10-Q 1 hghq32012form10-q.htm 10-Q HGH Q3 2012 FORM 10-Q
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_______________________________________________________________________________
FORM 10-Q
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2012
OR
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 001-33139
HERTZ GLOBAL HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)

20-3530539
(I.R.S. Employer
Identification Number)

225 Brae Boulevard
Park Ridge, New Jersey 07656-0713
(201) 307-2000
(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. Yes x No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer 
x
Accelerated filer 
o
Non-accelerated filer 
o
Smaller reporting company 
o
 
 
 
 
(Do not check if a smaller
reporting company)
 
 
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
There were 420,957,683 shares of the registrant's common stock, par value $0.01 per share, issued and outstanding as of November 1, 2012.
 



HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
INDEX

 
 
 
 
 
Page
 
 
 
 
 
 
 
 





PART I—FINANCIAL INFORMATION
ITEM l.    Condensed Consolidated Financial Statements
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and
Shareholders of Hertz Global Holdings, Inc.:
We have reviewed the accompanying condensed consolidated balance sheet of Hertz Global Holdings, Inc. and its subsidiaries as of September 30, 2012, and the related consolidated statements of operations and comprehensive income (loss) for the three-month and nine-month periods ended September 30, 2012 and September 30, 2011 and the consolidated statements of cash flows for the nine-month periods ended September 30, 2012 and September 30, 2011. These interim financial statements are the responsibility of the Company's management.
We conducted our review in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board (United States), the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should be made to the accompanying condensed consolidated interim financial statements for them to be in conformity with accounting principles generally accepted in the United States of America.
We previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet as of December 31, 2011, and the related consolidated statements of operations, of changes in equity and of cash flows for the year then ended (not presented herein), and in our report dated February 27, 2012, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of December 31, 2011, is fairly stated in all material respects in relation to the consolidated balance sheet from which it has been derived.
/s/ PricewaterhouseCoopers LLP
Florham Park, New Jersey
November 2, 2012

1


HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands of Dollars)
Unaudited
 
September 30,
2012
 
December 31,
2011
ASSETS
 
 
 
Cash and cash equivalents
$
453,361

 
$
931,779

Restricted cash and cash equivalents
376,773

 
308,039

Receivables, less allowance for doubtful accounts of $23,681 and $20,282
1,731,795

 
1,616,382

Inventories, at lower of cost or market
105,982

 
83,978

Prepaid expenses and other assets
384,079

 
421,758

Revenue earning equipment, at cost:
 
 
 
Cars
11,850,783

 
9,678,765

Less accumulated depreciation
(1,814,403
)
 
(1,360,012
)
Other equipment
3,226,306

 
2,830,176

Less accumulated depreciation
(1,041,477
)
 
(1,043,520
)
Total revenue earning equipment
12,221,209

 
10,105,409

Property and equipment, at cost:
 
 
 
Land, buildings and leasehold improvements
1,191,140

 
1,146,112

Service equipment and other
1,138,356

 
1,050,915

 
2,329,496

 
2,197,027

Less accumulated depreciation
(1,049,775
)
 
(945,173
)
Total property and equipment
1,279,721

 
1,251,854

Other intangible assets, net
2,531,522

 
2,562,234

Goodwill
454,663

 
392,094

Total assets
$
19,539,105

 
$
17,673,527

LIABILITIES AND EQUITY
 
 
 
Accounts payable
$
975,098

 
$
897,489

Accrued liabilities
1,020,483

 
1,128,458

Accrued taxes
205,037

 
125,803

Debt
12,720,908

 
11,317,090

Public liability and property damage
279,755

 
281,534

Deferred taxes on income
1,795,513

 
1,688,478

Total liabilities
16,996,794

 
15,438,852

Commitments and contingencies

 

Equity:
 
 
 
Hertz Global Holdings, Inc. and Subsidiaries stockholders' equity
 
 
 
Preferred Stock, $0.01 par value, 200,000,000 shares authorized, no shares
 
 
 
issued and outstanding

 

Common Stock, $0.01 par value, 2,000,000,000 shares authorized, 420,859,594
 
 
 
and 417,022,853 shares issued and outstanding
4,209

 
4,170

Additional paid-in capital
3,220,500

 
3,205,964

Accumulated deficit
(667,588
)
 
(947,064
)
Accumulated other comprehensive loss
(14,829
)
 
(28,414
)
Total Hertz Global Holdings, Inc. and Subsidiaries stockholders' equity
2,542,292

 
2,234,656

Noncontrolling interest
19

 
19

Total equity
2,542,311

 
2,234,675

Total liabilities and equity
$
19,539,105

 
$
17,673,527

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

2


HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands of Dollars, except share and per share data)
Unaudited
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
2012
 
2011
 
2012
 
2011
Revenues:
 
 
 
 
 
 
 
Car rental
$
2,105,987

 
$
2,062,457

 
$
5,578,544

 
$
5,272,595

Equipment rental
362,933

 
321,555

 
998,458

 
891,282

Other
47,302

 
48,254

 
125,292

 
120,685

Total revenues
2,516,222

 
2,432,266

 
6,702,294

 
6,284,562

Expenses:
 
 
 
 
 
 
 
Direct operating
1,241,082

 
1,247,617

 
3,545,162

 
3,508,588

Depreciation of revenue earning equipment and
 
 
 
 
 
 
 
lease charges
560,529

 
523,283

 
1,594,396

 
1,379,041

Selling, general and administrative
201,022

 
197,557

 
615,343

 
575,369

Interest expense
154,925

 
169,339

 
469,375

 
532,054

Interest income
(716
)
 
(1,248
)
 
(2,276
)
 
(4,650
)
Other (income) expense, net
(9,513
)
 
29

 
(10,524
)
 
62,706

Total expenses
2,147,329

 
2,136,577

 
6,211,476

 
6,053,108

Income before income taxes
368,893

 
295,689

 
490,818

 
231,454

Provision for taxes on income
(125,973
)
 
(83,180
)
 
(211,343
)
 
(87,802
)
Net income
242,920

 
212,509

 
279,475

 
143,652

Less: Net income attributable to noncontrolling
 
 
 
 
 
 
 
interest

 
(5,771
)
 

 
(14,531
)
Net income attributable to Hertz Global
 
 
 
 
 
 
 
Holdings, Inc. and Subsidiaries' common stockholders
$
242,920

 
$
206,738

 
$
279,475

 
$
129,121

Weighted average shares outstanding (in
 
 
 
 
 
 
 
thousands):
 
 
 
 
 
 
 
Basic
420,562

 
416,611

 
419,562

 
415,551

Diluted
445,490

 
440,908

 
447,088

 
447,304

Earnings per share attributable to Hertz Global
 
 
 
 
 
 
 
Holdings, Inc. and Subsidiaries' common stockholders:
 
 
 
 
 
 
 
Basic
$
0.58

 
$
0.50

 
$
0.67

 
$
0.31

Diluted
$
0.55

 
$
0.47

 
$
0.63

 
$
0.29

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

3


HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In Thousands of Dollars)
Unaudited
 
Three Months Ended
September 30, 2012
 
Three Months Ended
September 30, 2011
Net income
 

 
$
242,920

 
 

 
$
212,509

Other comprehensive income (loss), net of tax:
 
 
 
 
 
 
 
Translation adjustment changes, (net of tax
 
 
 
 
 
 
 
of 2012: $(2,936) and 2011: $3,363)
$
20,175

 
 

 
$
(66,580
)
 
 

Unrealized holding gains (losses) on securities,
 
 
 
 
 
 
 
(net of tax of 2012: $1,095 and 2011: $(3,215))
1,720

 
 

 
(5,026
)
 
 

Other, (net of tax of 2012: $0 and 2011: $0)
(103
)
 
 

 
92

 
 

Unrealized gain on Euro-denominated debt, (net
 
 
 
 
 
 
 
of tax of 2012: $0 and 2011: $6,898)

 
 

 
10,777

 
 

