10-Q 1 hghthcq22017form10-q.htm 10-Q Document

 
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 June 30, 2017
OR
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

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

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

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

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

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

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

Indicate the number of shares outstanding as of the latest practicable date.
 
 
Class
 
Shares Outstanding at
July 31, 2017
Hertz Global Holdings, Inc.
 
Common Stock, par value $0.01 per share
 
83,716,852
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)
 
June 30,
2017
 
December 31, 2016
ASSETS
 
 
 
Cash and cash equivalents
$
1,141

 
$
816

Restricted cash and cash equivalents:
 
 
 
Vehicle
183

 
235

Non-vehicle
879

 
43

Total restricted cash and cash equivalents
1,062

 
278

Receivables:
 
 
 
Vehicle
282

 
546

Non-vehicle, net of allowance of $37 and $42, respectively
928

 
737

Total receivables, net
1,210

 
1,283

Prepaid expenses and other assets
565

 
578

Revenue earning vehicles:
 
 
 
Vehicles
16,149

 
13,655

Less accumulated depreciation
(2,963
)
 
(2,837
)
Total revenue earning vehicles, net
13,186

 
10,818

Property and equipment:
 
 
 
Land, buildings and leasehold improvements
1,188

 
1,165

Service equipment and other
771

 
724

Less accumulated depreciation
(1,120
)
 
(1,031
)
Total property and equipment, net
839

 
858

Other intangible assets, net
3,239

 
3,332

Goodwill
1,082

 
1,081

Assets held for sale
109

 
111

Total assets
$
22,433

 
$
19,155

LIABILITIES AND EQUITY
 
 
 
Accounts payable:
 
 
 
Vehicle
$
677

 
$
258

Non-vehicle
704

 
563

Total accounts payable
1,381

 
821

Accrued liabilities
963

 
980

Accrued taxes, net
166

 
165

Debt:
 
 
 
Vehicle
11,176

 
9,646

Non-vehicle
5,633

 
3,895

Total debt
16,809

 
13,541

Public liability and property damage
423

 
407

Deferred income taxes, net
1,922

 
2,149

Liabilities held for sale
13

 
17

Total liabilities
21,677

 
18,080

Commitments and contingencies

 

Equity:
 
 
 
Preferred Stock, $0.01 par value, no shares issued and outstanding

 

Common Stock, $0.01 par value, 86 and 85 shares issued and 84 and 83 shares outstanding
1

 
1

Additional paid-in capital
2,234

 
2,227

Accumulated deficit
(1,214
)
 
(882
)
Accumulated other comprehensive income (loss)
(165
)
 
(171
)
 
856

 
1,175

Treasury Stock, at cost, 2 shares and 2 shares
(100
)
 
(100
)
Total equity
756

 
1,075

Total liabilities and equity
$
22,433

 
$
19,155


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
June 30,
 
Six Months Ended
June 30,
 
2017
 
2016
 
2017
 
2016
Revenues:
 
 
 
 
 
 
 
Worldwide vehicle rental
$
2,062

 
$
2,124

 
$
3,827

 
$
3,963

All other operations
162

 
146

 
313

 
290

Total revenues
2,224

 
2,270

 
4,140

 
4,253

Expenses:
 
 
 
 
 
 
 
Direct vehicle and operating
1,255

 
1,267

 
2,387

 
2,425

Depreciation of revenue earning vehicles and lease charges, net
743

 
629

 
1,444

 
1,245

Selling, general and administrative
223

 
234

 
442

 
459

Interest expense, net:
 
 
 
 
 
 
 
Vehicle
82

 
72

 
153

 
140

Non-vehicle
76

 
102

 
136

 
185

Total interest expense, net
158

 
174

 
289

 
325

Intangible asset impairments
86

 

 
86

 

Other (income) expense, net
4

 
1

 
31

 
(89
)
Total expenses
2,469

 
2,305

 
4,679

 
4,365

Income (loss) from continuing operations before income taxes
(245
)
 
(35
)
 
(539
)
 
(112
)
Income tax (provision) benefit
87

 
7

 
158

 
32

Net income (loss) from continuing operations
(158
)
 
(28
)
 
(381
)
 
(80
)
Net income (loss) from discontinued operations

 
(15
)
 

 
(13
)
Net income (loss)
$
(158
)
 
$
(43
)
 
$
(381
)
 
$
(93
)
 
 
 
 
 
 
 
 
Weighted average shares outstanding:
 
 
 
 
 
 
 
Basic
83

 
85

 
83

 
85

Diluted
83

 
85

 
83

 
85

 
 
 
 
 
 
 
 
Earnings (loss) per share - basic and diluted:
 
 
 
 
 
 
 
Basic earnings (loss) per share from continuing operations
$
(1.90
)
 
$
(0.33
)
 
$
(4.59
)
 
$
(0.94
)
Basic earnings (loss) per share from discontinued operations

 
(0.18
)
 

 
(0.15
)
Basic earnings (loss) per share
$
(1.90
)
 
$
(0.51
)
 
$
(4.59
)
 
$
(1.09
)
 
 
 
 
 
 
 
 
Diluted earnings (loss) per share from continuing operations
$
(1.90
)
 
$
(0.33
)
 
$
(4.59
)
 
$
(0.94
)
Diluted earnings (loss) per share from discontinued operations

 
(0.18
)
 

 
(0.15
)
Diluted earnings (loss) per share
$
(1.90
)
 
$
(0.51
)
 
$
(4.59
)
 
$
(1.09
)

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
June 30,
 
Six Months Ended
June 30,
 
2017
 
2016
 
2017
 
2016
Net income (loss)
$
(158
)
 
$
(43
)
 
$
(381
)
 
$
(93
)
Other comprehensive income (loss):
 
 
 
 
 
 
 
Foreign currency translation adjustments
(4
)
 
(18
)
 
12

 
18

Unrealized holding gains (losses) on securities

 
(8
)
 

 
9

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

 

 
(3
)
 

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

(34
)

(4
)

(34
)
Reclassification from other comprehensive income (loss) to selling, general and administrative expense for amortization of actuarial (gains) losses on defined benefit pension plans
1

 
2

 
2

 
4

Total other comprehensive income (loss) before income taxes
(6
)
 
(58
)
 
7

 
(3
)
Income tax (provision) benefit related to net gains and losses on defined benefit pension plans

 
14

 

