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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K
xANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2020
For the fiscal year ended December 31, 2018OR
OR
oTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number 001-33139001-3313
HERC HOLDINGS INC.
(Exact name of registrant as specified in its charter)
Delaware
20-3530539
(State or other jurisdiction of

incorporation or organization)
20-3530539
(I.R.S. Employer

Identification Number)
27500 Riverview Center Blvd.
Bonita Springs, Florida 34134
(239) 301-1000
(Address, including Zip Code, and telephone number,
including area code, of registrant's principal executive offices)
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, par value $0.01 per share HRINew York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of Securities Act. Yes x No o
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No x
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 every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer

Smaller reporting company
Large accelerated filer xAccelerated filer o

Non-accelerated filer oSmaller reporting companyo
Emerging growth companyo
Non-accelerated filer 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant has filed a report on and attestation to its management's assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes oNo x
The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant as of June 29, 2018,30, 2020, the last business day of the registrant's most recently completed second fiscal quarter, based on the closing price of the stock on the New York Stock Exchange on such date, was $1.1 billion.$593.8 million.
As of February 22, 2019,12, 2021, there were 28,524,08129,402,939 shares of the registrant's common stock outstanding.

Documents incorporated by reference:
Certain portions, as expressly described in this report, of the Registrant's Proxy Statement for its 20182021 annual meeting of stockholders, to be filed within 120 days of December 31, 2018,2020 (the "Proxy Statement"), are incorporated by reference into Part III.



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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS


This Annual Report on Form 10-K for the year ended December 31, 20182020 (this "Report") includes "forward-looking statements," as that term is defined by the federal securities laws. Forward-looking statements include statements concerning our business plans intentions, objectives, goals, strategies, forecasts, future events, future revenueand strategy, projected profitability, performance or performance,cash flows, future capital expenditures, our growth strategy, anticipated financing needs, business trends, the impact of and our response to COVID-19 and other information that is not historical information. When used in this Report,Forward looking statements are generally identified by the words "estimates," "expects," "anticipates," "projects," "plans," "intends," "believes," "forecasts," and future or conditional verbs, such as "will," "should," "could" or "may," as well as variations of such words or similar expressions are intended to identify forward-looking statements, although not all forward-looking statements are so designated.expressions. All forward-looking statements are based upon our current expectations and various assumptions and apply only as of the date of this Report. Our expectations, beliefs and projections are expressed in good faith and we believe there is a reasonable basis for them. However, there can be no assurance that our expectations, beliefs and projections will be achieved.


There are a number of risks, uncertainties and other important factors that could cause our actual results to differ materially from those suggested by our forward-looking statements, including those set forth in Part I, Item 1A "Risk Factors" in this Report and in our other filings with the Securities and Exchange Commission. All forward-looking statements are expressly qualified in their entirety by such cautionary statements. We undertake no obligation to update or revise forward-looking statements that have been made to reflect events or circumstances that arise after the date made or to reflect the occurrence of unanticipated events.


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PART I
ITEM l. BUSINESS



Our Company

Herc Holdings Inc. ("we," "us," "our," "Herc Holdings," "the Company" or as the context requires, "its""Company") is one of the leading equipment rental suppliers with approximately 270277 locations principally in North America. We conduct substantially all of our operations through subsidiaries, including Herc Rentals Inc. ("Herc"). Operations are conducted under the Herc Rentals brand in the United States and Canada and under the Hertz Equipment Rental brand in other international locations.

With over 5055 years of experience, we are a full-line equipment rental supplier offering a broad portfolio of equipment for rent. In addition to our principal business of equipment rental, we sell used equipment and contractor supplies such as construction consumables, tools, small equipment and safety supplies; provide repair, maintenance, and equipment management services and safety training to certain of our customers; offer equipment re-rental services and provide on-site support to our customers; and provide ancillary services such as equipment transport, rental protection, cleaning, refueling and labor.


Our classic fleet includes aerial, earthmoving, material handling, trucks and trailers, air compressors, compaction and lighting. Our equipment rental business is supported by ProSolutionsTMR, our industry-specific solutions-based services, which includes power generation, climate control, remediation and restoration, and studio and production equipment, and our ProContractor professional grade tools.


Corporate History

On June 30, 2016, the Company,we, in itsour previous form as the holding company of both the existing equipment rental operations as well as the former vehicle rental operations (in its form prior to the Spin-Off, "Hertz Holdings"), completed a spin-off (the "Spin-Off") of itsour global vehicle rental business through a dividend to stockholders of all of the issued and outstanding common stock of Hertz Rental Car Holding Company, Inc., which was re-named Hertz Global Holdings, Inc. ("New Hertz"). New Hertz is an independent public company that trades on the New York Stock Exchange under the symbol "HTZ" and continues to operate its global vehicle rental business through its operating subsidiaries including The Hertz Corporation ("THC"). The CompanyWe changed itsour name to Herc Holdings Inc. on June 30, 2016, and tradestrade on the New York Stock Exchange under the symbol "HRI."

For accounting purposes, due to the relative significance of New Hertz to Hertz Holdings, New Hertz was considered the spinnor or divesting entity in the Spin-Off and Herc Holdings was considered the spinnee or divested entity. As a result, despite the legal form of the transaction, New Hertz was the "accounting successor" to Hertz Holdings. Under the accounting rules, the historical financial information of Herc Holdings, including certain information presented in the consolidated financial statements included in this Report, reflects the financial information of the equipment rental business and certain parent legal entities of Herc as historically operated as part of Hertz Holdings, as if Herc Holdings was a stand-alone company for the applicable periods presented.


Herc was incorporated in Delaware in 1965. Since its incorporation and until the Spin-Off, Herc was a wholly-owned subsidiary of Hertz Holdings or one of its subsidiaries operating its equipment rental business. Since the Spin-Off, Herc has been a wholly-owned subsidiary of Herc Holdings. Herc Holdings was incorporated in Delaware in 2005 under a previous name.


Our Industry
The equipment rental industry serves a diverse group of customers from individuals and small local contractors to large national accounts providing a wide variety of rental equipment including mid-size and heavy equipment, specialty equipment and contractor tools. The equipment rental industry is highly fragmented with few national competitors and many regional and local operators.

The growth and financial health of the North American equipment rental industry is driven by a number of factors including economic trends, non-residential construction activity, capital investment in the industrial sector, repair maintenance and overhaul spending, government spending and demand for construction and other rental equipment generally, including for remediation and re-building efforts related to natural disasters. We believe that companies have increasingly turned to the equipment rental market to manage their capital needs, which allows our customers to operate their businesses without incurring the significant acquisition cost and maintenance expense associated with owning their own equipment fleet. We believe the trend from equipment ownership to rental in the North American construction industry will continue in the near term.


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ITEM l. BUSINESS (Continued)




Our Competitive Strengths
Our competitive strengths include the following:
A Market Leader in North America with Significant Scale and Broad Footprint—We believe we are one of the largest equipment rental companies in the North American equipment rental industry, with an estimated 3% market share by revenue and approximately 270277 locations in 39 states in the United States and sevenfive provinces in Canada. Our scale compared to most of our competitors provides us with a number of significant competitive advantages including:


the ability to provide premium brands and a comprehensive line of equipment and services, allowing us to be a single-source solution for our customers;
the ability to track utilization and facilitate the fluidseamless transfer of our fleet across multiple locations to adjust to local customer demand;
a geographic footprint that allows us to maintain proximity and local expertise to serve our customers in local markets as well as serve national accounts with geographically dispersed equipment rental needs;
favorable purchasing power or volume discount pricing opportunities on material and equipment;
operational cost efficiencies across our organization, including with respect to purchasing, information technology, back-office support and marketing;
a national sales force with significant expertise across our equipment fleet; and
industry-specific expertise to assist our customers with customized solutions.


Since the North American equipment rental industry is highly fragmented, with very few national competitors, we believe that the majority of our competitors do not enjoy these same advantages.


Diverse Customer Markets and Expansion into Specialty Rental Markets—We provide equipment rental services to customers in a wide variety of large markets, including contractors in commercial and residential construction, specialty and remediation and environmental sectors; industrial, including energy, chemical processing and manufacturing; infrastructure, such as highway and bridges, railroads and sewer and waste disposal; and other industries such as facilities management and entertainment production and services. We believe that diversification of our customer base reduces our exposure to any particular market.


Large, Diverse and High-Quality Equipment Fleet—Our equipment fleet represents a significant investment and reflects our commitment to providing an array of rental equipment to our customers in a variety of industries. We offer a wide range of equipment from leading, globally-known original equipment manufacturers who we believe provide reliable equipment. We also offer a wide range of professional grade tools that target professional contractors. Our extensive and high-quality rental fleet enables us to serve a diverse customer base that requires large quantities and/or varied types of equipment for rent. Our increasing portfolio of specialty equipment further expands our capabilities and customer reach.


In recent years, we have diversified our portfolio into a variety of niche markets that experience business cycles that may vary in intensity and duration from that of the general economy. We believe this diversification also positions us to take advantage of any increase in demand for more specialized rental solutions.


Established National Accounts Program—Our national account program provides us with longer rental termsdurations for much of our equipment, with many of our larger customers renting equipment from us for use in large, complex projects. These arrangements provide a number of additional benefits, including recurring revenue, attractive credit profiles, improved fleet utilization and enhanced presence in new markets. National accounts represented 43%45% of equipment rental revenue for the year ended December 31, 2018.2020. Through our national customer relationship program, our sales teams serve as a single point of contact for those customers' equipment rental needs. This enables us to be a full end-to-end solutions provider.


Superior Customer Service—We have a well-established reputation for superior customer service, which has been a competitive differentiator for us throughout our history. Senior management remains focused on enhancing our customer service focused culture. We provide a suite of comprehensive services to support our customers and to maintain and service the equipment we rent. We spend significant time and resources training our personnel to effectively address the needs of our customers. We believe that these initiatives help support our pricing strategy and foster customer loyalty.


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ITEM l. BUSINESS (Continued)




Range of Value-Added Services—We offer a suite of customer-focused services. These services include equipment transport, fleet management and telematics, power solutions, on-site services and customized advice, re-rental options, and parts and supplies sales. This combination of services is designed to offer comprehensive value-added solutions to our customers that complement and enhance the rental equipment we offer.


Experienced Senior Leadership Team—We have an experienced senior leadership team committed to maintaining operational excellence with an average of approximately 2021 years of experience in the equipment rental and heavy equipment industries. Our senior leadership team has extensive knowledge of all aspects of these industries, particularly in North America. Our team is dedicated to providing our customers a quality rental experience and is committed to further improving our performance capabilities.


Our Strategy

Our long-term strategy is focused on five priorities: developing our people and culture; expanding and diversifying our revenues; improving our operating effectiveness; enhancing the customer experience; and disciplined capital management. Through delivering on these priorities, we continue to identify additional environmental, social and governance ("ESG") related goals and enhance our reporting in the areas where we have a positive impact on our people and the communities we serve.


Develop Our People and Culture—We aspire to be the employer of choice in our industry, and we recognize that our people and culture are essential to our long-term, profitable growth. We are focused on attracting, developing and retaining diverse talent while continuously enhancing the overall employee experience. We have launched leadership development programs to improve our overall bench strength and employee engagement. We will continue to expand the learning and development opportunities available to our employees while creating compelling career paths which will contribute to our ability to attract and retain talent. We have implemented an employee survey process which enables us to better understand the needs and expectations of our employees. We are committed to identifying programs which will support and enhance the wellbeingwell-being of our employees while recognizing them for their contributions to our success. Our commitment to developing our people and culture is directly aligned with and strengthens our ability to become the supplier and investment of choice in our industry.


Expand and Diversify Revenues—We seek to achieve ongoing growth via our strategy to expand and diversify our revenues through customer- and market-focused initiatives. We have expanded and diversified our equipment rental fleet with a broader mix of equipment that increases the range of customers and markets we serve. We are growing our ProSolutionsTMR business which offers specialized equipment and services, including technical expertise and customized solutions, for customers and projects, as well as our ProContractor business, which focuses on professional grade tools and equipment that meet their needs. We will continue to offer a comprehensive equipment rental fleet to maintain our market leadership.


We are expanding our footprint in North America, with a focus on increasing the number of branches in major urban markets, and to continue to reconfigure existing locations with fleet and expertise tailored to local markets. Our footprint expansion includes locations dedicated to our ProSolutionsTMR and ProContractor business to better support our growing specialty equipment and services operations. We will continue to pursue initiatives that allow us to drive more volume through existing branches.


We are also increasing our focus on generating revenue from ancillary services as part of our total solutions offering.


Improve Operating Effectiveness—We are focused on generating continuous improvement across our operations, with an emphasis on building a strong safety culture, supplier management, fleet availability and improving margins. We continue to emphasize our commitment to building a safety culture across our business, including ongoing training and institutionalized programs, to embed safety awareness and behaviors into our daily operations. We have reduced the number of suppliers in each equipment category of our equipment rental fleet. This provides us with improved buying power as we negotiate our fleet purchases and lends efficiencies to our services and repair processes. Further, we are concentrating our capital expenditures on premium brands from top-tier suppliers, which we expect will reduce life cycle costs and deliver better end-of-service resale values. We have developed and rolled out the "Herc Way" operating model and other systems and procedures for developing and monitoring our branch network in order to foster a high operational standard throughout our locations. We will maintain our focus on optimizing our Herc Way operating model, which is designed to ensure a consistently efficient approach to managing, servicing and repairing our fleet.


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ITEM l. BUSINESS (Continued)

We are continuing to build a highly professional and technology-enabled sales force and to optimize our sales territories to support our revenue growth objectives. We will continue to improve the effectiveness of our sales team with focused training, strong customer relationship management capabilities, and ongoing technology enhancements.



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ITEM l. BUSINESS (Continued)


Enhance the Customer Experience—We seek to differentiate our business by delivering a superior customer experience through the variety and quality of the equipment we offer, the ease of doing business with us and the added value we offer through services and technologies that improve customers’ productivity and efficiency. Our focused investment in top-tier brands is intended to meet our customers’ preferences and expectations for reliable, safe, efficient and effective gear. We are committed to delivering technology enhancements that enable us to drive improvements in customers’ efficiency and productivity. In developing these technologies, we are focused on meeting customer expectations related to convenience and on-demand access to data and information. Additionally, we provide training programs to our customers that focus on product use and safety.


Disciplined Capital Management—We manage our equipment rental fleet using a life cycle approach designed to optimize the timing of fleet purchasing, repair and maintenance and disposal, while at the same time satisfying our customers' needs. Through continued use and development of our disciplined approach to efficient fleet management, we seek to maximize our utilization and return on investment.


Our Products and Services

Our principal products and services are described below.


Equipment Rental—We offer for rent, on an hourly, daily, weekly or monthly basis, equipment from a variety of leading, globally known original equipment manufacturers, with which we maintain strong relationships.The equipment is typically new at the time of acquisition and is not subject to any repurchase program. As of December 31, 2018,2020, the average age of our equipment fleet was 46months.


As of December 31, 2018,2020, our rental fleet consisted of equipment with a total original equipment cost, based on the guidelines of the American Rental Association, of $3.78$3.59 billion. The following table provides a breakdown of the composition of our equipment rental fleet based on original equipment cost:
% of Original Equipment Cost
December 31,
Equipment Type20202019
Aerial - Booms16.4 %17.1 %
Aerial - Scissors and Other7.2 %7.3 %
Total Aerial23.6 %24.4 %
Material Handling - Telehandlers13.3 %13.6 %
Material Handling - Industrial4.0 %4.1 %
Total Material Handling17.3 %17.7 %
Earthmoving - Compact8.0 %8.3 %
Earthmoving - Heavy5.5 %5.6 %
Total Earthmoving13.5 %13.9 %
ProSolutions R
17.4 %15.9 %
Trucks and Trailers14.6 %14.0 %
ProContractor5.8 %6.0 %
Air Compressors2.3 %2.4 %
Lighting1.9 %1.8 %
Compaction1.3 %1.4 %
Other2.3 %2.5 %

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ITEM l. BUSINESS (Continued)

  % of Original Equipment Cost
  December 31,
Equipment Type 2018 2017
Aerial - Booms 18.3% 18.7%
Aerial - Scissors and Other 7.6% 7.5%
Total Aerial 25.9% 26.2%
     
Material Handling - Telehandlers 13.5% 13.3%
Material Handling - Industrial 4.2% 3.6%
Total Material Handling 17.7% 16.9%
     
Earthmoving - Compact 8.5% 7.7%
Earthmoving - Heavy 5.7% 8.2%
Total Earthmoving 14.2% 15.9%
     
ProSolutions TM
 14.3% 13.8%
Trucks and Trailers 13.0% 12.6%
ProContractor 6.7% 6.1%
Air Compressors 2.4% 2.6%
Lighting 1.7% 1.7%
Compaction 1.5% 1.6%
Other 2.6% 2.6%

Sales of Used Rental Equipment—We routinely sell our used rental equipment to manage repair and maintenance costs, as well as the composition, age and size of our fleet. We dispose of our used equipment through a variety of channels, including retail sales to customers and other third parties, sales to wholesalers, brokered sales and auctions.



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ITEM l. BUSINESS (Continued)


Sales of New Equipment, Parts and Supplies—We also sell new equipment. The types of new equipment that we sell vary by location and include a variety of ProContractor tools and supplies, small equipment (such as work lighting, generators, pumps, and compaction equipment and power trowels), safety supplies and expendables.


Our Customers

We have a wide range of customers across diverse markets with a large base of local small to mid-size customers as well as customers seeking specialty solutions or equipment. The principal markets we serve, based on our customers’ Standard Industrial Classification (“SIC”) codes, are as follows:

Contractors -We serve various types of contractors in non-residential and residential construction, specialty trade, restoration, remediation and environment and facility maintenance. Contractor business represented approximately 35%33% of our equipment rental revenue for the year ended December 31, 2018.
2020.

Industrial -We serve industrial customers across a broad range of industries, including refineries and petrochemical operations, industrial manufacturing including automotive and aerospace, power, metals and mining, agriculture, pulp, paper and wood and food and beverage. We believe that key drivers of growth within the industrial market include increased levels of spending on industrial capital and maintenance, repairs and overhaul. Industrial customers represented approximately 29%30% of our equipment rental revenue for the year ended December 31, 2018.
2020.

Infrastructure and Government - We serve our infrastructure customers across a wide range of projects such as highways and bridges, sewer and waste, railroads and other transportation, utilities as well as all governmental spending. Infrastructure and government represented approximately 17%18% of our equipment rental revenue for the year ended December 31, 2018.
2020.

Other Customers - In addition, we serve a variety of other customers across a diverse range of industries, including commercial facilities, hospitality, healthcare, recreation, entertainment production and special event management. These customers collectively represented approximately 19% of our equipment rental revenue for the year ended December 31, 2018.
2020.


We operate in mid-size and large urban markets serving a wide range of industries, which enables us to reduce exposure to any single customer or market, with no single customer making up more than 3% of our equipment rental revenue for the years ended December 31, 2018, 20172020, 2019 or 2016.2018. Our footprint and broad customer base also assist in reducing the seasonality of our revenues and the impact from any one market's cycle.


Sales and Marketing

We market and sell our services through a variety of complementary programs. Through a dedicated sales team, we provide our customers with support services, market and application expertise, and sales offerings. For example, we have sales teams committed to servicing various categories of our customer base, including clients in the construction, industrial, government and entertainment industries. Our product experts oversee general rentals and specialty products, providing application support and program management services to our clients. Through our national accounts program, our dedicated sales team provides our large customers with support across a number of diverse geographic, functional and equipment sectors. We also provide client support via our sales coordinators, reservation centers and customer care centers to help customers with their comprehensive needs.


We advertise our broad range of offerings through industry catalogs, participation and sponsorship of industry events, trade shows, and via the Internet. Additionally, through our website and mobile apps, our customers can arrange for the rental of equipment, browse and purchase used equipment, review our service offerings and manage their fleet and overall account with us.


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ITEM l. BUSINESS (Continued)



Competition

Competition in the equipment rental industry is intense, often taking the form of aggressive price competition. Other competitive factors include customer loyalty, changes in market penetration, the introduction of new equipment, services and
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ITEM l. BUSINESS (Continued)

technology by competitors, changes in marketing, product diversity and quality and the ability to supply equipment and services to customers in a timely, predictable manner.


Our competitors in the equipment rental industry range from other large national companies to regional and local businesses and include equipment vendors and dealers who both sell and rent equipment directly to customers. The equipment rental industry is highly fragmented, with many companies operating on a regional or local scale and offering a limited number of products. The number of our competitors operating on a national scale is comparatively much smaller, although they often have significant breadth in their rental equipment categories. We believe, based on market and industry data, that we are one of the leading participants in the North American equipment rental industry, with the remainder comprised of a small number of multi-location regional operators and a large number of relatively small, independent businesses serving discrete local markets and specialty rental segments. In North America, the other leading national-scale industry participants are United Rentals, Inc., Ashtead Group plc’s Sunbelt Rentals brand and H&E Equipment Services, Inc. Aggreko is a global competitor in the power generation rental markets in which we also participate.


Seasonality

Our business is seasonal, with demand for our rental equipment tending to be lower in the winter months, particularly in the northern United States and Canada. Our equipment rental business, especially in the construction industry, has historically experienced decreased levels of business from December until late spring and heightened activity during our third and fourth quarters until December. We have the ability to manage certain costs to meet market demand, such as fleet capacity, the most significant portion of our cost structure. For instance, to accommodate increased demand, we increase our available fleet and staff during the second and third quarters of the year. A number of our other major operating costs vary directly with revenues or transaction volumes; however, certain operating expenses, including rent, insurance and administrative overhead, remain fixed and cannot be adjusted for seasonal demand, typically resulting in higher profitability in periods when our revenues are higher, and lower profitability in periods when our revenues are lower. To reduce the impact of seasonality, we are focused on expanding our customer base through specialty products that serve different industries with less seasonality and different business cycles. See Item 1A "Risk Factors—Risks Related to Our Business."


Intellectual Property

We own intellectual property, including trademarks, copyrights and trade secrets, that plays an important role in maintaining our competitive position. While no single copyright or trade secret is, in our opinion, of such value to us that our business would be materially affected by the expiration or termination thereof, taken in the aggregate, these intellectual property rights provide meaningful protection for our business. However, we view the name and primary mark "Herc Rentals" and "Herc" as material to our business as a whole. We own a number of secondary trade names and trademarks applicable to certain aspects of our business that we also view as important.


EmployeesHuman Capital Management

We haveAs of December 31, 2020, we employed approximately 4,900 employees, with approximately 4,700 persons in our North American operations and 200 persons in our other operations. International employees4,800 people, some of whom are covered by a variety of union contracts and, in the case of Canadian employees, have governmental regulations affecting, among other things, compensation, job retention rights and pensions. As of December 31, 2018, labor contracts covering approximately 400Approximately 390 employees in the United States and 150 employees in Canada were in effect under approximately 20 active contracts with local unions, affiliated primarily with the International Brotherhood of Teamsters and the International Union of Operating Engineers. We have experienced no material work stoppage as a result of labor problems during the last ten years,are covered by collective bargaining arrangements and we believe that our relations with the labor relations to beunions are good. Nonetheless, we may be unable to negotiate new labor contracts on terms advantageous to us, or without labor interruption. See Item 1A "Risk Factors—Risks Related to Our Business."

In addition to the employees referred to above, weWe also employ a number of temporary workers, and engage outside services, as is customary in the industry, principally for the non-revenue movement of rental equipment between rental locations and the movement of rental equipment to and from customers’ job sites.


Oversight and Management—Our vision is to be the supplier, employer and investment of choice in our industry. To fulfill this vision, we are investing significant time, effort and resources into recruiting top talent, developing our employees and providing a positive, inclusive and supportive environment. Our Chief Human Resources Officer ("CHRO") is responsible for managing employment-related matters, including recruiting and hiring, onboarding and training, compensation planning, performance management and professional development. In addition, the CEO and CHRO regularly update our Board of Directors and its committees on the operation and status of human capital trends and activities.

Under the direction of the CEO and CHRO, we conduct an anonymous employee survey on an annual basis to seek feedback from our employees on a variety of topics, including confidence in company leadership, competitiveness of our compensation and benefits package, career growth opportunities and improvements on how we could make our company an employer of choice. The results are reviewed by senior leadership and the Board of Directors who analyze areas of progress or deterioration and prioritize actions and activities in response to this feedback to drive meaningful improvements in employee engagement.
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ITEM l. BUSINESS (Continued)


SafetyWe require an active commitment to, and personal accountability for, safety and safety compliance from all employees and contractors. Operations leaders have a key role in the communication and implementation of, and ensuring adherence to, safety and compliance policies and standards. Our safety culture is predicated on training, communications, empowerment, measurement and recognition.

Training includes more than 100 online, on-demand courses available to all team members, weekly branch "Toolbox Safety Meetings" centered on our safety guides and a lessons learned library of incidents and preventative recommendations.

Safety communications include an annual commitment to safety and ongoing safety reminders from the CEO, monthly "Safety Thoughts" messages that reinforce safety awareness and behaviors at work and at home, safety boards at every branch that serve as a dedicated resource for safety-related information, and morning stretch and safety huddles at all locations to help get every working day off to a safe start. We strive for the “Perfect Day” which is defined as a working day across our company with (i) no OSHA recordable incidents, (ii) no Department of Transportation violations and (iii) no “at fault” motor vehicle accidents.All of our branches achieved at least 98% Perfect Days in 2020.

All employees are empowered to intervene with a Stop Work Authority ("SWA") when they perceive an unacceptable safety condition, act or situation where an individual's lack of understanding could result in an incident. The SWA is supported through Safety Alert communications that emphasize safety practices and a daily observation program at our locations that prepares employees to assess their work environment and tasks for potential hazards.

We track and share standard safety performance metrics throughout the organization, such as the OSHA Total Recordable Incident Rate ("TRIR"), the Days Away/Restricted Transfer Rate ("DART") and Lost Time Case Rate ("LTC"). During the year ended December 31, 2020, we had a TRIR of 0.86, a DART of 0.36 and LTC of 0.16.

Health and Well-being—The health and well-being of our employees and their families is a top priority for us and we offer an array of health and financial benefits to our full-time employees including:
Comprehensive health insurance including semi-annual biometric screening events;
Our employee assistance program which offers confidential resources and assistance for everyday issues, such as work pressure and relationship issues, and highly impactful issues, such as loss, disability, anxiety or depression, especially in light of the challenges associated with COVID-19;
A life planning account which provides employees with limited reimbursement for items such as wellness activities, student loans and education and financial planning;
Company paid life and disability insurance; and
Tuition reimbursement programs

We also provide employees with several voluntary benefits and optional services that support total well-being, including physical, mental and financial wellness.

Training and Talent Development—We are committed to the continued development of our employees and offer learning and development opportunities spanning instructor-led and online, on-demand courses that support improved performance and effectiveness as well as personal and professional growth. These opportunities apply to all employees across all stages of career progression and job responsibilities. More than a dozen instructor-led courses enhance employees' sales, managerial leadership and role-specific skills, such as our ProDriver Academy, Yard-to-Driver program, Shop and Counter Operations, and a Professional Development Series designed to improve the skills necessary to navigate and succeed in the workplace. In 2020, our employees enhanced their skills through approximately 150,000 hours of training focused in the areas of safety, customer service, sales fundamentals, process and tool training, management basics and soft skills, leveraging over 1,000 unique training assets and programs.

Strategic talent review and succession planning occur on a planned cadence annually. The CEO and CHRO meet regularly with senior leadership and the Board of Directors to review succession plans. We seek to provide opportunities for our employees to grow their careers by increasing our focus on internal talent mobility, which resulted in filling many open management positions internally during the year ended December 31, 2020.

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ITEM l. BUSINESS (Continued)



Inclusion and Diversity—We strive to build a team that reflects the variety of people, cultures and communities we interact with to create an inclusive, productive environment. We believe that varied perspectives best leverage employee talents, leading to creative thinking, open communication and greater customer and team engagement. As part of our recruiting team, two individuals have earned the AIRS Certified Diversity Recruiter designation, which provides the knowledge and tools to create an effective plan for recruiting a diverse and inclusive workforce. As of December 31, 2020, females represented approximately 12% of our workforce and 16% of our managerial roles. Additionally, 30% of our non-employee members of the Board of Directors are female. As of December 31, 2020, minorities represented approximately 29% of our workforce and 15% of our managerial roles.


Our efforts to build an inclusive team led to the creation of two employee resource groups, Women in Action and the Veterans Resource Group. Women in Action seeks to empower, support and develop women by facilitating the exchange of knowledge and experiences through learning opportunities as well as with internal and external networking events. Similarly, the Veterans Resource Groups offers veterans a community of support, networking, collaboration, learning and sharing. As of December 31, 2020, approximately 450 of our employees have self-reported as veterans.

Environmental, Health, and Safety Matters and Governmental Regulation

Environmental, Health, and Safety—Our operations are subject to numerous national, state, local and international laws and regulations governing environmental protection and occupational health and safety matters. These laws govern such issues as wastewater, storm water, solid and hazardous wastes and materials, air quality and matters of workplace safety. Under these laws and regulations, we may be liable for, among other things, the cost of investigating and remediating contamination at our sites as well as sites to which we send hazardous wastes for disposal or treatment regardless of fault, as well as fines and penalties for non-compliance. Our operations generally do not raise significant environmental, health, or safety risks, but we use hazardous materials to clean and maintain equipment, dispose of solid and hazardous waste and wastewater from equipment washing, and store and dispense petroleum products from storage tanks at certain of our locations.


Based on the conditions currently known to us, we do not believe that any pending or likely remediation and compliance costs will have a material adverse effect on our business. We cannot be certain, however, as to the potential financial impact on our business if new adverse conditions are discovered, or compliance requirements become more stringent. See Item 1A "Risk Factors—Risks Related to Our Business.Other Operational Risks."


Governmental Regulation—Our operations also expose us to a number of other national, state, local and international laws and regulations, in addition to legal, regulatory and contractual requirements we face as a government contractor. These laws and regulations address multiple aspects of our operations, such as taxes, consumer rights, privacy, data security and employment matters, and also may impact other areas of our business. There are often different requirements in different jurisdictions. Changes in government regulation of our business has the potential to materially alter our business practices or our profitability. Depending on the jurisdiction, those changes may come about through the issuance of new laws and regulations or changes in the interpretation of existing laws and regulations by a court, regulatory body or governmental official. Sometimes those changes may have both a retroactive and prospective effect. This is particularly true when a change is made through reinterpretation of laws or regulations that have been in effect for some time. Moreover, changes in regulation that may seem neutral on their face may have either more or less impact on us than on our competitors, depending on the circumstances. See Item 1A "Risk Factors—Risks Related to Our Business.Other Operational Risks."


Available Company Information

We file annual, quarterly and current reports and other information with the Securities and Exchange Commission ("SEC"). You may also access, free of charge, our reports filed with the SEC (for example, our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and any amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) through our Internet website (http://ir.hercrentals.com). Reports filed with or furnished to the SEC will be available through our Internet website as soon as reasonably practicable after they are electronically filed with or furnished to the SEC. Our committee charters, Corporate Governance Guidelines and Code of Ethics are also available on our website. The information found on our website is not part of this or any other report filed with or furnished to the SEC. The SEC maintains an Internet website (http://www.sec.gov) that contains reports, proxy and information statements and other information about issuers that file electronically with the SEC, including Herc Holdings.



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ITEM 1A. RISK FACTORS

Investing in or maintaining your investment in Herc Holdings common stock involves a high degree of risk. You should carefully consider each of the risks and uncertainties set forth below as well as the other information contained in this Report before deciding to invest in our common stock. We have grouped our Risk Factors under captions that we believe describe various categories of potential risk. For the reader’s convenience, we have not duplicated risk factors that could be considered to be included in more than one category. Any of the following risks and uncertainties could materially and adversely affect our business, financial condition, results of operations, liquidity and/or cash flows and the impact could be compounded if multiple risks were to occur. However, the following risks and uncertainties are not the only risks and uncertainties facing us. Additional risks and uncertainties not currently known to us or those we currently view to be immaterial also may materially and adversely affect our business, financial condition, results of operations, liquidity and/or cash flows. In the event that any of these risks have such a material adverse effect, the market price of our common stock could decline and you could lose all or part of your investment.