Defined benefit pension plans
 
 
 
 
 
 
 
Net gains (losses) arising during the period,
 
 
 
 
 
 
 
(net of tax of 2012: $1,064 and 2011: 
 
 
 
 
 
 
 

$(4,834)
1,437

 
 

 
(14,007
)
 
 

Defined benefit pension plans
1,437

 
 

 
(14,007
)
 
 

Other comprehensive income (loss)
 

 
23,229

 
 

 
(74,744
)
Comprehensive income
 

 
266,149

 
 

 
137,765

Less: Comprehensive income attributable to
 
 
 
 
 
 
 
noncontrolling interest
 
 

 
 

 
(5,771
)
Comprehensive income attributable to Hertz Global
 
 
 
 
 
 
 
Holdings, Inc. and Subsidiaries' common stockholders
 

 
$
266,149

 
 

 
$
131,994

 
Nine Months Ended
September 30, 2012
 
Nine Months Ended
September 30, 2011
Net income
 

 
$
279,475

 
 

 
$
143,652

Other comprehensive income (loss), net of tax:
 
 
 
 
 
 
 
Translation adjustment changes, (net of tax
 
 
 
 
 
 
 
of 2012: $(2,729) and 2011: $1,713)
$
3,655

 
 

 
$
(7,850
)
 
 

Unrealized holding gains (losses) on securities,
 
 
 
 
 
 
 
(net of tax of 2012: $3,063 and 2011: $(2,450))
4,817

 
 

 
(3,791
)
 
 

Other, (net of tax of 2012: $0 and 2011: $0)
5

 
 

 
32

 
 

Unrealized loss on Euro-denominated debt, (net
 
 
 
 
 
 
 
of tax of 2012: $0 and 2011: $(2,650))

 
 

 
(4,139
)
 
 

Defined benefit pension plans
 
 
 
 
 
 
 
Net gains arising during the period, (net of tax
 
 
 
 
 
 
 
of 2012: $3,333 and 2011: $2,037)
5,109

 
 

 
3,074

 
 

Defined benefit pension plans
5,109

 
 

 
3,074

 
 

Other comprehensive income (loss)
 

 
13,586

 
 

 
(12,674
)
Comprehensive income
 

 
293,061

 
 

 
130,978

Less: Comprehensive income attributable to
 
 
 
 
 
 
 
noncontrolling interest
 

 

 
 

 
(14,531
)
Comprehensive income attributable to Hertz Global
 
 
 
 
 
 
 
Holdings, Inc. and Subsidiaries' common stockholders
 

 
$
293,061

 
 

 
$
116,447

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

4


HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands of Dollars)
Unaudited
 
Nine Months Ended
September 30,
 
2012
 
2011
Cash flows from operating activities:
 
 
 
Net income
$
279,475

 
$
143,652

Adjustments to reconcile net income to net cash provided by operating
 
 
 
activities:
 
 
 
Depreciation of revenue earning equipment
1,530,775

 
1,306,661

Depreciation of property and equipment
125,132

 
117,837

Amortization of other intangible assets
58,899

 
51,175

Amortization and write-off of deferred financing costs
43,443

 
77,614

Amortization and write-off of debt discount
22,562

 
30,324

Stock-based compensation charges
22,260

 
24,438

(Gain) loss on derivatives
731

 
(14,330
)
Gain on disposal of business
(9,116
)
 

Loss on revaluation of foreign denominated debt
2,498

 

Provision for losses on doubtful accounts
23,472

 
21,211

Asset writedowns
3,181

 
22,782

Deferred taxes on income
104,392

 
27,791

Gain on sale of property and equipment
(1,935
)
 
(5,199
)
Changes in assets and liabilities, net of effects of acquisition:
 
 
 
Receivables
(232,336
)
 
(150,212
)
Inventories, prepaid expenses and other assets
(6,098
)
 
(12,616
)
Accounts payable
83,112

 
66,808

Accrued liabilities
16,586

 
(124,288
)
Accrued taxes
66,104

 
56,268

Public liability and property damage
(3,189
)
 
8,628

Net cash provided by operating activities
2,129,948

 
1,648,544

Cash flows from investing activities:
 
 
 
Net change in restricted cash and cash equivalents
(69,301
)
 
(123,511
)
Revenue earning equipment expenditures
(7,681,018
)
 
(7,864,609
)
Proceeds from disposal of revenue earning equipment
4,815,374

 
4,932,410

Property and equipment expenditures
(229,440
)
 
(202,276
)
Proceeds from disposal of property and equipment
94,644

 
48,133

Acquisitions, net of cash acquired
(196,220
)
 
(222,988
)
Purchase of short-term investments, net

 
(32,891
)
Proceeds from disposal of business
11,691

 

Other investing activities
(1,400
)
 
760

Net cash used in investing activities
$
(3,255,670
)
 
$
(3,464,972
)
   The accompanying notes are an integral part of these financial statements.

5


HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(In Thousands of Dollars)
Unaudited
 
Nine Months Ended
September 30,
 
2012
 
2011
Cash flows from financing activities:
 
 
 
Proceeds from issuance of long-term debt
$
282,382

 
$
3,058,395

Payment of long-term debt
(656,114
)
 
(3,641,290
)
Short-term borrowings:
 
 
 
Proceeds
367,988

 
371,994

Payments
(962,690
)
 
(814,894
)
Proceeds (payments) under the revolving lines of credit, net
1,675,987

 
934,364

Distributions to noncontrolling interest

 
(10,500
)
Purchase of noncontrolling interest
(38,000
)
 

Proceeds from employee stock purchase plan
3,186

 
2,690

Proceeds from exercise of stock options
7,233

 
12,292

Proceeds from disgorgement of stockholder short-swing profits
17

 
73

Net settlement on vesting of restricted stock
(20,050
)
 
(11,425
)
Payment of financing costs
(13,679
)
 
(87,640
)
Net cash provided by (used in) financing activities
646,260

 
(185,941
)
Effect of foreign exchange rate changes on cash and cash equivalents
1,044

 
13,987

Net decrease in cash and cash equivalents during the period
(478,418
)
 
(1,988,382
)
Cash and cash equivalents at beginning of period
931,779

 
2,374,170

Cash and cash equivalents at end of period
$
453,361

 
$
385,788

Supplemental disclosures of cash flow information:
 
 
 
Cash paid during the period for:
 
 
 
Interest (net of amounts capitalized)
$
395,601

 
$
487,911

Income taxes
43,024

 
32,544

Supplemental disclosures of non-cash flow information:
 
 
 
Purchases of revenue earning equipment included in accounts payable and
 
 
 