 
14

Income tax (provision) benefit related to reclassified amounts of net periodic costs on defined benefit pension plans
(1
)
 
(1
)
 
(1
)
 
(2
)
Total other comprehensive income (loss)
(7
)
 
(45
)
 
6

 
9

Total comprehensive income (loss)
$
(165
)
 
$
(88
)
 
$
(375
)
 
$
(84
)

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

4


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


 
Six Months Ended
June 30,
 
2017
 
2016
Cash flows from operating activities:
 
 
 
Net income (loss)
$
(381
)
 
$
(93
)
Less: Net income (loss) from discontinued operations

 
(13
)
Net income (loss) from continuing operations
(381
)
 
(80
)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
 
 
 
Depreciation of revenue earning vehicles, net
1,410

 
1,212

Depreciation and amortization, non-vehicle
120

 
128

Amortization and write-off of deferred financing costs
20

 
22

Amortization and write-off of debt discount (premium)
1

 
3

Loss on extinguishment of debt
8

 
20

Stock-based compensation charges
12

 
12

Provision for receivables allowance
17

 
24

Deferred income tax, net
(175
)
 
(49
)
Impairment charges and asset write-downs
116

 
3

(Gain) loss on sale of shares in equity investment
(3
)
 
(75
)
Other
7

 
(4
)
Changes in assets and liabilities
 
 
 
Non-vehicle receivables
(180
)
 
(214
)
Prepaid expenses and other assets
(71
)
 
(48
)
Non-vehicle accounts payable
134

 
43

Accrued liabilities
(53
)
 
(15
)
Accrued taxes, net
(1
)
 
14

Public liability and property damage
1

 
18

Net cash provided by (used in) operating activities
982

 
1,014

Cash flows from investing activities:
 
 
 
Net change in restricted cash and cash equivalents, vehicle
55

 
18

Net change in restricted cash and cash equivalents, non-vehicle

 
(2
)
Revenue earning vehicles expenditures
(6,709
)
 
(6,887
)
Proceeds from disposal of revenue earning vehicles
3,835

 
4,787

Capital asset expenditures, non-vehicle
(103
)
 
(72
)
Proceeds from disposal of property and other equipment
11

 
39

Sales of shares in equity investment, net of amounts invested
9

 
188

Other
(2
)
 

Net cash provided by (used in) investing activities
(2,904
)
 
(1,929
)

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

5


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

 
Six Months Ended
June 30,
 
2017
 
2016
Cash flows from financing activities:
 
 
 
Net change in restricted cash and cash equivalents, non-vehicle
(834
)
 

Proceeds from issuance of vehicle debt
5,028

 
6,079

Repayments of vehicle debt
(3,665
)
 
(5,078
)
Proceeds from issuance of non-vehicle debt
2,100

 
1,477

Repayments of non-vehicle debt
(354
)
 
(2,843
)
Payment of financing costs
(34
)
 
(51
)
Early redemption premium payment
(5
)
 

Transfers from discontinued entities

 
2,122

Other
(1
)
 
12

Net cash provided by (used in) financing activities
2,235

 
1,718

Effect of foreign currency exchange rate changes on cash and cash equivalents from continuing operations
12

 
8

Net increase (decrease) in cash and cash equivalents during the period from continuing operations
325

 
811

Cash and cash equivalents at beginning of period
816

 
474

Cash and cash equivalents at end of period
$
1,141

 
$
1,285

 

 

Cash flows from discontinued operations:
 
 
 
Cash flows provided by (used in) operating activities
$

 
$
205

Cash flows provided by (used in) investing activities

 
(78
)
Cash flows provided by (used in) financing activities

 
(96
)
Net increase (decrease) in cash and cash equivalents during the period from discontinued operations
$

 
$
31

 
 
 
 
Supplemental disclosures of cash information for continuing operations:
 
 
 
Cash paid during the period for:
 
 
 
Interest, net of amounts capitalized:
 
 
 
Vehicle
$
130

 
$
115

Non-vehicle
128

 
167

Income taxes, net of refunds
29

 
25

Supplemental disclosures of non-cash information for continuing operations:
 
 
 
Purchases of revenue earning vehicles included in accounts payable and accrued liabilities
$
546

 
$
560

Sales of revenue earning vehicles included in receivables
151

 
392

Purchases of property and other equipment included in accounts payable
22

 
19

Sales of property and other equipment included in receivables
5

 
17

Revenue earning vehicles and property and equipment acquired through capital lease
13

 


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

6




THE HERTZ CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
Unaudited
(In millions, except par value and share data)
 
June 30,
2017
 
December 31,
2016
ASSETS
 
 
 
Cash and cash equivalents
$
1,141

 
$
816

Restricted cash and cash equivalents:
 
 
 
Vehicle
183

 
235

Non-vehicle
879

 
43

Total restricted cash and cash equivalents
1,062

 
278

Receivables:
 
 
 
Vehicle
282

 
546

Non-vehicle, net of allowance of $37 and $42, respectively
928

 
737

Total receivables, net
1,210

 
1,283

Prepaid expenses and other assets
565

 
578

Revenue earning vehicles:
 
 
 
Vehicles
16,149

 
13,655

Less accumulated depreciation
(2,963
)
 
(2,837
)
Total revenue earning vehicles, net
13,186

 
10,818

Property and equipment:
 
 
 
Land, buildings and leasehold improvements
1,188

 
1,165

Service equipment and other
771

 
724

Less accumulated depreciation
(1,120
)
 
(1,031
)
Total property and equipment, net
839

 
858

Other intangible assets, net
3,239

 
3,332

Goodwill
1,082

 
1,081

Assets held for sale
109

 
111

Total assets
$
22,433

 
$
19,155

LIABILITIES AND EQUITY
 
 
 
Accounts payable:
 
 
 
Vehicle
$
677

 
$
258

Non-vehicle
704

 
563

Total accounts payable
1,381

 
821

Accrued liabilities
963

 
980

Accrued taxes, net
166

 
165

Debt:
 
 
 
Vehicle
11,176

 
9,646

Non-vehicle
5,633

 
3,895

Total debt
16,809

 
13,541

Public liability and property damage
423

 
407

Deferred income taxes, net
1,923

 
2,149

Liabilities held for sale
13

 
17

Total liabilities
21,678

 
18,080

Commitments and contingencies

 

Equity:
 
 
 
Common Stock, $0.01 par value, 3,000 shares authorized, 100 shares issued and outstanding

 