Risks Related to Our Business


Our business is cyclical and depends on the levels of capital investment and maintenance expenditures by our customers. A slowdown in economic conditions or adverse changes in the level of economic activity or other economic factors specific to our customers or their industries, in particular contractors and industrial customers, could have a material adverse effect on our business, financial condition, results of operations and cash flows.


Our rental equipment is used by our customers in a wide variety of industries, including contractors in residential and commercial construction and restoration, remediation and environment; general industrial, including refineries and petrochemical operations, manufacturing, power, metals and mining and agriculture; infrastructure; and other customers, including commercial and retail services, facility maintenance, recreation and entertainment production. Many of these industries are cyclical in nature. The demand for our rental equipment is directly affected by the level of economic activity in these industries, which means that when these industries experience a decline in activity, there is likely a corresponding decline in the demand for our rental equipment. This could materially adversely affect our results of operations.


A substantial portion of our revenues are derived from the rental of equipment to various types of contractors, including in the non-residential construction market, and to industrial customers. A decline in construction or industrial activity could lead to a decrease in the demand for our rental equipment and intensified price competition from other equipment rental industry participants. Similarly, declines in oil or gas prices, or even the perception of longer-term lower oil and natural gas prices, could lead to a significant slowdown in business activity, capital investments and maintenance expenditures of industrial customers in the upstream oil and gas markets and related service providers, which could negatively affect our rentals to participants in this industry, and could extend to other markets that we serve. Worsening of economic conditions or not achieving anticipated levels of economic expansion, either generally or in our customers’ specific industries, could have an adverse effect on demand for our products and services within those industries and extend to other markets that we serve, and could therefore materially adversely affect our business, financial condition and results of operations.


The following factors, among others, may cause weakness in our markets, either temporarily or long-term:


a decrease in the expected levels of rental versus ownership of equipment;
government regulations and policies, including government initiatives for infrastructure improvements or expansions, or the policies of governments regarding exploration for, and production and development of, oil and natural gas reserves;
a prolonged or recurring shutdown of the U.S. government;
an increase in the cost of construction materials;
the level of supply and demand and relative prices or anticipated prices for oil and natural gas;
an overcapacity of fleet in the equipment rental industry;
a lack of availability of credit;
an increase in interest rates; and
terrorism or hostilities involving the United States or Canada.



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ITEM lA. RISK FACTORS (continued)


Additionally, some of our customers may delay capital investment and maintenance even when favorable conditions exist in their industries or markets.


If we were to experience a significant decrease in orders or an increase in order delays or cancellations that can result from the aforementioned economic conditions or other factors beyond our control, it could have a material adverse effect on our business, financial condition, results of operations and cash flows.


Our industry is highly competitive, and competitive pressures or not timely identifying and responding to customer needs, expectations or trends could lead to a decrease in our market share or in the prices that we can charge.

The equipment rental industry is highly fragmented and competitive. Our competitors include small, independent businesses with one or two rental locations, regional competitors that operate in one or more states, public companies or divisions of public companies, and equipment vendors and dealers who both sell and rent equipment directly to customers. We may in the future encounter increased competition from our existing competitors or from new competitors. Competitive pressures could adversely affect our revenues and operating results by, among other things, decreasing our rental volumes, depressing the prices that we can charge or increasing our costs to retain employees. In addition, the success of our business depends, in part, on our ability to identify and respond promptly to evolving trends in consumer preferences, expectations and needs while also managing appropriate equipment in our branches and maintaining an excellent customer experience. It is difficult to successfully predict the equipment and services our customers will demand. We also need to offer more localized assortments of our equipment to address local requirements and needs. If we do not successfully identify and provide the appropriate equipment to meet our customers’ needs and expectations, we may lose market share.

The widespread outbreak of an illness or any other communicable disease, or any other public health crisis, could adversely affect our business, results of operations and financial condition.

The widespread outbreak of an illness or any other communicable disease, or any other public health crisis that results in economic and trade disruptions could negatively impact our business and the businesses of our customers. In December 2019, a novel strain of coronavirus, COVID-19, was identified and the virus continues to spread globally. COVID-19 has spread throughout the world, including the United States and Canada, and the World Health Organization has declared COVID-19 a pandemic. Many jurisdictions have implemented orders to slow and limit the transmission of the virus. These orders have limited or prohibited certain economic activity, including, in some jurisdictions, the shutdown of construction activity.

COVID-19 has caused many of our customers to delay or cancel projects and events, leading to a decrease in demand for our rental equipment and services, possible deterioration in our customers’ financial condition and their inability to timely pay outstanding receivables owed to us. The extent of the impact of the COVID-19 pandemic on our operational and financial performance, including our ability to execute our business strategies and initiatives in the expected time frame, will depend on future developments, including the duration and spread of the pandemic and related restrictions on economic activity, all of which are uncertain and cannot be predicted. An extended period of economic disruption could materially affect our business, results of operations, access to sources of liquidity, particularly our cash flow from operations, and financial condition.

Our business is heavily reliant upon communications networks and centralized IT systems and the concentration of our systems creates or increases risks for us, including the risk of the misuse or theft of information as a result of cybersecurity breaches or otherwise, which could harm our brand, reputation or competitive position and give rise to material liabilities.


We rely heavily on communication networks and IT systems, including the Internet, to process rental and sales transactions, manage our pricing, manage our equipment fleet, manage our financing arrangements, pay suppliers and other third parties, collect from our customers, account for our activities and otherwise conduct our business.business and report our financial results. Our major IT systems and accounting functions are centralized in a few locations. Any disruption, termination or substandard provision of these services, whether as the result of computer or telecommunications issues (including operational failures, ransomware or other computer viruses or security breaches)malware), localized conditions (such as a power outage, fire or explosion) or events or circumstances of broader geographic impact (such as an earthquake, storm, flood, other natural disaster, epidemic, strike, act of war, civil unrest or terrorist act), could materially adversely affect our business by disrupting normal operations. Our systems are also subject to cyber attacks (such as business e-mail compromise or other social engineering attacks) which, if successful, could have a materially adverse affect on our ability to operate our business and negatively impact our reputation.


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ITEM lA. RISK FACTORS (continued)
We regularly possess, store and handle non-public information about individuals and businesses, including both credit and debit card information and other sensitive and confidential personal information. In addition, our customers regularly transmit confidential information to us via the Internet and through other electronic means. Our facilities and systems and those of our third-party service providers may contain defects in design or manufacture or other problems that could compromise information security, and are also subject to the risk of human error. Unauthorized parties also may attempt to gain access to our systems or facilities, or those of third parties with whom we do business, and these attacks are increasing in their frequency, sophistication and intensity. Many of the techniques used to obtain unauthorized access, including viruses, wormsmalware and other malicious software programs, are difficult to anticipate until launched against a target and we may be unable to implement adequate preventative measures.
    
A compromise of our security systems resulting in unauthorized access to certain personal information about our customers, distributors or employees could adversely affect our corporate reputation as well as our operations, and could result in litigation against us or the imposition of penalties. Security breaches can create system disruptions, shutdowns or unauthorized disclosure of confidential information, which could result in financial damage or loss. Most states have enacted laws requiring companies to notify individuals and often state authorities of data security breaches involving their personal data. These mandatory disclosures regarding a security breach often lead to widespread negative publicity, which would harm our reputation and brand, and may cause our customers and employees to lose confidence in the effectiveness of our data security measures. As a result, a security breach could cause the loss of customers and could also require that we expendinvest significant additional resources related to our information security systems.


In addition, we outsource a portion of our IT services. Therefore, we are also susceptible to disruptions, failures and breaches of the systems maintained by our outsourced providers, which we do not control. Any disruption, failure, breach or poor performance of any of these systems could lead to lower revenues, increased costs or other material adverse effects on our business and results of operations.


Failure to maintain, and upgrade or replace our IT systems could materially adversely affect us.
    
Our business continues to demand the use of sophisticated systems and technology. As a result, of our reliance on IT systems in the conduct of our business, we devote significant time and expense in maintaining, upgrading or replacing our systems in order to meet customers' demands and upgrading our systems.expectations. These types of activities subject us to additional costs and inherent risks associated with replacing and changing these systems, including impairment of our ability to manage our business, potential disruption of our internal control structure, substantial capital expenditures, additional administration and operating expenses, demands on management time, training our employees to operate the systems, and other risks and costs of delays or difficulties in transitioning to new systems or of integrating new systems into our current systems. We rely on certain software vendors to maintain and periodically upgrade many of these systems so that they can continue to support our business. Further, the software programs supporting many of our systems were licensed to us by independent software developers. The inability of these developers or us to continue to maintain and upgrade these information systems and software programs would disrupt or reduce the efficiency of our operations if we were unable to convert to alternate systems in an efficient

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ITEM lA. RISK FACTORS (continued)


and timely manner.


In addition, costs and potential problems and interruptions associated with the implementation of new or upgraded systems and technology, maintenance or adequate support of outdated or other existing systems could disrupt or reduce the efficiency of our business operations and could have an adverse effect on our operations if not anticipated and appropriately mitigated. Our competitive position may be adversely affected if we are unable to maintain, upgrade or replace systems that allow us to manage our business in a competitive manner. We also may not achieve the benefits that we anticipate from an upgraded or replaced system. Additionally, any systems failures could impede our ability to timely collect and report financial results in accordance with applicable laws and regulations.


We may fail to respond adequately to changes in technology and customer demands.
    
In recent years, our industry has been characterized by rapid changes in technology and customer demands. For example, industry participants have taken advantage of new technologies to improve fleet efficiency, decrease customer wait times and improve customer satisfaction. Our ability to continually improve our current processes and customer-facing tools in response to changes in technology or in customer expectations is essential in maintaining our competitive position and maintaining current levels of customer satisfaction. We may experience technical or other difficulties that could delay or prevent the development or implementation of new technologies. We also may not achieve the benefits that we anticipate from new
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ITEM lA. RISK FACTORS (continued)
technologies we develop or implement. The effects of these risks may, individually or in the aggregate, materially adversely affect our results of operations, liquidity and cash flows.


We face intense competition, including from our own suppliers, that may lead to downward pricing or an inability to increase prices.


The markets in which we operate are highly competitive. Competitive factors in our industry include price competition, the importance of customer loyalty, changes in market penetration, the introduction of new equipment, services and technology by competitors, changes in marketing, product diversity and quality and the ability to supply equipment and services to customers in a timely, predictable manner. Because we do not have multi-year contractual arrangements with many of our customers, these competitive factors could cause our customers to cease renting our equipment and shift suppliers quickly.


The equipment rental market is highly fragmented, and we believe that price is one of the primary competitive factors. The Internet has enabled cost-conscious customers to more easily compare rates available from rental companies. If we try to increase our pricing, our competitors, some of whom may have greater resources and better access to capital or lower fixed operating costs, may seek to compete aggressively on the basis of pricing. In addition, our competitors may reduce prices in order to attempt to gain a competitive advantage, capture market share or compensate for declines in rental activity. To the extent we do not match or remain within a reasonable competitive margin of our competitors’ pricing, our revenues and results of operations could be materially adversely affected. If competitive pressures lead us to match any of our competitors’ downward pricing and we are not able to reduce our operating costs, then our margins, results of operations and cash flows could be materially adversely impacted.


We face competition from traditional rental companies as well as our own suppliers. We purchase our rental equipment from leading, globally-known original equipment manufacturers. Under our supplier arrangements, the suppliers may appoint additional distributors, elect to sell or rent directly to our customers or unilaterally terminate their arrangements with us at any time without cause. Any such actions could have a material adverse effect on our business, financial condition, results of operations, liquidity and cash flows due to a reduction of, or an inability to increase, our revenues.


Our success depends on our ability to attract and retain key management, sales and other key personnel,trades talent, while supporting the onboarding and the abilitycareer development of new employees to learn their new roles.our team members.


Our ability to successfully execute on our business plan depends upon the contributions of our senior management team as well as other key personnel, such astalent including our dedicated sales force.force and trades talent such as drivers and mechanics. In recent years we have experienced significant changes to our key personnel. Becauseincreasing competition for available talent in the North American workforce as reflected by the low unemployment rate and shortages of these personnel changes,available industry trades talent. As a result, we could experience inefficiencies or a lack of business continuity due to theemployee turnover, new employees’ lack of historical knowledge and lack of familiarity with the business processes, operating requirements, policies and procedures, and key information technologies and related infrastructure used in our day-to-day operations and financial reporting. Historically we have noted a ramp-up period before new members of our sales organization typically achieve a level of sales comparable to those whowe have been employed by the Company for a longer period of time. We may also experience additional costs as new employees learn their roles and gain necessary experience, in addition to the cost of hiring new individuals. It is important to our success that new key employeesnewly hired team members quickly adapt to and excel in their new roles. If they are unable to do so, our

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ITEM lA. RISK FACTORS (continued)


business and financial results could be materially adversely affected. Further, if we cannot meet our needs for IT staff, we may not be able to fulfill our technology initiatives while continuing to provide maintenance on existing systems.


If we were to lose the services of members of our senior management team or other key personnel,talent, whether due to death, disability, resignation or termination of employment, our ability to successfully implement our business strategy, financial plans, marketing and other objectives could be significantly impaired. In addition, if we are unable to attract and retain qualified other key personnel,talent, we may not be able to effectively and efficiently manage our business and execute our business plan.


Due to seasonality, especially in the construction industry, any occurrence that disrupts rental activity during our peak periods could materially adversely affect our results of operations, liquidity and cash flows.


Significant components of our expenses are fixed in the short-term, including real estate taxes, rent, insurance, utilities, maintenance and other facility-related expenses, the costs of operating our IT systems and certain staffing costs. Seasonal changes in our revenues do not alter those fixed expenses, typically resulting in higher profitability in periods when our
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ITEM lA. RISK FACTORS (continued)
revenues are higher, and lower profitability in periods when our revenues are lower. Our business, especially in the construction industry, has historically experienced lower levels of business from December until late spring, particularly in the northern United States and Canada, and heightened activity during our third and fourth quarter until December. Any occurrence that disrupts rental activity during this period of heightened activity, including adverse weather conditions such as prolonged periods of cold, rain, blizzards, floods, fires, hurricanes or other severe weather patterns, could have a disproportionately adverse effect on our business, results of operations, liquidity and cash flows.


Some or all of our deferred tax assets could expire if we experience an “ownership change” as defined in Section 382 of the Internal Revenue Code (the "Code").


An "ownership change" could limit our ability to utilize tax attributes, including net operating losses, capital loss carryovers, excess foreign tax carryforwards, and credit carryforwards, to offset future taxable income. As of December 31, 2018,2020, we had unutilized U.S. federal net operating loss carryforwards of approximately $412.1 million (which begin to expire in 2031).$302.6 million. Our ability to use such tax attributes to offset future taxable income and tax liabilities may be significantly limited if we experience an "ownership change" as defined in Section 382(g) of the Code. In general, an ownership change will occur if and when the percentage of Herc Holdings’ ownership (by value) of one or more "5-percent shareholders" (as defined in the Code) has increased by more than 50 percentage points over the lowest percentage of stock owned by such shareholders at any time during the prior three years (calculated on a rolling basis). An entity that experiences an ownership change generally should be subject to an annual limitation on its pre-ownership change tax loss carryforward which accumulates each year to the extent that there is any unused limitation from a prior year. The limitation on our ability to utilize tax losses and credit carryforwards arising from an ownership change under Section 382 depends on the value of our equity at the time of any ownership change. If we were to experience an "ownership change,” it is possible that a significant portion of our tax loss carryforwards could expire before we would be able to use them to offset future taxable income. Many states have adopted the federal Section 382 rules and therefore have similar limitations with respect to state tax attributes.

Doing business in foreign countries exposes us to a number of additional risks, including complying with foreign and local laws and regulations that may conflict with U.S. laws and those under anticorruption, competition, economic sanctions and anti-boycott regulations, that may materially adversely affect our business, financial condition, results of operations, liquidity and cash flows.

We currently operate in several foreign countries, including Canada and China. Operating in different countries exposes us to varying risks, which include: (i) multiple, and sometimes conflicting, foreign regulatory requirements and laws that are subject to change, including laws relating to taxes, insurance rates, insurance products, consumer privacy, data security, employment matters, cost and fee recovery, and the protection of our trademarks and other intellectual property; (ii) the effect of foreign currency translation risk; (iii) varying tax regimes, including consequences from changes in applicable tax laws; (iv) local ownership or investment requirements, as well as difficulties in obtaining financing in foreign countries for local operations; and (v) political and economic instability, natural calamities, war and terrorism. The failure to comply with international laws could have an adverse effect on us that is disproportionate to the relative size of our foreign operations.

Our international operations are also subject to U.S. and foreign anti-corruption laws and regulations, such as the Foreign Corrupt Practices Act ("FCPA"), economic sanction programs administered by the U.S. Treasury Department’s Office of Foreign Assets

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ITEM lA. RISK FACTORS (continued)


Control ("OFAC") and the anti-boycott regulations administered by the U.S. Department of Commerce's Office of Antiboycott Compliance. As a result of doing business in foreign countries, we are exposed to a heightened risk of violating these and other laws. As part of our business, we regularly deal with foreign officials for regulatory purposes and may deal with state-owned business enterprises, the employees of which are considered foreign officials for purposes of the FCPA. In addition, the provisions of the U.K. Bribery Act of 2010 extend beyond bribery of foreign public officials and are more onerous than the FCPA in a number of other respects. Some of the international locations in which we operate lack a developed legal system and have relatively higher levels of corruption. Economic sanctions programs restrict our business dealings with certain sanctioned countries and other sanctioned individuals and entities. Violations of anti-corruption laws, competition laws and sanctions regulations are punishable by civil penalties, including fines, denial of export privileges, injunctions, asset seizures, debarment (or other loss of business) from government contracts and revocations or restrictions of licenses, as well as criminal fines and imprisonment. We have established policies and procedures designed to assist our compliance with applicable laws and regulations; however, there can be no assurance that they will effectively prevent us from violating these laws and regulations in every transaction in which we may engage. A violation of legal requirements could materially and adversely affect our reputation, business, financial condition, results of operations and cash flows.

Our non-U.S. operations include joint ventures and other alliances. Additional risks characteristic of these arrangements include the risk of conflicts arising between us and our joint venture partners and the lack of unilateral control of management. We also risk circumstances where our joint venture partner may fail to satisfy its obligations, which could result in increased liabilities to us.

In addition, we are subject to limitations on our ability to repatriate funds to the United States from our operations outside of the United States. These limitations arise from regulations in certain countries that limit our ability to remove funds from or transfer funds to foreign subsidiaries, as well as from tax liabilities that would be incurred in connection with such transfers.

The effects of the foregoing risks may, individually or in the aggregate, materially adversely affect our results of operations, liquidity and cash flows.

Changes in the legal and regulatory environment that affect our operations, including with respect to taxes, consumer rights, privacy, data security and employment matters, could disrupt our business, increase our expenses or otherwise have a material adverse effect on our results of operations.

We are located in 39 states in the United States and seven provinces in Canada, and also have other international operations. Our operations expose us to a number of national, state, local and foreign laws and regulations, in addition to legal, regulatory and contractual requirements we face as a government contractor. These laws and regulations address multiple aspects of our operations, including taxes, worker safety, consumer rights, privacy, data security and employment matters and also may impact other areas of our business. There are often different requirements in different jurisdictions. Changes in government regulation of our businesses have the potential to materially alter our business practices or our profitability. Depending on the jurisdiction, those changes may come about through the issuance of new laws and regulations or changes in the interpretation of existing laws and regulations by a court, regulatory body or governmental official. Sometimes those changes may have both a retroactive and prospective effect; this is particularly true when a change is made through reinterpretation of laws or regulations that have been in effect for some time. Moreover, changes in regulation that may seem neutral on their face may have either more or less impact on us than on our competitors, depending on the circumstances. Changes in any legal or regulatory requirements applicable to us, or any material failure by us to comply with them, could negatively impact our reputation, reduce our business, require significant management time and attention and generally otherwise adversely affect our financial position, results of operations or cash flows. Similarly, changes in laws and regulations applicable to our customers or impacting the economy generally may also impact our financial condition and results of operations.

An impairment of our goodwill or our indefinite-lived intangible assets could have a material adverse non-cash impact on our financial condition and results of operations.

We review our goodwill and indefinite-lived intangible assets for impairment at least annually or whenever events or changes in circumstances indicate that the carrying amount of these assets may not be recoverable. Our goodwill and indefinite-lived intangible assets comprised approximately 10.0% of our total assets as of December 31, 2018. If economic deterioration occurs, we may be required to record charges for goodwill or indefinite-lived intangible asset impairments in the future, which could have a material adverse non-cash impact on our financial condition and results of operations.

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ITEM lA. RISK FACTORS (continued)



Other Operational Risks


Any decline in our relationships with our key national account customers or the amount of equipment they rent from us could materially adversely affect our business, financial position, results of operations and cash flows.
    
Our business depends on our ability to maintain positive relations with our key national account customers, which collectively accounted for 43%45% of our rental revenue in 2018.2020. We cannot assure you that all of these relationships will continue at current levels or on current terms. Our contracts with our customers generally do not obligate them to rent equipment from us. Revenue from customers that have accounted for significant revenue in past periods, individually or as a group, may not continue in future periods or, if continued, may not reach or exceed historical levels in any period. Further, if our key customers fail to remain competitive in their respective markets or encounter financial or operational problems, our business, financial position, results of operations and cash flows may be materially adversely affected.


Our rental fleet is subject to residual value risk upon disposition and may not sell at the prices we expect.


The market value of our equipment at the time of its disposition could be less than its estimated residual value or its depreciated value at such time. A number of factors could affect the value received upon disposition of our equipment, including:


the market price for similar new equipment;
the age of the equipment, wear and tear on the equipment relative to its age and the performance of preventive maintenance;
the time of year that it is sold;
the supply of used equipment relative to the demand for used equipment, including as a result of changes in economic conditions or conditions in the markets that we serve;
inventory levels at original equipment manufacturers; and
the existence and capacities of different sales outlets.
A sale of equipment below its net book value could adversely affect our results of operations, liquidity and cash flows. Accordingly, decisions to reduce the size of our rental fleet in the event of an economic downturn or to respond to changes in rental demand are subject to the risk of loss based on the residual value of rental equipment.


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ITEM lA. RISK FACTORS (continued)
We incur maintenance and repair costs associated with our rental fleet that could have a material adverse effect on our financial condition, results of operations, liquidity and cash flows in the event these costs are greater than anticipated.


As our fleet of rental equipment ages, the cost of maintaining such equipment, if not replaced within a certain period of time, and the risk of fleet equipment being out of service, generally increase. As of December 31, 2018,2020, the average age of our rental equipment fleet was approximately 46 months. Determining the optimal age at disposition for our rental equipment is subjective and requires considerable estimates by management. We have made estimates regarding the relationship between the age of our rental equipment, the maintenance and repair costs, the availability of our fleet and the market value of used equipment. It is possible that we may allow the average age of our rental equipment fleet to increase, which would increase our costs for maintenance and repair and likely would negatively impact the market value of such equipment at the time of its disposition. If maintenance and repair costs are higher than estimated or in-service times or market values of used equipment are lower than estimated, our financial condition, results of operations, liquidity and cash flows could be materially adversely affected.

We may be unable to protect our trade secrets and other intellectual property rights, and our business could be harmed as a result.

We rely on trade secrets to protect our know-how and other proprietary information, including pricing, purchasing, promotional strategies, customer lists and/or supplier lists. However, trade secrets are difficult to protect. Our employees, consultants, contractors or advisors may unintentionally or willfully disclose our information to competitors. In addition, any confidentiality agreements executed to protect these assets may not be enforceable or provide meaningful protection for our trade secrets or other proprietary information in the event of unauthorized use or disclosure. The effects of these risks may materially adversely affect our business, results of operations, liquidity and cash flows.


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We are exposed to a variety of claims and losses arising from our operations, and our insurance may not cover all or any portion of such claims.
    
We are exposed to a variety of claims arising from our operations, including claims by third parties for injury or property damage arising from the operation of our equipment or acts or omissions of our personnel and workers’ compensation claims. We are currently a defendant in numerous actions and have received numerous claims on which actions have not yet been commenced for liability and property damage arising from the operation of equipment rented from us. We also are exposed to risk of loss from damage to our equipment and resulting business interruption. Our responsibility for such claims and losses is increased when we waive the provisions in certain of our rental contracts that hold a renter responsible for damage or loss under an optional loss or damage waiver that we offer. While we attempt to mitigate our exposure to large liability losses arising from such claims by maintaining general liability, workers' compensation and vehicle liability insurance coverage, our coverage may not be adequate to protect us against these exposures and we self-insure against losses associated with exposures not covered by these insurance policies.


Moreover, in the event that insurance coverage does apply, we will bear a portion of the associated losses through the application of deductibles and self-insured retention in the insurance policies. For a company our size, such deductibles or self-insured retention could be substantial. There is also no assurance that insurance policies of these types will be available for purchase or renewal on commercially reasonable terms, or at all, or that the premiums and deductibles under such policies will not substantially increase, including as a result of market conditions in the insurance industry.
    
If we were to incur one or more liabilities that are significant, individually or in the aggregate, where we are not fully insured, that we self-insure against or that our insurers dispute, it could have a material adverse effect on our financial condition. Even with adequate insurance coverage, we still may experience a significant interruption to our operations as a result of third partythird-party claims or other losses arising from our operations.

We may face issues with our union employees.
Labor contracts covering the terms of employment of approximately 400 employees in the U.S. and 150 employees in Canada were in effect as of December 31, 2018 under approximately 20active contracts with local unions, affiliated primarily with the International Brotherhood of Teamsters and the International Union of Operating Engineers. These contracts are renegotiated periodically. Failure to negotiate a new labor agreement when required could result in a work stoppage. Although we believe that our labor relations have generally been good, it is possible that we could become subject to additional work rules imposed by agreements with labor unions, or that work stoppages or other labor disturbances could occur in the future. In addition, our non-union workforce has been subject to unionization efforts in the past, and we could be subject to future unionization, which could lead to increases in our operating costs and/or constraints on our operating flexibility.


Environmental, health, and safety laws and regulations and the costs of complying with them, or any change to them impacting our markets, could materially adversely affect our financial position, results of operations and cash flows.


Our operations are subject to numerous national, state, provincial and local laws and regulations governing environmental protection and occupational health and safety matters. These laws govern such issues as wastewater, storm water, solid and hazardous wastes and materials, air quality and matters of workplace safety. Under these laws and regulations, regardless of fault we may be liable for, among other things, the cost of investigating and remediating contamination at our sites as well as sites to which we have sent hazardous wastes for disposal or treatment, and also fines and penalties for non-compliance. We use hazardous materials to clean and maintain equipment, dispose of solid and hazardous waste and wastewater from equipment washing, and store and dispense petroleum products from storage tanks at certain of our locations. We also indemnify various parties for the costs associated with remediating numerous hazardous substance storage, recycling or disposal sites in many states and, in some instances, for natural resource damages. The amount of any such expense or related natural resource damages for which we may be held responsible could be substantial. We cannot predict the potential financial impact on our business if new adverse environmental, health, or safety conditions are discovered, or environmental, health, and safety requirements become more stringent. As of December 31, 2020 and December 31, 2019, the aggregate amounts accrued for environmental liabilities, including liability for environmental indemnities, reflected in the Company's consolidated balance sheets in "Accrued liabilities" were $0.4 million and $0.2 million, respectively. If we are required to incur environmental, health, or safety
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compliance or remediation costs that are not currently anticipated by us, our financial position, results of operations and cash flows could be materially adversely affected, depending on the magnitude of the cost.


Climate change and legal or regulatory responses thereto may have a long-term negative impact on our business and results of operations.

There is increasing concern that a gradual increase in global average temperatures due to the concentration of carbon dioxide and other greenhouse gases in the atmosphere will cause significant change in weather patterns around the globe and increase the frequency and severity of natural disasters. Climate change may also exacerbate water scarcity, negatively impacting our capability to deliver equipment that meets the safety and functional expectations of our customers as well as the health and safety of our employees. Increased frequency or duration of extreme weather conditions could impact our business and the demand for our equipment and services. An increase in demand for rental equipment may require additional capital expenditures in order for us to compete for such demand and we may not be able to make similar levels of investment as our larger competitors. In addition, in an effort to combat climate change, our customers may require our rental equipment to meet certain standards. If we are unable to meet such standards and the expectations of our customers, our business and results of operations could be materially adversely affected.

In addition, the U.S. Congress and other legislative and regulatory authorities in the United States and internationally have considered, and likely will continue to consider, numerous measures related to climate change, greenhouse gas emissions and other laws and regulations affecting our end markets, such as oil, gas and other natural resource extraction. Should such laws and

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regulations become effective, demand for our services could be affected, our fleet and/or other costs could increase and our business could be materially adversely affected.


Further, investors are placing a greater emphasis on non-financial factors, including ESG factors, when evaluating investment opportunities. If we are unable to provide sufficient disclosure about ESG practices or if we fail to achieve ESG goals, investors may not view us as an attractive investment, which could have a negative effect on our stock price and business.

Part of our strategy includes pursuing strategic transactions, which could be difficult to identify and implement, and could disrupt our business or change our business profile significantly.
    
We may opportunistically consider the acquisition of other companies or service lines of other businesses that either complement or expand our existing business, or we may consider the divestiture of some of our businesses. Any acquisitions or divestitures we may seek to consummate will be subject to the negotiation of definitive agreements, satisfactory financing arrangements and applicable governmental approvals and consents, including under applicable antitrust laws, such as the Hart-Scott-Rodino Act. We cannot assure you that we will be able to identify suitable transactions and, even if we are able to identify such transactions, that we will be able to consummate any such acquisitions or divestitures on acceptable terms. Any future acquisitions or divestitures we pursue may involve a number of risks, including some or all of the following:


the diversion of management’s attention from our core business;
the disruption of our ongoing business;
inaccurate assessment of undisclosed liabilities;
potential known and unknown liabilities of the acquired or divested businesses and lack of adequate protections or potential related indemnities;
the inability to integrate our acquisitions without substantial costs, delays or other problems;
the loss of key customers or employees of the acquired or divested business;
increasing demands on our operational systems;
the integration of information systems and internal control over financial reporting; and
possible adverse effects on our reported results of operations or financial position, particularly during the first several reporting periods after an acquisition or divestiture is completed.


Any acquired entities or assets may not enhance our results of operations. Even if we are able to integrate future acquired businesses with our operations successfully, we cannot assure you that we will realize the cost savings, synergies or revenue enhancements that we may anticipate from such integration or that we will realize such benefits within the expected time frame. Any acquisition also may cause us to assume liabilities, record goodwill and other intangible assets that will be subject to
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impairment testing and potential impairment charges, incur potential restructuring charges and increase working capital and capital expenditure requirements, which may reduce our return on invested capital.
    
If we were to undertake a substantial acquisition, the acquisition likely would need to be financed in part through additional financing from banks, through public offerings or private placements of debt or equity securities or with other arrangements. We cannot assure you that the necessary acquisition financing would be available to us on acceptable terms if and when required, given our substantial indebtedness and restrictions in the terms of our indebtedness that may limit the additional indebtedness that we may incur or the acquisitions that we may pursue, which may make it difficult or impossible for us to obtain financing for acquisitions. If we were to undertake an acquisition by issuing equity securities or equity-linked securities, the acquisition may have a dilutive effect on the interests of the holders of our common stock.


A significant divestiture would, in the short term, result in loss of revenues and possibly earnings, and could require the amendment or refinancing of our outstanding indebtedness or a portion thereof. Further, to the extent that we agree to accept payment of all or a portion of the sale price over time, we will bear the risk that the portion of the price that is not paid at closing may be uncollectible. In addition, in connection with any divestiture, we may agree to retain obligations related to the business or assets sold and we may agree to indemnify the purchaser for outstanding liabilities or with respect to the representations, warranties or covenants included in the definitive agreement between the parties. These retained obligations and indemnification obligations could result in significant costs and expenses.