accrued liabilities
$
289,798

 
$
217,675

Sales of revenue earning equipment included in receivables
504,930

 
949,824

Purchases of property and equipment included in accounts payable   
53,708

 
52,787

Sales of property and equipment included in receivables
38,052

 
10,777

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

6

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


Note 1—Background
Hertz Global Holdings, Inc., or "Hertz Holdings," is our top-level holding company. The Hertz Corporation, or "Hertz," is our primary operating company and a direct wholly-owned subsidiary of Hertz Investors, Inc., which is wholly-owned by Hertz Holdings. "We," "us" and "our" mean Hertz Holdings and its consolidated subsidiaries, including Hertz.
We are a successor to corporations that have been engaged in the car and truck rental and leasing business since 1918 and the equipment rental business since 1965. Hertz was incorporated in Delaware in 1967. Ford Motor Company acquired an ownership interest in Hertz in 1987. Prior to this, Hertz was a subsidiary of United Continental Holdings, Inc. (formerly Allegis Corporation), which acquired Hertz's outstanding capital stock from RCA Corporation in 1985. Hertz Holdings was incorporated in Delaware in 2005 and had no operations prior to the Acquisition (as defined below).
On December 21, 2005, investment funds associated with or designated by:
Clayton, Dubilier & Rice, Inc., which was succeeded by Clayton, Dubilier & Rice, LLC, or "CD&R,"
The Carlyle Group, or "Carlyle," and
Merrill Lynch Global Private Equity, Inc., or "MLGPE,"
acquired all of Hertz's common stock from Ford Holdings LLC. In January 2009, Bank of America Corporation, or "Bank of America," acquired Merrill Lynch & Co., Inc., the former parent company of MLGPE. Accordingly, Bank of America is now an indirect beneficial owner of our common stock held by the investment funds associated with MLGPE. We refer to CD&R, Carlyle and MLGPE collectively as the "Sponsors." We refer to the acquisition of all of Hertz's common stock by the Sponsors as the "Acquisition."
After giving effect to our initial public offering in November 2006 and subsequent offerings, the Sponsors' holdings represent approximately 38% of the outstanding shares of common stock of Hertz Holdings as of September 30, 2012.
On September 1, 2011, Hertz completed the acquisition of Donlen Corporation, or "Donlen," a leading provider of fleet leasing and management services.
On December 31, 2011, Hertz purchased the noncontrolling interest of Navigation Solutions, L.L.C., thereby increasing its ownership interest from 65% to 100%.
On August 26, 2012, Hertz Holdings, HDTMS, Inc., a wholly owned subsidiary of Hertz Holdings, and Dollar Thrifty Automotive Group, Inc., a Delaware corporation, or "Dollar Thrifty," entered into an Agreement and Plan of Merger, or the "Merger Agreement," pursuant to which Hertz Holdings would acquire Dollar Thrifty for $87.50 per share, net to the seller in cash, without any interest and less any required withholding taxes, in a transaction valued at a corporate enterprise value of approximately $2.3 billion. After taking into account our use of approximately $400 million of cash and cash equivalents available from Dollar Thrifty, we expect to use approximately $345 million of our cash and cash equivalents to consummate the acquisition of Dollar Thrifty and to finance the remaining $1.95 billion through a combination of $750 million in incremental term loans under our Senior Term Facility and $1.2 billion in senior notes which was raised in October 2012. The boards of directors of both companies have unanimously approved the transaction. The transaction has been structured as a two-step acquisition including a cash tender offer for all outstanding shares of Dollar Thrifty common stock followed by a cash merger in which Hertz Holdings would acquire any remaining outstanding shares of Dollar Thrifty common stock. The transaction is subject to the tender of at least a majority of the shares of Dollar Thrifty common stock, as well as other customary closing conditions. The successful completion of the transaction is also subject to regulatory clearance by the Federal Trade Commission. Hertz Holdings has also reached a definitive agreement with Adreca Holdings Corp., a subsidiary of Macquarie Capital which is expected to be operated by Franchise Services of North America Inc., to sell the Advantage Rent A Car business, selected Dollar Thrifty airport concessions and certain other assets. The closing of that divestiture is conditioned upon, among other things, Hertz Holdings completing an acquisition of Dollar Thrifty. Hertz Holdings estimates that it would realize a loss before income taxes of approximately $30 million to $35 million as a result of this divestiture. We can offer no assurance that the Merger Agreement will be consummated.


7

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

Note 2—Basis of Presentation and Recently Issued Accounting Pronouncements
Basis of Presentation
The significant accounting policies summarized in Note 2 to our audited consolidated financial statements contained in our Annual Report on Form 10-K for the fiscal year ended December 31, 2011, filed with the United States Securities and Exchange Commission, or "SEC," on February 27, 2012, or the "Form 10-K," have been followed in preparing the accompanying condensed consolidated financial statements.
Franchise revenues and transactions
“Franchise revenues” includes franchise fees for use of our brands and services. Generally franchise fees from franchised locations are based on a percentage of net sales of the franchised business and are recognized as earned and when collectability is reasonably assured.
Initial franchise fees are recorded as deferred income when received and are recognized as revenue when all material services and conditions related to the franchise fee have been substantially performed.
Renewal franchise fees are recognized as revenue when the license agreements are effective and collectability is reasonably assured.
Other (income) and expenses, net includes the gains or losses from the sales of our operations or assets to new and existing franchisees. Such gains or losses are included in operating income because they are expected to be a recurring part of our business.
The December 31, 2011 condensed consolidated balance sheet data was derived from our audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America, or "GAAP."
The preparation of financial statements in conformity with 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.
In our opinion, all adjustments necessary for a fair presentation of the results of operations for the interim periods have been made. Results for interim periods are not necessarily indicative of results for a full year.
Certain prior period amounts have been reclassified to conform with current period presentation.
Recently Issued Accounting Pronouncements
In June 2011, the Financial Accounting Standards Board, or "FASB," issued Accounting Standards Update No. 2011-05, "Presentation of Comprehensive Income," requiring companies to present items of net income and other comprehensive income either in one continuous statement, referred to as the statement of comprehensive income, or in two separate, but consecutive statements of net income and other comprehensive income. The amendments in this update do not change the items that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income. These provisions became effective for us beginning with the quarterly report for the period ended March 31, 2012. In December 2011, the FASB issued Accounting Standards Update No. 2011-12, "Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05," which defers the timing of implementing only those changes in Update 2011-05 that relate to the presentation of reclassification adjustments.
In July 2012, the FASB issued Accounting Standards Update No. 2012-02, "Intangibles--Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment", which states that that an entity has the option first to assess qualitative factors to determine whether the existence of events and circumstances indicates that it is more likely than not that the indefinite-lived intangible asset is impaired. If, after assessing the totality of events and circumstances, an entity concludes that it is not more likely than not that the indefinite-lived intangible asset is impaired, then the entity is not required to take further action. However, if an entity concludes otherwise, then it is required to determine the fair value of the indefinite-lived intangible asset and perform the quantitative impairment test by comparing the fair value with the carrying amount.

8

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

This provision is effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012. The Company is presently assessing whether to adopt in relation to its annual impairment test scheduled for the fourth quarter.
Note 3—Cash and Cash Equivalents and Restricted Cash and Cash Equivalents
We consider all highly liquid debt instruments purchased with an original maturity of three months or less to be cash equivalents.
In our Consolidated Statements of Cash Flows, we net cash flows from revolving borrowings in the line item "Proceeds (payments) under the revolving lines of credit, net."
Restricted cash and cash equivalents includes cash and cash equivalents that are not readily available for our normal disbursements. Restricted cash and cash equivalents are restricted for the purchase of revenue earning vehicles and other specified uses under our Fleet Debt facilities, for our Like-Kind Exchange Program, or "LKE Program," and to satisfy certain of our self-insurance regulatory reserve requirements. As of September 30, 2012 and December 31, 2011, the portion of total restricted cash and cash equivalents that was associated with our Fleet Debt facilities was $302.2 million and $213.6 million, respectively. The increase in restricted cash and cash equivalents associated with our fleet debt of $88.6 million from December 31, 2011 to September 30, 2012 was primarily related to the timing of purchases and sales of revenue earning vehicles.
Note 4—Goodwill and Other Intangible Assets
The following summarizes the changes in our goodwill, by segment (in millions of dollars):
 
Car Rental
 
Equipment
Rental
 
Total
Balance as of January 1, 2012
 
 
 
 
 
Goodwill
$
419.3

 
$
693.8

 
$
1,113.1

Accumulated impairment losses
(46.1
)
 
(674.9
)
 
(721.0
)
 
373.2

 
18.9

 
392.1

Goodwill acquired during the period

 
79.4

 
79.4

Adjustments to previously recorded purchase price allocation
(15.3
)
 

 
(15.3
)
Other changes during the period(1)
(1.0
)
 
(0.5
)
 
(1.5
)
 
(16.3
)
 
78.9

 
62.6

Balance as of September 30, 2012
 
 
 
 
 
Goodwill
403.0

 
772.7

 
1,175.7

Accumulated impairment losses
(46.1
)
 
(674.9
)
 
(721.0
)
 
$
356.9

 
$
97.8

 
$
454.7



9

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

 
Car Rental
 
Equipment
Rental
 
Total
Balance as of January 1, 2011
 
 
 
 
 
Goodwill
$
367.9

 
$
681.7

 
$
1,049.6

Accumulated impairment losses
(46.1
)
 
(674.9
)
 
(721.0
)
 
321.8

 
6.8

 
328.6

Goodwill acquired during the year
53.1

 
12.3

 
65.4

Adjustments to previously recorded purchase price allocation
(0.9
)
 
(0.1
)
 
(1.0
)
Other changes during the year(1)
(0.8
)
 
(0.1
)
 
(0.9
)
 
51.4

 
12.1

 
63.5

Balance as of December 31, 2011
 
 
 
 
 
Goodwill
419.3

 
693.8

 
1,113.1

Accumulated impairment losses
(46.1
)
 
(674.9
)
 
(721.0
)
 
$
373.2

 
$
18.9

 
$
392.1

_______________________________________________________________________________
(1)
Primarily consists of changes resulting from disposals and the translation of foreign currencies at different exchange rates from the beginning of the period to the end of the period.