Additional paid-in capital
3,158

 
3,150

Due from affiliate
(40
)
 
(37
)
Accumulated deficit
(2,198
)
 
(1,867
)
Accumulated other comprehensive income (loss)
(165
)
 
(171
)
Total equity
755

 
1,075

Total liabilities and equity
$
22,433

 
$
19,155


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

7



THE HERTZ CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Unaudited
(In millions)
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2017
 
2016
 
2017
 
2016
Revenues:
 
 
 
 
 
 
 
Worldwide vehicle rental
$
2,062

 
$
2,124

 
$
3,827

 
$
3,963

All other operations
162

 
146

 
313

 
290

Total revenues
2,224

 
2,270

 
4,140

 
4,253

Expenses:
 
 
 
 
 
 
 
Direct vehicle and operating
1,255

 
1,267

 
2,387

 
2,425

Depreciation of revenue earning vehicles and lease charges, net
743

 
629

 
1,444

 
1,245

Selling, general and administrative
223

 
234

 
442

 
459

Interest expense, net:
 
 
 
 
 
 
 
Vehicle
82

 
72

 
153

 
140

Non-vehicle
75

 
102

 
134

 
185

Total interest expense, net
157

 
174

 
287

 
325

Intangible asset impairments
86

 

 
86

 

Other (income) expense, net
4

 
1

 
31

 
(89
)
Total expenses
2,468

 
2,305

 
4,677

 
4,365

Income (loss) from continuing operations before income taxes
(244
)
 
(35
)
 
(537
)
 
(112
)
Income tax (provision) benefit
86

 
7

 
157

 
32

Net income (loss) from continuing operations
(158
)
 
(28
)
 
(380
)
 
(80
)
Net income (loss) from discontinued operations

 
(15
)
 

 
(11
)
Net income (loss)
$
(158
)
 
$
(43
)
 
$
(380
)
 
$
(91
)


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

8



THE HERTZ CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
Unaudited
(In millions)
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2017
 
2016
 
2017
 
2016
Net income (loss)
$
(158
)
 
$
(43
)
 
$
(380
)
 
$
(91
)
Other comprehensive income (loss):
 
 
 
 
 
 
 
Foreign currency translation adjustments
(4
)
 
(18
)
 
12

 
18

Unrealized holding gains (losses) on securities

 
(8
)
 

 
9

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

 

 
(3
)
 

Net gain (loss) on defined benefit pension plans
(3
)
 
(34
)
 
(4
)
 
(34
)
Reclassification from other comprehensive income (loss) to selling, general and administrative expense for amortization of actuarial (gains) losses on defined benefit pension plans
1

 
2

 
2

 
4

Total other comprehensive income (loss) before income taxes
(6
)
 
(58
)
 
7

 
(3
)
Income tax (provision) benefit related to net gains and losses on defined benefit pension plans

 
14

 

 
14

Income tax (provision) benefit related to reclassified amounts of net periodic costs on defined benefit pension plans
(1
)
 
(1
)
 
(1
)
 
(2
)
Total other comprehensive income (loss)
(7
)
 
(45
)
 
6

 
9

Total comprehensive income (loss)
$
(165
)
 
$
(88
)
 
$
(374
)
 
$
(82
)

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

9


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

 
Six Months Ended
June 30,
 
2017
 
2016
Cash flows from operating activities:
 
 
 
Net income (loss)
$
(380
)
 
$
(91
)
Less: Net income (loss) from discontinued operations

 
(11
)
Net income (loss) from continuing operations
(380
)
 
(80
)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
 
 
 
Depreciation of revenue earning vehicles, net
1,410

 
1,212

Depreciation and amortization, non-vehicle
120

 
128

Amortization and write-off of deferred financing costs
20

 
22

Amortization and write-off of debt discount (premium)
1

 
3

Loss on extinguishment of debt
8

 
20

Stock-based compensation charges
12

 
12

Provision for receivables allowance
17

 
24

Deferred income taxes, net
(174
)
 
(49
)
Impairment charges and asset write-downs
116

 
3

(Gain) loss on sale of shares in equity investment
(3
)
 
(75
)
Other
7

 
(4
)
Changes in assets and liabilities
 
 
 
Non-vehicle receivables
(180
)
 
(214
)
Prepaid expenses and other assets
(71
)
 
(48
)
Non-vehicle accounts payable
134

 
43

Accrued liabilities
(53
)
 
(15
)
Accrued taxes, net
(1
)
 
14

Public liability and property damage
1

 
18

Net cash provided by (used in) operating activities
984

 
1,014

Cash flows from investing activities:
 
 
 
Net change in restricted cash and cash equivalents, vehicle
55

 
18

Net change in restricted cash and cash equivalents, non-vehicle

 
(2
)
Revenue earning vehicles expenditures
(6,709
)
 
(6,887
)
Proceeds from disposal of revenue earning vehicles
3,835

 
4,787

Capital asset expenditures, non-vehicle
(103
)
 
(72
)
Proceeds from disposal of property and other equipment
11

 
39

Sales of shares in equity investment, net of amounts invested
9

 
188

Other
(2
)
 

Net cash provided by (used in) investing activities
(2,904
)
 
(1,929
)

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

10


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

 
Six Months Ended
June 30,
 
2017
 
2016
Cash flows from financing activities:
 
 
 
Net change in restricted cash and cash equivalents, non-vehicle
(834
)
 

Proceeds from issuance of vehicle debt
5,028

 
6,079

Repayments of vehicle debt
(3,665
)
 
(5,078
)
Proceeds from issuance of non-vehicle debt
2,100

 
1,477

Repayments of non-vehicle debt
(354
)
 
(2,843
)
Payment of financing costs
(34
)
 
(51
)
Early redemption premium payment
(5
)
 

Transfers from discontinued entities

 
2,122

Advances to Hertz Global/Old Hertz Holdings
(3
)
 

Other

 
12

Net cash provided by (used in) financing activities
2,233

 
1,718

Effect of foreign currency exchange rate changes on cash and cash equivalents from continuing operations
12

 
8

Net increase (decrease) in cash and cash equivalents during the period from continuing operations
325

 
811

Cash and cash equivalents at beginning of period
816

 
474

Cash and cash equivalents at end of period
$
1,141

 
$
1,285

 
 
 
 
Cash flows from discontinued operations:
 
 
 