We may face issues with our union employees.
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Any material weaknessesemployment of approximately 390 employees in our internal control over financial reporting may adversely affect our ability to report our financial conditionthe U.S. and results150 employees in Canada were in effect as of operations in a timely and accurate manner, which may adversely affect investor and lender confidence in us and, as a result, the value of our common stock and our ability to obtain future financing on acceptable terms.

In accordanceDecember 31, 2020 under approximately 20active contracts with local unions, affiliated primarily with the Sarbanes-Oxley ActInternational Brotherhood of 2002Teamsters and SEC rules, management is responsible for evaluating and reporting on the effectivenessInternational Union of our internal control over financial reporting. We previously identified material weaknesses in our internal control over financial reporting, which were disclosed in our Annual Reports on Form 10-K for the years ended December 31, 2017 and 2016 and have since been remediated. We incurred significant time and expense, including consulting, audit, legal and other professional fees,Operating Engineers. These contracts are renegotiated periodically. Failure to remediate those material weaknesses, and there can be no assurance that our efforts to design and implement an effective control environment will be sufficient to prevent future material weaknesses from occurring. The failure to maintainnegotiate a new labor agreement when required controls could result in material misstatements in our consolidated financial statements. Any such material misstatement could result in a restatement ofwork stoppage. Although we believe that our consolidated financial statements,labor relations have generally been good, it is possible that we could become subject to additional work rules imposed by agreements with labor unions, or that work stoppages or other labor disturbances could occur in the future. In addition, our non-union workforce has been subject to unionization efforts in the past, and we could be subject to future unionization, which could lead to among other things, delaysincreases in filing required financial disclosures; loss of investor and lender confidence in the accuracy and completeness of our financial reports; events of default under the agreements governing our asset-based revolving credit facility operating costs and/or our accounts receivable securitization facility (collectively, the “credit facilities”) or the indenture governing our senior notes (or significant payments to amend such agreements); investigations or enforcement actions by the New York Stock Exchange, the SEC or other federal or state government agencies or regulatory authorities; sanctions, fines or penalties; legal, accounting and other expenses; a decline in the prices of our securities; and liabilities arising from stockholder litigation. Any of these potential issues, or resulting negative publicity, may have a material adverse effectconstraints on our ability to attract and retain customers, employees and vendors. We also may lose assets if we do not maintain adequate internal controls. The foregoing circumstances could have a material adverse effect on our reputation, business, financial condition, results of operations, liquidity or cash flows.operating flexibility.


Risks Related to the Spin-Off and Our Separation from New Hertz


We and New Hertz have assumed and will share responsibility for certain liabilities in connection with the Spin-Off, any of which could have a material adverse effect on our business, financial condition and results of operations.


Pursuant to the separation and distribution agreement entered into in connection with the Spin-Off, we assumed, among other things, liabilities associated with our equipment rental business and related assets, whether such liabilities arose prior to or subsequent to the Spin-Off, and have agreed to indemnifyNew Hertz for any losses arising from such liabilities, as well as any other liabilities we assumed pursuant to the separation and distribution agreement. We also will be responsible for a portion (typically 15%) of certain shared liabilities not otherwise specifically allocated to us or New Hertz under the separation and distribution agreement. Although we will be responsible for a portion of these shared liabilities, New Hertz has the authority to manage the defense and resolution of them. The amount of such liabilities could be greater than anticipated and have a material adverse effect on our business, financial condition, results of operations and cash flows.


In addition, New Hertz has assumed, among other things, liabilities associated with its vehicle rental business and related assets, whether such liabilities arose prior to or subsequent to the Spin-Off, and has agreed to indemnify us for any losses arising from such liabilities, as well as any other liabilities it assumed pursuant to the separation and distribution agreement. New Hertz also will be responsible for a portion (typically 85%) of certain shared liabilities not otherwise specifically allocated to New Hertz or us under the separation and distribution agreement. We rely on New Hertz to manage the defense and resolution of these shared liabilities. If New Hertz fails to satisfy its performance and payment obligations under the separation and distribution agreement, including its indemnification obligations, such failure could have a material adverse effect on our business, financial condition, results of operations and cash flows.


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If there is a determination that any portion of the Spin-Off transaction is taxable for U.S. federal income tax purposes, then we and our stockholders could incur significant U.S. federal income tax liabilities.


Hertz Holdings received a favorable private letter ruling from the Internal Revenue Service (the "IRS") to the effect that, subject to the accuracy of and compliance with certain representations, assumptions and covenants, (i) the Spin-Off qualified as a tax-free transaction under Sections 355 and 368(a)(1)(D) of the Code), and (ii) the internal spin-off transactions (collectively with the Spin-Off, the "Spin-Offs") qualified as tax free under Section 355 of the Code. A private letter ruling from the IRS generally is binding on the IRS. However, the IRS ruling does not rule that the Spin-Offs satisfied every requirement for a tax-free spin-off, and Hertz Holdings relied solely on opinions of its tax advisors to determine that such additional requirements were satisfied. The ruling and the opinions relied on certain facts, assumptions, representations and undertakings from Hertz Holdings and New Hertz regarding

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the past and future conduct of the companies’ respective businesses and other matters. If any of these facts, assumptions, representations or undertakings are incorrect or not otherwise satisfied, Herc Holdings, its affiliates and its stockholders may not be able to rely on the ruling or the opinions of tax advisors and could be subject to significant tax liabilities. Notwithstanding the private letter ruling and opinions of tax advisors, the IRS could determine on audit that the Spin-Offs and related transactions are taxable if it determines that any of these facts, assumptions, representations or undertakings are not correct or have been violated or if it disagrees with the conclusions in the opinions that are not covered by the private letter ruling, or for other reasons, including as a result of certain significant changes in the stock ownership of Herc Holdings or New Hertz after the Spin-Off. If the Spin-Offs or related transactions are determined to be taxable for U.S. federal income tax purposes, we and, in certain cases, our stockholders could incur significant U.S. federal income tax liabilities, including taxation on the value of the New Hertz common stock in the Spin-Off.

If we take or fail to take actions that cause the Spin-Offs to fail to qualify as tax-free transactions, we could be required to indemnify New Hertz for any resulting taxes and related losses.

Under the tax matters agreement with New Hertz, if either Herc Holdings or New Hertz takes or fails to take any action (or permits any of its affiliates to take or fail to take any action) that causes the Spin-Offs to be taxable, or if there is an acquisition of the equity securities or assets of either party (or equity securities or assets of any member of that party's group) that causes the Spin-Offs to be taxable, that party will be required to indemnify the other party for any resulting taxes and related losses.

If any of the Spin-Offs were taxable to any of the applicable companies, such companies would recognize gain equal to the excess, if any, of the fair market value of the stock distributed over the tax basis in that stock, and Herc Holdings and its affiliates would have to pay tax on that gain. The amount of tax would be substantial, and the party causing the Spin-Off to be taxable may not have sufficient financial resources to operate its business after paying any resulting taxes and related losses.

We could incur significant tax or other liability if New Hertz fails to pay the tax liabilities attributable to it under the tax matters agreement or to perform its obligations under the separation and distribution agreement.
Under U.S. federal income tax laws, Herc Holdings and New Hertz (or certain of its subsidiaries) are jointly and severally liable for Hertz Holdings’ federal income taxes attributable to certain periods prior to or including the 2016 taxable year of Hertz Holdings. Although the tax matters agreement allocates responsibility for tax liabilities between us and New Hertz, if New Hertz fails to pay the taxes for which it is responsible under the tax matters agreement, we may be liable for these unpaid liabilities. Certain other jurisdictions may have similar rules. Similarly, the separation and distribution agreement identifies obligations to be borne by New Hertz and liabilities that are shared between us and New Hertz. If New Hertz fails to perform its obligations or pay its share of the shared liabilities, we could incur significant liability which could have a material adverse effect on our business, financial condition, results of operations and cash flows.

Herc Holdings has limited operating history as a stand-alone public company, and our historical financial information for periods prior to July 1, 2016 is not necessarily representative of the results that we would have achieved as a separate, publicly traded company, and may not be a reliable indicator of our future results.
Due to the accounting treatment of the Spin-Off, which considers Herc Holdings to be the spinnee or divested entity, our historical financial information included in this Report for periods prior to July 1, 2016 is derived from the consolidated financial statements and accounting records of Hertz Holdings. Accordingly, the historical financial information included herein for such periods does not necessarily reflect the financial position, results of operations, and cash flows that we would have achieved as a separate, publicly traded company during those periods or those that we will achieve in the future, primarily as a result of the following factors:

Prior to the Spin-Off, our equipment rental business was operated by Hertz Holdings as part of its broader corporate organization, rather than as an independent company. Hertz Holdings or one of its affiliates performed various corporate functions for us, including accounting, corporate affairs, external reporting, human resources, IT, legal services, risk management, tax administration, treasury, and certain governance functions (including internal audit and compliance with the Sarbanes-Oxley Act of 2002). As a result, our historical financial results for periods prior to July 1, 2016 reflect allocations of corporate expenses for these and similar functions. These allocations may be less than the comparable expenses we would have incurred (or may incur in the future) had we operated as a separate public company during such periods.

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Prior to the Spin-Off, our equipment rental business was integrated with the vehicle rental business of Hertz Holdings, which is now operated by New Hertz following the Spin-Off. As a result, our historical financial results for periods prior to July 1, 2016 reflect these shared economies of scale in costs, employees, systems, vendor relationships and customer relationships.
Prior to the Spin-Off, our working capital requirements and capital for our general corporate purposes, including capital expenditures and acquisitions, generally were historically satisfied as part of the enterprise-wide cash management policies of Hertz Holdings. The cost of capital for our business may be higher than Hertz Holdings’ cost of capital prior to the Spin-Off.

The adjustments and allocations we have made in preparing our historical combined financial statements may not fully reflect our operations during periods prior to the Spin-Off as if we had in fact operated as a stand-alone entity.


The Spin-Off may be challenged by creditors as a fraudulent transfer or conveyance.
    
If, under relevant federal and state fraudulent transfer and conveyance statutes, in a bankruptcy or reorganization case or a lawsuit by or on behalf of unpaid creditors of New Hertz, a court were to find that (i) the Spin-Off and related transactions were undertaken with the intent of hindering, delaying or defrauding current or future creditors of New Hertz, or (ii) at the time that Hertz Holdings undertook the Spin-Off and related transactions, New Hertz was insolvent, or was rendered insolvent, by reason of the completion of the Spin-Off and related transactions, then the court could rescind the Spin-Off or, under certain circumstances, require Herc Holdings to fund liabilities of New Hertz for the benefit of creditors.

The measure of insolvency for purposes of the foregoing considerations will vary depending upon the law of the jurisdiction that is being applied in the relevant legal proceeding. Generally, however, New Hertz would be considered insolvent if, at the time that Hertz Holdings undertook the Spin-Off and related transactions, either:


the sum of New Hertz’s debts, including contingent liabilities, was greater than its assets, at a fair valuation; or
the fair saleable value of New Hertz’s assets was less than the amount required to pay the probable liability on its total existing debts and liabilities, including contingent liabilities, as they become absolute and matured.


We cannot give you any assurance as to what standards a court would use to determine whether New Hertz was solvent at the relevant time, or whether, whatever standard is used, the Spin-Off would be rescinded or other liabilities would be imposed on us on another of the grounds described above. We believe that no basis exists to challenge the Spin-Off as a fraudulent transfer or conveyance under the foregoing standards. However, in reaching such conclusion we have relied upon the advice of Hertz Holdings’ management and its third-party advisors whose analysis was based on certain projections and other assumptions. We cannot assure you, however, that a court would reach the same conclusion.    


Risks Related to Our SubstantialSignificant Indebtedness


Our substantialsignificant level of indebtedness exposes or makes us more vulnerable to a number of risks that could materially adversely affect our financial condition, results of operations, cash flows, liquidity and ability to compete.


As of December 31, 2018,2020, we had total outstanding debt of approximately $2.2$1.7 billion, including our outstanding Notessenior notes and the amounts drawn under our credit facilities. This substantialsignificant indebtedness requires us to dedicate a significant portion of our cash flows from operations and investing activities to make payments on our debt, which reduces the amount available for working capital, capital expenditures or other general corporate purposes and which decreases our profitability and cash flow. We cannot assure you that we will maintain financing activities and cash flows sufficient to permit us to pay the principal,
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premium, if any, and interest on our indebtedness. In addition, our indebtedness could materially adversely affect us. For example, it could: (i) make it more difficult for us to satisfy our obligations to the holders of our outstanding debt securities and to the lenders under our credit facilities, resulting in possible defaults on, and acceleration of, such indebtedness; (ii) be difficult to refinance or borrow additional funds in the future; (iii) increase our vulnerability to, and limit our flexibility to plan for, or react to, general adverse economic and industry conditions, (iv) place us at a competitive disadvantage to our competitors that have proportionately less debt or comparable debt at more favorable interest rates or on better terms; and (v) limit our ability to react to competitive pressures, or make it difficult for us to carry out capital spending that is necessary or important to our growth strategy and our efforts to improve operating margins. There is also a risk that one or more of the financial institutions providing commitments under our revolving credit facilities could fail to fund an extension of credit under any such facility, due to insolvency or otherwise, leaving us with less liquidity than expected. Our ability to manage these risks will depend, among other things, on financial market conditions as

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well as our financial and operating performance, which, in turn, is subject to a wide range of risks, including those described above under “—Risks Related to Our Business.”


If our capital resources (including borrowings under our financing arrangements and access to other refinancing indebtedness) and operating cash flows are not sufficient to pay our obligations as they mature or to fund our liquidity needs, we may be forced, among other things, to do one or more of the following: (i) sell certain of our assets; (ii) reduce the size of our rental fleet; (iii) reduce or delay capital expenditures; (iv) obtain additional equity capital; (v) forgo business opportunities, including acquisitions and joint ventures; or (vi) restructure or refinance all or a portion of our debt before maturity. We cannot assure you that we would be able to accomplish any of these alternatives on a timely basis or on satisfactory terms, if at all. If we cannot refinance or otherwise pay our obligations as they mature and fund our liquidity needs, our business, financial condition, results of operations, cash flows, liquidity, ability to obtain financing and ability to compete could be materially adversely affected.


Substantially all of our consolidated assets secure certain of our indebtedness, which could materially adversely affect our business and holders of our debt and equity.


Substantially all of our consolidated assets, including our rental fleet, are subject to security interests under our financing arrangements.revolving credit facility. As a result, the lenders under those financing arrangementshave a secured claim on such assets in the event of our bankruptcy, insolvency, liquidation or reorganization, and we may not have sufficient funds to pay in full, or at all, all of our creditors or make any amount available to holders of our equity. The same is true with respect to structurally senior obligations. In general, all liabilities and other obligations of a subsidiary must be satisfied before the assets of such subsidiary can be made available to the unsecured or junior creditors (or equity holders) of the parent entity.


Because substantially all of our assets are encumbered under financing arrangements,our revolving credit facility, our ability to incur additional secured indebtedness or to sell or dispose of assets to raise capital may be impaired, which could have a material adverse effect on our financial flexibility and liquidity and force us to attempt to incur additional unsecured indebtedness, which may not be available to us.


An increase in interest rates or in our borrowing margin would increase the cost of servicing our debt and could reduce our profitability.


A significant portion of our indebtedness bears interest at floating rates, which increases our vulnerability to general adverse economic and industry conditions (such as economic cycles and credit-related disruptions), including interest rate fluctuations. To the extent we have not hedged against rising interest rates, an increase in the applicable benchmark interest rates would increase our cost of servicing our debt and could reduce our profitability and materially adversely affect our results of operations.


In addition, we may in the future seek to refinance our indebtedness. If interest rates or our borrowing margins increase between the time an existing financing arrangement was consummated and the time such financing arrangement is refinanced, the cost of servicing our debt would increase and our results of operations and liquidity could be materially adversely affected.


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Despite our current level of indebtedness, we may still be able to incur substantially more debt. This could further exacerbate the risks described above.


We and our subsidiaries may be able to incur significant additional indebtedness in the future. Although the agreements and instruments governing our financing arrangements contain restrictions on our ability to incur additional indebtedness, these restrictions are subject to a number of qualifications and exceptions, and the additional indebtedness that could be incurred in compliance with these restrictions could be substantial. Further, these restrictions also do not prevent us from incurring obligations that do not constitute indebtedness. If new debt or other obligations are added to our current debt and liability levels without a corresponding refinancing or redemption of our existing indebtedness and obligations, the risks related to our substantial indebtedness could increase.


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Risks Related to the Securities Markets and Ownership of Our Common Stock


The market price of our common stock could decline as a result of the sale or distribution of a large number of shares of our common stock in the market or the perception that a sale or distribution could occur. These factors also could make it more difficult for us to raise funds through future offerings of our common stock.


We are unable to predict whether significant amounts of our common stock will be sold in the open market or the potential negative effects that these sales could have on the price of our common stock. Certain shareholders, most notably affiliates of Carl Icahn and Mario Gabelli, have accumulated significant amounts of our common stock. Sales or distributions of substantial amounts of our common stock in the public market, or the perception that such sales or distributions will occur, could adversely affect the market price of our common stock and make it difficult for us to raise funds through securities offerings in the future. As of December 31, 2018,2020, there were 28.529.4 million shares of our common stock outstanding, which are freely transferable without restriction or further registration under the Securities Act of 1933, as amended (the “Securities Act”), unless held or acquired by our “affiliates” as that term is defined in Rule 144 under the Securities Act. In addition, all shares of our common stock acquired upon exercise of stock options and other equity-based awards granted under our stock incentive plan also will be freely tradable under the Securities Act unless acquired by our affiliates, as will shares acquired by our employees under our employee stock purchase plan. Approximately 2.72.6 million shares of common stock have been issued or are reserved for issuance under our stock incentive plan and our employee stock purchase plan.


We also may issue additional common stock for a number of reasons, including to finance our operations and business strategy (including acquisitions), to adjust our ratio of debt to equity, or to provide incentives pursuant to certain executive compensation arrangements. Such future issuances of equity securities, or the expectation that they will occur, could cause the market price for our common stock to decline.


Provisions of our Certificate of Incorporation and our By-Laws could discourage potential acquisition proposals and could deter or prevent a change in control.


Our Certificate of Incorporation and By-Laws contain provisions that are intended to deter coercive takeover practices and inadequate takeover bids and to encourage prospective acquirers to negotiate with our Board of Directors rather than to attempt a hostile takeover. These provisions include:


granting to our Board of Directors sole power to set the number of directors and to fill any vacancy on the Board of Directors, whether such vacancy occurs as a result of an increase in the number of directors or otherwise;
the ability of our Board of Directors to designate and issue one or more series of preferred stock without stockholder approval, the terms of which may be determined at the sole discretion of our Board of Directors;
prohibiting our stockholders from acting by written consent;
prohibiting our stockholders from calling special meetings of stockholders;
the absence of cumulative voting; and
advance notice requirements for stockholder proposals and nominations for election to the Board of Directors at stockholder meetings.
    
We believe that these provisions protect our stockholders from coercive or otherwise unfair takeover tactics by requiring potential acquirers to negotiate with our Board of Directors and by providing our Board of Directors with more time to assess
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any acquisition proposal. These provisions are not intended to make us immune from takeovers. However, these provisions apply even if the offer may be considered beneficial by some stockholders and could delay or prevent an acquisition that our Board of Directors determines is in our best interests and that of our stockholders. Any or all of the foregoing provisions could limit the price that some investors might be willing to pay for shares of our common stock.


The market price of our common stock may fluctuate significantly.

The market price of Herc Holdings common stock could fluctuate significantly due to a number of factors, including:

our quarterly or annual earnings, or those of other companies in our industry;
actual or anticipated fluctuations in our financial position, results of operations, liquidity or cash flows;

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the effectiveness of our internal control over financial reporting;
the public reaction to our press releases, our other public announcements and our filings with the SEC;
announcements by us or our competitors of significant acquisitions, dispositions, innovations or new programs and services;
comments by institutional investors or media reports regarding our Company, business or industry;
changes in earnings or other financial estimates and recommendations by securities analysts following our stock, research and reports that industry or securities analysts may publish about us or the rental industry or the failure of securities analysts to cover our common stock;
changes in our ability to meet analyst estimates;
purchases or sales of large blocks of our stock by institutional investors;
the operating and stock price performance of other comparable companies;
general economic conditions and fluctuations in the overall market and the markets served by our customers, including construction and industrial markets;
anticipated spending by government entities or agencies on infrastructure improvement or expansion projections, or the lack of, delay in or reduction in spending on such projects; and
the trading volume of our common stock. 

In addition, the realization of any of the risks described in these “Risk Factors” could have a material and adverse impact on the market price of our common stock in the future and cause the value of your investment to decline. The securities of many companies and the stock market in general have experienced extreme price and volume volatility that has often been unrelated to the operating performance of particular companies. These fluctuations may adversely affect the trading price of our common stock, regardless of our actual performance. In the past, following periods of volatility in the market price of a company’s securities, stockholders have often instituted securities class action litigation against the company. If we were to be involved in a class action lawsuit, it could divert the attention of senior management, and, if adversely determined, have a material adverse effect on our business, results of operations and financial condition.

ITEM 1B. UNRESOLVED STAFF COMMENTS


None.


ITEM 2. PROPERTIES


As of February 22, 2019,12, 2021, we had approximately 270277 locations primarily in the United States and Canada, with locations also in China, Saudi Arabia and Qatar.Canada. We also operate regional headquarters, sales offices and service facilities in the foregoing countries in support of our equipment rental operations. Our principal executive offices are located in Bonita Springs, Florida.


As of December 31, 2018,2020, we owned approximately 8% of the locations from which we operate our equipment rental business, with the remainder leased. Those leases are typically triple net leases, where Herc is responsible for the ongoing expenses of the property, including real estate taxes, insurance, and maintenance, in addition to paying rent and utilities.
Our rental locations generally are located in industrial or commercial zones. A growing number of locations have highway or major thoroughfare visibility. The typical location includes a customer reception area, an equipment service area and storage facilities for equipment. Most branches have stand-alone maintenance and fueling facilities and showrooms.

ITEM 3. LEGAL PROCEEDINGS

In re Hertz Global Holdings, Inc. Securities Litigation - In November 2013, a putative shareholder class action, Pedro Ramirez, Jr. v. Hertz Global Holdings, Inc., et al., was commenced in the U.S. District Court for the District of New Jersey naming Hertz Holdings and certain of its officers as defendants and alleging violations of the federal securities laws. The complaint alleged that Hertz Holdings made material misrepresentations and/or omission of material fact in its public disclosures during the period from February 25, 2013 through November 4, 2013, in violation of Section 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and Rule 10b-5 promulgated thereunder. The complaint sought unspecified monetary damages on

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ITEM 3. LEGAL PROCEEDINGS (Continued)


behalf of the purported class and an award of costs and expenses, including counsel fees and expert fees. In June 2014, Hertz Holdings moved to dismiss the amended complaint. In October 2014, the court granted Hertz Holdings’ motion to dismiss without prejudice, allowing the plaintiff to amend the complaint a second time. In November 2014, plaintiff filed a second amended complaint, which shortened the putative class period and made allegations that were not substantively very different than the allegations in the prior complaint. In early 2015, Hertz Holdings moved to dismiss the second amended complaint. In July 2015, the court granted Hertz Holdings’ motion to dismiss without prejudice, allowing plaintiff to file a third amended complaint. In August 2015, plaintiff filed a third amended complaint, which included additional allegations, named additional then-current and former officers as defendants and expanded the putative class period to extend from February 14, 2013 to July 16, 2015. In November 2015, Hertz Holdings moved to dismiss the third amended complaint. The plaintiff then sought leave to add a new plaintiff because of challenges to the standing of the first plaintiff. The court granted plaintiff leave to file a fourth amended complaint to add the new plaintiff, and the new complaint was filed on March 1, 2016. Hertz Holdings and the individual defendants moved to dismiss the fourth amended complaint with prejudice on March 24, 2016. In April 2017, the court granted Hertz Holdings' and the individual defendants' motions to dismiss and dismissed the action with prejudice. In May 2017, plaintiff filed a notice of appeal in the U.S. Court of Appeals for the Third Circuit and, in September 2018, the court affirmed the dismissal of the action with prejudice. On February 5, 2019, plaintiff filed a motion to set aside the judgment against it, and for leave to file a fifth amended complaint.  The proposed amended complaint would add allegations related to the settlement with the SEC described below.  On February 26, 2019, New Hertz filed an opposition to plaintiff’s motion for relief from judgment and leave to file a fifth amended complaint.
Governmental Investigations - In June 2014, Hertz Holdings was advised by the staff of the New York Regional Office of the SEC that it was investigating the events disclosed in certain of Hertz Holdings’ filings with the SEC. In addition, Hertz Holdings and New Hertz had communications with the United States Attorney’s Office for the District of New Jersey regarding the same or similar events. New Hertz was responsible for managing these matters. The investigations and communications generally involved the restatements included in Hertz Holdings’ 2014 Form 10-K and related accounting for prior periods. On December 31, 2018, the SEC entered an administrative order that, among other things, orders New Hertz to cease and desist from violating certain of the federal securities laws and imposes a civil penalty of $16.0 million. Pursuant to the Separation and Distribution Agreement that we entered into in connection with the Spin-Off, the Company agreed to indemnify New Hertz for 15% of any shared liabilities. Accordingly, the Company has accrued a loss contingency of $2.4 million for this matter with respect to the quarter ended December 31, 2018. In addition, New Hertz has advised us that it does not expect any further communications with the United States Attorney’s Office for the District of New Jersey.

In addition, the Company is subject to a number of claims and proceedings that generally arise in the ordinary conduct of its business. These matters include, but are not limited to, claims arising from the operation of rented equipment and workers' compensation claims. The Company does not believe that the liabilities arising from such ordinary course claims and proceedings will have a material adverse effect on the Company's consolidated financial position, results of operations or cash flows.

For additional information regarding legalLegal proceedings, see Note 16, "Commitments17 "Commitments and Contingencies"Contingencies" of our consolidated financial statements included in Part II, Item 8 of this Report.



ITEM 4. MINE SAFETY DISCLOSURES


Not applicable.



Executive Officers of the Registrant
The name, age, position and a description of the business experience of each of our executive officers is provided below. There is no family relationship among the executive officers or between any executive officer and a director.

NameAgePosition
Lawrence H. Silber64President and Chief Executive Officer, Director
Mark H. Irion54Senior Vice President and Chief Financial Officer
Christian J. Cunningham59Senior Vice President and Chief Human Resources Officer
Aaron D. Birnbaum55Senior Vice President and Chief Operating Officer
Tamir Peres51Senior Vice President and Chief Information Officer
S. Wade Sheek44Senior Vice President, Chief Legal Officer and Secretary

Lawrence H. Silber. Mr. Silber joined the Company in May 2015. Prior to that, Mr. Silber most recently served as an executive advisor at Court Square Capital Partners, LLP, a private equity firm primarily investing in the business services, healthcare, general industrial and technology and telecommunications sectors, from April 2014 to May 2015. Mr. Silber led Hayward Industries, one of the world’s largest swimming pool equipment manufacturers, as chief operating officer from 2008 to 2012, overseeing a successful transition through the recession and returning the company to solid profitability. From 1978 to 2008, Mr. Silber worked for Ingersoll-Rand plc, a publicly traded manufacturer of industrial products and components, in a number of roles of increasing responsibility. He led major Ingersoll-Rand business groups, including Utility Equipment, Rental and Remarketing and the Equipment and Services businesses. Earlier in his career, he led sales, marketing and operations functions in Ingersoll-Rand’s Power Tool Division and Construction and Mining Group. Mr. Silber served on the board of directors of
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Executive Officers of the Registrant (continued)
SMTC Corporation, a mid-size provider of end-to-end electronics manufacturing services, from 2012 to 2015 (and from May 2013 through January 2014 served as its interim president and CEO).
Mark H. Irion.  Mr. Irion joined the Company in June 2018. Prior to that, Mr. Irion most recently served as the chief financial officer of Neff Corporation, a publicly traded equipment rental company, for 19 years until its sale in October 2017. Prior to his role with Neff, he was chief financial officer for Markvision Holdings, Inc., a computer component distribution company, from 1994 to 1998 and, before that, he was an audit senior for Deloitte & Touche LLP in the U.S. and New Zealand.
Christian J. Cunningham. Mr. Cunningham joined the Company in September 2014 from DFC Global Corporation where he served as vice president, corporate HR and HR services since June 2013 with global responsibility for all human resource matters for corporate staff. Previously, Mr. Cunningham held the position of vice president, HR, compensation and benefits at Sunoco Inc. and Sunoco Logistics from 2010 to 2013. Prior to Sunoco, Mr. Cunningham served at ARAMARK as vice president, global compensation and strategy from 2008 to 2010; at Scholastic Inc. as vice president, compensation, benefits and HRIS from 2006 to 2007; and at Pep Boys as assistant vice president, human resources from 2005 to 2006. Previously, Mr. Cunningham held director and regional managerial positions in roles with increasing levels of responsibility at Pep Boys from 1995 to 2005 and Tire Service Corporation, Inc. from 1985 to 1995.
Aaron D. Birnbaum. Mr. Birnbaum served the Company and its predecessor business for more than 30 years. Prior to his current role, Mr. Birnbaum has served as the Company’s Senior Vice President from 2017 to 2019 and served as a Regional Vice President from 2012 to 2017. As Senior Vice President, Mr. Birnbaum oversaw the Company's Western, Northwest, North Central and Canada regions as well as its Herc Entertainment Services® and Cinelease® specialty equipment rental units.  Mr. Birnbaum also has held leadership responsibilities related to the Company's strategic planning, operational execution and M&A activities.
Tamir Peres. Mr. Peres joined the Company in September 2017 from Sunoco Logistics, a publicly-traded, midstream energy company, where he served as vice president and chief information officer since 2012, leading the Sunoco Logistics Information Technology group.  From 2005 to 2012, Mr. Peres held the position of director of corporate information technology at Sunoco, Inc., where he was responsible for all strategic and tactical aspects of technology across the Refining and Supply, Retail Marketing, Chemicals, Logistics and Coke business units.  He was previously director of Worldwide Financial Systems for Kulicke & Soffa Industries, Inc., a global manufacturer and supplier of semiconductor equipment, and before that he worked for Ernst & Young, including as an audit senior in its Assurance Services area.
S. Wade Sheek. Mr. Sheek joined the Company in November 2019 from Republic Airways Holdings Inc., a regional airline, where he served as general counsel and secretary from 2018 to 2019 and oversaw the legal, contracting, communications and government relations functions. From 2013 to 2018, he served as deputy general counsel and corporate secretary at Allegion plc, a multi-national manufacturing company, and had responsibility for SEC matters, corporate governance, M&A and strategic initiatives. Prior to that, Mr. Sheek held roles with increasing responsibility with The Home Depot, Inc., UnitedHealth Group Incorporated and Ingersoll-Rand plc.

PART II


ITEM 5. MARKET FOR REGISTRANT'SREGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIESSECURITY


Common Stock and Registered Holders


Our common stock commenced tradingtrades on the New York Stock Exchange ("NYSE") under the symbol "HRI" on July 1, 2016.. On February 22, 2019,12, 2021, there were 1,2831,266 registered holders of our common stock. The number of beneficial owners is substantially greater than the number of record holders because a large portion of our common stock is held of record in "street name."


Share Repurchase Program
In March 2014, Hertz Holdings announced a $1.0 billion share repurchase program (the "Share Repurchase Program"), which replaced an earlier program. The Share Repurchase Program permits the Company,us, as the successor to Hertz Holdings, to purchase shares through a variety of methods, including in the open market or through privately negotiated transactions, in accordance with applicable securities laws. It doesWe are not obligate the Companyobligated to make any repurchases at any specific time or in any specific amount. The timing and extent to which the Company repurchases itswe repurchase shares will depend upon, among other things, market conditions, share price, liquidity

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ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES (Continued)

targets, contractual restrictions and other factors. Share repurchases may be commenced or suspended at any time or from time to time, subject to legal and contractual requirements, without prior notice. There were no share repurchases during the yearsyear ended December 31, 2018 or 2017.2020. As of December 31, 2018,2020, the approximate dollar value that remains available for share purchases under the Share Repurchase Program is $395.9 million.