Other intangible assets, net, consisted of the following major classes (in millions of dollars):
 
September 30, 2012
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Net
Carrying
Value
Amortizable intangible assets:
 
 
 
 
 
Customer-related
$
694.6

 
$
(416.5
)
 
$
278.1

Other(1)
81.0

 
(35.8
)
 
45.2

Total
775.6

 
(452.3
)
 
323.3

Indefinite-lived intangible assets:
 
 
 
 
 
Trade name
2,190.0

 

 
2,190.0

Other(2)
18.2

 

 
18.2

Total
2,208.2

 

 
2,208.2

Total other intangible assets, net
$
2,983.8

 
$
(452.3
)
 
$
2,531.5

 

10

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

 
December 31, 2011
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Net
Carrying
Value
Amortizable intangible assets:
 
 
 
 
 
Customer-related
$
672.6

 
$
(365.5
)
 
$
307.1

Other(1)
74.7

 
(27.8
)
 
46.9

Total
747.3

 
(393.3
)
 
354.0

Indefinite-lived intangible assets:
 
 
 
 
 
Trade name
2,190.0

 

 
2,190.0

Other(2)
18.2

 

 
18.2

Total
2,208.2

 

 
2,208.2

Total other intangible assets, net
$
2,955.5

 
$
(393.3
)
 
$
2,562.2

_______________________________________________________________________________
(1)
Other amortizable intangible assets primarily consist of our Advantage trade name and concession rights, Donlen trade name, reacquired franchise rights, non-compete agreements and technology-related intangibles.
(2)
Other indefinite-lived intangible assets primarily consist of reacquired franchise rights.
Amortization of other intangible assets for the three months ended September 30, 2012 and 2011 was approximately $19.9 million and $17.5 million, respectively, and for the nine months ended September 30, 2012 and 2011 was approximately $58.9 million and $51.2 million, respectively. Based on our amortizable intangible assets as of September 30, 2012, we expect amortization expense to be approximately $18.5 million for the remainder of 2012, $77.2 million in 2013, $72.8 million in 2014, $70.5 million in 2015, $21.7 million in 2016 and $8.7 million in 2017.
On September 1, 2011, Hertz acquired 100% of the equity interest in Donlen, a leading provider of fleet leasing and management services. The amount of revenue and earnings of the combined entity had the acquisition date been January 1, 2010, are as follows (in millions):
 
Revenue
 
Earnings
2011 supplemental pro forma for the third quarter of 2011 (combined entity)
$
2,500.8

 
$
209.3

2011 supplemental pro forma for the first nine months of 2011 (combined entity)
6,545.8

 
137.2

2011 supplemental pro forma revenue for the three months ended September 30, 2011 excludes $0.6 million related to deferred revenue which was eliminated as part of acquisition accounting. 2011 supplemental pro forma earnings for the three months ended September 30, 2011 excludes $0.4 million related to deferred income which was eliminated as part of acquisition accounting. 2011 supplemental pro forma revenue for the nine months ended September 30, 2011 excludes $3.2 million related to deferred revenue which was eliminated as part of acquisition accounting. 2011 supplemental pro forma earnings for the nine months ended September 30, 2011 excludes $2.0 million related to deferred income which was eliminated as part of acquisition accounting.
This transaction has been accounted for using the acquisition method of accounting in accordance with GAAP and operating results of Donlen from the date of acquisition are included in our consolidated statements of operations. The allocation of the purchase price to the tangible and intangible net assets acquired is complete.
Advantage Divestiture
On August 26, 2012, Hertz Holdings entered into a Merger Agreement with HDTMS, Inc., a Delaware corporation and an indirect wholly owned subsidiary of Hertz Holdings, and Dollar Thrifty pursuant to which Hertz Holdings has agreed to acquire Dollar Thrifty. The Merger Agreement provides that, with respect to obtaining antitrust approval of the acquisition, Hertz Holdings is required to, among other actions, divest its Advantage Rent A Car, or "Advantage," business, together with certain additional assets and airport concessions, pursuant to a proposed consent agreement currently under discussion between Hertz Holdings and the United States Federal Trade Commission, or the "FTC;" provided, however, that any such divestitures shall be conditioned upon the consummation of the Merger.  To that end,

11

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

Hertz Holdings has reached a definitive agreement with Adreca Holdings Corp., a subsidiary of Macquarie Capital which is expected to be operated by Franchise Services of North America Inc., providing for the divestiture of its Advantage business, or the "Advantage Divestiture," selected Dollar Thrifty airport concessions and certain other assets, contingent on a successful acquisition of Dollar Thrifty.

As of September 30, 2012, the Advantage business was classified as held and used as the sale transaction was not probable and was contingent upon acquisition of Dollar Thrifty as of such date. Hertz's agreement to divest its Advantage business, which if consummated would result in a loss, triggered an interim impairment analysis. The assets were evaluated for impairment under a probability-weighted approach for developing estimates of future cash flows used to test a long-lived asset for recoverability. The sum of future undiscounted cash flows of the Advantage business exceeds the carrying value as of September 30, 2012. Accordingly, no impairment has been recognized at September 30, 2012.

Hertz estimates that the occurrence of the Advantage Divestiture would cause Hertz to realize a loss (before income taxes) in the range of approximately $30 million to $35 million.  This estimated loss associated with the Advantage Divestiture is preliminary and subject to further adjustments. We can offer no assurance that the Merger Agreement will be consummated.
Other Acquisitions
During the nine months ended September 30, 2012, we added nineteen domestic equipment rental locations through external acquisitions. These acquisitions are not material to the consolidated amounts presented within our statement of operations for the three-month and nine-month periods ended September 30, 2012.
Note 5—Taxes on Income
The effective tax rate for the three and nine months ended September 30, 2012 was 34.1% and 43.1%, respectively. The provision for taxes on income of $126.0 million in the three months ended September 30, 2012 increased from $83.2 million in the three months ended September 30, 2011, primarily due to higher income before income taxes, changes in geographic earnings mix and changes in losses in certain non-U.S. jurisdictions for which tax benefits are not realized. The provision for taxes on income of $211.3 million in the nine months ended September 30, 2012 increased from $87.9 million in the nine months ended September 30, 2011, primarily due to higher income before income taxes, changes in geographic earnings mix and changes in losses in certain non-U.S. jurisdictions for which tax benefits are not realized.