Cash flows provided by (used in) operating activities
$

 
$
207

Cash flows provided by (used in) investing activities

 
(77
)
Cash flows provided by (used in) financing activities

 
(94
)
Net increase (decrease) in cash and cash equivalents during the period from discontinued operations
$

 
$
36

 
 
 
 
Supplemental disclosures of cash flow information for continuing operations:
 
 
 
Cash paid during the period for:
 
 
 
Interest, net of amounts capitalized:
 
 
 
Vehicle
$
130

 
$
115

Non-vehicle
128

 
167

Income taxes, net of refunds
29

 
25

Supplemental disclosures of non-cash information for continuing operations:
 
 
 
Purchases of revenue earning vehicles included in accounts payable and accrued liabilities
$
546

 
$
560

Sales of revenue earning vehicles included in receivables
151

 
392

Purchases of property and other equipment included in accounts payable
22

 
19

Sales of property and other equipment included in receivables
5

 
17

Revenue earning vehicles and property and equipment acquired through capital lease
13

 

Non-cash dividend paid to affiliate

 
334


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

11


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


Note 1Background

Hertz Global Holdings, Inc. ("Hertz Global" when including its subsidiaries and "Hertz Holdings" excluding its subsidiaries) 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 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.

On June 30, 2016, former Hertz Global Holdings, Inc. (for periods on or prior to June 30, 2016, “Old Hertz Holdings” and for periods after June 30, 2016, “Herc Holdings”) completed a spin-off (the “Spin-Off”) of its global vehicle rental business through a dividend to stockholders of record of Old Hertz Holdings as of the close of business on June 22, 2016, the record date for the distribution, of all of the issued and outstanding common stock of Hertz Rental Car Holding Company, Inc. (“New Hertz”), which was re-named Hertz Global Holdings, Inc. in connection with the Spin-Off, on a one-to-five basis. New Hertz, or Hertz Global, is the “accounting successor” to Old Hertz Holdings. As such, the historical financial information of Hertz reflects the equipment rental business as a discontinued operation and the historical financial information of Hertz Global reflects the equipment rental business and certain parent legal entities as discontinued operations. See Note 3, "Discontinued Operations," for additional information. Unless noted otherwise, information disclosed in these notes to the consolidated financial statements pertain to the continuing operations of Hertz and Hertz Global.

Note 2Basis of Presentation and Recently Issued Accounting Pronouncements

Basis of Presentation

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

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

The December 31, 2016 condensed consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by U.S. GAAP. The information included in this Form 10-Q should be read in conjunction with information included in the Company's Form 10‑K for the year ended December 31, 2016 (the "2016 Form 10-K"), as filed with the Securities and Exchange Commission ("SEC") on March 6, 2017.

Certain prior period amounts have been reclassified to conform with current period presentation.

Principles of Consolidation

The unaudited condensed consolidated financial statements of Hertz Global include the accounts of Hertz Global and its wholly owned and majority owned U.S. and international subsidiaries. The unaudited condensed consolidated financial statements of Hertz include the accounts of Hertz and its wholly owned and majority owned U.S. and international subsidiaries. In the event that the Company is a primary beneficiary of a variable interest entity, the assets, liabilities, and results of operations of the variable interest entity are included in the Company's consolidated financial statements. The Company accounts for its investment in joint ventures using the equity method when it has significant

12


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

influence but not control and is not the primary beneficiary. All significant intercompany transactions have been eliminated in consolidation.

Out Of Period Adjustments

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

Correction of Errors

The Company identified classification errors within the investing section of the condensed consolidated statement of cash flows for the six months ended June 30, 2016. One of the errors related to the Company's Donlen operations and was previously disclosed in the Company's 2016 Form 10‑K. The second error related to the Company's operations in Brazil and was identified during the preparation of the condensed consolidated statement of cash flows for the six months ended June 30, 2017.

The Company considered both quantitative and qualitative factors in assessing the materiality of the classification errors individually, and in the aggregate, and determined that the classification errors were not material and revised the accompanying condensed consolidated statement of cash flows for the six months ended June 30, 2016 accordingly. Correction of the errors decreased both revenue earning vehicles expenditures and proceeds from disposals of revenue earning vehicles by $381 million for the six months ended June 30, 2016 and did not impact total operating, investing or financing cash flows. These revisions had no impact on the Company's condensed consolidated balance sheet at December 31, 2016 or its condensed consolidated statement of operations for the three and six months ended June 30, 2016.

Recently Issued Accounting Pronouncements

Adopted

Improvements to Employee Share-Based Payment Accounting

In March 2016, the FASB issued guidance that simplifies several areas of employee share-based payment accounting, including income taxes, forfeitures, minimum statutory withholding requirements, and classifications within the statement of cash flows. Most significantly, the new guidance eliminates the need to track tax “windfalls” in a separate pool within additional paid-in capital; instead, excess tax benefits and tax deficiencies will be recorded within income tax expense. The Company adopted this guidance in accordance with the effective date on January 1, 2017. The method of adoption with respect to the condensed consolidated balance sheet was a modified retrospective basis. Upon adoption, the Company recorded a deferred tax asset with an offsetting entry to the opening accumulated deficit to recognize net operating loss carryforwards, net of a valuation allowance, attributable to excess tax benefits on stock compensation that had not been previously recognized. Additionally, the Company has elected to continue to estimate forfeitures expected to occur.


13


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

The impact to the condensed consolidated opening balance sheet as of January 1, 2017 of adopting this guidance was as follows (in millions):

Hertz Global
 
Deferred income taxes, net
 
Total liabilities
 
Accumulated deficit
 
Total equity
 
Total liabilities and equity
As of December 31, 2016
$
2,149

 
$
18,080

 
$
(882
)
 
$
1,075

 
$
19,155

Record deferred tax asset
(49
)
 
(49
)
 
49

 
49

 

As of January 1, 2017
$
2,100

 
$
18,031

 
$
(833
)
 
$
1,124

 
$
19,155


Hertz
 
Deferred income taxes, net
 
Total liabilities
 
Accumulated deficit
 
Total equity
 
Total liabilities and equity
As of December 31, 2016
$
2,149

 
$
18,080

 
$
(1,867
)
 
$
1,075

 
$
19,155

Record deferred tax asset
(49
)
 
(49
)
 
49

 
49

 

As of January 1, 2017
$
2,100

 
$
18,031

 
$
(1,818
)
 
$
1,124

 
$
19,155


The method of adoption with respect to the condensed consolidated statement of operations and the condensed consolidated statements of cash flows pertaining to excess tax benefits or deficiencies is on a prospective basis. The method of adoption with respect to the condensed consolidated statements of cash flows pertaining to employee taxes paid is on a retrospective basis and adoption of the guidance did not impact the Company's cash flows.