Dividends
We paid no cash dividends on our common stock in 2018 or 2017,2020, and we do not expect to pay dividends on our common stock for the foreseeable future. The agreements governing our indebtedness restrict our ability to pay dividends. See Item 7, "Management Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources — Dividends," in this Report.


Recent Performance


The following graph compares the cumulative total stockholder return on Herc Holdings common stock from July 1, 2016, the first day of trading for our stock on the NYSE, through December 31, 2018,2020, with the cumulative total returns of the Standard & Poor's Small Cap 600 Index and an industry peer group. The industry peer group is comprised of publicly traded companies participating in the equipment rental industry and other relevant companies of comparable size in the broader industry in which we compete. Our industry peer group is comprised of Aggreko plc, Applied Industrial Tech Inc., Ashstead Group plc, Beacon Roofing Supply, Inc., Fastenal Company, GATX Corp., H&E Equipment Services, KAR Auction Services Inc., McGrath RentCorp, Mobile Mini, Inc., NOW Inc., Pool Corp., Ritchie Bros. Auctioneers Incorporated, Triton International Ltd., Watsco Inc., WillScot Mobile Mini Holdings Corp. and United Rentals, Inc. Mobile Mini, Inc. was previously included in our peer group, and, upon its merger with WillScot Corporation in 2020, the combined company is now included in our peer group.

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ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES (Continued)




The graph assumes that $100 was invested on July 1, 2016 over the indicated time periods and assumes reinvestment of all dividends, if any, paid on the securities. We have not paid any cash dividends and, therefore, the cumulative total return calculation for Herc Holdings is based solely upon stock price appreciation. The stock price performance shown on the graph is not necessarily indicative of future price performance.
graph.jpg




hri-20201231_g1.jpg
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ITEM 6. SELECTED FINANCIAL DATA


The following tables present selected consolidated financial information and are not necessarily indicative of results of future operations. Additionally, the historical financial information of the Company presented below for periods prior to the Spin-Off is not necessarily indicative of what the Company's financial position or results of operations actually would have been had it operated as a separate, independent company for such periods. The information presented should be read in conjunction with Item 7, "Management’s Discussion and Analysis of Financial Condition and Results of Operations" and the consolidated financial statements and related notes thereto included in this Report in Item 8, "Financial Statements and Supplementary Data," to fully understand factors that may affect the comparability of the information presented below. The selected consolidated financial data in this section is not intended to replace the consolidated financial statements.
Years ended December 31,
(In millions, except per share data)20202019201820172016
Statement of Operations Data
Total revenues$1,781.3 $1,999.0 $1,976.7 $1,754.5 $1,554.8 
Total expenses(a)
1,687.2 1,935.4 1,907.9 1,818.9 1,559.7 
Income (loss) before income taxes94.1 63.6 68.8 (64.4)(4.9)
Income tax benefit (provision)(b)
(20.4)(16.1)0.3 224.7 (14.8)
Net income (loss)$73.7 $47.5 $69.1 $160.3 $(19.7)
Earnings (loss) per share:
Basic$2.53 $1.66 $2.43 $5.66 $(0.70)
Diluted$2.51 $1.63 $2.39 $5.60 $(0.70)
As of December 31,
(In millions)20202019201820172016
Balance Sheet Data
Cash and cash equivalents$33.0 $33.0 $27.8 $41.5 $24.0 
Total assets3,588.4 3,817.0 3,610.2 3,549.7 3,466.0 
Total debt1,663.7 2,078.5 2,156.8 2,159.8 2,194.3 
Total equity(c)
742.0 644.3 572.7 510.4 317.7 
(a)    Total expenses were impacted by long-lived asset impairments in 2020, 2019 and 2017 of $15.4 million, $5.1 million and $29.7 million, respectively and losses on extinguishment of debt in 2019, 2018 and 2017 of $53.6 million, $5.4 million, and $11.4 million respectively.
(b)    Income tax benefit in 2018 and 2017 includes a net benefit of $20.8 million and $207.1 million, respectively, resulting from the Tax Cuts and Jobs Act of 2017.
(c)    Total equity as of December 31, 2016 was impacted by $2.0 billion of distributions and transfers to THC related to the Spin-Off.
23
 Years ended December 31,
(In millions, except per share data)2018 2017 2016 2015 2014
Statement of Operations Data         
Total revenues$1,976.7
 $1,754.5
 $1,554.8
 $1,678.2
 $1,770.4
Total expenses(a)
1,907.9
 1,818.9
 1,559.7
 1,521.3
 1,625.9
Income (loss) before income taxes68.8
 (64.4) (4.9) 156.9
 144.5
Income tax benefit (provision)(b)
0.3
 224.7
 (14.8) (45.6) (54.8)
Net income (loss)$69.1
 $160.3
 $(19.7) $111.3
 $89.7
Earnings (loss) per share:         
Basic$2.43
 $5.66
 $(0.70) $3.69
 $3.00
Diluted$2.39
 $5.60
 $(0.70) $3.69
 $2.87
 As of December 31,
(In millions)2018 2017 2016 2015 2014
Balance Sheet Data         
Cash and cash equivalents(c)
$27.8
 $41.5
 $24.0
 $24.7
 $28.0
Total assets3,610.2
 3,549.7
 3,466.0
 3,397.0
 3,599.7
Total debt(d)
2,156.8
 2,159.8
 2,194.3
 136.7
 866.1
Total equity(e)
572.7
 510.4
 317.7
 2,302.0
 1,693.7
(a)Total expenses were impacted by long-lived asset impairments in 2017 and 2014 of $29.7 million and $9.6 million, respectively, losses on extinguishment of debt in 2018, 2017 and 2014 of $5.4 million, $11.4 million and, $0.8 million, respectively, and the gain on the sale of our operations in France and Spain in 2015 of $50.9 million.
(b)Income tax benefit in 2018 and 2017 includes $20.8 million and $207.1 million, respectively, net benefit resulting from the Tax Cuts and Jobs Act of 2017.
(c)Includes the correction of an error which increased the amount by $12.4 million, $9.0 million and $9.1 million as of December 31, 2016, 2015 and 2014, respectively. See Note 2, "Basis of Presentation and Recently Issued Accounting Pronouncements" to the notes to our consolidated financial statements included in Part II, Item 8 of this Report.
(d)Includes net loans payable to affiliates as of December 31, 2015 and 2014 of $73.2 million and $449.0 million, respectively.
(e)Total equity as of December 31, 2016 was impacted by $2.0 billion of distributions and transfers to THC related to the Spin-Off.

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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS


Management’s discussion and analysis of financial condition and results of operations ("MD&A") should be read in conjunction with the consolidated financial statements and accompanying notes included in Item 8 of this Report, which include additional information about our accounting policies, practices and the transactions underlying our financial results. The preparation of our consolidated financial statements in conformity with accounting principles generally accepted in the United States of America ("U.S. GAAP") requires us to make estimates and assumptions that affect the reported amounts in our consolidated financial statements and the accompanying notes including receivables allowances, depreciation of rental equipment, the recoverability of long-lived assets, useful lives and impairment of long-lived tangible and intangible assets including goodwill and trade name, pension and postretirement benefits, valuation of stock-based compensation, reserves for litigation and other contingencies, accounting for income taxes and other matters arising during the normal course of business. We apply our best judgment, our knowledge of existing facts and circumstances and our knowledge of actions that we may undertake in the future in determining the estimates that will affect our consolidated financial statements. We evaluate our estimates on an ongoing basis using our historical experience, as well as other factors we believe appropriate under the circumstances, such as current economic conditions, and adjust or revise our estimates as circumstances change. As future events and their effects cannot be determined with precision, actual results may differ from these estimates.

THE SPIN-OFF

On June 30, 2016, the Company, in its previous form as the holding company of both the existing equipment rental operations as well as the former vehicle rental operations (in its form prior to the Spin-Off, "Hertz Holdings"), completed a spin-off (the "Spin-Off") of its global vehicle rental business through a dividend to stockholders of all of the issued and outstanding common stock of Hertz Rental Car Holding Company, Inc., which was re-named Hertz Global Holdings, Inc. ("New Hertz") in connection with the Spin-Off. New Hertz is an independent public company that trades on the New York Stock Exchange under the symbol "HTZ" and continues to operate its global vehicle rental business through its operating subsidiaries including The Hertz Corporation ("THC"). The Company changed its name to Herc Holdings Inc. on June 30, 2016, and trades on the New York Stock Exchange under the symbol “HRI.”

On June 30, 2016, the Company effected a 1-for-15 reverse stock split. The reverse stock split reduced the number of authorized shares of common stock and preferred stock to 133.3 million and 13.3 million, respectively. All share data and per share amounts have been retroactively adjusted for the reverse stock split in the accompanying consolidated financial statements and notes thereto for the year ended December 31, 2016.

For accounting purposes, due to the relative significance of New Hertz to Hertz Holdings, New Hertz was considered the spinnor or divesting entity in the Spin-Off and Herc Holdings was considered the spinnee or divested entity. As a result, despite the legal form of the transaction, New Hertz was the “accounting successor” to Hertz Holdings. Under the accounting rules, the historical financial information of New Hertz is required to reflect the financial information of Hertz Holdings, as if New Hertz spun off Herc Holdings in the Spin-Off. In contrast, the historical financial information of Herc Holdings, including certain information presented in this Report, reflects the financial information of the equipment rental business and certain parent legal entities of Herc as historically operated as part of Hertz Holdings, as if Herc Holdings was a stand-alone company for all periods presented. The historical financial information of the Company presented in the following MD&A for the period prior to the Spin-Off is not necessarily indicative of what the Company's financial position or results of operations actually would have been had it operated as a separate, independent company for the period presented.


OVERVIEW OF OUR BUSINESS AND OPERATING ENVIRONMENT


We are engaged principally in the business of renting equipment. Ancillary to our principal business of equipment rental, we also sell used rental equipment, sell new equipment and consumables and offer certain services and support to our customers. Our profitability is dependent upon a number of factors including the volume, mix and pricing of rental transactions and the utilization of equipment. Significant changes in the purchase price or residual values of equipment or interest rates can have a significant effect on our profitability depending on our ability to adjust pricing for these changes. Our business requires significant expenditures for equipment, and consequently we require substantial liquidity to finance such expenditures. See "Liquidity and Capital Resources" below.


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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)



Our revenues are primarily derived from rental and related charges and consist of:


Equipment rental (includes all revenue associated with the rental of equipment including ancillary revenue from delivery, rental protection programs and fueling charges);
Sales of rental equipment and sales of new equipment, parts and supplies; and
Service and other revenue (primarily relating to training and labor provided to customers).


Our expenses primarily consist of:


Direct operating expenses (primarily wages and related benefits, facility costs and other costs relating to the operation and rental of rental equipment, such as delivery, maintenance and fuel costs);
Cost of sales of rental equipment, new equipment, parts and supplies;
Depreciation expense relating to rental equipment;
Selling, general and administrative expenses; and
Interest expense.

2018 Financial Overview

An overview of our business and financial performance in 2018 and key factors influencing our results include:

Equipment rental revenue increased $159.3 million, or 10.6%, during the year ended December 31, 2018 when compared with 2017. The increase was attributable to a higher level of rental equipment on rent resulting from higher demand from existing customers, diversifying and growing our customer base and improving our product mix, including through increases in our ProSolutionsTM and ProContractorproduct offerings. Additionally, pricing increased by 2.9% during the year ended December 31, 2018 as compared to 2017.

In July 2018, we drew down on our asset-based revolving credit facility (the "ABL Credit Facility") and redeemed $61.0 million in aggregate principal amount of the 2022 Notes and $62.5 million in aggregate principal amount of the 2024 Notes and recorded a $5.4 million loss on the early extinguishment of debt, comprised of a 3% cash premium totaling $3.7 million and a non-cash charge of $1.7 million for the write-off of unamortized debt issuance costs. The loss on early extinguishment of debt is included in "Interest expense, net" in our consolidated statement of operations.

In September 2018, the Company entered into an accounts receivable securitization facility (the "AR Facility") with aggregate commitments of $175 million that matures in September 2020.

Income tax benefit for the year ended December 31, 2018, includes $20.8 million net benefit resulting from the completion of the analysis of Tax Cuts and Jobs Act of 2017.



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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)




RESULTS OF OPERATIONS2020 Overview

 Year Ended December 31, 2018 vs. 2017 2017 vs. 2016
($ in millions)2018 2017 2016 $ Change % Change $ Change % Change
Equipment rental$1,658.3
 $1,499.0
 $1,352.7
 $159.3
 10.6 % $146.3
 10.8 %
Sales of rental equipment256.2
 190.8
 122.5
 65.4
 34.3
 68.3
 55.8
Sales of new equipment, parts and supplies49.3
 52.3
 68.2
 (3.0) (5.7) (15.9) (23.3)
Service and other revenue12.9
 12.4
 11.4
 0.5
 4.0
 1.0
 8.8
Total revenues1,976.7
 1,754.5
 1,554.8
 222.2
 12.7
 199.7
 12.8
Direct operating788.9
 719.8
 655.9
 69.1
 9.6
 63.9
 9.7
Depreciation of rental equipment387.5
 378.9
 350.5
 8.6
 2.3
 28.4
 8.1
Cost of sales of rental equipment244.3
 192.0
 144.0
 52.3
 27.2
 48.0
 33.3
Cost of sales of new equipment, parts and supplies37.7
 39.5
 53.0
 (1.8) (4.6) (13.5) (25.5)
Selling, general and administrative312.6
 320.2
 275.3
 (7.6) (2.4) 44.9
 16.3
Impairment0.1
 29.7
 
 (29.6) (99.7) 29.7
 NM
Interest expense, net137.0
 140.0
 84.2
 (3.0) (2.1) 55.8
 66.3
Other income, net(0.2) (1.2) (3.2) 1.0
 (83.3) 2.0
 (62.5)
Income (loss) before income taxes68.8
 (64.4) (4.9) 133.2
 206.8
 (59.5) NM
Income tax benefit (provision)0.3
 224.7
 (14.8) (224.4) (99.9) 239.5
 NM
Net income (loss)$69.1
 $160.3
 $(19.7) $(91.2) (56.9)% $180.0
 NM
Our results for 2020 reflect the challenges our business faced with the COVID-19 pandemic, and while our business was deemed essential and was allowed to remain open, many industries in which our customers operate were required to temporarily close their facilities or delay or cancel projects and events. Our customer and fleet diversification strategy helped to offset the reduction in volume we experienced in certain parts of the business, with the stability of our national accounts business helping to offset the declines in local customer revenue. We were also able to maintain positive pricing during 2020, increasing 0.1%, despite the decline in volume resulting from the COVID-19 related business shutdowns. As a result, equipment rental revenues declined 9.3% to $1.54 billion in 2020 compared to $1.70 billion in 2019.


NM - Not MeaningfulDespite this challenging time, we continued our focus on quality of earnings through the execution of company-wide initiatives to increase our operating margins and profitability. We reduced our capital spending in the short-term and, where possible, reduced operating expenses while ensuring ongoing safe and reliable operations. Many cost saving initiatives that were implemented in 2019 also contributed to a reduction in operating expenses during 2020 resulting in an increase in net income to $73.7 million from $47.5 million in 2019.


Year EndedAdditionally, during 2020, we completed our first multi-location acquisition since we became an independent, publicly traded company in 2016. This acquisition supports our long-term strategy to achieve greater density and scale in select urban markets across North America to better serve both our local and national customers.

Impacts of COVID-19

In December 31, 2018 Compared with Year Ended December 31, 20172019, a novel strain of coronavirus (COVID-19) was identified in China and has since spread globally. In March 2020, the World Health Organization characterized COVID-19 as a pandemic. Efforts to contain the spread of COVID-19 intensified in March 2020 when most states in the United States and provinces in Canada enacted shelter in place orders, declared states of emergency, took steps to restrict travel, enacted temporary closures of non-essential businesses and took other restrictive measures in response to the COVID-19 pandemic. These business shutdowns and restrictions have had significant negative economic impacts and, as discussed above, we have experienced year-over-year declines in volume of fleet on rent which has resulted in lower equipment rental revenue.


Equipment rental revenue increased $159.3 million, or 10.6%, duringWe have begun to see economic recovery within our industry and our business throughout the year ended December 31, 2018 when compared with 2017. The increase was attributablesince the second quarter of 2020 and we expect to a higher level of equipment on rent resulting from higher demand from existing customers, diversifyingposition ourselves for growth in 2021 by opening greenfield locations and growing our customer base and improving our product mix, including through increasesadding select fleet in our ProSolutionsTM and ProContractorproduct offerings. Additionally, pricing increased by 2.9% duringhigh growth regions. Despite the year ended December 31, 2018 when compared to 2017.

Sales of rental equipment increased $65.4 million, or 34.3%, duringrecovery we are seeing, the year ended December 31, 2018 when compared with 2017 as we increased the volume of sales to improve the equipment mix and reduce fleet age. The corresponding cost of sales of rental equipment as a percentageimpact of the related revenue was 95.4% duringCOVID-19 pandemic continues to evolve and the year ended December 31, 2018 compared to 100.6%recovery could be slowed or reversed by a number of factors, including a widespread resurgence in 2017. The improvement in margin was due to improved pricing based on a strong market for used rental equipment.

Sales of new equipment, parts and supplies decreased $3.0 million, or 5.7%, during the year ended December 31, 2018 when compared with 2017 driven by our overall reduction of new equipment sales programs. The cost of sales of new equipment, parts and supplies as a percentage of the related revenue was 76.5% during the year ended December 31, 2018 compared to 75.5% in 2017. The increase wasCOVID-19 infections, whether due to the mixspread of any variants of the new equipment sold.virus or otherwise, and the rate in which state and local governments are re-opening businesses or, in certain jurisdictions, reversing re-opening decisions. Therefore, we cannot predict the extent to which our financial condition, results of operations or cash flows will ultimately be impacted.


Direct operating expenses increased $69.1 million, or 9.6%, duringWe remain focused on the year ended December 31, 2018 when compared with 2017 primarily duesafety and well-being of our employees, customers and communities as we maintain a high-level of service to our customers. We continue to communicate frequently throughout the following:

Fleetorganization to reinforce our health and related expenses increased $26.8 million primarily assafety guidelines, based on the Center for Disease Control recommendations. Within our operations, a resultnumber of higher delivery and freight expense of $9.2 million mainly dueadjustments have been made to an increase in deliveries associated with higher rental volume, partially offset by better management of transportation costs through the roll-out of a third-party logistics program during 2018. Equipment re-rent expense increased $6.3 million to supplementminimize physical interactions. These include utilizing our fleetinformation technology platforms to accommodate additionalas many employees as possible to work remotely from their homes. At the operations level, we have implemented new policies to expand the washing of equipment and sanitization of high-touch areas such as dashboards and steering wheels. We have reduced access to our customer demand. Fuel expense increased by $5.8 million driven by higher fuel pricesshowrooms and sales volumehave implemented curb-side pick-up and insurance expense increased $3.3 million duedrop-off of equipment at our branches. We are supplying personal protective equipment for those employees who interact with customers and are employing remediation companies to certain claims during 2018.assist in cleaning branches where necessary.







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RESULTS OF OPERATIONS
Personnel-related expenses increased $31.0 million as a result of continued investment in branch management to drive operational improvements and investments in branch operating personnel to support continued
Year Ended December 31,
($ in millions)20202019$ Change% Change
Equipment rental$1,543.7 $1,701.8 $(158.1)(9.3)%
Sales of rental equipment198.5 242.8 (44.3)(18.2)
Sales of new equipment, parts and supplies28.2 44.0 (15.8)(35.9)
Service and other revenue10.9 10.4 0.5 4.8 
Total revenues1,781.3 1,999.0 (217.7)(10.9)
Direct operating689.2 771.1 (81.9)(10.6)
Depreciation of rental equipment403.9 409.1 (5.2)(1.3)
Cost of sales of rental equipment203.6 243.2 (39.6)(16.3)
Cost of sales of new equipment, parts and supplies20.5 33.3 (12.8)(38.4)
Selling, general and administrative257.4 294.8 (37.4)(12.7)
Restructuring0.7 7.7 (7.0)(90.9)
Impairment15.4 5.1 10.3 NM
Interest expense, net92.6 173.5 (80.9)(46.6)
Other income, net3.9 (2.4)6.3 NM
Income before income taxes94.1 63.6 30.5 48.0 
Income tax provision(20.4)(16.1)(4.3)26.7 
Net income$73.7 $47.5 $26.2 55.2 %
NM - Not Meaningful

Year Ended December 31, 2020 Compared with Year Ended December 31, 2019

Equipment rental revenue growth.

Other direct operating costs increased $11.3 million primarily due to increased depreciation and amortization of $5.0 million primarily related to an increase in service vehicles and an increase in facilities expense of $3.5 million. Additionally, restructuring expense increased by $2.9 million due to the closure of several branches during 2018, primarily in Canada.
Depreciation of rental equipment increased $8.6decreased $158.1 million, or 2.3%9.3%, during the year ended December 31, 20182020 when compared with 2017.2019. The increasedecrease was dueprimarily attributable to a larger fleet size duringlower volume of equipment on rent (including delivery and other ancillary revenues) primarily related to the year ended December 31, 2018 when compared with 2017. The increase was partially offset by additional depreciation recognized during the year ended December 31, 2017, based on the reduction in residual values and the planned holding periodongoing economic impacts of certain classesCOVID-19. Re-rent revenues decreased $22.2 million as we continue to strategically reduce re-rent volume.

Sales of assets, that did not recur during 2018.

Selling, general and administrative expensesrental equipment decreased $7.6$44.3 million, or 2.4%18.2%, during the year ended December 31, 20182020 when compared with 2017. The decrease2019. At the onset of the COVID-19 pandemic in early 2020, our primary focus was primarilyto manage fleet size and mix given the anticipated declines in demand due to a decrease in Spin-Off related costs and professional feesthe uncertainty of $27.7 million partially offset by a $17.3 million increase in variable compensation related to commissions and incentives to drive revenue growth.

Impairment charges of $29.7 millionthe economic impact resulting from COVID-19 business shutdowns. Rental equipment capital expenditures throughout the industry were recorded duringcut significantly from earlier expectations for the year, ended December 31, 2017. The impairments related to the write-offimpacting used equipment prices and our planned sales of intangible assets previously capitalized as part of the development of new financial and point of sale systems of $25.3 million and the impairment of certain rental equipment of $4.4 million that was deemed held for sale at December 31, 2017.

Interest expense, net decreased $3.0 million, or 2.1%, during the year ended December 31, 2018 when compared with 2017 primarily due toolder fleet. These actions resulted in a reduction in interest expense on the Notes of $14.0 million resulting from lower average outstanding balances from the redemptions made in March and October 2017 and July 2018. Additionally, the loss on early extinguishment of debt on the redemption of the Notes was $5.4 million in 2018 compared to $11.4 million in 2017. Offsetting these decreases was an increase in interest expense on the ABL Credit Facility of $12.8 million based on higher average outstanding borrowings and a higher average interest rate during the year ended December 31, 2018 compared to 2017 and an increase of $5.5 million related to interest expense on our financing obligations that were establisheddecline in the fourth quartervolume of 2017.

Income tax benefit was $0.3 million during the year ended December 31, 2018 compared to $224.7 million in the prior-year period. The reduction in income tax benefit in 2018 was primarily driven by the increase in pre-tax income to $68.8 million, which was offset by an overall net benefit related to the Tax Cuts and Jobs Act of 2017 (the "2017 Tax Act") of $20.8 million. The income tax benefit during the year ended December 31, 2017 was primarily driven by an estimated $207.1 million net benefit related to the 2017 Tax Act and apre-tax loss of $64.4 million.

Year Ended December 31, 2017 Compared with Year Ended December 31, 2016
Equipment rental revenue increased $146.3 million, or 10.8%, during the year ended December 31, 2017 when compared with 2016. The increase was attributable to a higher levelsales of rental equipment on rent resulting from higher demand from existing customers as well as diversifying and growing our customer base, including through increases in our ProSolutionsTM and ProContractorproduct offerings. Additionally, pricing increased by 1.9% duringfor the year ended December 31, 2017 as compared to 2016.

Salesmajority of rental equipment increased $68.3 million, or 55.8%, during the year ended December 31, 2017 when compared to 2016. During 2017, the level of rental equipment sold increased as part of our strategy to shift the mix of our fleet as well as higher sales due to the rotation of rental equipment based on normal holding periods.year. The corresponding cost of sales of rental equipment as a percentage of the related revenue was 100.6% in 2017102.6% during 2020 compared to 117.6%100.2% in 2016. Losses on the sale of rental equipment decreasedprior-year period. The decrease in 2017 as the volume of sales made through the lower-margin auction channel was reduced and shifted toward the wholesale channel. The lossmargin on sale of rental equipment in 2016during 2020 was primarily due to the higher level of sales through the auction channel of equipment usedoverall reductions in the upstream oil and gas markets andpricing of used rental equipment manufactured by certain suppliers as we reducedin the number of brands of equipment we carry in our fleet.market.


Sales of new equipment, parts and suppliesDirect operating expenses decreased $15.9$81.9 million, or 23.3%10.6%, during the year ended December 31, 20172020 when compared with 2016. This2019 primarily due to the following:

Fleet and related expenses decreased $58.1 million as a result of (i) a decrease in delivery and freight expenses of $22.2 million due to the decrease in deliveries as a result of reduced volume of equipment on rent and better management of transportation costs; (ii) a decrease in re-rent expense of $21.0 million due to the decrease in re-rent revenue; (iii) a decrease in maintenance expense of $14.3 million as more rental equipment was driven by our implementationless utilized during 2020 and more maintenance was performed internally; and (iv) a decrease in fuel expense of changes$5.5 million due to de-emphasize newthe decrease in volume of equipment sales programs.on rent and a decrease in the price of fuel.


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Personnel-related expenses decreased $23.6 million primarily due to a reduction in wages related to furloughs implemented during the second quarter of 2020 and our initiative to limit overtime expense in response to reduced transaction volume due to COVID-19.
The cost of sales of new equipment, parts
Selling, general and supplies as a percentage ofadministrative expenses decreased $37.4 million, or 12.7%, during the related revenue was 75.5% for the year ended December 31, 20172020 compared to 77.7% for 2016.with 2019. The decreasedecline was due to the mix of the new equipment sold.

Direct operating expenses increased $63.9 million, or 9.7%, during the year ended December 31, 2017 when compared to 2016 primarily due to decreases in selling expense of $10.4 million, travel expense of $8.4 million, professional fees of $2.7 million and commissions and incentives of $2.2 million due to cost containment measures related to the following:reduced transaction volume associated with COVID-19 business shutdowns. Additionally, credit and collections expense decreased $7.7 million during 2020 due to continued improvements in collections.


FleetRestructuring expense was $0.7 million during 2020 related to personnel reductions in the second quarter and additional costs related expenses increased $38.3to a prior restructuring plan. Restructuring expense was $7.7 million primarilyduring 2019 as a result of higher deliveryour plan of restructuring in Canada which included right-of-use assets and freightrelated leasehold improvement impairment of $5.5 million and severance charges of $2.2 million.

Impairment expense was $15.4 million during 2020 and consisted of $17.6$6.3 million mainly duerelated to the partial impairment of a long-term receivable related to the sale of our former joint venture, $4.8 million related to certain rental equipment, $1.7 million related to an increaseROU asset impairment charge for two locations closed in deliveries associated with higher equipment rental revenue. Equipment re-rent expense increased $7.3 million to supplement our fleet due to additional customer demand. Fuel expense increased by $6.2 million driven by higher gas prices and sales volume during the year ended December 31, 2017 as compared to 2016. Additionally, maintenance expense increased by $5.9 million in an effort to reduce our fleet unavailable for rent.

Personnel-related expenses increased $21.9 million2019 as a result of an increasereduced sublease assumptions due to economic conditions surrounding those locations, $1.5 million related to certain assets that were sold during 2020 and $1.1 million related to a financial reporting and consolidation system that was replaced during the fourth quarter of 2020.

Interest expense, net decreased $80.9 million, or 46.6%, during 2020 when compared with the same period in salary2019. Interest expense of $17.6 million primarily associated with continued investmentwas higher in branch management to drive operational improvements and investments in branch operating personnel to support revenue growth. Additionally, there was an increase in benefits expense of $4.6 millionthe prior year primarily due to higher healthcare insurance costs as a stand-alone company.

Other direct operating costs increased $3.7loss on extinguishment of debt of $53.6 million primarily due to increased depreciation of $7.0 millionincluded in 2019 related to the increase in service vehicles. These increases were partially offset by a decrease in restructuringextinguishment of the senior secured second priority notes due 2022 and 2024. Interest expense of $5.7 million resulting from charges taken for several location closureswas also lower during 2016 and 2015.

Depreciation of rental equipment increased $28.4 million, or 8.1%, during the year ended December 31, 2017 when compared with 2016. The increase was2020 due to a larger fleet size duringlower interest rates on the year ended December 31, 20172027 Notes and lower average outstanding balances and interest rates on the ABL Credit Facility as compared to the same period in 2016 and an increase of $18.0 million due to the impact of the 2016 reduction in residual values and the planned holding period of certain classes of equipment.2019.


Selling, general and administrative expenses increased $44.9 million, or 16.3%, during the year ended December 31, 2017 compared to 2016. The increase is primarily due to higher stand-alone public company costs and information technology costs related to the Spin-Off of $19.8 million, a $14.8 million increase for additional sales personnel and related commissions to drive revenue growth, and an $8.5 million increase inIncome tax provision for bad debt attributable to higher revenue and levels of receivables.

Impairment charges of $29.7 million were recorded during the year ended December 31, 2017. The impairments related to the write-off of intangible assets previously capitalized as part of the development of new financial and point of sale systems of $25.3 million and the impairment of certain rental equipment of $4.4 million that was deemed held for sale at December 31, 2017. See Note 7, "Impairment" to the notes to our consolidated financial statements for further information.

Interest expense, net increased $55.8 million, or 66.3%, during the year ended December 31, 2017 compared to the prior-year period due to interest incurred on the Notes issued in June 2016, an $11.4 million loss on the early extinguishment of a portion of the Notes, and borrowings under the ABL Credit Facility. The increases were partially offset by decreases in interest on the predecessor asset-based revolving credit facility (the "Predecessor ABL Facility") and loans from THC and its affiliates, which were settled as part of the Spin-Off in June 2016.

Other income was $2.0$20.4 million during 2020 when compared with $16.1 million for the year ended December 31, 2017, primarily comprised of earnings from our joint ventures and proceeds received from insurance. Other income was $3.2 million same period in 2019. The provision during the year ended December 31, 2016, primarily comprised of earnings from our joint ventures.

Income tax benefit was $224.7 million during the year ended December 31, 2017 compared to an income tax provision of $14.8 million in 2016. The income tax benefit during the year ended December 31, 20172020 was primarily driven by an estimated $207.1 million net benefit related to the enactmentlevel of the 2017 Tax Actpre-tax income, non-deductible expenses, stock-based compensation, valuation allowances recorded on losses generated by certain foreign loss jurisdictions andpre-tax losses. Income income tax expense in 2016 included $11.2 million of state taxes, primarily due to the Spin-Off, and $3.2 million of non-deductible items and transaction costs related to the Spin-Off.audit adjustments.



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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)


LIQUIDITY AND CAPITAL RESOURCES


Our primary liquidity needs include the payment of operating expenses, purchases of rental equipment to be used in our operations and servicing of debt. Our primary sources of funding are operating cash flows, cash received from the disposal of equipment and borrowings under our debt arrangements. As of December 31, 2018,2020, we had approximately $2.2$1.7 billion of total nominal indebtedness outstanding. We are highly leveraged and aA 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.


Our liquidity as of December 31, 20182020 consisted of cash and cash equivalents of $33.0 million and unused commitments of $1.4 billion under our ABL Credit Facility. See "Borrowing Capacity and Availability" below.below for further discussion. Our practice is to maintain sufficient liquidity through cash from operations, our ABL Credit Facility and our AR Facility to mitigate the impacts of any adverse financial market conditions on our operations. WeBased on the impacts of COVID-19, we reduced our net rental equipment expenditures in 2020 significantly to effectively manage our fleet and liquidity. Notwithstanding the COVID-19 pandemic, we believe that cash generated from operations and cash received from the disposal of equipment, together with amounts available under the ABL Credit Facility and the AR Facility or other financing arrangements will be adequate to permit ussufficient to meet our obligationsworking capital requirements and anticipated reduced capital expenditures, and other strategic uses of cash, if any, and debt payments, if any, over the next twelve months.