Note 6—Depreciation of Revenue Earning Equipment and Lease Charges
Depreciation of revenue earning equipment and lease charges includes the following (in millions of dollars):
 
Three Months Ended
September 30,
 
2012
 
2011
Depreciation of revenue earning equipment
$
554.1

 
$
528.1

Adjustment of depreciation upon disposal of revenue earning equipment
(12.7
)
 
(30.9
)
Rents paid for vehicles leased
19.1

 
26.1

Total
$
560.5

 
$
523.3



12

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

 
Nine Months Ended
September 30,
 
2012
 
2011
Depreciation of revenue earning equipment
$
1,624.1

 
$
1,399.9

Adjustment of depreciation upon disposal of revenue earning equipment
(93.3
)
 
(93.3
)
Rents paid for vehicles leased
63.6

 
72.4

Total
$
1,594.4

 
$
1,379.0

The adjustment of depreciation upon disposal of revenue earning equipment for the three months ended September 30, 2012 and 2011, included net gains of $9.7 million and $26.3 million, respectively, on the disposal of vehicles used in our car rental operations and net gains of $3.0 million and $4.6 million, respectively, on the disposal of industrial and construction equipment used in our equipment rental operations. The adjustment of depreciation upon disposal of revenue earning equipment for the nine months ended September 30, 2012 and 2011, included net gains of $82.9 million and $86.0 million, respectively, on the disposal of vehicles used in our car rental operations and net gains of $10.4 million and $7.3 million, respectively, on the disposal of industrial and construction equipment used in our equipment rental operations.
Depreciation rates are reviewed on a quarterly basis based on management's routine review of present and estimated future market conditions and their effect on residual values at the time of disposal. During the nine months ended September 30, 2012, depreciation rates being used to compute the provision for depreciation of revenue earning equipment were adjusted on certain vehicles in our car rental operations to reflect changes in the estimated residual values to be realized when revenue earning equipment is sold. These depreciation rate changes resulted in net decreases of $59.4 million and $96.7 million in depreciation expense for the three and nine months ended September 30, 2012, respectively. During the three-month and nine-month periods ended September 30, 2012, the depreciation rate changes in certain of our equipment rental operations resulted in an increase of $0.1 million in depreciation expense.

13

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

Note 7—Debt
Our debt consists of the following (in millions of dollars):
Facility
Average Interest Rate at September 30, 2012(1)
 
Fixed or
Floating
Interest
Rate
 
Maturity
 
September 30,
2012
 
December 31,
2011
Corporate Debt
 
 
 
 
 
 
 
 
 
Senior Term Facility
3.75
%
 
Floating
 
3/2018
 
$
1,379.0

 
$
1,389.5

Senior ABL Facility
2.47
%
 
Floating
 
3/2016
 
410.0

 

Senior Notes(2)
7.09
%
 
Fixed
 
10/2018–1/2021
 
2,450.0

 
2,638.6

Promissory Notes
6.96
%
 
Fixed
 
6/2012–1/2028
 
48.7

 
224.7

Convertible Senior Notes
5.25
%
 
Fixed
 
6/2014
 
474.7

 
474.7

Other Corporate Debt
5.05
%
 
Floating
 
Various
 
65.7

 
49.6

Unamortized Net Discount
 
 
 
 
 
 
 
 
 
(Corporate)(3)
 

 
 
 
 
 
(43.7
)
 
(72.3
)
Total Corporate Debt
 

 
 
 
 
 
4,784.4

 
4,704.8

Fleet Debt
 
 
 
 
 
 
 
 
 
U.S. ABS Program
 
 
 
 
 
 
 
 
 
U.S. Fleet Variable
 
 
 
 
 
 
 
 
 
Funding Notes:
 
 
 
 
 
 
 
 
 
Series 2009-1(4)(5)
1.25
%
 
Floating
 
3/2013
 
1,900.0

 
1,000.0

Series 2010-2(4)
1.36
%
 
Floating
 
3/2013
 
200.0

 
170.0

Series 2011-2(4)
N/A

 
Floating
 
4/2012
 

 
175.0

 
 

 
 
 
 
 
2,100.0

 
1,345.0

U.S. Fleet Medium Term
 
 
 
 
 
 
 
 
 
Notes
 
 
 
 
 
 
 
 
 
Series 2009-2(4)
4.95
%
 
Fixed
 
3/2013–3/2015
 
1,384.3

 
1,384.3

Series 2010-1(4)
3.77
%
 
Fixed
 
2/2014–2/2018
 
749.8

 
749.8

Series 2011-1(4)
2.86
%
 
Fixed
 
3/2015–3/2017
 
598.0

 
598.0

 
 

 
 
 
 
 
2,732.1

 
2,732.1

Donlen ABS Program
 
 
 
 
 
 
 
 
 
Donlen GN II Variable
 
 
 
 
 
 
 
 
 
Funding Notes(6)
1.17
%
 
Floating
 
12/2012
 
899.3

 
811.2

Other Fleet Debt
 
 
 
 
 
 
 
 
 
U.S. Fleet Financing
 
 
 
 
 
 
 
 
 
Facility
3.27
%
 
Floating
 
9/2015
 
158.9

 
136.0

European Revolving Credit
 
 
 
 
 
 
 
 
 
Facility
2.72
%
 
Floating
 
6/2015
 
393.6

 
200.6

European Fleet Notes
8.50
%
 
Fixed
 
7/2015
 
514.9

 
517.7

European Securitization(4)
2.51
%
 
Floating
 
7/2014
 
413.6

 
256.2

Canadian Securitization
2.16
%
 
Floating
 
6/2013
 
147.1

 
68.3

Australian Securitization(4)(7)
5.02
%
 
Floating
 
12/2012
 
162.3

 
169.3

Brazilian Fleet Financing
 
 
 
 
 
 
 
 
 
Facility
13.53
%
 
Floating
 
2/2013
 
14.0

 
23.1

Capitalized Leases
4.40
%
 
Floating
 
Various
 
407.7

 
363.7

Unamortized Discount
 
 
 
 
 
 
 
 
 
(Fleet)
 

 
 
 
 
 
(7.0
)
 
(10.9
)
 
 

 
 
 
 
 
2,205.1

 
1,724.0

Total Fleet Debt
 

 
 
 
 
 
7,936.5

 
6,612.3

Total Debt
 

 
 
 
 
 
$
12,720.9

 
$
11,317.1

_______________________________________________________________________________

14

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

Note:
For further information on the definitions and terms of our debt, see Note 4 of the Notes to our audited annual consolidated financial statements included in our Form 10-K under the caption "Item 8—Financial Statements and Supplementary Data."
(1)
As applicable, reference is to the September 30, 2012 weighted average interest rate (weighted by principal balance).
(2)
References to our "Senior Notes" include the series of Hertz's unsecured senior notes set forth in the table below. As of September 30, 2012 and December 31, 2011, the outstanding principal amount for each such series of the Senior Notes is also specified below.
 
Outstanding Principal (in millions)
 
 
Senior Notes
September 30, 2012
 
December 31, 2011
 
 
8.875% Senior Notes due January 2014
$

 
$
162.3

 
 
7.875% Senior Notes due January 2014

 
276.3

 
€(213.5)
7.50% Senior Notes due October 2018
700.0

 
700.0

 
 
7.375% Senior Notes due January 2021
500.0

 
500.0

 
 
6.75% Senior Notes due April 2019
1,250.0

 
1,000.0

 
 
 
$
2,450.0

 
$
2,638.6

 
 
(3)
As of September 30, 2012 and December 31, 2011, $47.1 million and $65.5 million, respectively, of the unamortized corporate discount relates to the 5.25% Convertible Senior Notes.
(4)
Maturity reference is to the "expected final maturity date" as opposed to the subsequent "legal maturity date." The expected final maturity date is the date by which Hertz and investors in the relevant indebtedness expect the relevant indebtedness to be repaid. The legal final maturity date is the date on which the relevant indebtedness is legally due and payable.
(5)
In October 2012, extended to 3/2014. See Note 17Subsequent Events.
(6)
In October 2012, extended to 12/2013. See Note 17Subsequent Events.
(7)
In October 2012, extended to 12/2014. See Note 17Subsequent Events.
Maturities
The aggregate amounts of maturities of debt for each of the twelve-month periods ending September 30 (in millions of dollars) are as follows:
2013
$
6,259.8

 
(including $5,610.9 of other short-term borrowings*)
2014
$
254.0

 
 
2015
$
1,769.6

 
 
2016
$
329.2

 
 
2017
$
266.0

 
 
After 2017
$
3,893.0

 
 
