hertz
XBRL Taxonomy Extension Presentation Linkbase Document*
_______________________________________________________________________________

*Furnished herewith

60

HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
THE HERTZ CORPORATION AND SUBSIDIARIES

Note: Certain instruments with respect to various additional obligations, which could be considered as long-term debt, have not been filed as exhibits to this Report because the total amount of securities authorized under any such instrument does not exceed 10% of our total assets on a consolidated basis. We agree to furnish to the SEC upon request a copy of any such instrument defining the rights of the holders of such long-term debt.

61

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