Cash Flows


Significant factors driving our liquidity position include cash flows generated from operating activities and capital expenditures. Historically, we have generated and expect to continue to generate positive cash flow from operations. Our ability to fund our capital needs will be affected by our ongoing ability to generate cash from operations and access to capital markets.


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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)


The following table summarizes the change in cash and cash equivalents for the periods shown (in millions):
 Years Ended December 31,
20202019$ Change
Cash provided by (used in):
Operating activities$610.9 $635.6 $(24.7)
Investing activities(207.5)(463.6)256.1 
Financing activities(406.0)(167.1)(238.9)
Effect of exchange rate changes2.6 0.3 2.3 
Net change in cash and cash equivalents$— $5.2 $(5.2)
 Years Ended December 31, 2018 vs. 2017 2017 vs. 2016
 2018 2017 2016 $ Change $ Change
Cash provided by (used in):         
Operating activities$559.1
 $349.1
 $433.4
 $210.0
 $(84.3)
Investing activities(567.0) (410.0) (395.0) (157.0) (15.0)
Financing activities(4.2) 70.1
 (38.7) (74.3) 108.8
Effect of exchange rate changes(1.6) 1.3
 (0.4) (2.9) 1.7
Net change in cash and cash equivalents$(13.7) $10.5
 $(0.7) $(24.2) $11.2


Year Ended December 31, 20182020 Compared with Year Ended December 31, 20172019


Operating Activities


During the year ended December 31, 2018,2020, we generated $210.0$24.7 million moreless cash from operating activities compared with 2017.the same period in 2019. The increasedecrease was primarily related to higher pre-tax incometiming of payments on accounts payable and other liabilities, partially offset by improved collections on accounts receivable during the year ended December 31, 2018 as compared 2017, primarily resulting from higher revenues and lower professional fees and other Spin-Off related costs and the timing of collections of accounts receivable based on increased collection efforts, during the year ended December 31, 20182020 as compared to 2017.the same period in 2019.


Investing Activities


Cash used in investing activities increased $157.0decreased $256.1 million forduring the year ended December 31, 2018 as2020 when compared to 2017.with the prior-year period. Our primary use of cash in investing activities is for the acquisition of rental equipment and non-rental capital expenditures. Weexpenditures, which we reduced during 2020 due to the impacts of the COVID-19 pandemic. Generally, we rotate our equipment and manage our fleet of rental equipment in line with customer demand and continue to invest in our information technology, service vehicles and facilities. Changes in our net capital expenditures are described in more detail in the "Capital Expenditures" section below.



Financing Activities

Cash used in financing activities increased $238.9 million during 2020 when compared with the prior-year period. Cash used in financing activities during 2020 primarily represents our changes in debt, which included net repayments of $396.7 million on our revolving lines of credit and securitization during 2020. Net repayments in the prior year period were $434.8 million, which were offset by net proceeds from the refinancing of our long-term debt of $335.5 million.

In order to reduce future cash interest payments, as well as future amounts due at maturity or upon redemption, we may from time to time repurchase our debt, including our notes, bonds, loans or other indebtedness, in privately negotiated, open market or other transactions and upon such terms and at such prices as we may determine. We will evaluate any such transactions in light of then-existing market conditions, taking into account our current liquidity and prospects for future access to capital.  The repurchases may be material and could relate to a substantial proportion of a particular class or series, which could reduce the trading liquidity of such class or series.

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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)



Financing Activities

Cash used in financing activities was $4.2 million for the year ended December 31, 2018 as compared to cash provided of $70.1 million for 2017. Cash flows used in financing activities during the year ended December 31, 2018 primarily represents our changes in debt, which included the net proceeds of $133.5 million on our revolving lines of credit and securitization, offset by the redemption of $123.5 million of our Notes and $17.0 million of payments on capital leases and financing obligations. Cash provided by financing activities for the year ended December 31, 2017 included the net draw down of $222.7 million on our ABL Credit Facility and AR Facility and proceeds of $119.5 million received from financing obligations, partially offset by the redemption of $247.0 million of our Notes.

Year Ended December 31, 2017 Compared with Year Ended December 31, 2016

Operating Activities

During the year ended December 31, 2017, cash provided by operating activities decreased $84.3 million compared to 2016. The decrease was primarily related to a $61.0 million increase in interest payments as well as lower operating income resulting from higher information technology and other stand-alone public company costs, as well as the timing of collections of accounts receivable and payments of liabilities during the year ended December 31, 2017 as compared to 2016.

Investing Activities

Cash used in investing activities increased $15.0 million during the year ended December 31, 2017 as compared to 2016. Our primary use of cash in investing activities is for the acquisition of rental equipment and non-rental capital expenditures, which increased primarily due to investments in our information technology, service vehicles and facilities, and was partially offset by a decrease in our investments in rental equipment. We renew our equipment and manage our fleet of rental equipment in line with customer demand. Changes in our net capital expenditures are described in more detail in the "Capital Expenditures" section below.

Financing Activities

Cash flows from financing activities increased $108.8 million during the year ended December 31, 2017 as compared to 2016. Cash flows from financing activities during the year ended December 31, 2017 primarily represents our changes in debt, which included the net draw down of $222.7 million on our revolving lines of credit and proceeds of $119.5 million received from financing obligations, partially offset by the redemption of $247.0 million of our Notes. Cash used in financing activities in 2016 mainly related to $2.1 billion of financing and transfer activities with Hertz Holdings, which primarily funded our operations prior to the Spin-Off and was settled using total proceeds of $2.1 billion, net of issuance costs, from our Notes and ABL Credit Facility.


Capital Expenditures


Our capital expenditures relate largely to purchases of rental equipment, with the remaining portion representing purchases of property, equipment and information technology. The table below sets forth the capital expenditures related to our rental equipment and related disposals for the periods noted (in millions).

Years Ended December 31,
20202019
Rental equipment expenditures$344.1 $638.4 
Disposals of rental equipment(192.5)(224.2)
Net rental equipment expenditures$151.6 $414.2 

 Years Ended December 31,
 2018 2017 2016
Rental equipment expenditures$771.4
 $501.4
 $468.3
Disposals of rental equipment(272.3) (160.1) (115.4)
Net rental equipment expenditures$499.1
 $341.3
 $352.9

Net capital expenditures for rental equipment increased $157.8decreased $262.6 million during the year ended December 31, 20182020 compared to 2017. During 2018,2019. During 2020, we purchased morereduced rental equipment expenditures and disposals to increase the amount of equipment available for rent based on higher demand from our customers, with increased purchases in our ProSolutionsTM and ProContractor equipment. We also sold more rental equipment to improve the equipment mix and reduce fleet age.

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Net capital expenditures for rental equipment decreased $11.6 million during the year ended December 31, 2017 compared to 2016. During 2017, we purchased more rental equipment as part ofeffectively manage our fleet mix transformation outand liquidity in light of large earthmoving equipment and into more compact earthmoving, ProSolutionsTM and ProContractor equipment. Our disposals also increased in 2017 due to a shift in the mix and rotation of our fleet.

uncertainty surrounding the COVID-19 pandemic.
In 2019,2021, we expect our net rental equipment capital expenditures to be in the range of $370.0$400 million to $410.0$450 million.

Borrowing Capacity and Availability


Our ABL Credit Facility and AR Facility (together, the "Facilities") provide our borrowing capacity and availability. Creditors under the Facilities have a claim on specific pools of assets as collateral as identified in each credit agreement. Our ability to borrow under the Facilities 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."


In connection with the AR Facility, we sell accounts receivable on an ongoing basis to a wholly-owned special-purpose entity (the "SPE"). The accounts receivable and other assets of the SPE are encumbered in favor of the lenders under our AR Facility. The SPE assets are owned by the SPE and are not available to settle theour obligations of the Company or any of itsour other subsidiaries. Substantially all of the remaining assets of Herc and certain of its U.S. and Canadian subsidiaries are encumbered in favor of our lenders under our ABL Credit Facility and the Notes and, asFacility. None of such assets are generally not available to satisfy the claims of our general creditors. See Note 9,11, "Debt" to the notes to our consolidated financial statements included in Part II, Item 8 "Financial Statements" of this Report for more information.


With respect to the Facilities, we refer to "Remaining Capacity" as the maximum principal amount of debt permitted to be outstanding under the Facilities (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 the Facilities.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 the FacilitiesFacility (i.e., the amount of debt we could borrow given the collateral we possess at such time).


As of December 31, 2018,2020, the following was available to us (in millions):
Remaining
Capacity
Availability Under
Borrowing Base
Limitation
 ABL Credit Facility$1,471.6 $1,380.3 
AR Facility— — 
Total$1,471.6 $1,380.3 
 Remaining
Capacity
 Availability Under
Borrowing Base
Limitation
ABL Credit Facility$640.2
 $640.2
AR Facility
 
Total$640.2
 $640.2


At December 31, 2018, the Company's2020, our borrowing base was capped at $175.0 million by the aggregate commitments under the AR Facility. Subsequent to December 31, 2018, the borrowing base under the AR Facility declined to $159.1 million.

In addition, as of December 31, 2018, the Company's subsidiary in China had uncommitted credit facilities of which $5.4 million was available for borrowing.


As of December 31, 2018, $24.62020, $23.4 million of standby letters of credit were issued and outstanding under the ABL Credit Facility, none of which had been drawn upon. The ABL Credit Facility had $225.4$226.6 million available under the letter of credit facility sublimit, subject to borrowing base restrictions.


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Covenants


Our ABL Credit Facility, our AR Facility and our 2027 Notes contain a number of covenants that, among other things, limit or restrict our ability to dispose of assets, incur additional indebtedness, incur guarantee obligations, prepay certain indebtedness, make certain restricted payments (including paying dividends, redeeming stock or making other distributions), create liens, make investments,

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make acquisitions, engage in mergers, fundamentally change the nature of our business, make capital expenditures, or engage in certain transactions with certain affiliates.


Under the terms of our ABL Credit Facility, our AR Facility and our 2027 Notes, we are not subject to ongoing financial maintenance covenants; however, under the ABL Credit Facility, failure to maintain certain levels of liquidity will subject us to a contractually specified fixed charge coverage ratio of not less than 1:1 for the four quarters most recently ended. As of December 31, 2018,2020, the appropriate levels of liquidity have been maintained, therefore this financial maintenance covenant is not applicable.

At December 31, 2018, Herc Holdings' balance sheet was substantially identical to that of Herc, the borrower, with the exception of the components of shareholders equity. For the years ended December 31, 2018 and 2017, the statements of operations of Herc Holdings and Herc were identical. 


For further information on the terms of our 2027 Notes, ABL Credit Facility and AR Facility see Note 9,11, "Debt" included in Part I,II, Item 18 "Financial Statements and Supplementary Data" of this Report. For a discussion of the risks associated with our significant indebtedness, see Part I, Item 1A "Risk Factors" contained in this Report.


Dividends

Our payment of dividends on our common stock will be determined by our boardBoard of directorsDirectors in its sole discretion and will depend on our business conditions, financial condition, earnings, liquidity and capital requirements, contractual restrictions and other factors. The amounts available to pay cash dividends are restricted by our debt agreements. As of the date of this Report, we have no plans to pay dividends on our common stock.


CONTRACTUAL OBLIGATIONS


The following table details the contractual cash obligations for debt and related interest payable, capitalfinance and operating leases, and other purchase obligations as of December 31, 20182020 (in millions):
Payments Due by Period
Total20212022-20232024-2025After 2025
Debt principal, including current maturities$1,630.0 $— $— $430.0 $1,200.0 
Interest on debt(a)
452.6 71.8 143.6 135.4 101.8 
Financing obligations(b)
150.9 9.5 19.0 19.0 103.4 
Finance lease obligations(c)
43.8 13.0 13.2 12.4 5.2 
Operating lease obligations(d)
314.7 39.5 75.8 59.4 140.0 
Purchase obligations(e)
21.9 11.4 9.7 0.8 — 
Total$2,613.9 $145.2 $261.3 $657.0 $1,550.4 
   Payments Due by Period
 Total 2019 2020-2021 2022-2023 After 2023
Debt principal, including current maturities$2,129.3
 $4.6
 $1,260.2
 427.0
 $437.5
Interest on debt (a)
425.4
 120.8
 209.3
 81.2
 14.1
Financing obligations (b)
159.6
 8.5
 17.0
 17.0
 117.1
Capital lease obligations (c)
40.3
 23.6
 14.5
 2.2
 
Operating lease obligations (d)
202.2
 34.6
 53.0
 38.8
 75.8
Purchase obligations(e)
18.3
 8.3
 8.2
 1.8
 
Total$2,975.1
 $200.4
 $1,562.2
 $568.0
 $644.5
(a)     Estimated interest payments have been calculated based on the applicable interest rates as of December 31, 2020.

(a)Estimated interest payments have been calculated based on the applicable interest rates as of December 31, 2018.
(b)
(b)     Includes obligations under financing agreements primarily for the lease of 44 properties. See Note 10, "Financing Obligations" to the notes to our consolidated financial statements included in Part II, Item 8 of this Report.
(c)
Includes obligations under lease agreements primarily for service vehicles. See Note 14, "Leases " to the notes to our consolidated financial statements included in Part II, Item 8 of this Report.
(d)
Includes obligations under lease agreements for real estate and office and computer equipment. Such obligations are reflected to the extent of their minimum non-cancelable terms. See Note 14, "Leases " to the notes to our consolidated financial statements included in Part II, Item 8 of this Report.
(e)Purchase obligations represent agreements to purchase goods or services that are legally binding on us and that specify all significant terms, including fixed or minimum quantities; fixed, minimum or variable price provisions; and the approximate timing of the transaction. Only the minimum non-cancelable portion of purchase agreements and related cancellation penalties are included as obligations. In the case of contracts that state minimum quantities of goods or services, amounts reflect only the stipulated minimums; all other contracts reflect estimated amounts.
The table excludes our pension and other postretirement benefit obligations. See Note 11, "Employee Retirement Benefits"12, "Financing Obligations" to the notes to our consolidated financial statements included in Part II, Item 8 of this Report.

(c)    Includes obligations under lease agreements primarily for service vehicles. See Note 9, "Leases" to the notes to our consolidated financial statements included in Part II, Item 8 of this Report.

(d)     Includes obligations under lease agreements for real estate and computer equipment. Such obligations are reflected to the extent of their minimum non-cancelable terms. See Note 9, "Leases" to the notes to our consolidated financial statements included in Part II, Item 8 of this Report.
(e)    Purchase obligations represent agreements to purchase goods or services that are legally binding on us and that specify all significant terms, including fixed or minimum quantities; fixed, minimum or variable price provisions; and the approximate timing of the transaction. Only the minimum non-cancelable portion of purchase agreements and related cancellation penalties are included as obligations. In the case of contracts that state minimum quantities of goods or services, amounts reflect only the stipulated minimums; all other contracts reflect estimated amounts.
The table excludes our pension and other postretirement benefit obligations. See Note 13, "Employee Retirement Benefits" to the notes to our consolidated financial statements included in Part II, Item 8 of this Report.

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OFF-BALANCE SHEET COMMITMENTS AND ARRANGEMENTS


As of December 31, 20182020 and 2017,2019, the following guarantees (including indemnification commitments) were issued and outstanding.outstanding:


Indemnification Obligations


In the ordinary course of business, we execute contracts involving indemnification obligations customary in the relevant industry and indemnifications related to a specific transaction such as the sale of a business. These indemnification obligations might include claims relating to the following: environmental matters; condition of property; intellectual property rights; governmental regulations and employment-related matters; customer, supplier and other commercial contractual relationships; and financial or other matters. Performance under these indemnification obligations would generally be triggered by a breach of terms of the contract or by a third-party claim. We regularly evaluate the probability of having to incur costs associated with these indemnification obligations and accrue for expected losses that are probable and estimable. Also see Note 21,, "Arrangements "Arrangements with New Hertz"Hertz" to the notes to our consolidated financial statements included in Part II, Item 8 of this Report. For discussion of the risks associated with indemnification obligations in the context of divestitures see "Other Operational Risks" in Part I, Item 1A "Risk Factors"Factors—Other Operational Risks" contained in this Report.


Contingencies, Environmental Matters and Guarantee


The information concerning the ongoing securities litigation and governmental investigation contained in Part I, Item 3 "Legal Proceedings" of this Report and the information concerning other contingencies, including environmental contingencies and the amount currently held in reserve for environmental matters and our guarantee is contained in Note 16, "Commitments17, "Commitments and Contingencies" to the notes to our consolidated financial statements included in Part II, Item 8 of this Report is incorporated herein by reference. The additional information concerning environmental matters included in Part I, Item 1 "Business—Environmental, Health and Safety Matters and Governmental Regulation" of this Report is also incorporated herein by reference.


CRITICAL ACCOUNTING POLICIES AND ESTIMATES


Our discussion and analysis of financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of the consolidated financial statements requires management to make estimates and judgments that affect the reported amounts in our consolidated financial statements and accompanying notes.


Certain of our accounting policies, as discussed below, involve a higher degree of judgment and complexity in their application and, therefore, represent the critical accounting policies used in the preparation of our financial statements. If different assumptions or conditions were to prevail, the results could be materially different from our reported results. For additional discussion of our critical accounting policies, as well as our significant accounting policies, see Note 2, "Basis"Basis of Presentation and Recently Issued Accounting Pronouncements"Pronouncements" to the notes to our consolidated financial statements included in Part II, Item 8 of this Report.


Revenue Recognition


Equipment rental revenue includes revenue generated from renting equipment to customers and is recognized on a straight-line basis over the length of the rental contract. Also included in equipment rental revenue are fees for equipment delivery and pick-up and fees for our rental protection program, which allows customers to limit risk of financial loss in the event our equipment is damaged or lost. Delivery and pick-up fees are recognized as revenue when the services are performed and fees related to our rental protection program are recognized over the length of the contract term.


We recognize revenue from the sale of rental equipment, new equipment, parts and supplies when control of the asset transfers to the customer, which is typically when the asset is picked up by or delivered to the customer and when significant risks and rewards of ownership have passed to the customer. Sales and other tax amounts collected from customers and remitted to government authorities are accounted for on a net basis and, therefore, excluded from revenue.
Service and other revenue is recognized as the services are performed.

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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)




Rental Equipment


Our principal assets are rental equipment, which represented 69.4%63.0% and 66.9%65.2% of our total assets as of December 31, 20182020 and 2017,2019, respectively. Rental equipment consists of equipment utilized in our equipment rental operations. When rental equipment is acquired, we use historical experience, industry residual value guidebooks and the monitoring of market conditions to set depreciation rates. Generally, we estimate the period that we will hold the asset, primarily based on historical measures of the amount of equipment usage and the targeted age of equipment at the time of disposal. We also estimate the residual value of the applicable rental equipment at the expected time of disposal. The residual value for rental equipment is affected by factors which include equipment age and amount of usage. Depreciation is recorded over the estimated holding period. Depreciation rates are reviewed regularly 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. Market conditions for used equipment sales also can be affected by external factors such as the economy, natural disasters, fuel prices, supply of similar used equipment, the market price for similar new equipment and incentives offered by manufacturers. As a result of this ongoing assessment, we make periodic adjustments to depreciation rates of rental equipment in response to changing market conditions.


Defined Benefit Pension Obligations


Prior to the Spin-Off, we participated in certain THC-sponsored U.S. defined benefit plans covering substantially all U.S. employees, as well as certain non-U.S. defined benefit plans covering eligible non-U.S. employees. For each of these plans, we recorded our portion of the expense and the related obligations which were actuarially determined and the assets were allocated proportionally. In July 2016, we established theThe Herc Holdings Retirement Plan (the "Plan"). All assets and liabilities under the THC-sponsored plans attributableis a U.S. qualified defined benefit pension plan that has been frozen to current and formernew employees of the equipment rental business were transferred to the Plan following the Spin-Off.since it was established in 2016. Additionally, pursuant to various collective bargaining agreements, certain union-represented employees participate in multiemployer pension plans.
Employee pension costs and obligations are dependent on assumptions used by actuaries in calculating such amounts. These assumptions include discount rates, salary growth, long-term return on plan assets, retirement rates, mortality rates and other factors. Actual results that differ from our assumptions are accumulated and amortized over future periods and, therefore, generally affect our recognized expense in such future periods. While we believe that the assumptions used are appropriate, significant differences in actual experience or significant changes in assumptions would affect our pension costs and obligations. The various employee-related actuarial assumptions (e.g., retirement rates, mortality rates and salary growth) used in determining pension costs and plan liabilities are reviewed periodically by management, assisted by the enrolled actuary, and updated as warranted. The discount rate used to value the pension liabilities and related expenses and the expected rate of return on plan assets are the two most significant assumptions impacting pension expense. The discount rate used is a market-based rate as of the valuation date. For the expected return on assets assumption, we use a forward-looking rate that is based on the expected return for each asset class (including the value added by active investment management), weighted by the target asset allocation. The past annualized long-term performance of the Plan's assets has generally been in line with the long-term rate of return assumption.


See Note 11, "Employee13, "Employee Retirement Benefits"Benefits" to the notes to our consolidated financial statements included in Part II, Item 8 of this Report.


Business Combinations

The Company has made acquisitions and may continue to make acquisitions in the future. The assets acquired and liabilities assumed are recorded based on their respective fair values at the date of acquisition. Long-lived assets (principally rental equipment), goodwill and other intangible assets generally represent the largest components of the acquisitions. Rental equipment is valued utilizing either a cost, market or income approach, or a combination of certain of these methods, depending on the asset being valued and the availability of market or income data. The intangible assets that the Company has acquired are non-compete agreements, customer relationships and trade names and associated trademarks. The estimated fair values of these intangible assets reflect various assumptions about discount rates, revenue growth rates, operating margins, terminal values, useful lives and other prospective financial information. Goodwill is calculated as the excess of the cost of the acquired entity over the net of the fair value of the assets acquired and the liabilities assumed. Non-compete agreements, customer relationships and trade names and associated trademarks are valued based on an excess earnings or income approach based on projected cash flows and may be amortized over the useful life if they are determined to be finite-lived intangible assets. Determining the fair value of the assets and liabilities acquired is judgmental in nature and can involve the use of significant estimates and assumptions.

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As part of an acquisition, the Company will also acquire other assets and assume liabilities. These other assets and liabilities typically include, but are not limited to, parts inventory, accounts receivable, accounts payable and other working capital items. Because of their short-term nature, the fair values of these other assets and liabilities generally approximate the book values on the acquired entities' balance sheets.

Goodwill and Indefinite-Lived Intangible Assets


On an annual basis and at interim periods when circumstances require, we test the recoverability of our goodwill. Goodwill impairment is deemed to exist if the carrying value of goodwill of a reporting unit exceeds its fair value. A reporting unit is an operating segment or a business one level below that operating segment (the component level) if discrete financial information is prepared and regularly reviewed by segment management. However, components are aggregated as a single reporting unit if they have similar economic characteristics. We have assessed the guidance and performed our analysis using our one reporting unit, worldwide equipment rental.


Pursuant to Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") Topic 350, Intangibles-Goodwill and Other,("Topic 350")Intangibles-Goodwill and Other, an entity may first assess qualitative factors to determine whether it is more-likely-than-not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the quantitative goodwill impairment test. Various factors are considered in performing the qualitative test, including

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macroeconomic conditions, industry and market considerations, the overall financial performance of our reporting unit, our stock price and the excess amount between our reporting unit’s fair value and carrying value as indicated on our most recent quantitative assessment.


When assessing the fair value of our reporting units using a quantitative approach, we estimate the fair value using a combination of an income approach on the present value of estimated future cash flows and a market approach based on published earnings multiples of comparable entities with similar operations and economic characteristics as well as acquisition multiples paid in recent transactions. The key assumptions used in the discounted cash flow valuation model for impairment testing include discount rates, growth rates, cash flow projections and terminal value rates. Discount rates are set by using the weighted average cost of capital, or "WACC," methodology. The WACC methodology considers market and industry data as well as company specific risk factors for each reporting unit in determining the appropriate discount rates to be used. The discount rate utilized for each reporting unit is indicative of the return an investor would expect to receive for investing in such a business. The cash flows represent management's most recent planning assumptions. These assumptions are based on a combination of industry outlooks, views on general economic conditions and our expected pricing plans. Terminal value rate determination follows common methodology of capturing the present value of perpetual cash flow estimates beyond the last projected period assuming a constant WACC and low long-term growth rates. If the carrying value of the reporting unit is greater than its fair value, we recognize an impairment charge for the amount equal to that excess. A significant decline in the projected cash flows or a change in the WACC used to determine fair value could result in a future goodwill impairment charge.


Indefinite-lived intangible assets, primarily trademarks, are not amortized but are evaluated annually for impairment and whenever events or changes in circumstances indicate that the carrying amount of this asset may exceed its fair value. If the carrying value of an indefinite-lived intangible asset exceeds its fair value, an impairment loss is recognized in an amount equal to that excess.


In connection with our impairment analysis for goodwill and indefinite-lived intangible assets conducted as of October 1, 2018,2020, we assessed qualitative factors as described above to determine if it is more likely than not that goodwill and indefinite-lived assets may be impaired and concluded that there was no impairment related to such assets.


See Note 6, "Goodwill and Intangible Assets" to the notes to our consolidated financial statements included in Part II, Item 8 of this Report.


Finite-Lived Intangible and Long-Lived Assets


IntangibleFinite-lived intangible assets include technology, customer relationships, trade names and other intangibles. Intangible assets with finite lives are amortized using the straight-line method over the estimated economic lives of the assets, which range from three to 1014 years. These assets are primarily amortized using the straight-line method, however, certain assets may be amortized using an accelerated method that reflects the economic benefit to us. Long-lived assets, including intangible assets with finite lives, are reviewed for
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. Determination of recoverability is based on an estimate of undiscounted future cash flows resulting from the use of the asset and its eventual disposition. Measurement of an impairment loss for long-lived assets that management expects to hold and use is based on the estimated fair value of the asset. Long-lived assets to be disposed of are reported at the lower of carrying amount or estimated fair value less costs to sell.


Income Taxes


For the first half of 2016, we were included in the consolidated income tax returns of Hertz Holdings. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are determined based on differences between the financial statement carrying amounts and net bases of assets and liabilities and are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect of a change in tax rates is recognized in the statement of operations in the period that includes the enactment date. Valuation allowances are recorded to reduce deferred tax assets when itby the
amount that is more likely than not that a tax benefit will notto be realized. Subsequent changes to enacted tax rates will result in changes to deferred taxes and any related valuation allowances. We have recorded a deferred tax asset for unutilized net operating loss carryforwards in various tax jurisdictions.

The taxing authoritiesCompany has determined not to assert that earnings from foreign operations are permanently reinvested. Therefore, the Company recognizes deferred taxes on foreign earnings as appropriate. The Company has asserted that future earnings associated with the potential stock sale or liquidation of foreign subsidiaries is permanently reinvested. Accordingly, the Company has not recorded any deferred tax liabilities associated with these book-to-tax differences. We regularly review our cash positions and our determination of permanent reinvestment of foreign earnings. If we determine that all or a portion of such foreign earnings are repatriated, we may examinebe subject to additional foreign withholding taxes and U.S. state income taxes. Many foreign jurisdictions impose taxes on distributions to other jurisdictions.  Due to the variations and complexities of these laws, we believe it would be impractical to calculate and accrue these taxes beyond the normal earnings and profits standard for U.S. tax purposes.

In accordance with ASC Topic 740, Income Taxes, ("Topic 740"), the Company recognizes, in its consolidated financial statements, the impact of the Company's tax positions that ledare more likely than not to the generation of those net operating losses. If the utilizationbe sustained upon examination. The Company will determine whether it is more likely than not that a tax position will be sustained upon examination, including resolution of any related appeals or litigation processes, based on the technical merits of those lossesthe position. In evaluating whether a tax position has met the more-likely-than-not recognition threshold, the Company presumes that the position will be examined by the appropriate taxing authority with full knowledge of all relevant information. Upon determination that a tax position meets the more-likely-than-not recognition threshold, it is measured to determine the amount of benefit to recognize in the financial statements. The Company recognizes interest and penalties for uncertain tax positions in income tax expense.

We are disallowed, a deferredsubject to ongoing tax asset may have to be reduced.examinations and assessments in various jurisdictions. Accordingly, accruals for tax contingencies are established based on the probable outcomes of such matters. Our ongoing assessments of the probable outcomes of the examinations and related tax accruals require judgment and could increase or decrease our effective tax rate as well as impact our operating results.


See Note 13, "Income Taxes"15, "Income Taxes" to the notes to our consolidated financial statements included in Part II, Item 8 of this Report.

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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)


Financial Instruments

We are exposed to a variety of market risks, including the effects of changes in interest rates and foreign currency exchange rates. We manage exposure to these market risks through regular operating and financing activities and, when deemed appropriate, through the use of financial instruments. Financial instruments are viewed as risk management tools and have not been used for speculative or trading purposes. In addition, financial instruments are entered into with a diversified group of major financial institutions in order to manage our exposure to counterparty nonperformance on such instruments. We account for all financial instruments in accordance with U.S. GAAP, which requires that they be recorded on the balance sheet as either assets or liabilities measured at their fair value. For financial instruments that are designated and qualify as hedging instruments, we designate the hedging instrument, based upon the exposure being hedged, as either a fair value hedge or a cash flow hedge. The effective portion of changes in fair value of financial instruments designated as cash flow hedging instruments is recorded as a component of other comprehensive income (loss). Amounts included in accumulated other comprehensive income (loss) for cash flow hedges are reclassified into earnings in the same period that the hedged item is recognized in earnings. The ineffective portion of changes in the fair value of financial instruments designated as cash flow hedges is recognized currently in earnings within the same line item as the hedged item, based upon the nature of the hedged item. For financial instruments that are not part of a qualified hedging relationship, the changes in their fair value are recognized currently in earnings.


Stock Based Compensation


For all periods presented prior to the Spin-Off, all stock-based compensation awards held by our employees were granted by Hertz Holdings, under various Hertz Holdings' sponsored plans, based on the common stock of Hertz Holdings. In connection with the Spin-Off, outstanding equity awards were adjusted and converted in accordance with a formula designed to preserve the intrinsic economic value of the original equity awards after taking into account the Spin-Off and the reverse stock split. All stock-based compensation award disclosures are measured in terms of common stock of Herc Holdings. The cost of employee services received in exchange for an award of equity instruments is based on the grant date fair value of the award. That cost is recognized over the period during which the employee is required to provide service in exchange for the award, referred to as the vesting period. In addition to the service vesting condition, the performance stock units hadhave an additional vesting condition, which called forstipulates the number of units that will be awarded based on achievement of a certain level of corporate EBITDA,return on invested capital or other performance measures as defined in the applicable award agreements, over the applicable measurement period.


We estimatedestimate the fair value of options issued at the date of grant using a Black-Scholes option-pricing model, which includes assumptions related to volatility, expected term, dividend yield and risk-free interest rate. These factors combined with the
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

stock price on the date of grant result in a fixed expense which is recorded on a straight-line basis over the vesting period. The assumed volatility was calculated based on a blend of peer group volatility and implied volatility as we do not have sufficient stock price data to calculate historical volatility. The assumed dividend yield is zero. The risk-free interest rate is the implied zero-coupon yield for U.S. Treasury securities having a maturity approximately equal to the expected term of the options, as of the grant dates.


See Note 12, "Stock-Based Compensation"14, "Stock-Based Compensation" to the notes to our consolidated financial statements included in Part II, Item 8 of this Report.


RECENT ACCOUNTING PRONOUNCEMENTS


For a discussion of recent accounting pronouncements, see Note 2, "Basis"Basis of Presentation and Recently Issued Accounting Pronouncements"Pronouncements" to the notes to our consolidated financial statements included in Part II, Item 8 of this Report.




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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK


RISK MANAGEMENT


For a discussion of additional risks arising from our operations, see Part I, Item 1A "Risk Factors" included in this Report.