_______________________________________________________________________________
*
Our short-term borrowings as of September 30, 2012 include, among other items, the amounts outstanding under the European Securitization, Australian Securitization, Senior ABL Facility, U.S. Fleet Financing Facility, U.S. Fleet Variable Funding Notes, Brazilian Fleet Financing Facility, Canadian Securitization, Capitalized Leases, European Revolving Credit Facility and the Donlen GN II Variable Funding Notes. These amounts are reflected as short-term borrowings, regardless of the facility maturity date, as these facilities are revolving in nature and/or the outstanding borrowings have maturities of three months or less. Short-term borrowings also include the Convertible Senior Notes which became convertible on January 1, 2012 and remain as such through December 31, 2012. As of September 30, 2012, short-term borrowings had a weighted average interest rate of 2.3%.
We are highly leveraged and a substantial portion of our liquidity needs arise from debt service on our indebtedness and from the funding of our costs of operations and capital expenditures. We believe that cash generated from operations and cash received on the disposal of vehicles and equipment, together with amounts available under various liquidity facilities will be adequate to permit us to meet our debt maturities over the next twelve months.
Letters of Credit
As of September 30, 2012, there were outstanding standby letters of credit totaling $601.1 million. Of this amount, $553.3 million was issued under the Senior Credit Facilities ($291.0 million of which was issued for the benefit of the U.S. ABS Program, and $65.7 million was related to other debt obligations primarily to support self-insurance programs as well as airport concession obligations in the United States, Canada and Europe). As of September 30, 2012, none of these letters of credit have been drawn upon.

15

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

2012 Events
On January 1, 2012, our Convertible Senior Notes became convertible. This conversion right was triggered because our closing common stock price per share exceeded $10.77 for at least 20 trading days during the 30 consecutive trading day period ending on December 31, 2011. Since this same trigger was met in the third quarter of 2012, the Convertible Senior Notes continue to be convertible through December 31, 2012, and may be convertible thereafter, if one or more of the conversion conditions specified in the indenture is satisfied during future measurement periods. Our policy has been and continues to be to settle conversions of Convertible Senior Notes using a combination of cash and our common stock, which calls for settling the fixed dollar amount per $1,000 in principal amount in cash and settling in shares the excess conversion, if any.
In February 2012, Hertz called the remainder of its outstanding 8.875% Senior Notes due 2014 and 7.875% Senior Notes due January 2014 for redemption. Hertz redeemed these notes in full during March 2012.
In February 2012, Hertz caused its wholly-owned subsidiary GN Funding II L.L.C. to increase the capacity of the Donlen GN II Variable Funding Notes from $850 million to $900 million. In July 2012 Hertz caused its wholly-owned subsidiary GN Funding II L.L.C. to further increase the capacity of the Donlen GN II Variable Funding Notes from $900 million to $1 billion and to extend the maturity date of the Donlen GN II Variable Funding Notes from August 2012 to December 2012.
In March 2012, Hertz issued an additional $250 million in aggregate principal amount of the 6.75% Senior Notes due 2019. The proceeds of this March 2012 offering were used to redeem all of the outstanding 8.875% Senior Notes due 2014 and together with cash on hand, all of the outstanding 7.875% Senior Notes due 2014 which resulted in the write-off of unamortized debt costs of $3.2 million.
In March 2012, Hertz caused its wholly-owned subsidiary HC Limited Partnership to amend the Canadian Securitization to extend the maturity date from March 2012 to May 2012. In the second quarter of 2012, the maturity date was extended to June 2013.
In April 2012, Hertz caused its wholly-owned subsidiary Hertz Vehicle Financing LLC, or "HVF," to pay off the remaining debt outstanding under the U.S. ABS Program Series 2011-2 U.S. Fleet Variable Funding Notes and terminated the facility.
In May 2012, Hertz caused its wholly-owned subsidiary HVF to increase the borrowing capacity of its Series 2009-1 U.S. Fleet Variable Funding Notes by $250 million.
In June 2012, Hertz amended the European Revolving Credit Facility to extend the maturity date from June 2013 to June 2015.
In June 2012, Hertz amended the Brazilian Fleet Financing Facility to extend the maturity date from June 2012 to February 2013.
In June 2012, Hertz amended the European Seasonal Revolving Credit Facility under the European Revolving Credit Facility to create a commitment period running from June 2012 to November 2012 that provides for aggregate maximum borrowings of €85.7 million (the equivalent of $110.3 million as of September 30, 2012), subject to borrowing base availability.
In July 2012, Hertz caused its subsidiary, International Fleet Financing No. 2 B.V. to amend the European Securitization to extend the maturity from July 2013 to July 2014.
In August 2012, Hertz obtained commitments to make unsecured bridge loans in an aggregate amount of $1.95 billion, or the “Bridge Commitments,” in connection with the offer to acquire Dollar Thrifty. The proceeds of the bridge loans, if any, would be used to, among other things, finance a portion of the consideration Dollar Thrifty stockholders would receive in connection with the acquisition of Dollar Thrifty.

For subsequent events relating to our indebtedness, see Note 17—Subsequent Events.

16

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

Registration Rights
Pursuant to the terms of exchange and registration rights agreements entered into in connection with the issuance of $250 million in aggregate principal amount of the 6.75% Senior Notes due 2019 in March 2012, Hertz has agreed to file a registration statement under the Securities Act of 1933, as amended, to permit either the exchange of such notes for registered notes or, in the alternative, the registered resale of such notes. Hertz plans to enter into an exchange and registration rights agreements in connection with the release from escrow of $700 million aggregate principal amount of 5.875% Senior Notes due 2020 and $500 million aggregate principal amount of 6.250% Senior Notes due 2022 issued by its newly-formed, wholly-owned subsidiary, HDTFS, Inc. Hertz expects to agree to file a registration statement under the Securities Act of 1933, as amended, to permit either the exchange of such notes for registered notes or, in the alternative, the registered resale of such notes. Hertz's failure to meet its obligations under either exchange and registration rights agreement, including by failing to have the registration statement become effective by the date that is 365 days after the respective date of the exchange and registration rights agreement or failing to complete the exchange offer by the date that is 395 days after the date of the exchange and registration rights agreement, will result in Hertz incurring special interest on such notes at a per annum rate of 0.25% for the first 90 days of any period where a default has occurred and is continuing, which rate will be increased by an additional 0.25% during each subsequent 90 day period, up to a maximum of 0.50%. We do not believe the special interest obligation is probable, and as such, we have not recorded any amounts with respect to this registration payment arrangement.
Guarantees and Security
There have been no material changes to the guarantees and security provisions of the debt instruments and credit facilities under which our indebtedness as of September 30, 2012 has been issued from the terms disclosed in our Form 10-K.
Financial Covenant Compliance
Under the terms of our Senior Term Facility and Senior ABL Facility, we are not subject to ongoing financial maintenance covenants; however, under the Senior ABL Facility, failure to maintain certain levels of liquidity will subject the Hertz credit group to a contractually specified fixed charge coverage ratio of not less than 1:1 for the four quarters most recently ended. As of September 30, 2012, we were not subject to such contractually specified fixed charge coverage ratio.
Borrowing Capacity and Availability
As of September 30, 2012, the following facilities were available for the use of Hertz and its subsidiaries (in millions of dollars):
 
Remaining
Capacity
 
Availability Under
Borrowing Base
Limitation
Corporate Debt
 
 
 
Senior ABL Facility
$
1,037.3

 
$
1,016.5

Total Corporate Debt
1,037.3

 
1,016.5

Fleet Debt
 
 
 
U.S. Fleet Variable Funding Notes
288.1

 

Donlen GN II Variable Funding Notes
105.8

 

U.S. Fleet Financing Facility
31.1

 

European Revolving Credit Facility

 

European Securitization
101.3

 

Canadian Securitization
55.8

 

Australian Securitization
97.0

 
1.2

Capitalized Leases
117.0

 