Classification of Certain Cash Receipts and Cash Payments

In August 2016, the FASB issued guidance that addresses the treatment of certain transactions in statements of cash flows, with the objective of reducing the existing diversity in practice in how certain cash receipts and cash payments are presented and classified. These items include debt prepayment or debt extinguishment costs, proceeds from the settlement of life insurance claims, proceeds from the settlement of corporate-owned life insurance policies, and distributions received from equity method investees. The Company adopted this guidance early, as permitted, on a retrospective basis, on January 1, 2017. Adoption of this guidance did not impact the Company’s financial position, results of operations or cash flows.

Accounting for Goodwill Impairment

In January 2017, the FASB issued guidance that eliminates the second step of the two-step goodwill impairment test, which requires the determination of the implied fair value of goodwill to measure an impairment. Rather, a goodwill impairment charge will be calculated as the amount by which a reporting unit's carrying amount exceeds its fair value. An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. The Company adopted this guidance early, as permitted, on a prospective basis, on January 1, 2017. Adoption of this guidance did not impact the Company’s financial position, results of operations or cash flows.

Scope of Modification Accounting for Share-Based Payment Awards

In May 2017, the FASB issued guidance that amends the scope of modification accounting for share-based payment arrangements. The guidance describes the types of changes to the terms or conditions of share-based payment awards where modification accounting is required to be applied. Modification accounting is not required if the fair value, vesting conditions and classification of the awards are the same immediately before and after the modification. The Company adopted this guidance early, as permitted, on a prospective basis, on April 1, 2017. Adoption of this guidance did not impact the Company’s financial position, results of operations or cash flows.

14


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


Not Yet Adopted

Revenue from Contracts with Customers

In May 2014, the FASB issued guidance that will replace most existing revenue recognition guidance in U.S. GAAP. The new guidance applies to all contracts with customers except for leases, insurance contracts, financial instruments, certain nonmonetary exchanges and certain guarantees. The core principle of the guidance is that an entity should recognize revenue from customers for the transfer of goods or services equal to the amount that it expects to be entitled to receive for those goods or services. Also, additional disclosures are required about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments. The FASB has issued several amendments and updates to the new revenue standard (collectively, “Topic 606”), including guidance related to when an entity should recognize revenue gross as a principal or net as an agent and how an entity should identify performance obligations. As amended, Topic 606 is effective for annual and interim periods beginning after December 15, 2017, with early adoption permitted, and allows for full retrospective adoption applied to all periods presented or a modified retrospective adoption with the cumulative effect of initially applying the new guidance as an adjustment to the opening balance of retained earnings recognized at the date of initial application. The Company intends to adopt Topic 606 when effective on January 1, 2018 using a modified retrospective approach applied to all contracts. Prior periods will not be retrospectively adjusted. The Company has reached conclusions on several key accounting assessments related to its revenue recognition, however, it is still finalizing its assessment and quantifying the impacts that adoption of Topic 606 will have on the accounting for its loyalty programs, such as Hertz Gold Plus Rewards, as further described below. The Company is still in the process of determining the level of disaggregated revenue information that it will include in its disclosures and continues to evaluate its internal controls over financial reporting to ensure that controls are in place to prevent or detect material misstatements to the consolidated financial statements upon adoption of Topic 606.

Vehicle Rental Operations

The Company has concluded that revenue earned by operations for the rental of vehicles and from other forms of rental related activities wherein an identified asset is transferred to the customer and the customer has the ability to control that asset is outside of the scope of Topic 606 and will be evaluated under the new lease guidance described in more detail in the “Leases” disclosure below.

Recognition of revenue from other forms of rental related activities that represent a service will not be materially impacted by adoption of Topic 606.

The Company is still in the process of evaluating the breakdown of its vehicle rental revenues into lease and non-lease components.

Recognition of revenue earned through the licensing of the Hertz, Dollar and Thrifty brands under franchise agreements (“franchise fees”) is expected to remain consistent with current revenue recognition guidance except for initial and renewal franchise fees. Currently, initial franchise fees are recorded as deferred income when received and are recognized as revenue when all material upfront services and conditions related to the franchise fee have been substantially performed and renewal franchise fees are recognized as revenue when the license agreements are effective and collectability is reasonably assured. Upon adoption, revenue from initial and renewal franchise fees that relate to a future contract term, for franchises in effect as of January 1, 2018, will be deferred and recognized over the remaining contract term. However, this amount will not be material.

The Company believes that the most significant impact relates to its accounting for reward points earned by customers under its loyalty programs. Upon adoption of Topic 606, each transaction which generates reward points will result in the deferral of revenue equivalent to the retail value of the redemption of the loyalty reward points. The associated revenue will be recognized at the time the customer redeems the loyalty reward points. Under the current guidance, there is no revenue deferral and the Company records an expense associated with the incremental cost of providing

15


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

the future rental at the time when the reward points are earned. The Company is in the process of quantifying the impact of adoption of Topic 606.

Fleet Leasing and Management Operations

The Company has concluded that revenue earned by operations for the leasing of vehicles and from other forms of rental related activities wherein an identified asset is transferred to the customer and the customer has the ability to control that asset is outside of the scope of Topic 606 and will be evaluated under the new lease guidance described in more detail in the “Leases” disclosure below. Administration fees and service revenue attributable to the Company's Donlen operations will not be materially impacted by adoption of Topic 606.

Leases

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

Lessee

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

Lessor

The Company has concluded that revenue earned by operations for the rental and leasing of vehicles and from other forms of rental related activities wherein an identified asset is transferred to the customer and the customer has the ability to control that asset is within the scope of this guidance and that additional disclosures regarding lease revenue are required upon adoption. There is no impact to the nature, timing or recognition of rental lease revenue upon adoption of this guidance.

Recognition and Measurement of Financial Assets and Financial Liabilities

In January 2016, the FASB issued guidance that makes several changes to the manner in which financial assets and liabilities are accounted for, including, among other things, a requirement to measure most equity investments at fair value with changes in fair value recognized in net income (with the exception of investments that are consolidated or accounted for using the equity method or a fair value practicability exception), and amends certain disclosure requirements related to fair value measurements and financial assets and liabilities. This guidance is effective for annual periods beginning after December 15, 2017 and interim periods within those annual periods using a modified retrospective transition method for most of the requirements. Based on current operations, adoption of this guidance is not expected to impact the Company’s financial position, results of operations or cash flows.