Market Risk


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


Interest Rate Risk


We have assessed our exposure to changes in interest rates by analyzing the sensitivity to our earnings assuming various changes in market interest rates. Assuming a hypothetical increase of one percentage point in interest rates on our ABL Credit Facility, AR Facility and cash and cash equivalents as of December 31, 2018,2020, our pre-tax earnings would decrease by an estimated $12.3$4.0 million over a 12-month period.


From time to time, we may enter into interest rate swap agreements to manage interest rate risk on our mix of fixed and floating rate debt. See Note 17, "Financial Instruments" to the notes to our consolidated financial statements included in Part II, Item 8 of this Report.

Consistent with the terms of certain agreements governing our debt obligations, we may decide to hedge a portion of the floating rate interest exposure under the ABL Credit Facility to provide protection in respect of such exposure.


Foreign Currency Risk


We have foreign currency exposure to exchange rate fluctuations, primarily with respect to the Canadian dollar, Euro, Chinese yuan and British pound.dollar.


We manage our foreign currency risk primarily by incurring, to the extent practicable, operating and financing expenses in the local currency in the countries in which we operate, including making fleet and equipment purchases and borrowing locally.


We also manage exposure to fluctuations in currency risk on cross currency intercompany loans we make to certain of our subsidiaries by entering into foreign currency forward contracts, when possible,appropriate, which are intended to offset the impact of foreign currency movements on the underlying intercompany loan obligations.


We do not hedge our operating results against currency movement as they are primarily translational in nature. Using foreign currency forward rates as of December 31, 2018,2020, each hypothetical one percentage point change in foreign currency movements would not have a significant impact on our revenue or earnings.




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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA


Report of Independent Registered Public Accounting Firm


To the Board of Directors
and Stockholders of
Herc Holdings Inc.:


Opinions on the Financial Statements and Internal Control over Financial Reporting


We have audited the accompanying consolidated balance sheets of Herc Holdings Inc. and its subsidiaries(the (the “Company”) as of December 31, 20182020 and 2017,2019, and the related consolidated statements of operations, of comprehensive income (loss), of changes in equity and of cash flows for each of the three years in the period ended December 31, 2018,2020, including the related notes and schedule of valuation and qualifying accounts for each of the three years in the period ended December 31, 20182020 appearing on page 91under Item 8 (collectively referred to as the “consolidated financial statements”).We also have audited the Company's internal control over financial reporting as of December 31, 2018,2020, based on criteria established in Internal Control - Integrated Framework(2013)issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).


In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 20182020 and 2017, 2019, and the results of itsoperations and itscash flows for each of the three years in the period ended December 31, 2018,2020 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2018,2020, based on criteria established in Internal Control - Integrated Framework(2013)issued by the COSO.


Change in Accounting Principle

As discussed in Note 9 to the consolidated financial statements, the Company changed the manner in which it accounts for leases in 2019 due to the adoption of Topic 842, using a modified retrospective transition method.

Basis for Opinions


The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Report on Internal Control Over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.


We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidatedfinancial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.


Our audits of the consolidatedfinancial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidatedfinancial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.


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Definition and Limitations of Internal Control over Financial Reporting


A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
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dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.


Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.



Critical Audit Matters

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Income Taxes

As described in Notes 2 and 15 to the consolidated financial statements, the Company recorded an income tax provision of $20.4 million as of December 31, 2020. Additionally, the Company reported a net deferred tax liability balance of $474.0 million. Deferred tax assets and liabilities are determined based on differences between the financial statement carrying amounts and tax bases of assets and liabilities and are measured using the enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Management also records deferred tax assets for unutilized net operating loss carryforwards in various tax jurisdictions. Management records valuation allowances to reduce its deferred tax assets by the amount that is more likely than not to be realized. Subsequent changes to enacted tax rates will result in changes to deferred taxes and any related valuation allowances. Management recognizes the impact of the Company's uncertain tax positions that are more likely than not to be sustained upon examination. Management will determine whether it is more likely than not that a tax position will be sustained upon examination. Upon determination that a tax position meets the more-likely-than-not recognition threshold, it is measured to determine the amount of benefit to recognize in the financial statements.

The principal considerations for our determination that performing procedures relating to income taxes is a critical audit matter are the significant judgment by management in determining the income tax provision and in evaluating the Company’s tax positions related to analyzing uncertain tax positions and assessing the realizability of deferred tax assets, which in turn led to significant auditor judgment, subjectivity, and effort in performing audit procedures and evaluating audit evidence relating to income taxes.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to the income tax provision, the identification of uncertain tax positions and assessment of related liability changes, if material, and assessing the realizability of any deferred tax assets, including assessing the related positive and negative evidence. These procedures also included, among others, (i) testing the completeness and accuracy of the income tax provision, including the rate reconciliation, return to provision adjustments, and permanent and temporary differences, (ii) testing the completeness of management’s assessment of both the identification of uncertain tax positions and the possible outcomes of each uncertain tax position, and (iii) evaluating management’s assessment of the realizability of deferred tax assets on a jurisdictional basis, including an assessment of the positive and negative evidence regarding realization.

/s/ PricewaterhouseCoopers LLP


Tampa, Florida
February 28, 201918, 2021


We have served as the Company’s auditor since 2013.

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HERC HOLDINGS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In millions, except par value)
December 31,
2018
 December 31, 2017December 31,
2020
December 31,
2019
ASSETS   ASSETS  
Cash and cash equivalents$27.8
 $41.5
Cash and cash equivalents$33.0 $33.0 
Receivables, net of allowances of $21.5 and $26.9, respectively332.4
 386.3
Inventory17.9
 23.7
Prepaid and other current assets22.3
 23.0
Receivables, net of allowances of $15.5 and $18.8, respectivelyReceivables, net of allowances of $15.5 and $18.8, respectively301.2 306.7 
Other current assetsOther current assets32.9 28.9 
Assets held for saleAssets held for sale31.1 
Total current assets400.4
 474.5
Total current assets367.1 399.7 
Rental equipment, net2,504.7
 2,374.6
Rental equipment, net2,260.4 2,490.0 
Property and equipment, net282.5
 286.3
Property and equipment, net290.4 311.8 
Right-of-use lease assetsRight-of-use lease assets255.9 207.3 
Intangible assets, net293.5
 283.9
Intangible assets, net295.9 291.5 
Goodwill91.0
 91.0
Goodwill100.5 93.6 
Other long-term assets38.1
 39.4
Other long-term assets18.2 23.1 
Total assets$3,610.2
 $3,549.7
Total assets$3,588.4 $3,817.0 
LIABILITIES AND EQUITY   LIABILITIES AND EQUITY  
Current maturities of long-term debt and financing obligations$29.9
 $25.4
Current maturities of long-term debt and financing obligations$15.8 $30.4 
Current maturities of operating lease liabilitiesCurrent maturities of operating lease liabilities32.1 30.5 
Accounts payable147.0
 152.0
Accounts payable125.8 126.5 
Accrued liabilities122.3
 113.3
Accrued liabilities154.3 135.7 
Total current liabilities299.2
 290.7
Total current liabilities328.0 323.1 
Long-term debt, net2,129.9
 2,137.1
Long-term debt, net1,651.5 2,051.5 
Financing obligations, net116.3
 112.9
Financing obligations, net114.5 117.6 
Operating lease liabilitiesOperating lease liabilities234.1 182.2 
Deferred tax liabilities448.3
 462.8
Deferred tax liabilities474.0 459.3 
Other long-term liabilities43.8
 35.8
Other long-term liabilities44.3 39.0 
Total liabilities3,037.5
 3,039.3
Total liabilities2,846.4 3,172.7 
Commitments and contingencies (Note 16)   
Commitments and contingencies (Note 17)Commitments and contingencies (Note 17)00
Equity:   Equity:  
Preferred stock, $0.01 par value, 13.3 shares authorized, no shares issued and outstanding
 
Preferred stock, $0.01 par value, 13.3 shares authorized, no shares issued and outstanding
Common stock, $0.01 par value, 133.3 shares authorized, 31.2 and 31.1 shares issued and 28.5 and 28.3 shares outstanding0.3
 0.3
Common stock, $0.01 par value, 133.3 shares authorized, 32.1 and 31.5 shares issued and 29.4 and 28.8 shares outstandingCommon stock, $0.01 par value, 133.3 shares authorized, 32.1 and 31.5 shares issued and 29.4 and 28.8 shares outstanding0.3 0.3 
Additional paid-in capital1,777.9
 1,763.1
Additional paid-in capital1,818.2 1,796.9 
Accumulated deficit(391.1) (462.4)Accumulated deficit(277.5)(351.2)
Accumulated other comprehensive loss(122.4) (98.6)Accumulated other comprehensive loss(107.0)(109.7)
Treasury stock, at cost, 2.7 shares and 2.7 shares(692.0) (692.0)Treasury stock, at cost, 2.7 shares and 2.7 shares(692.0)(692.0)
Total equity572.7
 510.4
Total equity742.0 644.3 
Total liabilities and equity$3,610.2
 $3,549.7
Total liabilities and equity$3,588.4 $3,817.0 


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

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HERC HOLDINGS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions, except per share data)
Years Ended December 31,
 202020192018
Revenues:
Equipment rental$1,543.7 $1,701.8 $1,658.3 
Sales of rental equipment198.5 242.8 256.2 
Sales of new equipment, parts and supplies28.2 44.0 49.3 
Service and other revenue10.9 10.4 12.9 
Total revenues1,781.3 1,999.0 1,976.7 
Expenses:
Direct operating689.2 771.1 785.2 
Depreciation of rental equipment403.9 409.1 387.5 
Cost of sales of rental equipment203.6 243.2 244.3 
Cost of sales of new equipment, parts and supplies20.5 33.3 37.7 
Selling, general and administrative257.4 294.8 311.3 
Restructuring0.7 7.7 5.0 
Impairment15.4 5.1 0.1 
Interest expense, net92.6 173.5 137.0 
Other expense (income), net3.9 (2.4)(0.2)
Total expenses1,687.2 1,935.4 1,907.9 
Income before income taxes94.1 63.6 68.8 
Income tax benefit (provision)(20.4)(16.1)0.3 
Net income$73.7 $47.5 $69.1 
Weighted average shares outstanding:
Basic29.1 28.7 28.4 
Diluted29.4 29.1 28.9 
Earnings per share:
Basic$2.53 $1.66 $2.43 
Diluted$2.51 $1.63 $2.39 
 Years Ended December 31,
 2018 2017 2016
Revenues:     
Equipment rental$1,658.3
 $1,499.0
 $1,352.7
Sales of rental equipment256.2
 190.8
 122.5
Sales of new equipment, parts and supplies49.3
 52.3
 68.2
Service and other revenue12.9
 12.4
 11.4
Total revenues1,976.7
 1,754.5
 1,554.8
Expenses:     
Direct operating788.9
 719.8
 655.9
Depreciation of rental equipment387.5
 378.9
 350.5
Cost of sales of rental equipment244.3
 192.0
 144.0
Cost of sales of new equipment, parts and supplies37.7
 39.5
 53.0
Selling, general and administrative312.6
 320.2
 275.3
Impairment0.1
 29.7
 
Interest expense, net137.0
 140.0
 84.2
Other income, net(0.2) (1.2) (3.2)
Total expenses1,907.9
 1,818.9
 1,559.7
Income (loss) before income taxes68.8
 (64.4) (4.9)
Income tax benefit (provision)0.3
 224.7
 (14.8)
Net income (loss)$69.1
 $160.3
 $(19.7)
Weighted average shares outstanding:     
Basic28.4
 28.3
 28.3
Diluted28.9
 28.6
 28.3
Earnings (loss) per share:     
Basic$2.43
 $5.66
 $(0.70)
Diluted$2.39
 $5.60
 $(0.70)



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



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HERC HOLDINGS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In millions)
 Years Ended December 31,
202020192018
Net income$73.7 $47.5 $69.1 
Other comprehensive income (loss):
Foreign currency translation adjustments3.7 11.5 (20.0)
Reclassification of foreign currency items to other expense (income), net2.1 
Unrealized gains and (losses) on hedging instruments:
Unrealized gains (losses) on hedging instruments(3.6)1.5 
Reclassification into net income(1.5)
Income tax benefit (provision) related to hedging instruments0.3 2.1 (0.4)
Pension and postretirement benefit liability adjustments:
Amortization of net losses and settlement losses included in net periodic pension cost1.7 1.9 1.9 
Pension and postretirement benefit liability adjustments arising during the period(3.2)3.3 (5.6)
Income tax benefit (provision) related to pension and postretirement plans(0.4)(2.5)1.0 
Total other comprehensive income (loss)2.7 12.7 (21.6)
Total comprehensive income$76.4 $60.2 $47.5 
 Years Ended December 31,
 2018 2017 2016
Net income (loss)$69.1
 $160.3
 $(19.7)
Other comprehensive income (loss):     
Foreign currency translation adjustments(20.0) 17.7
 15.8
Unrealized gains and (losses) on hedging instruments:     
Unrealized gains on hedging instruments1.5
 2.1
 
Income tax provision related to hedging instruments(0.4) (0.8) 
Pension and postretirement benefit liability adjustments:     
Amortization of net losses and settlement losses included in net periodic pension cost1.9
 2.3
 1.4
Pension and postretirement benefit liability adjustments arising during the period(5.6) 
 0.1
Income tax benefit (provision) related to pension and postretirement plans1.0
 (1.2) (0.6)
Total other comprehensive income (loss)(21.6) 20.1
 16.7
Total comprehensive income (loss)$47.5
 $180.4
 $(3.0)





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



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HERC HOLDINGS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(In millions)
Common StockAdditional
Paid-In Capital
Retained Earnings (Accumulated
Deficit)
Accumulated
Other
Comprehensive
Income (Loss)
Treasury StockTotal
Equity
Balance at:SharesAmount
December 31, 201728.3 $0.3 $1,763.1 $(462.4)$(98.6)$(692.0)$510.4 
Net income— — — 69.1 — — 69.1 
Cumulative effect of accounting change— — — 2.2 (2.2)— 
Other comprehensive loss— — — — (21.6)— (21.6)
Net settlement on vesting of equity awards0.1 — (1.1)— — — (1.1)
Stock-based compensation charge— — 13.4 — — — 13.4 
Employee stock purchase charges— — 2.0 — — — 2.0 
Exercise of stock options0.1 — 0.5 — — — 0.5 
December 31, 201828.5 0.3 1,777.9 (391.1)(122.4)(692.0)572.7 
Net income— — — 47.5 — — 47.5 
Adoption of new accounting pronouncement— — — (7.6)— — (7.6)
Other comprehensive income— — — — 12.7 — 12.7 
Net settlement on vesting of restricted stock0.3 — (3.7)— — — (3.7)
Stock-based compensation charge— — 19.5 — — — 19.5 
Employee stock purchase charges— — 2.4 — — — 2.4 
Exercise of stock options— — 0.8 — — — 0.8 
December 31, 201928.8 0.3 1,796.9 (351.2)(109.7)(692.0)644.3 
Net income— — — 73.7 — — 73.7 
Other comprehensive income— — — — 2.7 — 2.7 
Net settlement on vesting of equity awards0.3 — (3.0)— — — (3.0)
Stock-based compensation charge— — 16.4 — — — 16.4 
Employee stock purchase charges— — 2.3 — — — 2.3 
Exercise of stock options0.3 — 5.6 — — — 5.6 
December 31, 202029.4 $0.3 $1,818.2 $(277.5)$(107.0)$(692.0)$742.0 
 Common Stock Additional
Paid-In Capital
 Retained Earnings (Accumulated
Deficit)
 Accumulated
Other
Comprehensive
Income (Loss)
 Treasury Stock Total
Equity
Balance at:Shares Amount 
December 31, 201528.2
 $0.3
 $3,734.6
 $(605.5) $(135.4) $(692.0) $2,302.0
Net loss
 
 
 (19.7) 
 
 (19.7)
Other comprehensive income
 
 
 
 16.7
 
 16.7
Net settlement on vesting of equity awards
 
 (0.5) 
 
 
 (0.5)
Stock-based compensation charges
 
 5.5
 
 
 
 5.5
Exercise of stock options and other0.1
 
 10.0
 
 
 
 10.0
Distribution and net transfers to THC
 
 (1,996.3) 
 
 
 (1,996.3)
December 31, 201628.3
 0.3
 1,753.3
 (625.2) (118.7) (692.0) 317.7
Net income
 
 
 160.3
 
 
 160.3
Other comprehensive income
 
 
 
 20.1
 
 20.1
Cumulative effect of a change in accounting for stock-based payments      2.5
     2.5
Net settlement on vesting of equity awards
 
 (0.1) 
 
 
 (0.1)
Stock-based compensation charges
 
 10.1
 
 
 
 10.1
Employee stock purchase plan
 
 1.1
 
 
 
 1.1
Exercise of stock options
 
 0.7
 
 
 
 0.7
Net transfers with THC
 
 (2.0) 
 
 
 (2.0)
December 31, 201728.3
 0.3
 1,763.1
 (462.4) (98.6) (692.0) 510.4
Net income
 
 
 69.1
 
 
 69.1
Cumulative effect of accounting change (Note 13)
 
 
 2.2
 (2.2) 
 
Other comprehensive income
 
 
 
 (21.6) 
 (21.6)
Net settlement on vesting of equity awards0.1
 
 (1.1) 
 
 
 (1.1)
Stock-based compensation charges
 
 13.4
 
 
 
 13.4
Employee stock purchase plan
 
 2.0
 
 
 
 2.0
Exercise of stock options0.1
 
 0.5
 
 
 
 0.5
December 31, 201828.5
 $0.3
 $1,777.9
 $(391.1) $(122.4) $(692.0) $572.7







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



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HERC HOLDINGS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)


Years Ended December 31,
 202020192018
Cash flows from operating activities:
Net income$73.7 $47.5 $69.1 
Adjustments to reconcile net income to net cash provided by operating activities: 
Depreciation of rental equipment403.9 409.1 387.5 
Depreciation of property and equipment54.5 54.0 51.9 
Amortization of intangible assets8.0 7.0 5.4 
Amortization of deferred debt and financing obligations costs3.4 5.2 6.3 
Loss on extinguishment of debt53.6 5.4 
Stock-based compensation charges16.4 19.5 13.4 
Restructuring5.5 
Impairment15.4 5.1 0.1 
Provision for receivables allowance31.4 48.2 57.8 
Deferred taxes11.9 10.7 (10.5)
Loss (gain) on sale of rental equipment5.1 0.4 (11.9)
Other4.7 (1.8)0.5 
Changes in assets and liabilities:
Receivables(24.6)(38.3)(29.9)
Other assets(7.9)4.1 1.8 
Accounts payable(6.4)(12.9)(1.7)
Accrued liabilities and other long-term liabilities21.4 18.7 13.9 
Net cash provided by operating activities610.9 635.6 559.1 
Cash flows from investing activities: 
Rental equipment expenditures(344.1)(638.4)(771.4)
Proceeds from disposal of rental equipment192.5 224.2 272.3 
Non-rental capital expenditures(41.4)(56.9)(77.6)
Proceeds from disposal of property and equipment6.6 7.7 9.7 
Acquisitions(45.6)(4.2)0 
Proceeds from disposal of business24.5 0 0 
Other investing activities4.0 
Net cash used in investing activities(207.5)(463.6)(567.0)
 Years Ended December 31,
 2018 2017 2016
Cash flows from operating activities:     
Net income (loss)$69.1
 $160.3
 $(19.7)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:     
Depreciation of rental equipment387.5
 378.9
 350.5
Depreciation of property and equipment51.9
 46.8
 39.7
Amortization of intangible assets5.4
 4.7
 5.1
Amortization of deferred debt and financing obligations costs6.3
 6.4
 5.6
Stock-based compensation charges13.4
 10.1
 5.5
Impairment0.1
 29.7
 
Provision for receivables allowance57.8
 52.4
 44.4
Deferred taxes(10.5) (228.4) 12.3
Loss (gain) on sale of rental equipment(11.9) 1.2
 21.5
Income from joint ventures(1.6) (1.9) (2.3)
Other3.8
 5.8
 8.6
Changes in assets and liabilities:     
Receivables(29.9) (131.6) (59.2)
Inventory, prepaid and other assets1.8
 (2.1) (19.0)
Accounts payable(1.7) (10.0) 9.2
Accrued liabilities and other long-term liabilities17.6
 26.8
 31.2
Net cash provided by operating activities559.1
 349.1
 433.4
Cash flows from investing activities:     
Rental equipment expenditures(771.4) (501.4) (468.3)
Proceeds from disposal of rental equipment272.3
 160.1
 115.4
Non-rental capital expenditures(77.6) (74.6) (47.8)
Proceeds from disposal of property and equipment9.7
 5.9
 5.7
Net cash used in investing activities(567.0) (410.0) (395.0)

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




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HERC HOLDINGS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(In millions)

Years Ended December 31,
 202020192018
Cash flows from financing activities: 
Proceeds from issuance of long-term debt1,200.0 
Repayments of long-term debt(864.5)(123.5)
Proceeds from revolving lines of credit and securitization528.0 1,230.0 737.5 
Repayments on revolving lines of credit and securitization(924.7)(1,664.8)(604.0)
Proceeds from financing obligations4.7 6.4 
Principal payments under finance lease and financing obligations(13.9)(17.2)(17.0)
Debt redemption premium payment(41.5)(3.7)
Payment of financing obligation and debt financing costs(0.3)(13.3)(1.3)
Proceeds from exercise of stock options5.6 0.8 0.5 
Proceeds from employee stock purchase plan2.3 2.4 2.0 
Net settlement on vesting of equity awards(3.0)(3.7)(1.1)
Net cash used in financing activities(406.0)(167.1)(4.2)
Effect of foreign exchange rate changes on cash and cash equivalents2.6 0.3 (1.6)
Net increase (decrease) in cash and cash equivalents during the period5.2 (13.7)
Cash and cash equivalents at beginning of period33.0 27.8 41.5 
Cash and cash equivalents at end of period$33.0 $33.0 $27.8 
Supplemental disclosures of cash flow information:
Cash paid for interest$92.4 $130.6 $129.3 
Cash paid for income taxes, net$5.0 $7.9 $13.4 
Supplemental disclosures of non-cash investing activity:
Purchases of rental equipment in accounts payable$4.0 $$
Non-rental capital expenditures in accounts payable$1.3 $2.8 $
Disposals of property and equipment in accounts receivable$$2.4 $
Note receivable on disposal of joint venture$$19.0 $
Supplemental disclosures of non-cash investing and financing activity:
Equipment acquired through finance leases$1.4 $39.1 $2.6 

 Years Ended December 31,
 2018 2017 2016
Cash flows from financing activities:     
Proceeds from issuance of long-term debt
 
 1,235.0
Repayments of long-term debt(123.5) (247.0) 
Proceeds from revolving lines of credit and securitization737.5
 561.9
 1,791.0
Repayments on revolving lines of credit and securitization(604.0) (339.2) (881.0)
Proceeds from financing obligations6.4
 119.5
 
Principal payments under capital lease and financing obligations(17.0) (16.7) (12.4)
Debt extinguishment costs(3.7) (7.4) 
Payment of financing obligation and debt financing costs(1.3) (2.7) (41.5)
Proceeds from exercise of stock options and other0.5
 0.7
 10.0
Proceeds from employee stock purchase plan2.0
 1.1
 
Net settlement on vesting of equity awards(1.1) (0.1) (0.5)
Distributions and net transfers to THC
 
 (2,071.9)
Net financing activities with affiliates
 
 (67.4)
Net cash provided by (used in) financing activities(4.2) 70.1
 (38.7)
Effect of foreign exchange rate changes on cash, cash equivalents and restricted cash(1.6) 1.3
 (0.4)
Net increase (decrease) in cash, cash equivalents and restricted cash during the period(13.7) 10.5
 (0.7)
Cash, cash equivalents and restricted cash at beginning of period41.5
 31.0
 31.7
Cash, cash equivalents and restricted cash at end of period$27.8
 $41.5
 $31.0
      
Supplemental disclosures of cash flow information:     
Cash paid for interest$129.3
 $131.7
 $70.7
Cash paid (refunded) for income taxes, net$13.4
 $(5.5) $2.9
Supplemental disclosures of non-cash investing activity:     
Purchases of rental equipment in accounts payable$
 $22.8
 $15.1
Disposals of rental equipment in accounts receivable$
 $12.6
 $
Non-rental capital expenditures in accounts payable$
 $
 $7.8
Supplemental disclosures of non-cash financing activity:     
Non-cash settlement of transactions with THC through equity$
 $2.0
 $75.6
Supplemental disclosures of non-cash investing and financing activity:     
Equipment acquired through capital lease$2.6
 $0.4
 $20.3




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




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HERC HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS




Note 1—Background


Herc Holdings Inc. ("Herc Holdings" or the "Company") is one of the leading equipment rental suppliers with approximately 270277 locations in North America as of December 31, 2018, principally in North America.2020. The Company conducts substantially all of its operations through subsidiaries, including Herc Rentals Inc. ("Herc"). Operations are conducted under the Herc Rentals brand in the United States and Canada and under the Hertz Equipment Rental brand in other international locations. With over 5055 years of experience, the Company is a full-line equipment rental supplier offering a broad portfolio of equipment for rent. In addition to its principal business of equipment rental, the Company sells used equipment and contractor supplies such as construction consumables, tools, small equipment and safety supplies; provides repair, maintenance, equipment management services and safety training to certain of its customers; offers equipment re-rental services and provides on-site support to its customers; and provides ancillary services such as equipment transport, rental protection, cleaning, refueling and labor.


The Company's classic fleet includes aerial, earthmoving, material handling, trucks and trailers, air compressors, compaction and lighting. The Company's equipment rental business is supported by ProSolutionsTMR, its industry-specific solutions-based services, which includes power generation, climate control, remediation and restoration, pumps, and studio and production equipment, and its ProContractor professional grade tools.


On June 30, 2016, the Company, in its previous form as the holding company of both the existing equipment rental operations as well as the former vehicle rental operations (in its form prior to the Spin-Off, "Hertz Holdings"), completed a spin-off (the "Spin-Off") of its global vehicle rental business through a dividend to stockholders of all of the issued and outstanding common stock of Hertz Rental Car Holding Company, Inc., which was re-named Hertz Global Holdings, Inc. ("New Hertz") in connection with the Spin-Off. New Hertz is an independent public company that trades on the New York Stock Exchange under the symbol "HTZ" and continues to operate its global vehicle rental business through its operating subsidiaries including The Hertz Corporation ("THC"). The Company began operating as an independent company and changed its name to Herc Holdings Inc. on June 30, 2016, and trades on the New York Stock Exchange under the symbol “HRI.”

For accounting purposes, due to the relative significance of New Hertz to Hertz Holdings, New Hertz was considered the spinnor or divesting entity in the Spin-Off and Herc Holdings was considered the spinnee or divested entity. As a result, despite the legal form of the transaction, New Hertz was the “accounting successor” to Hertz Holdings. Under the accounting rules, the historical financial information of New Hertz is required to reflect the financial information of Hertz Holdings, as if New Hertz spun off Herc Holdings in the Spin-Off. In contrast, the historical financial information of Herc Holdings, including certain information presented in this Report, reflects the financial information of the equipment rental business and certain parent legal entities of Herc as historically operated as part of Hertz Holdings, as if Herc Holdings was a stand-alone company for all periods presented. The historical financial information of the Company presented in these consolidated financial statements is not necessarily indicative of what the Company's results of operations actually would have been had it operated as a separate, independent company for the year ended December 31, 2016.


Note 2—Basis of Presentation and Recently Issued Accounting Pronouncements


Basis of Presentation


The Company prepares its consolidated financial statements in conformity with accounting principles generally accepted in the United States of America ("U.S. GAAP"). 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.


Significant estimates inherent in the preparation of the consolidated financial statements include receivables allowances, depreciation of rental equipment, the recoverability of long-lived assets, useful lives and impairment of long-lived tangible and intangible assets including goodwill and trade name, pension and postretirement benefits, valuation of stock-based compensation, reserves for litigation and other contingencies and accounting for income taxes, and prior to the Spin-off allocated general corporate expenses from THC, among others.taxes.


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Principles of Consolidation


The consolidated financial statements include the accounts of Herc Holdings and its wholly owned 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 investments in joint ventures using the equity method when it has significant influence but not control and is not the primary beneficiary. All significant intercompany transactions have been eliminated in consolidation.

Stock Split

On June 30, 2016, the Company effected a 1-for-15 reverse stock split. The reverse stock split reduced the number of authorized shares of common stock and preferred stock to 133.3 million and 13.3 million, respectively. All share data and per share amounts have been retroactively adjusted for the reverse stock split in the accompanying consolidated financial statements and notes thereto for the year ended December 31, 2016.

Reclassifications

Certain amounts in prior years have been reclassified to conform with the presentation in the current year.


Cash and Cash Equivalents


Cash and cash equivalents include cash on hand and highly liquid investments with an original maturity of three months or less.


Concentration of Credit Risk


The Company's cash and cash equivalents are held in checking accounts, various investment grade institutional money market accounts or bank term deposits. Deposits held at banks may exceed the amount of insurance provided on such deposits. Generally, these deposits may be redeemed upon demand and are maintained with financial institutions with reputable credit and therefore bear minimal credit risk. The Company seeks to mitigate such risks by spreading the risk across multiple
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counterparties and monitoring the risk profiles of these counterparties. In addition, the Company has credit risk from financial instruments used in hedging activities.activities, when appropriate. The Company limits its exposure relating to financial instruments by diversifying the financial instruments among various counterparties, which consist of major financial institutions.


No single customer accounted for more than 3% of the Company’s equipment rental revenue during the years ended December 31, 2018, 20172020, 2019 and 2016.2018. As of December 31, 20182020 and 2017,2019, no single customer accounted for more than 3%5% of accounts receivable.


Receivables


Receivables are stated net of allowances and represent credit extended to customers and manufacturers that satisfy defined credit criteria. The estimate of the allowance for doubtful accounts is based on the Company's historical experience and its judgment as to the likelihood of ultimate collection. Actual receivables are written-off against the allowance for doubtful accounts when the Company determines the balance will not be collected. Estimates for future credit memos are based on historical experience and are reflected as reductions to revenue, while the provision for bad debt for rental transactions is reflected as a component of "Selling, general and administrative expenses" in the Company's consolidated statements of operations.

Inventory

Inventory is comprised of finished goods and consists of new equipment, supplies, tools, parts, fuel and related supply items. Inventory is stated at the lower of cost and net realizable value. Cost is determined by inventory type on the average cost method.


Rental Equipment


Rental equipment is stated at cost, net of related discounts, with holding periods ranging from twoone year to 15 years. Generally, when rental equipment is acquired, the Company estimates the period that it will hold the asset, primarily based on historical measures of the amount of rental activity (e.g. equipment usage) and the targeted age of equipment at the time of disposal. The Company

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also estimates the residual value of the applicable rental equipment at the expected time of disposal. The residual value for rental equipment is affected by factors which include equipment age and amount of usage. Depreciation is recorded over the estimated holding period. 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. Market conditions for used equipment sales can also be affected by external factors such as the economy, natural disasters, fuel prices, supply of similar used equipment, the market price for similar new equipment and incentives offered by manufacturers of new equipment. These key factors are considered when estimating future residual values and assessing depreciation rates. As a result of this ongoing assessment, the Company makes periodic adjustments to depreciation rates of rental equipment in response to changed market conditions.


Property and Equipment


Property and equipment are stated at cost and are depreciated utilizing the straight-line method over the estimated useful lives of the related assets. Leasehold improvements are amortized over the estimated useful lives of the related assets or leases, whichever is shorter.


Useful lives are as follows:
Buildings8 to 33 years
Service vehicles3 to 13 years
Machinery and equipment1 to 15 years
Computer equipment1 to 5 years
Furniture and fixtures2 to 10 years
Leasehold improvementsThe lesser of the economicasset life or theexpected lease term including lease extension options.


The Company follows the practice of charging routine maintenance and repairs, including the cost of minor replacements, to maintenance expense. Costs of major replacements are capitalized and depreciated.

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Leases


The Company leases certain property and equipment used in operations.