Total Fleet Debt
796.1

 
1.2

Total
$
1,833.4

 
$
1,017.7


17

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

Our borrowing capacity and availability primarily comes from our "revolving credit facilities," which are a combination of asset-backed securitization facilities and asset-based revolving credit facilities. Creditors under each of our revolving credit facilities have a claim on a specific pool of assets as collateral. Our ability to borrow under each revolving credit facility is a function of, among other things, the value of the assets in the relevant collateral pool. We refer to the amount of debt we can borrow given a certain pool of assets as the "borrowing base."
We refer to "Remaining Capacity" as the maximum principal amount of debt permitted to be outstanding under the respective facility (i.e., the amount of debt we could borrow assuming we possessed sufficient assets as collateral) less the principal amount of debt then-outstanding under such facility.
We refer 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 we could borrow given the collateral we possess at such time).
As of September 30, 2012, the Senior Term Facility had approximately $0.3 million available under the letter of credit facility and the Senior ABL Facility had $1,092.3 million available under the letter of credit facility sublimit, subject to borrowing base restrictions.
Substantially all of our revenue earning equipment and certain related assets are owned by special purpose entities, or are encumbered in favor of our lenders under our various credit facilities.
Some of these special purpose entities are consolidated variable interest entities, of which Hertz is the primary beneficiary, whose sole purpose is to provide commitments to lend in various currencies subject to borrowing bases comprised of rental vehicles and related assets of certain of Hertz International, Ltd.'s subsidiaries. As of September 30, 2012 and December 31, 2011, our International Fleet Financing No. 1 B.V., International Fleet Financing No. 2 B.V. and HA Funding Pty, Ltd. variable interest entities had total assets primarily comprised of loans receivable and revenue earning equipment of $658.5 million and $456.3 million, respectively, and total liabilities primarily comprised of debt of $658.0 million and $455.8 million, respectively.
Note 8—Employee Retirement Benefits
The following table sets forth the net periodic pension and postretirement (including health care, life insurance and auto) expense (in millions of dollars):
 
Pension Benefits
 
Postretirement
Benefits (U.S.)
 
U.S.
 
Non-U.S.
 
 
Three Months Ended September 30,
 
2012
 
2011
 
2012
 
2011
 
2012
 
2011
Components of Net Periodic
 
 
 
 
 
 
 
 
 
 
 
Benefit Cost:
 
 
 
 
 
 
 
 
 
 
 
Service cost
$
5.2

 
$
6.6

 
$
0.3

 
$
(0.5
)
 
$

 
$
0.1

Interest cost
7.3

 
6.6

 
2.2

 
2.9

 
0.2

 
0.2

Expected return on plan assets
(8.3
)
 
(7.7
)
 
(3.0
)
 
(3.5
)
 

 

Net amortizations
2.9

 
1.1

 

 
0.1

 

 
(0.1
)
Settlement loss

 
1.5

 

 

 

 

Curtailment gain

 

 

 

 

 

Net pension /
 
 
 
 
 
 
 
 
 
 
 
postretirement expense
$
7.1

 
$
8.1

 
$
(0.5
)
 
$
(1.0
)
 
$
0.2

 
$
0.2



18

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

 
Pension Benefits
 
Postretirement
Benefits (U.S.)
 
U.S.
 
Non-U.S.
 
 
Nine Months Ended September 30,
 
2012
 
2011
 
2012
 
2011
 
2012
 
2011
Components of Net Periodic
 
 
 
 
 
 
 
 
 
 
 
Benefit Cost:
 
 
 
 
 
 
 
 
 
 
 
Service cost
$
18.5

 
$
19.7

 
$
0.9

 
$
3.0

 
$
0.2

 
$
0.2

Interest cost
21.2

 
20.6

 
6.8

 
8.5

 
0.6

 
0.7

Expected return on plan assets
(23.6
)
 
(22.9
)
 
(9.0
)
 
(9.7
)
 

 

Net amortizations
8.9

 
5.4

 
(0.1
)
 
(0.5
)
 

 

Settlement loss

 
2.2

 

 

 

 

Curtailment gain

 

 

 
(13.1
)
 

 

Net pension /
 
 
 
 
 
 
 
 
 
 
 
postretirement expense
$
25.0

 
$
25.0

 
$
(1.4
)
 
$
(11.8
)
 
$
0.8

 
$
0.9


Our policy for funded plans is to contribute annually, at a minimum, amounts required by applicable laws, regulations and union agreements. From time to time we make contributions beyond those legally required. For the three and nine months ended September 30, 2012, we contributed $14.5 million and $46.7 million, respectively, to our worldwide pension plans, including discretionary contributions of $0 and $3.2 million, respectively, to our United Kingdom, or "U.K.," defined benefit pension plan and benefit payments made through unfunded plans. For the three and nine months ended September 30, 2011, we contributed $16.6 million and $73.7 million, respectively, to our worldwide pension plans, including discretionary contributions of $0.5 million and $13.7 million, respectively, to our U.K. defined benefit pension plan and benefit payments made through unfunded plans. The level of future contributions will vary, and is dependent on a number of factors including investment returns, interest rate fluctuations, plan demographics, funding regulations and the results of the final actuarial valuation.
On June 30, 2011, we approved an agreement with the trustees of our U.K. defined benefit pension plan to cease all future benefit accruals to existing members and to close the plan to new members. Effective July 1, 2011, we introduced a defined contribution plan with company matching contributions to replace the U.K. defined benefit pension plan. The company matching contributions are generally 100% of the employee contributions, up to 8% of pay, except that former members of the defined benefit pension plan receive an enhanced match for five years. In the year ended December 31, 2011, we recognized a gain of $13.1 million for the U.K. plan that represented unamortized prior service cost from a 2010 amendment that eliminated discretionary pension increases related to pre-1997 service primarily for inactive employees.
We also sponsor postretirement health care and life insurance benefits for a limited number of employees with hire dates prior to January 1, 1990. The postretirement health care plan is contributory with participants' contributions adjusted annually. An unfunded liability is recorded. We also have a key officer postretirement car benefit plan that provides the use of a vehicle from our fleet and insurance for the participants' benefit for retired Senior Vice Presidents and above who have a minimum of 20 years of service and who retire at age 58 or above. The assigned car benefit is available for 15 years post-retirement or until the participant reaches the age of 80, whichever occurs last.
We participate in various "multiemployer" pension plans. In the event that we withdraw from participation in one of these plans, then applicable law could require us to make an additional lump-sum contribution to the plan, and we would have to reflect that as an expense in our consolidated statement of operations and as a liability on our condensed consolidated balance sheet. Our withdrawal liability for any multiemployer plan would depend on the extent of the plan's funding of vested benefits. At least one multiemployer plan in which we participate is reported to have, and other of our multiemployer plans could have, significant underfunded liabilities. Such underfunding may increase in the event other employers become insolvent or withdraw from the applicable plan or upon the inability or failure of withdrawing employers to pay their withdrawal liability. In addition, such underfunding may increase as a result of lower than expected returns on pension fund assets or other funding deficiencies. The occurrence of any of these events could have a material adverse effect on our consolidated financial position, results of operations or cash flows.