16


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


Measurement of Credit Losses on Financial Instruments

In June 2016, the FASB issued guidance that sets forth a current expected credit loss impairment model for financial assets, which replaces the current incurred loss model. This model requires a financial asset (or group of financial assets), including trade receivables, measured at amortized cost to be presented at the net amount expected to be collected with an allowance for credit losses deducted from the amortized cost basis. The allowance for credit losses should reflect management’s current estimate of credit losses that are expected to occur over the remaining life of a financial asset. This guidance is effective for annual periods beginning after December 15, 2019 and interim periods within those annual periods using a modified retrospective transition method. Based on current operations, adoption of this guidance is not expected to impact the Company's financial position, results of operations or cash flows.

Tax Consequences of Intra-Entity Transfers of Assets Other Than Inventory

In October 2016, the FASB issued guidance that requires the tax consequences of intra-entity asset transfers, other than intra-entity asset transfers of inventory, to be recognized when the transfers occur although the profits on the sales of the assets are eliminated in consolidation. Current guidance requires the tax effects of the transfer be recognized later when the assets are sold to a third party or otherwise disposed of. Under the new guidance, the seller's tax expense on the profit and the buyer's deferred tax benefit on the increased tax basis are recognized within the consolidated group when the transfers occur. The guidance is effective for annual periods beginning after December 15, 2017 and interim periods within those annual periods using a modified retrospective transition method. Based on current operations, adoption of this guidance is not expected to have a material impact on the Company's financial position, results of operations, and cash flows.

Restricted Cash

In November 2016, the FASB issued guidance that clarifies existing guidance on the classification and presentation of restricted cash in the statement of cash flows. The guidance requires entities to include restricted cash and restricted cash equivalents in its cash and cash equivalents balances in the statement of cash flows. Under current guidance, the Company presents these transfers within the cash flows from investing and financing sections in its consolidated statements of cash flows. The guidance is effective for annual periods beginning after December 15, 2017 and interim periods within those annual periods using a retrospective transition method. Adoption of this guidance will impact the reconciliation of the beginning-of-period and end-of-period total amounts shown on the Company's statement of cash flows. For the six months ended June 30, 2017, the amount of cash and cash equivalents as presented on the statement of cash flows will increase by $1.1 billion. Additionally, transfers between restricted and unrestricted cash will no longer be a component of the Company's investing or financing activities.

Clarifying the Definition of a Business

In January 2017, the FASB issued guidance that clarifies the definition of a business to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The guidance requires an evaluation of whether substantially all of the fair value of assets acquired (or disposed of) is concentrated in a single identifiable asset or a group of similar identifiable assets. If so, the transaction does not qualify as a business. The guidance also requires an acquired business to include at least one substantive process and narrows the definition of outputs. The guidance is effective for annual periods beginning after December 15, 2017 and interim periods within those annual periods using a prospective transition method. Based on current operations, adoption of this guidance is not expected to impact the Company's financial position, results of operations or cash flows.

Clarifying the Scope of Nonfinancial Asset Derecognition and Accounting for Partial Sales of Nonfinancial Assets

In February 2017, the FASB issued guidance that clarifies the scope of the established guidance on nonfinancial asset derecognition as well as the accounting for partial sales of nonfinancial assets. The guidance is effective for annual reporting periods beginning after December 15, 2017 and interim periods within those annual periods. The new guidance

17


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

may be adopted on either a full or modified retrospective basis. Based on current operations, adoption of this guidance is not expected to impact the Company's financial position, results of operations or cash flows.

Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost

In March 2017, the FASB issued guidance that requires entities to (1) disaggregate the current-service-cost component from the other components of net benefit cost (the “other components”) and present the current-service-cost component with other current compensation costs for related employees in the income statement and (2) present the other components elsewhere in the income statement and outside of income from operations if such a subtotal is presented. The guidance also requires entities to disclose the income statement lines that contain the other components if they are not presented on described separate lines. In addition, only the service-cost component of net benefit cost is eligible for capitalization, which is a change from current practice, under which entities capitalize the aggregate net benefit cost when applicable. The guidance is effective for annual reporting periods beginning after December 15, 2017 and interim periods within those annual periods. The guidance affecting the presentation of the components of net periodic benefit cost in the income statement requires use of the retrospective method of adoption and the guidance limiting the capitalization of net periodic benefit cost to the service cost component requires use of the prospective method of adoption. Adoption of this guidance will result in a reclassification of certain amounts from direct vehicle and operating expense and selling, general and administrative expense to other (income) expense, net which does not impact the Company's financial position, results of operations or cash flows. The Company does not expect the reclassified amounts to be material.

Note 3Discontinued Operations

As further described in Note 1, "Background," on June 30, 2016, the separation of Old Hertz Holdings' global vehicle rental and equipment rental businesses was completed.

Results of Discontinued Operations - Hertz Global

The following table summarizes the results of the equipment rental business and certain parent legal entities which are presented as discontinued operations in 2016:
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
(In millions)
2016
 
2016
Total revenues
$
349

 
$
677

Direct operating expenses
182

 
366

Depreciation of revenue earning equipment and lease charges, net
91

 
181

Selling, general and administrative
81

 
123

Interest expense, net(1)
11

 
17

Other (income) expense, net

 
(1
)
Income (loss) from discontinued operations before income taxes
(16
)
 
(9
)
(Provision) benefit for taxes on discontinued operations
1

 
(4
)
Net income (loss) from discontinued operations
$
(15
)
 
$
(13
)

(1) In addition to interest expense directly associated with Herc Holdings, the Company allocated interest expense related to certain debt repaid in connection with the Spin-Off to discontinued operations. For the three months ended June 30, 2016, the amount allocated was $3 million. For the six months ended June 30, 2016, the amount allocated was $5 million.