IfLeases are classified as either finance or operating at inception of the lease, is considered an operatingwith classification affecting the pattern of expense recognition in the income statement. Operating and finance leases result in the recognition of right-of-use ("ROU") assets and lease it is not recordedliabilities on the balance sheetsheet. ROU assets represent the Company's right to use the leased asset for the lease term and rent expenselease liabilities represent the obligation to make lease payments. The liability is recognizedcalculated as the present value of the remaining minimum lease payments for existing operating leases using either the rate implicit in the lease or, if none exists, the Company's incremental borrowing rate. Operating lease cost is recorded on a straight-line basis over the expectedremaining lease term.

Certain property and equipment are held under capital leases. These assets are included in property and equipment and depreciated over the term Finance lease cost includes amortization of the lease. Rent expense is not recognized forROU assets on a capital lease. Rather, rental payments understraight-line basis and interest on the lease are recognized as a reduction ofliabilities using the capital lease obligation andeffective interest expense.method.


In certain instances, the Company may sell property and enter into an arrangement to lease the property back from the landlord. In these instances, the Company performs a sale-leaseback analysis to determine if the assets can be removed from the balance sheet. If certain criteria are met, the Company recognizes the transaction as a sale, removes the assets from its balance sheet and reflects the future rentallease payments as rent expense. If the criteria for sale is not met, such as available repurchase options or continuing involvement with the property, the Company is considered the owner for accounting purposes. In these instances, the Company is precluded from derecognizing the assets from its balance sheet and will continue to depreciate the assets over the expected lease term. In conjunction with these arrangements, the Company records a financing obligation equal to the cash proceeds or fair market value of the assets received from the landlord. RentLease payments for these properties are recognized as interest expense and a reduction of the financing obligation using the effective interest method. At the end of the lease term, including exercise of any renewal options, the net remaining financing obligation over the net carrying value of the fixed asset will be recognized as a non-cash gain on sale of the property.


Public Liability and Property Damage


The obligation for public liability and property damage on self-insured U.S. and international equipment represents an estimate

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for both reported accident claims not yet paid, and claims incurred but not yet reported. The related liabilities are recorded on a non-discounted basis. Reserve requirements are based on actuarial evaluations of historical accident claim experience and trends, as well as future projections of ultimate losses, expenses, premiums and administrative costs. The adequacy of the liability is regularly monitored based on evolving accident claim history and insurance-related state legislation changes. If the Company's estimates change or if actual results differ from these assumptions, the amount of the recorded liability is adjusted to reflect these results.


Reserves for Claims
The Company is exposed to various claims relating to our business, including those for which we provide self-insurance. Claims for which we self-insure include: (i) workers compensation claims; (ii) general liability claims by third parties for injury or property damage caused by our equipment or personnel; (iii) automobile liability claims; and (iv) employee health insurance claims. These types of claims may take a substantial amount of time to resolve and, accordingly, the ultimate liability associated with a particular claim, including claims incurred but not reported as of a period-end reporting date, may not be known for an extended period of time. The Company's methodology for developing self-insurance reserves is based on management estimates and independent third party actuarial estimates. The estimation process considers, among other matters, the cost of known claims over time, cost inflation and incurred but not reported claims. These estimates may change based on, among other things, changes in the Company's claim history or receipt of additional information relevant to assessing the claims and the amount of the recorded liability is adjusted to reflect these changes. The long-term portion of our self-insurance reserves is included in "Other long-term liabilities" in the consolidated balance sheet.

Defined Benefit Pension Plans and Other Employee Benefits


The Company's employee pension costs and obligations are developed from actuarial valuations. Inherent in these valuations are key assumptions, including discount rates, salary growth, long-term return on plan assets, retirement rates, mortality rates and other factors. The selection of assumptions is based on historical trends and known economic and market conditions at the time of valuation, as well as independent studies of trends performed by actuaries. However, actual results may differ substantially from the estimates that were based on the critical assumptions. The Company uses a December 31 measurement date for all of the plans.


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Actual results that differ from the Company's assumptions are accumulated and amortized over future periods and, therefore, generally affect its recognized expense in such future periods. While management believes that the assumptions used are appropriate, significant differences in actual experience or significant changes in assumptions would affect the Company's pension costs and obligations.

The Company maintains reserves for employee medical claims, up to its insurance stop-loss limit, and workers' compensation claims. These are regularly evaluated and revised, as needed, based on a variety of information, including historical experience, actuarial estimates and current employee statistics.


Foreign Currency Translation and Transactions


Assets and liabilities of international subsidiaries whose functional currency is the local currency are translated at the rate of exchange in effect on the balance sheet date; income and expenses are translated at the average exchange rates throughout the year. The related translation adjustments are reflected in “Accumulated other comprehensive income (loss)” in the equity section of the Company's consolidated balance sheets. Foreign currency gains and losses resulting from transactions are included in earnings.


Financial Instruments


The Company is exposed to a variety of market risks, including the effects of changes in interest rates and foreign currency exchange rates. The Company manages exposure to these market risks through ongoing processes to monitor the impact of market changes and, when deemed appropriate, through the use of financial instruments. Financial instruments are viewed as risk management tools and have not been used for speculative or trading purposes. The Company accounts for all derivatives in accordance with U.S. GAAP, which requires that they be recorded on the balance sheet as either assets or liabilities measured at their fair value. For financial instruments that are designated and qualify as hedging instruments, the Company designates the hedging instrument, based upon the exposure being hedged, as either a fair value hedge or a cash flow hedge. The effective portion of changes in fair value of financial instruments designated as cash flow hedging instruments is recorded as a component of other comprehensive income (loss). Amounts included in accumulated other comprehensive income (loss) for cash flow hedges are reclassified into earnings in the same period that the hedged item is recognized in earnings. The ineffective portion of changes in the fair value of financial instruments designated as cash flow hedges is recognized currently in earnings within the same line item as the hedged item, based upon the nature of the hedged item. For financial instruments that are not part of a qualified hedging relationship, the changes in their fair value are recognized currently in earnings.


Business Combinations

The Company has made acquisitions and may continue to make acquisitions in the future. The assets acquired and liabilities assumed are recorded based on their respective fair values at the date of acquisition. Long-lived assets (principally rental equipment), goodwill and other intangible assets generally represent the largest components of the acquisitions. Rental equipment is valued utilizing either a cost, market or income approach, or a combination of certain of these methods, depending on the asset being valued and the availability of market or income data. The intangible assets that the Company has acquired are non-compete agreements, customer relationships and trade names and associated trademarks. The estimated fair values of these intangible assets reflect various assumptions about discount rates, revenue growth rates, operating margins, terminal values, useful lives and other prospective financial information. Goodwill is calculated as the excess of the cost of the acquired entity over the net of the fair value of the assets acquired and the liabilities assumed. Non-compete agreements, customer relationships and trade names and associated trademarks are valued based on an excess earnings or income approach based on projected cash flows and may be amortized over the useful life if they are determined to be finite-lived intangible assets. Determining the fair value of the assets and liabilities acquired is judgmental in nature and can involve the use of significant estimates and assumptions.

As part of an acquisition, the Company will also acquire other assets and assume liabilities. These other assets and liabilities typically include, but are not limited to, parts inventory, accounts receivable, accounts payable and other working capital items. Because of their short-term nature, the fair values of these other assets and liabilities generally approximate the book values on the acquired entities' balance sheets.

Goodwill and Indefinite-Lived Intangible Assets


On an annual basis and at interim periods when circumstances require, the Company tests the recoverability of its goodwill. The analysis is conducted as of October 1 each year. The Company has one1 reporting unit and compares the carrying value of its
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reporting unit to its fair value. If the carrying value of the reporting unit is greater than its fair value, the Company recognizes an impairment charge for the amount equal to that excess.


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The Company may first assess qualitative factors to determine whether it is more-likely-than-not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the quantitative goodwill impairment test. If a quantitative impairment test is performed, the fair value of the reporting unit is estimated using a combination of an income approach on the present value of estimated future cash flows and a market approach based on published earnings multiples of comparable entities with similar operations and economic characteristics as well as acquisition multiples paid in recent transactions. The Company’s discounted cash flows are based upon reasonable and appropriate assumptions, which are weighted for their likely probability of occurrence, about the underlying business activities of the Company.


Indefinite-lived intangible assets, primarily our trade name, are not amortized but are evaluated annually for impairment and whenever events or changes in circumstances indicate that the carrying amount of this asset may exceed its fair value. If the carrying value of an indefinite-lived intangible asset exceeds its fair value, an impairment charge is recognized in an amount equal to that excess.


Finite-Lived Intangible and Long-Lived Assets


Intangible assets include technology, customer relationships and technology.other intangibles. Intangible assets with finite lives are amortized using the straight-line method over the estimated economic lives of the assets, which range from three to 1014 years. These assets are primarily amortized using the straight-line method, however, certain assets may be amortized using an accelerated method that reflects the economic benefit to the Company. Long-lived assets, including intangible assets with finite lives, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. Determination of recoverability is based on an estimate of undiscounted future cash flows resulting from the use of the asset and its eventual disposition. Measurement of an impairment loss for long-lived assets that management expects to hold and use is based on the estimated fair value of the asset.

Long-lived assets, or disposal groups comprising assets and liabilities, that are expected to be disposedrecovered primarily through sale rather than through continuing use are classified as assets held for sale. Upon designation as an asset held for sale, the carrying value of are reportedeach long-lived asset or disposal group is recorded at the lower of its carrying amountvalue or its estimated fair value, less estimated costs to sell.sell, and depreciation expense is no longer recorded.


Revenue Recognition


The Company is principally engaged in the business of renting equipment. Ancillary to the Company’s principal equipment rental business, the Company also sells used rental equipment, new equipment and parts and supplies and offers certain services to support its customers.
The Company’s rental transactions are accounted for under ASC Topic 842, Leases, ("Topic 842"). Prior to the adoption of Topic 842 on January 1, 2019, the Company accounted for these transactions under ASC Topic 840, Leases, ("Topic 840"). Equipment rental revenue includes revenue generated from renting equipment to customers, including re-rent revenue, and isrecognized under Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") Topic 840, Leases, ("Topic 840"). on a straight-line basis over the length of the rental contract. Other equipment rental revenues include fees for the Company's rental protection program and environmental charges and are recognized on a straight-line basis over the length of the rental contract.
The Company’s sale of rental and new equipment, parts and supplies along with certain services provided to customers are recognized under ASC Topic 606, Revenue from Contracts with Customers, ("Topic 606") which was adopted on January 1, 2018. Prior to adoption of Topic 606, the Company recognized these transactions under ASC Topic 605, Revenue Recognition, ("Topic 605"). The following addresses our primary revenue types based on the accounting standard used to determine the accounting.

Topic 840

Equipment rental - Equipment rental revenue includes revenue generated from renting equipment to customers and is recognized on a straight-line basis over the length of the rental contract. Also included in equipment rental revenue is re-rent revenue in which the Company will rent specific pieces of equipment from vendors and then re-rent that equipment to its customers. Provisions for discounts, rebates to customers and other adjustments are provided for in the period the related revenue is recorded.

Other - Other equipment rental revenue is primarily comprised of fees for the Company’s rental protection program and environmental charges and are recognized on a straight-line basis over the length of the rental contract.

Topic 606

Delivery and pick-up
Delivery and pick-up revenue associated with renting equipment is recognized when the services are performed.
Service and other revenues
Service and other revenues primarily include revenue earned from equipment management and similar services for rental customers which includes providing customer support functions such as dedicated in-plant operations, plant management services, training, and repair and maintenance services particularly to industrial customers who request such services. The Company recognizes revenue when it satisfies a performance obligation by transferring control over a product or service to a customer. The amount of revenue recognized reflects the consideration the Company expects to be entitled to in exchange for service and other revenues as the services are provided.such products or services.

See Note 3, "Revenue Recognition" for further discussion of our revenue accounting.
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Advertising


Advertising and sales promotion costs are expensed the first time the advertising or sales promotion takes place. Advertising costs are reflected as a component of "Selling, general and administrative" expense in the Company's consolidated statements of operations. For the years ended December 31, 2018, 20172020, 2019 and 2016,2018 advertising costs were $1.0$2.2 million, $2.7 million and $3.6$1.0 million, respectively.


Stock Based Compensation


Under the Company's stock based compensation plans, certain employees and members of the Company's board of directors have received grants of restricted stock units, performance stock units and stock options for Herc Holdings common stock.


The Company measures the cost of employee services received in exchange for an award of equity instruments based on the grant date fair value of the award. That cost is recognized over the period during which the employee is required to provide service in exchange for the award. The Company estimates the fair value of stock options issued at the date of grant using a Black-Scholes option-pricing model, which includes assumptions related to volatility, expected term, dividend yield and risk-free interest rate.


The Company accounts for restricted stock unit and performance stock unit awards as equity classified awards. For restricted stock units, the expense is based on the grant date fair value of the stock and the number of shares that vest, recognized over the service period. For performance stock units, the expense is based on the grant date fair value of the stock, recognized over a service period depending upon the applicable performance condition. For performance stock units, the Company re-assesses the probability of achieving the applicable performance condition each reporting period and adjusts the recognition of expense accordingly.


Income Taxes


The Company’s operations are subject to U.S. federal, state and local, and foreign income taxes, portions of which have historically been included in the Hertz Holdings consolidated U.S. federal income tax return, along with certain state and local and foreign income tax returns. In preparing its combined financial statements for periods prior to the Spin-Off, the Company has determined the tax provision for those operations that are included in the Hertz Holdings consolidated tax return on a separate company return basis, assuming that the Company had filed on a stand-alone basis separate from Hertz Holdings (“Separate Return Basis”).

The current and deferred tax related balances and related tax carryforwards reflected in the Company’s combined financial statements for periods prior to the Spin-Off have been determined on a Separate Return Basis. As a result, the tax balances and carryforwards on the Company’s tax returns post Spin-Off, including net operating losses and tax credits, will be different from those reflected in the combined financial statements. In addition, as a consequence of the Company’s inclusion in the Hertz Holdings' consolidated income tax returns, the Company is severally liable, with other members of the consolidated group, for any additional taxes that may be assessed. There are no unrecognized tax benefits based on the Herc operations prior to the Spin-Off reflected in these combined financial statements.

The Company's Like-Kind Exchange Program ("LKE Program") was in place for several years. Pursuant to the program, the Company disposed of equipment and acquired replacement equipment in a form intended to allow such dispositions and replacements to qualify as tax-deferred "like-kind exchanges" pursuant to Section 1031 of the Internal Revenue Code ("Section 1031"). The program had resulted in deferral of federal and state income taxes in prior years. The Tax Cuts and Jobs Act of 2017 (the "2017 Tax Act") eliminated the eligibility of personal property for Section 1031 treatment. The 2017 Tax Act also enacted an election to immediately expense all purchases of new and used personal property placed in service after September 27, 2017. As a result of the 2017 Tax Act, the Company ceased its LKE Program and therefore reflects zero restricted cash as of December 31, 2017. 

The Company applies the provisions of ASC Topic 740, Income Taxes, ("Topic 740"), and computes the provision for income taxes on a Separate Return Basis. Under Topic 740, deferred tax assets and liabilities are determined based on differences between the financial statement carrying amounts and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will beare expected to apply to taxable income in effect when the years in which those temporary differences are expected to reverse.be recovered or settled. The effect of a change in tax rates is recognized in the statement of operations in the period that includes the enactment date. The Company records a valuation allowanceallowances to reduce its deferred tax assets toby the amount that is more likely than not to be realized. Subsequent changes to enacted tax rates and changes in the interpretations thereof will result in deferred taxes and changes to any related valuation allowances. Provisions are not made for income taxes

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on undistributed earnings of international subsidiaries that are intended to be indefinitely reinvested outside of the United States or are expected to be remitted free of taxes. Future distributions, if any, from these international subsidiaries to the United States or changes in U.S. tax rules may require a charge to reflect tax on these amounts.


In accordance with Topic 740, the Company recognizes, in its consolidated financial statements, the impact of the Company's tax positions that are more likely than not to be sustained upon examination. The Company will determine whether it is more likely than not that a tax position will be sustained upon examination, including resolution of any related appeals or litigation processes, based on the technical merits of the positions.position. In evaluating whether a tax position has met the more-likely-than-not recognition threshold, the Company presumes that the position will be examined by the appropriate taxing authority with full knowledge of all relevant information. Upon determination that a tax position meets the more-likely-than-not recognition threshold, it is measured to determine the amount of benefit to recognize in the financial statements. The Company recognizes interest and penalties for uncertain tax positions in income tax expense.


The Tax Cuts and Jobs Act of 2017 (the "2017 Tax Act, which was enacted in December 2017,Act"), had a substantial impact on the income tax benefit for the years ended December 31, 2018 and 2017. See Note 13, "Income Taxes" for further detail.

Recently Issued Accounting Pronouncements

Adopted

Revenue from Contracts with Customers

In May 2014, the Financial Accounting Standards Board ("FASB") issued guidance that replaced existing revenue recognition guidance in U.S. GAAP. The new guidance requires entities to recognize revenue when control of the promised goods or services is transferred to customers at an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.
On January 1, 2018, the Company adopted the guidance using the modified retrospective method applied to those contracts which were not completed as of January 1, 2018. The Company did not record any amount to the opening balance of retained earnings as of January 1, 2018 as the cumulative impact of adopting the guidance was not material. The comparative financial statement information has not been restated and continues to be reported under the accounting standards in effect for those periods. The adoption of the guidance had no material impact on the Company’s consolidated balance sheet as of January 1, 2018. The Company's accounting for equipment rental revenue is primarily outside the scope of this new revenue guidance and will be evaluated under the new lease guidance which is described further under the subheading "Leases" below.
Statement of Cash Flows: Classification of Certain Cash Receipts and Cash Payments

In August 2016, the FASB issued guidance to eliminate the diversity in practice related to the classification of certain cash receipts and payments in the statement of cash flows, by adding or clarifying guidance on eight specific cash flow issues. The Company adopted this guidance on January 1, 2018 in accordance with the effective date and has amended its statement of cash flows for the year ended December 31, 2017 by reclassifying $7.4 million2018. See Note 15, "Income Taxes" for further detail.

Impacts of debt extinguishment costs from cash used in operating activities to cash used in financing activities.COVID-19

Income Taxes: Intra-Entity Transfers of Assets Other Than Inventory


In October 2016,December 2019, a novel strain of coronavirus ("COVID-19") was identified in China and has since spread globally. In March 2020, the FASB issued guidance requiring an entityWorld Health Organization characterized COVID-19 as a pandemic. Federal, state and local efforts to recognize upon transfercontain the income tax consequencesspread of an intra-entity transfer of an asset other than inventory, eliminating the current recognition exception. Two common examples of assets includedCOVID-19 intensified in March 2020 when most states in the scope of this standard are intellectual property and property, plant and equipment. TheUnited States, including Florida where the Company adopted this guidance on January 1, 2018 in accordance with the effective date. Adoption of this guidance did not have a significant impact on the Company's financial position, results of operations or cash flows.

Statement of Cash Flows: Restricted Cash

In November 2016, the FASB issued guidance requiring restricted cash and cash equivalents to be included with cash and cash equivalents on the statement of cash flows. The Company adopted this guidance on January 1, 2018 in accordance with the effective date and has amended its statement of cash flows for the years ended December 31, 2017 and 2016 accordingly.

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

In March 2017, the FASB issued guidance on the presentation of net periodic pension and postretirement benefit costs in the income statement and on the components eligible for capitalization. The guidance requires the reporting of the service cost

is
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componentheadquartered, enacted shelter in place orders, declared states of emergency, took steps to restrict travel, enacted temporary closures of non-essential businesses and took other restrictive measures in response to the COVID-19 pandemic. The Company's business was deemed essential and was allowed to remain open, however, many industries in which its customers operate were required to temporarily close their facilities or delay or cancel projects and events. The Company reduced its capital spending during 2020 and, where possible, reduced operating expenses while ensuring ongoing safe and reliable operations. Additionally, as the timing and extent of the net periodic benefit costsremoval of these measures and the residual economic impact of the pandemic remains unclear, the Company is currently experiencing a year-over-year decrease in volume of fleet on rent and this reduction in volume is likely to have a negative impact on equipment rental revenue. The impact of the same income statement line itemCOVID-19 pandemic continues to evolve as state and local governments are re-opening businesses in multiple phases and, in certain jurisdictions, reversing re-opening decisions. Therefore, we cannot predict the extent to which our financial condition, results of operations or cash flows will ultimately be impacted.

Recently Issued Accounting Pronouncements

Adopted

Fair Value Measurement

In August 2018, the Financial Accounting Standards Board ("FASB") issued new guidance that modifies disclosure requirements on fair value measurements, removing and modifying certain disclosures, while adding other components of net periodic costs arising from services rendered by an employee during the period, and that non-service-cost components be presented in the income statement separately from the service cost components and outside a subtotal of income from operations.disclosures. The guidance also allowsis effective for the capitalization of the service cost components, when applicable. The Company adopted this guidance on January 1, 2018 in accordancefiscal years, and interim periods within those fiscal years, beginning after December 15, 2019, with the effective date. Adoption of this guidance resulted in an immaterial reclassification of costs from "Direct operating" and "Selling, general and administrative" expense into "Other income, net" in the Company's statement of operations.

Compensation - Stock Compensation

In May 2017, the FASB issued guidance pursuant to which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting. Under the updated guidance, a modification is defined as a change in the terms or conditions of a share-based payment award, and an entity should account for the effects of a modification unless all of the following are met:
1.The fair value of the modified award is the same as the fair value of the original award immediately before the original award is modified. If the modification does not affect any of the inputs to the valuation techniques that the entity uses to value the award, the entity is not required to estimate the value immediately before and after the modification.
2.The vesting conditions of the modified award are the same as the vesting conditions of the original award immediately before the original award is modified.
3.The classification of the modified award as an equity instrument or a liability instrument is the same as the classification of the original award immediately before the original award is modified.
The guidance requires prospective application to an award modified on or after theearly adoption date.permitted. The Company adopted the new guidance on January 1, 2018 in accordance with theits effective date and will apply the guidance to any future changes to the terms or conditions of its share-based payment awards.

Income Statement - Reporting Comprehensive Income

In February 2018, the FASB issued guidance that allows reclassification from accumulated other comprehensive income to retained earnings for certain tax effects resulting from the 2017 Tax Act that would otherwise be stranded in accumulated other comprehensive income. This guidance is effective for annual and interim periods beginning after December 15, 2018, with early adoption permitted. The Company has elected to early adopt this guidance and as a result has recorded an adjustment of $2.2 million to retained earnings as of December 31, 2018.

Not Yet Adopted

Leases

In February 2016, the FASB issued new leasing guidance ("Topic 842") that replaces the existing lease guidance. Topic 842 establishes a right-of-use (“ROU”) model that requires a lessee to record a ROU asset and lease liability on the balance sheet 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 and the required quantitative and qualitative disclosures surrounding leases. Accounting guidance for lessors is largely unchanged. Topic 842 is effective for annual periods beginning after December 15, 2018 and interim periods within those annual periods using a modified retrospective transition approach.

The Company will adopt Topic 842 on its effective date of January 1, 2019 and expects to recognize additional lease liabilities of approximately $166.0 million, with corresponding ROU assets on its balance sheet. The Company doesit did not expect this guidance to have a material impact on its resultsfinancial statement disclosures.

Measurement of operationsCredit Losses on Financial Instruments

In June 2016, the FASB issued guidance that requires companies to present assets held at amortized cost and cash flows. The liability is calculated as the present valueavailable for sale debt securities net of the remaining minimum rental paymentsamount expected to be collected. The guidance requires the measurement of expected credit losses to be based on relevant information from past events, including historical experiences, current conditions and reasonable and supportable forecasts that affect collectibility. The guidance is effective for existingfiscal years, and interim periods within those fiscal years, beginning after December 15, 2019 with early adoption permitted. Different components of the guidance require modified retrospective or prospective adoption. This guidance does not apply to receivables arising from operating leases using either the rate implicit in the lease or, if none exists, the Company's incremental borrowing rate. The Company's existing capital leases will be accounted for as finance leases upon adoption and, the Company does not expect any significant changes to the accounting for such leases upon adoption.

The Company plans to use the transition method that allows it to apply the guidance as of January 1, 2019 and recognize a cumulative-effect adjustment to the opening balance of retained earnings, which the Company does not expect to be material. Additionally, Topic 842 will not be applied to periods prior to adoption and the adoption will have no impact on our previously

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reported results. The Company also plans to take advantage of the transition package of practical expedients permitted within Topic 842 which allows the Company not to reassess (i) whether any expired or existing lease contracts are or contain leases, (ii) the historical lease classification for any expired or existing leases and (iii) initial direct costs for any existing leases. The Company also expects to use the practical expedient that allows lessees to treat the lease and non-lease components of leases as a single lease component.

The Company has implemented a lease management system to assist in the accounting and is evaluating additional changes to its processes and internal controls to ensure the new reporting and disclosure requirements are met upon adoption. 

Additionally, as discussed in Note 3, "Revenue Recognition," most of the Company's equipment rental revenues will berevenue is accounted for under the currentas lease accounting standard, Topic 840, until the adoption ofrevenue under Topic 842. The Company adopted this guidance on its effective date and there was no material impact on its financial position, results of operations or cash flows.

Simplifying the Accounting for Income Taxes

In December 2019, the FASB issued guidance that simplifies the accounting for income taxes. The guidance removes the following exceptions: (i) exceptions to the approach for intraperiod tax allocation when there is still evaluatinga loss from continuing operations and income or a gain from other items, (ii) exception to the impact of adoption of Topic 842 on certain of its equipment rental revenues and expectsrequirement to recognize a cumulative-effect adjustmentdeferred tax liability for equity method investments when a foreign subsidiary becomes an equity method investment, (iii) exception to the opening balanceability not to recognize a deferred tax liability for a foreign subsidiary when a foreign equity method investment becomes a subsidiary and (iv) exception to the general methodology for calculating income taxes in an interim period when a year-to-date loss exceeds the anticipated loss for the year. Additionally, the guidance simplifies the accounting for income taxes by: (i) requiring that an entity recognize a franchise tax (or similar tax) that is partially based on income as an income-based tax and account for any incremental amount incurred as a non-income-based tax, (ii) requiring that an entity evaluate when a step up in the tax basis of retained earningsgoodwill should be considered part of the business combination in which the book goodwill was originally recognized and when it should be considered a separate transaction, (iii) specifying that an entity is not required to allocate the consolidated amount of current and deferred tax expense to a legal entity that is not subject to tax in its separate financial statements (although the entity may elect to do so (on an entity-by-entity basis) for a legal entity that is both not subject to tax and disregarded by the taxing authority), (iv) requiring that an entity reflect the effect of an enacted change in tax laws or rates in the annual effective tax rate computation in the interim period that includes the enactment date and (v) making minor improvements for income tax accounting related to these items.employee stock ownership plans and investments in qualified affordable housing projects accounted for using the equity method.  The Company expects Topic 842 to have an immaterialearly adopted this guidance on January 1, 2020 and there was no material impact on future revenues.its financial position, results of operations or cash flows.

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Compensation - Retirement Benefits

In August 2018, the FASB issued guidance that adds, removes, and modifies disclosure requirements related to defined benefit pension and other postretirement plans in order to improve the disclosure effectiveness. The guidance is effective for fiscal years beginning after December 15, 2020 and should be applied on a retrospective basis to all periods presented. The Company early adopted this guidance on December 31, 2020 as permitted, and there was no impact the Company's financial position, results of operations or cash flows. See Note 13, "Employee Retirement Benefits" for revised disclosures in accordance with this guidance.
Not Yet Adopted

Facilitation of the Effects of Reference Rate Reform on Financial Reporting
In March 2020, the FASB issued guidance that provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by the discontinuation of the London Interbank Offered Rate (“LIBOR”) or by another reference rate expected to be discontinued. This guidance is effective beginning March 12, 2020 through December 31, 2022 where the transition method varies depending upon the specific expedient or exception. The Company is in the process of assessing the available expedients and exceptions and, if applicable, the method and timing of adoption.

Note 3—Revenue Recognition


The Company is principally engaged in the business of renting equipment. Ancillary to the Company’s principal equipment rental business, the Company also sells used rental equipment, new equipment and parts and supplies and offers certain services to support its customers. The Company’s business is primarily focusedCompany operates in North America with revenue from the United States representing approximately 88.9%91.5%, 88.2%89.9% and 87.6%88.9% of total revenue for the years ended December 31, 2018, 20172020, 2019 and 2016,2018, respectively.


The Company’s rental transactions are principally accounted for under Topic 842. Prior to the adoption of Topic 842, the Company accounted for rental transactions under Topic 840. The Company’s sale of rental and new equipment, parts and supplies along with certain services provided to customers are accounted for under ASC Topic 606. PriorThe Company recognizes revenue when it satisfies a performance obligation by transferring control over a product or service to a customer. The amount of revenue recognized reflects the adoption of Topic 606,consideration the Company accountedexpects to be entitled to in exchange for these non-rental transactions under ASC Topic 605.

such products or services.
The following table summarizes the applicable accounting guidance for the Company’s revenues (in millions):
Years Ended December 31,
202020192018
Topic 842Topic 606TotalTopic 842Topic 606TotalTopic 840Topic 606Total
Revenues:
Equipment rental$1,401.1 $$1,401.1 $1,549.9 $$1,549.9 $1,509.7 $$1,509.7 
Other rental revenue:
Delivery and pick-up86.7 86.7 98.0 98.0 88.4 88.4 
Other55.9 55.9 53.9 53.9 60.2 60.2 
Total other rental revenues55.9 86.7 142.6 53.9 98.0 151.9 60.2 88.4 148.6 
Total equipment rentals1,457.0 86.7 1,543.7 1,603.8 98.0 1,701.8 1,569.9 88.4 1,658.3 
Sales of rental equipment198.5 198.5 242.8 242.8 256.2 256.2 
Sales of new equipment, parts and supplies28.2 28.2 44.0 44.0 49.3 49.3 
Service and other revenues10.9 10.9 10.4 10.4 12.9 12.9 
Total revenues$1,457.0 $324.3 $1,781.3 $1,603.8 $395.2 $1,999.0 $1,569.9 $406.8 $1,976.7 
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 Year Ended December 31,
 2018 2017 2016
 Topic 840 Topic 606 Total Topic 840 Topic 605 Total Topic 840 Topic 605 Total
Revenues:                 
Equipment rental$1,509.7
 $
 $1,509.7
 $1,372.3
 $
 $1,372.3
 $1,247.1
 $
 $1,247.1
Other rental revenue:                 
Delivery and pick-up
 88.4
 88.4
 
 75.2
 75.2
 
 66.9
 66.9
Other60.2
 
 60.2
 51.5
 
 51.5
 38.7
 
 38.7
Total other rental revenues60.2
 88.4
 148.6
 51.5
 75.2
 126.7
 38.7
 66.9
 105.6
Total equipment rentals1,569.9
 88.4
 1,658.3
 1,423.8
 75.2
 1,499.0
 1,285.8
 66.9
 1,352.7
Sales of rental equipment
 256.2
 256.2
 
 190.8
 190.8
 
 122.5
 122.5
Sales of new equipment, parts and supplies
 49.3
 49.3
 
 52.3
 52.3
 
 68.2
 68.2
Service and other revenues
 12.9
 12.9
 
 12.4
 12.4
 
 11.4
 11.4
Total revenues$1,569.9
 $406.8
 $1,976.7
 $1,423.8
 $330.7
 $1,754.5
 $1,285.8
 $269.0
 $1,554.8


Topic 840842 revenues
Equipment Rental Revenue
Equipment rental revenue includes revenue generated from renting equipment to customers and is recognized on a straight-line basis over the length of the rental contract. The Company offers a broad portfolio of equipment for rent on a daily, weekly or monthly basis, with most rental agreements cancelable upon the return of the equipment. Virtually all customer contracts can be canceled by the customer with no penalty by the customer by returning the equipment within one day,day; therefore, the Company does not allocate the transaction price between the different contract elements.
Equipment rental revenue includes revenue generated from renting equipment to customers and is recognized on a straight-line basis over the length of the rental contract. As part of this straight-line methodology, when the equipment is returned, the Company recognizes as incremental revenue the excess, if any, between the amount the customer is contractually required to pay, which is based on the rental contract period applicable to the actual number of days the equipment was out on rent, over the cumulative amount of revenue recognized to date. In any given accounting period, the Company will have customers return equipment and be contractually required to pay more than the cumulative amount of revenue recognized to date under the straight-line methodology. Also included in equipment rental revenue is re-rent revenue in which the Company will rent specific pieces of equipment from vendors and then re-rent that equipment to its customers. Provisions for discounts, rebates to customers and other adjustments are provided for in the period the related revenue is recorded.