19

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

Note 9—Stock-Based Compensation
In March 2012, we granted 543,880 Restricted Stock Units, or "RSUs," to certain executives and employees at fair values ranging from $13.65 to $14.47, 747,423 Performance Stock Units, or "PSUs," at a fair value of $13.65, and 1,098,591 PSUs (referred to as Price Vesting Units, or "PVUs") at fair values ranging from $10.13 to $11.26 under the Hertz Global Holdings, Inc. 2008 Omnibus Incentive Plan, or the "Omnibus Plan." The PSUs have a performance condition under which the number of units that will ultimately be awarded will vary from 0% to 150% of the original grant, based on 2012 and 2013 Corporate EBITDA results. "EBITDA" means consolidated net income before net interest expense, consolidated income taxes and consolidated depreciation (which includes revenue earning equipment lease charges) and amortization and "Corporate EBITDA," represents EBITDA as adjusted for car rental fleet interest, car rental fleet depreciation and certain other items, as provided in the applicable award agreements. Of the PVUs granted, one half will fully vest after three years if the stock price appreciates 15% over the grant date price, and one half will fully vest after four years if the stock price appreciates 25% over the grant date price. Partial attainment of the stock appreciation targets will result in partial vesting. The achievement of the market condition for the PVUs is determined based on the average closing stock price for the 20 trading day period ending March 6, 2015 and 2016, respectively. In May 2012, we granted 146,301 RSUs at a fair value of $15.48 and in August 2012, we granted 59,480 RSUs at a fair value of $12.12.
A summary of the total compensation expense and associated income tax benefits recognized under our Hertz Global Holdings, Inc. Stock Incentive Plan and Hertz Global Holdings, Inc. Director Stock Incentive Plan, or the "Prior Plans," and the Omnibus Plan, including the cost of stock options, RSUs, and PSUs, is as follows (in millions of dollars):
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
2012
 
2011
 
2012
 
2011
Compensation expense
$
7.3

 
$
7.8

 
$
22.3

 
$
24.4

Income tax benefit
(2.8
)
 
(3.0
)
 
(8.6
)
 
(9.4
)
Total
$
4.5

 
$
4.8

 
$
13.7

 
$
15.0

As of September 30, 2012, there was approximately $44.4 million of total unrecognized compensation cost related to non-vested stock options, RSUs and PSUs granted by Hertz Holdings under the Prior Plans and the Omnibus Plan. The total unrecognized compensation cost is expected to be recognized over the remaining 1.4 years, on a weighted average basis, of the requisite service period that began on the grant dates.
Note 10—Segment Information
Our operating segments are aggregated into reportable business segments based primarily upon similar economic characteristics, products, services, customers, and delivery methods. We have identified two reportable segments: rental and leasing of cars, crossovers and light trucks, or "car rental," and rental of industrial, construction, material handling and other equipment, or "equipment rental." Other reconciling items include general corporate assets and expenses, certain interest expense (including net interest on corporate debt), as well as other business activities. Donlen is included in the car rental reportable segment.
Adjusted pre-tax income is calculated as income (loss) before income taxes plus non-cash purchase accounting charges, non-cash debt charges relating to the amortization and write-off of debt financing costs and debt discounts and certain one-time charges and non-operational items. Adjusted pre-tax income is important to management 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. The contribution of our reportable segments to revenues and adjusted pre-tax income (loss) and the reconciliation to consolidated amounts are summarized below (in millions of dollars).

20

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

 
Three Months Ended September 30,
 
Revenues
 
Adjusted Pre-Tax Income (Loss)
 
2012
 
2011
 
2012
 
2011
Car rental
$
2,152.6

 
$
2,109.1

 
$
428.7

 
$
375.3

Equipment rental
363.0

 
321.7

 
76.2

 
55.9

Total reportable segments
2,515.6

 
2,430.8

 
504.9

 
431.2

Other
0.6

 
1.5

 
 

 
 

Total
$
2,516.2

 
$
2,432.3

 
 

 
 

Adjustments:
 
 
 
 
 
 
 
Other reconciling items(1)
 

 
 

 
(80.1
)
 
(84.3
)
Purchase accounting(2)
 

 
 

 
(23.9
)
 
(19.1
)
Non-cash debt charges(3)
 

 
 

 
(20.5
)
 
(21.0
)
Restructuring charges
 

 
 

 
(1.5
)
 
(1.9
)
Restructuring related charges(4)
 

 
 

 
(2.0
)
 
(3.2
)
Derivative gains(5)
 

 
 

 
0.1

 
0.1

Management transition costs
 

 
 

 

 
(1.5
)
Acquisition related costs
 

 
 

 
(8.1
)
 
(4.6
)
Income before income taxes
 

 
 

 
$
368.9

 
$
295.7


 
Nine Months Ended September 30,
 
Revenues
 
Adjusted Pre-Tax Income (Loss)
 
2012
 
2011
 
2012
 
2011
Car rental
$
5,700.4

 
$
5,388.3

 
$
797.8

 
$
678.8

Equipment rental
1,000.1

 
891.6

 
144.6

 
99.5

Total reportable segments
6,700.5

 
6,279.9

 
942.4

 
778.3

Other
1.8

 
4.7

 
 

 
 

Total
$
6,702.3

 
$
6,284.6

 
 

 
 

Adjustments:
 
 
 
 
 
 
 
Other reconciling items(1)
 

 
 

 
(254.3
)
 
(263.0
)
Purchase accounting(2)
 

 
 

 
(76.9
)
 
(62.2
)
Non-cash debt charges(3)
 

 
 

 
(66.3
)
 
(108.0
)
Restructuring charges
 

 
 

 
(27.0
)
 
(40.4
)
Restructuring related charges(4)
 

 
 

 
(7.6
)
 
(6.4
)
Derivative gains(5)
 
 
 
 
0.1

 
0.1

Acquisition related costs
 

 
 

 
(19.6
)
 
(13.6
)
Management transition costs
 

 
 

 

 
(4.0
)
Pension adjustment(6)
 

 
 

 

 
13.1

Premiums paid on debt(7)
 

 
 

 

 
(62.4
)
Income before income taxes
 

 
 

 
$
490.8

 
$
231.5

_______________________________________________________________________________
(1)
Represents general corporate expenses, certain interest expense (including net interest on corporate debt), as well as other business activities.
(2)
Represents the purchase accounting effects of the Acquisition on our results of operations relating to increased depreciation and amortization of tangible and intangible assets and accretion of revalued workers' compensation and public liability and property damage liabilities. Also represents the purchase accounting effects of subsequent acquisitions on our results of operations relating to increased depreciation and amortization of tangible and intangible assets.
(3)
Represents non-cash debt charges relating to the amortization and write-off of deferred debt financing costs and debt discounts.

21

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

(4)
Represents incremental costs incurred directly supporting our business transformation initiatives. Such costs include transition costs incurred in connection with our 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.
(5)
Represents the mark-to-market adjustment on our interest rate cap.
(6)
Represents a gain for the U.K. pension plan relating to unamortized prior service cost from a 2010 amendment that eliminated discretionary pension increases related to pre-1997 service primarily pertaining to inactive employees.
(7)
Represents premiums paid to redeem our 10.5% Senior Subordinated Notes and a portion of our 8.875% Senior Notes.
Total assets increased $1,865.6 million from December 31, 2011 to September 30, 2012. The increase was primarily related to increases in our car rental and equipment rental segments' revenue earning equipment and receivables, driven by increased volumes, and an increase in restricted cash and cash equivalents related to the timing of purchases and sales of revenue earning vehicles, partly offset by a decreases in our cash and cash equivalents, primarily relating to the redemption of our 8.875% Senior Notes and our 7.875% Senior Notes.
Note 11—Total Equity
 
Preferred Stock
 
Common Stock
 
Additional
Paid-In Capital
 
Accumulated
Deficit
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Non-
Controlling
Interest
 
Total
Equity
(In Millions)
Shares
 
Amount
 
 
December 31, 2011
$

 
417.0

 
$
4.2

 
$
3,206.0

 
$
(947.1
)
 
$
(28.4
)
 
$

 
$
2,234.7

Net income
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
attributable to Hertz Global Holdings, Inc. and Subsidiaries' common stockholders
 

 
 

 
 

 
 

 
279.5

 
 

 
 

 
279.5

Other
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
comprehensive income
 

 
 

 
 

 
 

 
 

 
13.6

 
 

 
13.6

Employee stock
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
purchase plan
 

 
0.3

 
 

 
3.7

 
 

 
 

 
 

 
3.7

Net settlement on
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
vesting of restricted stock
 

 
2.0

 
 

 
(20.0
)
 
 

 
 

 
 

 
(20.0
)
Stock-based
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
employee compensation charges, net of tax
 

 
 

 
 

 
22.2

 
 

 
 

 
 

 
22.2

Exercise of stock
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
options, net of tax
 

 
1.6

 
 

 
7.2