18


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

Results of Discontinued Operations - Hertz

The following table summarizes the results of the equipment rental business which is presented as discontinued operations in 2016:
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
(In millions)
2016
 
2016
Total revenues
$
349

 
$
677

Direct operating expenses
182

 
366

Depreciation of revenue earning equipment and lease charges, net
91

 
181

Selling, general and administrative
82

 
124

Interest expense, net(1)
10

 
13

Other (income) expense, net

 
(1
)
Income (loss) from discontinued operations before income taxes
(16
)
 
(6
)
(Provision) benefit for taxes on discontinued operations
1

 
(5
)
Net income (loss) from discontinued operations
$
(15
)
 
$
(11
)

(1) In addition to interest expense directly associated with Herc Holdings, the Company allocated interest expense related to certain debt repaid in connection with the Spin-Off to discontinued operations. For the three months ended June 30, 2016, the amount allocated was $3 million. For the six months ended June 30, 2016, the amount allocated was $5 million.

Note 4Acquisitions and Divestitures

Divestitures

CAR Inc. Investment

In March 2016, the Company sold 204 million shares of common stock of CAR Inc., a publicly traded company on the Hong Kong Stock Exchange and extended its commercial agreement with CAR Inc. to 2023, in exchange for $240 million, of which $233 million was allocated to the sale of shares based on the fair value of those shares. The sale of shares resulted in a pre-tax gain of $75 million which has been recognized and recorded in the Company's corporate operations and is included in other (income) expense, net in the accompanying condensed consolidated statements of operations. Additionally, $7 million of the proceeds were allocated to the extension of the commercial agreement which have been deferred and are being recognized over the remaining term of the commercial agreement. The sale of the shares reduced the Company's ownership interest in CAR Inc. to 1.7% and eliminated the Company's ability to exercise significant influence over CAR Inc. As a result, the Company classifies the investment as an available for sale security which is presented within prepaid expenses and other assets in the accompanying condensed consolidated balance sheet as of December 31, 2016.

In February 2017, the Company sold its remaining shares of common stock of CAR Inc. and no longer has an ownership interest in the entity.

Brazil Operations

During the fourth quarter of 2016, the Company, along with certain of its wholly owned subsidiaries, entered into a definitive stock purchase agreement ("Purchase Agreement") to sell Car Rental Systems do Brasil Locação de Veiculos Ltd., a wholly owned subsidiary of the Company located in Brazil ("Brazil Operations"), to Localiza Fleet S.A. (“Localiza”), a corporation headquartered in Brazil. As part of the overall agreement, the Company intends to enter into certain ancillary agreements with Localiza, including co-branding in Brazil and use of the Localiza brand in other select markets, customer referrals and the exchange of technology and information, at the closing date of the Purchase Agreement. The proceeds from the sale are expected to be approximately $108 million, which is subject to change in accordance with the terms of the Purchase Agreement. Approximately $12 million of the proceeds will be placed into escrow to secure certain indemnification obligations as defined in the Purchase Agreement. In July 2017, the Company received

19


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

regulatory approval for the sale which is expected to close during the third quarter of 2017. The Brazil Operations are included in the Company's International Rental Car segment.

The Brazil operations are classified as held for sale in the accompanying condensed consolidated balance sheets.

The carrying amounts of the major classes of assets and liabilities of the Brazil Operations are as follows:
(In millions)
June 30, 2017
 
December 31, 2016
ASSETS
 
 
 
Cash and cash equivalents
$
4

 
$
1

Receivables, net
12

 
11

Prepaid expenses and other assets
3

 
5

Revenue earning vehicles, net
81

 
86

Property and equipment, net
1

 
1

Intangibles
2

 
1

Deferred income taxes, net
6

 
6

Assets held for sale
$
109

 
$
111

LIABILITIES
 
 
 
Accounts payable
$
6

 
$
11

Accrued liabilities
7

 
6

Liabilities held for sale
$
13

 
$
17


Note 5Revenue Earning Vehicles

The components of revenue earning vehicles, net are as follows:
(In millions)
June 30, 2017
 
December 31, 2016
Revenue earning vehicles
$
15,739

 
$
13,287

Less: Accumulated depreciation
(2,843
)
 
(2,678
)
 
12,896

 
10,609

Revenue earning vehicles held for sale, net
290

 
209

Revenue earning vehicles, net
$
13,186

 
$
10,818


The above amounts exclude revenue earning vehicles of the Company's Brazil Operations which are deemed held for sale as further described in Note 4, "Acquisitions and Divestitures".

Depreciation of revenue earning vehicles and lease charges, net includes the following:
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
(In millions)
2017
 
2016
 
2017
 
2016
Depreciation of revenue earning vehicles
$
660

 
$
576

 
$
1,265

 
$
1,135

(Gain) loss on disposal of revenue earning vehicles(a)
66

 
35

 
145

 
77

Rents paid for vehicles leased
17

 
18

 
34

 
33

Depreciation of revenue earning vehicles and lease charges, net
$
743

 
$
629

 
$
1,444

 
$
1,245



20


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

(a)    (Gain) loss on disposal of revenue earning vehicles by segment is as follows:
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
(In millions)
2017
 
2016
 
2017
 
2016
U.S. Rental Car(i)
$
67

 
$
38

 
$
145

 
$
81

International Rental Car
(1
)
 
(3
)
 

 
(4
)
Total
$
66

 
$
35

 
$
145

 
$
77


(i) Includes costs associated with the Company's U.S. vehicle sales operations of $34 million and $27 million for the three months ended June 30, 2017 and 2016, respectively, and $63 million and $53 million, for the six months ended June 30, 2017 and 2016, respectively.

Depreciation rates are reviewed on a quarterly basis based on management's ongoing assessment of present and estimated future market conditions, their effect on residual values at the time of disposal and the estimated holding periods for the vehicles. The impact of depreciation rate changes is as follows:
Increase (decrease)
Three Months Ended
June 30,
 
Six Months Ended
June 30,
(In millions)
2017
 
2016
 
2017
 
2016
U.S. Rental Car (a)
$
36

 
$
19

 
$
62

 
$
45

International Rental Car
1

 
1

 
1

 
2

Total
$
37

 
$
20

 
$
63

 
$
47


(a)
The depreciation rate changes in the U.S. Rental Car operations for the three and six months ended June 30, 2017 include a net increase in depreciation expense of $24 million based on the review completed during the second quarter of 2017. The depreciation rate changes in the U.S. Rental Car operations for the three and six months ended June 30, 2016 include a net increase in depreciation expense of $12 million based on the review completed during the second quarter of 2016.

Note 6Goodwill and Intangible Assets

As a result of declines in revenue and profitability of the Company and a decline in the share price of Hertz Global's common stock, the Company tested the recoverability of its goodwill and indefinite-lived intangible assets as of June 30, 2017 as further described below.

Goodwill

The Company performed a goodwill impairment analysis using the income approach, a measurement using level 3 inputs under the GAAP fair value hierarchy. In performing the impairment analysis, the Company leveraged long-term strategic plans, which are based on strategic initiatives for future profitability growth. The weighted average cost of capital used in the discounted cash flow model was calculated based upon the fair value of the Company's debt and stock price with a debt to equity ratio comparable to the vehicle rental car industry. The results of the Company's analysis indicated that the estimated fair value of each reporting unit was substantially in excess of its carrying value, therefore, the Company determined that no goodwill impairment existed as of June 30, 2017.

Intangible Assets

The Company performed an impairment analysis of its indefinite-lived intangible assets using the relief from royalty method, a measurement using level 3 inputs under the GAAP fair value hierarchy. As a result of the analysis, the Company concluded that there was an impairment of the Dollar Thrifty tradename in its U.S. Rental Car segment and recorded a charge of $86 million. The impairment was largely due to a decrease in long-term revenue projections coupled with an increase in the weighted average cost of capital. The carrying value of the Dollar Thrifty tradename at June 30, 2017 is approximately $934 million, representing its estimated fair value. A change of 1 percentage point to the weighted average cost of capital assumption used in the impairment analysis could impact the impairment charge by approximately $80 million.


21


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

Note 7Debt

The Company's debt, including its available credit facilities, consists of the following (in millions):
Facility
 
Weighted Average Interest Rate at June 30, 2017
 
Fixed or
Floating
Interest
Rate
 
Maturity
 
June 30,
2017
 
December 31,
2016
Non-Vehicle Debt
 
 
 
 
 
 
 
 
 
 
Senior Term Loan
 
3.98%
 
Floating
 
6/2023
 
$
693

 
$
697

Senior RCF
 
4.41%
 
Floating
 
6/2021
 
750

 

Senior Notes(1)
 
6.22%
 
Fixed
 
4/2019–10/2024
 
2,950

 
3,200

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

 

Promissory Notes
 
7.00%
 
Fixed
 
1/2028
 
27

 
27

Other Non-Vehicle Debt
 
1.98%
 
Fixed
 
Various
 
9

 
10

Unamortized Debt Issuance Costs and Net (Discount) Premium
 
 
 
 
 
 
 
(46
)
 
(39
)
Total Non-Vehicle Debt
 
 
 
 
 
 
 
5,633

 
3,895

Vehicle Debt
 
 
 
 
 
 
 
 
 
 
HVF U.S. Vehicle Medium Term Notes
 
 
 
 
 
 
 
 
HVF Series 2010-1(2)
 
4.96%
 
Fixed
 
2/2018
 
115

 
115

HVF Series 2011-1(2)
 
N/A
 
N/A
 
N/A
 

 
115

HVF Series 2013-1(2)
 
1.91%
 
Fixed
 
8/2018
 
625

 
625

 
 
 
 
 
 
 
 
740

 
855

HVF II U.S. ABS Program
 
 
 
 
 
 
 
 
 
 
HVF II U.S. Vehicle Variable Funding Notes
 
 
 
 
 
 
 
 
HVF II Series 2013-A(2)
 
2.39%
 
Floating
 
1/2019
 
3,223

 
1,844

HVF II Series 2013-B(2)
 
2.34%
 
Floating
 
1/2019
 
268

 
626

HVF II Series 2017-A(2)
 
N/A
 
Floating
 
10/2018
 

 

 
 
 
 
 
 
 
 
3,491

 
2,470

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

 
780

HVF II Series 2015-2(2)
 
2.30%
 
Fixed
 
9/2018
 
250

 
250

HVF II Series 2015-3(2)
 
2.96%
 
Fixed
 
9/2020
 
350

 
350

HVF II Series 2016-1(2)
 
2.72%
 
Fixed
 
3/2019
 
439

 
439

HVF II Series 2016-2(2)
 
3.25%
 
Fixed
 
3/2021
 
561

 
561

HVF II Series 2016-3(2)
 
2.56%
 
Fixed
 
7/2019
 
400

 
400

HVF II Series 2016-4(2)
 
2.91%
 
Fixed
 
7/2021
 
400

 
400

 
 
 
 
 
 
 
 
3,180

 
3,180

Donlen ABS Program
 
 
 
 
 
 
 
 
 
 
HFLF Variable Funding Notes
 
 
 
 
 
 
 
 
 
 
HFLF Series 2013-2(2)
 
2.11%
 
Floating
 
9/2018
 
150

 
410

 
 
 
 
 
 
 
 
150

 
410


22


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

Facility
 
Weighted Average Interest Rate at June 30, 2017
 
Fixed or
Floating
Interest
Rate
 
Maturity
 
June 30,
2017
 
December 31,
2016
HFLF Medium Term Notes
 
 
 
 
 
 
 
 
 
 
HFLF Series 2013-3(5)
 
N/A
 
N/A
 
N/A
 

 
96

HFLF Series 2014-1(5)
 
2.06%
 
Floating
 
7/2017-12/2017
 
82

 
148

HFLF Series 2015-1(5)
 
1.84%
 
Floating
 
7/2017-8/2019
 
198

 
248

HFLF Series 2016-1(5)
 
2.35%
 
Both
 
7/2017-2/2019
 
387

 
385

HFLF Series 2017-1(5)
 
2.18%
 
Both
 
6/2018-5/2020
 
500

 

 
 
 
 
 
 
 
 
1,167

 
877

Other Vehicle Debt
 
 
 
 
 
 
 
 
 
 
U.S. Vehicle RCF(3)
 
3.55%
 
Floating
 
6/2021
 
168


193

European Revolving Credit Facility
 
2.75%
 
Floating
 
1/2019
 
284

 
147

European Vehicle Notes(4)
 
4.29%
 
Fixed
 
1/2019–10/2021
 
740

 
677

European Securitization(2)
 
1.55%
 
Floating
 
10/2018
 
454

 
312

Canadian Securitization(2)
 
2.19%

Floating

1/2019

268


162

Australian Securitization(2)
 
3.12%
 
Floating
 
7/2018
 
122

 
117

New Zealand RCF
 
4.30%
 
Floating
 
9/2018
 
35

 
41

Capitalized Leases
 
2.74%
 
Floating
 
7/2017–4/2021
 
412