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Other
Other equipment rental revenue is primarily comprised of fees for the Company’s rental protection program and environmental charges. Fees paid for the rental protection program allow customers to limit the risk of financial loss in the event the Company’s equipment is damaged or lost. Fees for the rental protection program and environmental recovery fees are recognized on a straight-line basis over the length of the rental contract.
Topic 606 revenues
Delivery and pick-up
Delivery and pick-up revenue associated with renting equipment is recognized when the services are performed.
Sales of Rental Equipment, New Equipment, Parts and Supplies
The Company sells its used rental equipment, new equipment, parts and supplies. Revenues recorded for each category are as follows (in millions):
Years Ended December 31,
202020192018
Sales of rental equipment$198.5 $242.8 $256.2 
Sales of new equipment11.5 21.0 21.3 
Sales of parts and supplies16.7 23.0 28.0 
Total$226.7 $286.8 $305.5 
 Year Ended December 31,
 2018 2017 2016
Sales of rental equipment$256.2
 $190.8
 $122.5
Sales of new equipment21.3
 26.9
 38.4
Sales of parts and supplies28.0
 25.4
 29.8
Total$305.5
 $243.1
 $190.7


The Company recognizes revenue from rental equipment, new equipment, parts and supplies when control of the asset transfers to the customer, which is typically when the asset is picked up by or delivered to the customer and when significant risks and rewards of ownership have passed to the customer. Sales and other tax amounts collected from customers and remitted to government authorities are accounted for on a net basis and, therefore, excluded from revenue.
The Company routinely sells its used rental equipment in order to manage repair and maintenance costs, as well as the composition, age and size of its fleet. The Company disposes of used equipment through a variety of channels including retail sales to customers and other third parties, sales to wholesalers, brokered sales and auctions.


The Company also sells new equipment, parts and supplies. The types of new equipment that the Company sells vary by location and include a variety of ProContractor tools and supplies, small equipment (such as work lighting, generators, pumps,
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compaction equipment and power trowels), safety supplies and expendables.
Under Topic 606, the accounts receivable balance, prior to allowances for doubtful accounts, for the sale of rental equipment, new equipment, parts and supplies, was approximately $19.5$13.8 million and $15.6 million as of December 31, 2018.2020 and 2019, respectively.
Service and other revenues
Service and other revenues primarily include revenue earned from equipment management and similar services for rental customers which includes providing customer support functions such as dedicated in-plant operations, plant management services, training, and repair and maintenance services particularly to industrial customers who request such services.
The Company recognizes revenue for service and other revenues as the services are provided. Service and other revenues are typically invoiced together with a customer’s rental amounts and, therefore, it is not practical for the Company to separate the accounts receivable amount related to services and other revenues that are accounted for under Topic 606; however, such amount is not considered material.
Receivables and contract assets and liabilities


Most of the Company's equipment rental revenue is accounted for under Topic 840.842. The customers that are responsible for the remaining revenue that is accounted for under Topic 606 are generally the same customers that rent the Company's equipment. Concentration of credit risk with respect to the Company's accounts receivable is limited because a large number of geographically diverse customers makes up its customer base. No single customer makes up more than 3% of the Company's equipment rental revenue or more than 5% of its accounts receivable balance for the last three years. The Company manages credit risk associated with its accounts receivable at the customer level through credit approvals, credit limits and other monitoring procedures. The Company maintains

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allowances for doubtful accounts that reflect the Company's estimate of the amount of receivables that the Company will be unable to collect based on its historical write-off experience.


The Company does not have material contract assets or material contract liabilities associated with customer contracts. The Company's contracts with customers do not generally result in material amounts billed to customers in excess of recognizable revenue. The Company did not recognize material revenue during the yearyears ended December 31, 2020, 2019 or 2018 that was included in the contract liability balance as of the beginning of such period.


Performance obligations


Most of the Company's revenue recognized under Topic 606 is recognized at a point-in-time, rather than over time. Accordingly, in any particular period, the Company does not generally recognize a significant amount of revenue from performance obligations satisfied (or partially satisfied) in previous periods, and the amount of such revenue recognized during the yearyears ended December 31, 2020, 2019 and 2018 waswere not material. We also do not expect to recognize material revenue in the future related to performance obligations that arewere unsatisfied (or partially unsatisfied) as of December 31, 2018.2020.


Contract estimates and judgments


The Company's revenues accounted for under Topic 606 generally do not require significant estimates or judgments, primarily for the following reasons:


The transaction price is generally fixed and stated on the Company's contracts;
As noted above, the Company's contracts generally do not include multiple performance obligations, and accordingly do not generally require estimates of the standalone selling price for each performance obligation;
The Company's revenues do not include material amounts of variable consideration; and
Most of the Company's revenue is recognized as of a point-in-time and the timing of the satisfaction of the applicable performance obligations is readily determinable. As noted above, the revenue recognized under Topic 606 is generally recognized at the time of delivery to, or pick-up by, the customer.


The Company monitors and reviews its estimated standalone selling prices on a regular basis.

Note 4—Rental Equipment

Rental equipment consists of the following (in millions):
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 December 31, 2018 December 31, 2017
Rental equipment$3,840.7
 $3,757.2
Less: Accumulated depreciation(1,336.0) (1,382.6)
Rental equipment, net$2,504.7
 $2,374.6

Depreciation rates on the Company's rental equipment are reviewed regularly based on management's ongoing assessment of present and estimated future market conditions, their effect on residual values at the time of disposal and estimated holding periods. The impact of depreciation rate changes increased expense $0.7 million, $18.0 million and $9.4 million for the years ended December 31, 2018, 2017 and 2016, respectively.

During 2017, the Company deemed certain rental equipment, with a net book value of approximately $4.3 million, to be held for sale and reclassified such equipment to "Prepaid and other current assets" in the consolidated balance sheet as of December 31, 2017. The Company also performed an impairment assessment of rental equipment and recorded an impairment charge during the year ended December 31, 2017, as discussed further in Note 7, "Impairment." These assets were sold in April 2018.


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Note 4—Rental Equipment

Rental equipment consists of the following (in millions):
December 31, 2020December 31, 2019
Rental equipment$3,613.5 $3,821.6 
Less: Accumulated depreciation(1,353.1)(1,331.6)
Rental equipment, net$2,260.4 $2,490.0 

Note 5—Property and Equipment


Property and equipment consists of the following (in millions):
December 31, 2020December 31, 2019
Land and buildings$117.3 $116.1 
Service vehicles278.7 305.3 
Leasehold improvements105.8 94.3 
Machinery and equipment23.6 23.3 
Computer equipment and software75.9 64.9 
Furniture and fixtures15.6 15.1 
Construction in progress7.2 9.4 
Property and equipment, gross624.1 628.4 
Less: accumulated depreciation(333.7)(316.6)
Property and equipment, net$290.4 $311.8 
 December 31, 2018 December 31, 2017
Land and buildings$120.2
 $123.5
Service vehicles258.6
 260.4
Leasehold improvements89.1
 74.4
Machinery and equipment27.3
 25.7
Computer equipment and software64.8
 58.4
Furniture and fixtures14.6
 11.8
Construction in progress6.2
 20.2
Property and equipment, gross580.8
 574.4
Less: accumulated depreciation(298.3) (288.1)
Property and equipment, net$282.5
 $286.3


Depreciation expense for the years ended December 31, 2020, 2019 and 2018 2017 and 2016 was $51.9$54.5 million, $46.8$54.0 million and $39.7$51.9 million, respectively. Depreciation expense for property and equipment is included in "Direct operating" and "Selling, general and administrative" expenses in the Company's consolidated statements of operations.


The Company leases certain of its service vehicles and office equipment under capitalfinance leases. Depreciation of assets held under capitalfinance leases is included in depreciation expense. The gross amounts of property and equipment and related depreciation recorded under capitalfinance leases, included in service vehicles in the table above, were as follows (in millions):
December 31, 2020December 31, 2019
Service vehicles$72.7 $101.8 
Furniture and fixtures0.7 1.0 
73.4 102.8 
Less: accumulated depreciation(32.6)(46.2)
$40.8 $56.6 
 December 31, 2018 December 31, 2017
Service vehicles$87.7
 $107.4
Less: accumulated depreciation(50.3) (55.2)
 $37.4
 $52.2


The Company has entered into financing obligations to lease certain of its properties as discussed further in Note 10, "Financing Obligations.12, "Financing Obligations." Depreciation of assets held under financing obligations is included in depreciation expense. The gross amounts of land, building and leasehold improvements and related depreciation recorded under financing obligations, included in the table above, were as follows (in millions):
December 31, 2020December 31, 2019
Land, building and leasehold improvements$77.4 $77.4 
Less: accumulated depreciation(38.7)(36.1)
$38.7 $41.3 

54
 December 31, 2018 December 31, 2017
Land, building and leasehold improvements$76.6
 $70.1
Less: accumulated depreciation(32.7) (25.7)
 $43.9
 $44.4

Note 6—Goodwill and Intangible Assets

Goodwill

The Company performed its annual goodwill impairment test and determined that no impairment existed for the years ended December 31, 2018 and 2017.


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Note 6—Goodwill and Intangible Assets

Goodwill

The Company performed its annual goodwill impairment test as of October 1 and determined that 0 impairment existed for the years ended December 31, 2020 and 2019.

The following summarizes the Company's goodwill (in millions):
Years Ended December 31,
20202019
Balance at the beginning of the period:
Goodwill$768.5 $765.9 
Accumulated impairment losses(674.9)(674.9)
93.6 91.0 
Additions6.9 2.6 
Balance at the end of the period:
Goodwill775.4 768.5 
Accumulated impairment losses(674.9)(674.9)
$100.5 $93.6 
 Year Ended December 31,
 2018 2017
Balance at the beginning and end of the period:   
Goodwill$765.9
 $765.9
Accumulated impairment losses(674.9) (674.9)
 $91.0
 $91.0


Intangible Assets


The Company performed its annual impairment test of indefinite-lived and finite-lived intangible assets as of October 1 and determined that no0 impairment existed for the years ended December 31, 20182020 and 2017. The Company also reviewed its finite-lived intangible assets for impairment and determined that certain assets were impaired during the year ended December 31, 2017 as further discussed in Note 7, "Impairment." There was no impairment of finite-lived intangible assets in 2018.2019.


Intangible assets, net, consisted of the following major classes (in millions):
December 31, 2018 December 31, 2020
Gross Carrying Amount Accumulated Amortization Net Carrying Value Gross Carrying AmountAccumulated AmortizationNet Carrying Value
Finite-lived intangible assets:     Finite-lived intangible assets:  
Customer-related$11.4
 $(7.8) $3.6
Customer-related and non-compete agreementsCustomer-related and non-compete agreements$18.7 $(10.0)$8.7 
Internally developed software(a)
30.4
 (10.5) 19.9
Internally developed software(a)
39.9 (23.3)16.6 
Total41.8
 (18.3) 23.5
Total58.6 (33.3)25.3 
Indefinite-lived intangible assets:     Indefinite-lived intangible assets: 
Trade name270.0
 
 270.0
Trade name270.6 — 270.6 
Total intangible assets, net$311.8
 $(18.3) $293.5
Total intangible assets, net$329.2 $(33.3)$295.9 
(a)     Includes capitalized costs of $0.9$1.2 million yet to be placed into service.
 December 31, 2019
 Gross Carrying
Amount
Accumulated
Amortization
Net Carrying Value
Finite-lived intangible assets:  
Customer-related$11.4 $(8.9)$2.5 
Internally developed software(a)
34.9 (16.4)18.5 
Total46.3 (25.3)21.0 
Indefinite-lived intangible assets: 
Trade name270.5 — 270.5 
Total intangible assets, net$316.8 $(25.3)$291.5 
 December 31, 2017
 Gross Carrying
Amount
 Accumulated
Amortization
 Net Carrying Value
Finite-lived intangible assets:     
Customer-related$14.8
 $(9.4) $5.4
Internally developed software(a)
19.3
 (6.8) 12.5
Total34.1
 (16.2) 17.9
Indefinite-lived intangible assets:     
Trade name266.0
 
 266.0
Total intangible assets, net$300.1
 $(16.2) $283.9
(a)Includes capitalized costs of $5.4(a)     Includes capitalized costs of $1.4 million yet to be placed into service.

Amortization of intangible assets for the years ended December 31, 2018, 2017 and 2016 was approximately $5.4 million, $4.7 million and $5.1 million, respectively. Based on the amortizable assets in-service as of December 31, 2018, the Company expects amortization expense to be approximately $6.5 million in 2019, $6.1 million in 2020, $5.2 million in 2021, $3.1 million in 2022 and $1.7 million in 2023.

Note 7—Impairment

The Company had been in the process of developing a new financial system and point of sale system as part of the separation from New Hertz that was initiated prior to the Spin-Off.  During June 2017, the Company made the decision to discontinue developing these new systems based on the inability to provide the anticipated substantive service potential and significantly higher costs than were originally expected to develop the systems. As a result, the Company recorded an impairment charge of $25.3 million during the year ended December 31, 2017.

placed into service.
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Amortization of intangible assets for the years ended December 31, 2020, 2019 and 2018 was approximately $8.0 million, $7.0 million and $5.4 million, respectively. Based on the amortizable assets in-service as of December 31, 2020, the Company expects amortization expense to be approximately $8.8 million in 2021, $6.5 million in 2022, $3.6 million in 2023, $0.7 million in 2024 and $4.5 million thereafter.

Note 7—Business Combination

In December 2020, the Company completed the acquisition of Champion Rentals, Inc. ("Champion"). Champion was a full-service general equipment rental company comprising approximately 100 employees and 4 locations serving contractors and industrial, manufacturing and government customers in the Houston metropolitan area. The acquisition of Champion expands the Company's Houston-area presence to 12 physical locations, which collectively provide general and specialty equipment rental solutions and related services. The aggregate consideration paid was approximately $47.9 million and is subject to a potential working capital adjustment within 180 days of closing. The acquisition and related fees and expenses were funded through cash on hand.

The following table summarizes the purchase price allocation of the assets acquired and liabilities assumed (in millions):
Accounts receivable$3.4 
Other current assets0.3
Rental equipment28.3
Property and equipment2.1
Intangibles(a)
7.3
Total identifiable assets acquired41.4
Current liabilities0.4
Net identifiable assets acquired41.0
Goodwill(b)
6.9
Net assets acquired$47.9 
(a) The following table reflects the fair values and useful lives of the acquired intangible assets identified (in millions):
Fair valueLife (years)
Customer relationships$7.1 14
Non-compete agreements0.25
$7.3 
(b) The level of goodwill that resulted from the acquisition is primarily reflective of Champion's going-concern value, the value of Champion's assembled workforce, new customer relationships expected to arise from the acquisition and operational synergies that the Company expects to achieve that are not associated with identifiable assets. All of the goodwill is expected to be deductible for income tax purposes.

The assets and liabilities were recorded as of December 30, 2020 and the results of operations will be included in the Company's consolidated results of operations as of that date. Pro-forma operating results, as if the Company had completed the acquisition at the beginning of the periods presented, are not significant to the Company's consolidated statements of operations and are not presented.

Note 8—Assets Held for Sale and Impairments

In December 2020, the Company performed an impairment assessment of certain rental equipment and recorded an impairment charge of $4.4$4.8 million. Additionally, the Company recorded an impairment charge of $1.1 million related to a financial reporting and consolidation system that was replaced during the fourth quarter of 2020.
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In September 2020, the Company closed on the sale of 2 branches and realized a loss on the sale of $0.2 million that was recorded in "Other income (expense), net" in the Company's consolidated statements of operations. In June 2020, the Company had reclassified the assets of these branches to assets held for sale and in connection therewith, an impairment analysis was performed and an impairment charge of approximately $1.5 million was recorded at June 30, 2020.

During June 2020, the Company recorded a right-of-use ("ROU") asset impairment charge of $1.7 million related to two leased locations that were closed during the second quarter of 2019. See Note 9, "Leases" for additional information on the restructuring charges taken in the prior year related to the closures.

During March 2020, the Company recorded an impairment charge of $6.3 million on a long-term receivable related to a previous joint venture sale, the remaining balances of $4.0 million and $8.7 million are included in "Other current assets" and "Other long-term assets," respectively, in the consolidated balance sheets.

As of December 31, 2019, the Company's assets held for sale consisted of the net assets of its remaining international operations outside of North America. In connection with the reclassification of the assets held for sale, an impairment analysis was performed and an impairment charge of approximately $4.0 million was recorded during the year ended December 31, 2017. This rental equipment had a remaining net book value2019. In April 2020, the Company closed on the sale, which was comprised of $4.36 locations, for total proceeds of $24.5 million and realized a loss on the sale of $2.8 million that was reclassified to held for sale and includedrecorded in "Prepaid and other current assets""Other income (expense), net" in the consolidated statements of operations.

Note 9—Leases

The Company leases real estate, office equipment and service vehicles. The Company's leases have remaining lease terms of up to 18 years, some of which include options to extend the leases for up to 20 years. The Company has included the initial lease term and, in the case where there are options to extend, will include the option to extend if it has determined that it reasonably certain that the Company would exercise those options.

The Company also leases certain equipment that it rents to its customers where the payments vary based upon the amount of time the equipment is on rent. There are no fixed payments on these leases and, therefore, no lease liability or ROU assets have been recorded. Leases with an initial term of 12 months or less are not recorded on the balance sheetsheet. Lease expense for these leases is recognized on a straight-line basis over the lease term.

The Company adopted Topic 842 on its effective date of January 1, 2019 using a modified retrospective transition approach; as such, Topic 842 was not applied to periods prior and the adoption had no impact on the Company's previously reported results.

The components of lease expense consist of the following (in millions):
Years Ended December 31,
Classification20202019
Operating lease cost(a)
Direct operating$83.1 $100.1 
Finance lease cost:
Amortization of ROU assets
Depreciation and amortization(b)
11.1 12.5 
Interest on lease liabilitiesInterest expense, net1.5 1.7 
Sublease incomeEquipment rental revenue(46.6)(67.2)
Net lease cost$49.1 $47.1 
(a) Includes short-term leases of $31.4 million and $54.6 million for the year ended December 31, 2017. These2020 and December 31, 2019, respectively, and variable lease costs of $5.2 million and $4.3 million for the year ended December 31, 2020 and December 31, 2019, respectively.
(b) Depreciation and amortization is included with selling, general and administrative expense.

During 2019, the Company entered into a plan of restructuring with respect to certain branches in Canada. As part of the plan, certain of its leased locations were closed and the Company recorded a ROU asset impairment of $4.8 million. Additionally, the Company recorded related leasehold improvement impairments of $0.7 million and severance charges of $2.2 million.

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Balance sheet information related to leases consists of the following (in millions):
ClassificationDecember 31, 2020December 31, 2019
Assets
Operating lease ROU assetsRight-of-use assets$255.9 $207.3 
Finance lease ROU assets
Property and equipment, net(a)
40.8 56.6 
Total leased assets$296.7 $263.9 
Liabilities
Current
OperatingCurrent maturities of operating lease liabilities$32.1 $30.5 
FinanceCurrent maturities of long-term debt and financing obligations12.2 21.8 
Non-current
OperatingOperating lease liabilities234.1 182.2 
FinanceLong-term debt, net28.6 34.4 
Total lease liabilities$307.0 $268.9 
(a) Finance lease right-of-use assets were sold in April 2018are recorded net of accumulated amortization of $32.6 million and no additional impairment was recorded.$46.2 million for the year ended December 31, 2020 and December 31, 2019, respectively.


December 31, 2020
Weighted average remaining lease term:
Operating leases10.6
Finance leases5.6
Weighted average discount rate:
Operating leases3.41 %
Finance leases3.24 %

Cash flow information related to leases consists of the following (in millions):
Years Ended December 31,
20202019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases$35.5 $37.9 
Operating cash flows from finance leases1.5 1.7 
Financing cash flows from finance leases10.8 14.2 
Right-of-use assets obtained in exchange for lease obligations:
Operating leases144.4 76.3 
Finance leases1.4 39.1 
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Maturities of lease liabilities are as follows (in millions):
Operating LeasesFinance Leases
2021$39.5 $13.0 
202240.0 6.7 
202335.8 6.5 
202432.5 6.2 
202526.9 6.2 
After 2026140.0 5.2 
Total lease payments314.7 43.8 
Less: Interest(48.5)(3.0)
Present value of lease liabilities$266.2 $40.8 

Note 8—10—Accrued Liabilities


Accrued liabilities consists of the following (in millions):
December 31, 2020December 31, 2019
Accrued compensation and benefit costs$33.4 $26.8 
Rebate accrual31.9 33.6 
Taxes payable29.1 16.0 
Accrued interest31.3 32.2 
Customer related deferrals13.5 11.3 
Insurance reserves7.8 9.2 
Other7.3 6.6 
Total accrued liabilities$154.3 $135.7 
 December 31, 2018 December 31, 2017
Accrued compensation and benefit costs$32.1
 $27.5
National accounts accrual30.3
 29.7
Accrued property, sales, use and other related taxes15.7
 14.8
Accrued interest7.2
 7.5
Customer related deferrals9.6
 7.7
Self-insurance reserves8.0
 6.2
Income taxes payable5.5
 7.1
Other13.9
 12.8
Total accrued liabilities$122.3
 $113.3


Note 9—11—Debt


The Company's debt consists of the following (in millions):
Weighted Average Effective Interest Rate at December 31, 2020Weighted Average Stated Interest Rate at December 31, 2020Fixed or Floating Interest RateMaturityDecember 31,
2020
December 31,
2019
Senior Notes
2027 Notes5.61%5.50%Fixed2027$1,200.0 $1,200.0 
Other Debt
ABL Credit FacilityN/A1.56%Floating2024255.0 650.0 
AR FacilityN/A1.03%Floating2021175.0 175.0 
Finance lease liabilities3.24%N/AFixed2021-202740.8 56.2 
Other borrowingsN/ANANANA5.2 
Unamortized Debt Issuance Costs(a)
(7.1)(7.9)
Total debt1,663.7 2,078.5 
Less: Current maturities of long-term debt(12.2)(27.0)
Long-term debt, net$1,651.5 $2,051.5 
 Weighted Average Effective Interest Rate at December 31, 2018 Weighted Average Stated Interest Rate at December 31, 2018 Fixed or Floating Interest Rate Maturity December 31,
2018
 December 31,
2017
Senior Secured Second Priority Notes           
2022 Notes7.88% 7.50% Fixed 2022 $427.0
 $488.0
2024 Notes8.06% 7.75% Fixed 2024 437.5
 500.0
Other Debt           
ABL Credit FacilityN/A 4.46% Floating 2021 1,085.2
 1,130.0
AR FacilityN/A 3.29% Floating 2020 175.0
 
Capital leases4.15% N/A Fixed 2019-2023 38.1
 53.7
Other borrowingsN/A 4.79% Floating 2019 4.6
 2.6
Unamortized Debt Issuance Costs(a)
        (10.6) (14.5)
Total debt        2,156.8
 2,159.8
Less: Current maturities of long-term debt        (26.9) (22.7)
Long-term debt, net        $2,129.9
 $2,137.1
(a)    Unamortized debt issuance costs totaling $7.1 million and $9.3 million related to the ABL Credit Facility and AR Facility (as each is defined below) as of December 31, 2020 and December 31, 2019 are included in "Other long-term assets" in the consolidated balance sheets.

(a)
Unamortized debt issuance costs totaling $10.4 million and $13.3 million related to the ABL Credit Facility and, as of December 31, 2018, the AR Facility (as each is defined below) are included in "Other long-term assets" in the consolidated balance sheet as of December 31, 2018 and December 31, 2017, respectively.


The effective interest rates for the fixed rate 2022 Notes and 20242027 Notes (as defined below) includeincludes the stated interest on the notes and the amortization of any debt issuance costs.

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Maturities


The nominal principal amounts of maturities of debt for each of the periods ending December 31 are as follows (in millions):
2021$12.2 
20225.8 
20235.9 
2024435.8 
20256.0 
After 20251,205.1 
Total$1,670.8 
2019$26.9
2020187.4
20211,086.5
2022428.4
20230.7
After 2023437.5
Total$2,167.4


The Company is highly leveraged and itsCompany's liquidity needs arise from the funding of its costs of operations and capital expenditures and from debt service on its indebtedness. The Company believes that cash generated from operations and cash received from the disposal of rental and other equipment, together with amounts available under its senior secured asset-based revolving credit facility (the "ABL Credit Facility") and AR Facility (as defined below) will be adequate to permit the Company to meet its obligations over the next 12 months.


Senior Secured Second Priority Notes


In June 2016, HercOn July 9, 2019, the Company issued $610.0 million$1.2 billion aggregate principal amount of 7.50% senior secured second priority notesits 5.50% Senior Notes due 20222027 (the "2022 Notes") and $625 million aggregate principal amount of 7.75% senior secured second priority notes due 2024 (the "2024 Notes" and, together with the 2022 Notes, the "Notes"“2027 Notes”). The funds were used to: (i) finance the Spin-Off and make a cash transfer to New Hertz and its affiliates in connection therewith and (ii) pay fees and other transaction expenses in connection therewith.

The following summarizes other significant terms and conditions of the Notes:

Interest

Interest on the 20222027 Notes accrues at the rate of 7.50%5.50% per annum and is payable semi-annually in arrears on June 1January 15 and December 1.July 15. The 20222027 Notes will mature on June 1, 2022. Interest on the 2024 Notes accrues at the rate of 7.75% per annum and is payable semi-annually in arrears on June 1 and December 1. The 2024 Notes mature on June 1, 2024.July 15, 2027.


Ranking; Guarantees


The 2027 Notes are the Company’s senior unsecured obligations, ranking equally in right of payment with all of the Company’s existing and future senior indebtedness, effectively junior to any of the Company’s existing and future secured indebtedness, including the ABL Credit Facility, to the extent of the value of the assets securing such indebtedness, and senior in right of payment to any of the Company’s existing and future subordinated indebtedness. The 2027 Notes will be guaranteed on a senior securedunsecured basis, by each wholly-owned domestic subsidiary of Herc, subject to certain exceptions. The guarantee of each subsidiary is a senior secured obligation of that subsidiary.limited exceptions including special purpose securitization subsidiaries, by the Company’s current and future domestic subsidiaries.

Collateral

Substantially all of the assets of Herc and certain of its U.S. and Canadian subsidiaries are encumbered in favor of Herc's lenders under the terms of the indenture dated as of June 9, 2016 (the "Indenture"), among Herc, as issuer, and Wilmington Trust National Association, as trustee and note collateral agent, and the related collateral documents. The security interests in the collateral may be released without the consent of the holders of the Notes if collateral is disposed of in a transaction that complies with the terms of the Indenture and the related collateral documents, and will be released, so long as any obligations under the ABL Credit Facility are outstanding, upon the release of all liens on such collateral securing the obligations under the ABL Credit Facility obligations.


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Redemption


HercThe Company may redeem the 20222027 Notes, in whole or in part, at any time prior to June 1, 2019,July 15, 2022, at a price equal to 100% of the aggregate principal amount thereof, plus the applicable make-whole premium and accrued and unpaid interest, if any, to, but excluding, the redemption date, plus the applicable make-whole premium. Hercdate. The Company may redeem the 20222027 Notes, in whole or in part, at any time (i) on or after June 1, 2019July 15, 2022 and prior to June 1, 2020,July 15, 2023, at a price equal to 103.750%102.750% of the principal amount of the 20222027 Notes, (ii) on or after June 1, 2020July 15, 2023 and prior to June 1, 2021,July 15, 2024, at a price equal to 101.875%101.833% of the principal amount of the 20222027 Notes, and (iii) on or after June 1, 2021,July 15, 2024 and prior to July 15, 2025, at a price equal to 100%100.917% of the principal amount of the 20222027 Notes and (iv) on or after July 15, 2025, at a price equal to 100.000% of the principal amount of the 2027 Notes, in each case, plus accrued and unpaid interest, if any, to, but not including, the applicable redemption date. In addition, at any time on or prior to June 1, 2019, HercJuly 15, 2022, the Company may, at its option, may redeem up to 40% of the original aggregate principal amount of the 20222027 Notes with the proceeds of one or more equity offerings at a redemption price of 107.500%,105.500% of the principal amount of the 2027 Notes, plus accrued and unpaid interest, if any, to, but excluding, the date of redemption.

Herc may redeem the 2024 Notes, in whole or in part, at any time prior to June 1, 2019, at a price equal to 100% of the principal amount thereof, plus accrued and unpaid interest, if any, to, but excluding, the redemption date, plus the applicable make-whole premium. Herc may redeem the 2024 Notes, in whole or in part, at any time (i) on or after June 1, 2019 and prior to June 1, 2020, at a price equal to 105.813% of the principal amount of the 2024 Notes, (ii) on or after June 1, 2020 and prior to June 1, 2021, at a price equal to 103.875% of the principal amount of the 2024 Notes, (iii) on or after June 1, 2021 and prior to June 1, 2022, at a price equal to 101.938% of the principal amount of the 2024 Notes and (iv) on or after June 1, 2022, at a price equal to 100% of the principal amount of the 2024 Notes, in each case, plus accrued and unpaid interest, if any, to, but not including, the applicable redemption date. In addition, at any time prior to June 1, 2019, Herc at its option may redeem up to 40% of the original aggregate principal amount of the 2024 Notes with the proceeds of one or more equity offerings at a redemption price of 107.750%, plus accrued and unpaid interest, if any, to, but excluding, the date of redemption.

On July 12, 2018, for the redemption period from June 1, 2018 to May 31, 2019, Herc drew down on its ABL Credit Facility and redeemed $61.0 million in aggregate principal amount of the 2022 Notes and $62.5 million in aggregate principal amount of the 2024 Notes and recorded a $5.4 million loss on the early extinguishment of debt, comprised of a 3% cash premium totaling $3.7 million and a non-cash charge of $1.7 million for the write-off of unamortized debt issuance costs. The loss on early extinguishment of debt is included in "Interest expense, net" in the Company's consolidated statement of operations.

In March and October 2017, Herc drew down on its ABL Credit Facility and cumulatively redeemed $122.0 million in aggregate principal amount of the 2022 Notes and $125.0 million in aggregate principal amount of the 2024 Notes and recorded an $11.4 million loss on the early extinguishment of debt, comprised of a 3% cash premium totaling $7.4 million and a non-cash charge of $4.0 million for the write-off of unamortized debt issuance costs. The losses on early extinguishment of debt are included in "Interest expense, net” in the Company's consolidated statement of operations.


Covenants


The Indentureindenture governing the 2027 Notes contains certain covenants that, amongapplicable to the Company and its restricted subsidiaries, including limitations on liens, indebtedness, mergers, consolidations and acquisitions, sales, transfers and other things, limit the abilitydispositions of Herc to incur additional indebtedness, guarantee indebtedness or issue certain preferred shares; payassets, loans and other investments, dividends on, redeem or repurchase stock or makeand other distributions, in respect of its capital stock; repurchase, prepay or redeem subordinated indebtedness; make loansstock repurchases and investments; create liens; transfer or sell assets; consolidate, merge or sell or otherwise dispose of all or substantially all of its assets; enter into certainredemptions and other restricted payments, restrictions affecting subsidiaries, transactions with affiliates;affiliates and designate subsidiaries asdesignations of unrestricted subsidiaries. Upon the
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occurrence of certain events constituting a change of control triggering event, Hercthe Company is required to make an offer to repurchase all or any part of the 2027 Notes (unless otherwise redeemed) at a purchase price equal to 101% of their principal amount, plus accrued and unpaid interest, if any to (but excluding) the repurchase date. If Hercthe Company sells assets under certain circumstances, it must use the proceeds to make an offer to purchase the 2027 Notes at a price equal to 100% of their principal amount, plus accrued and unpaid interest, if any, to, but excluding, the repurchase date.


Events of Default


The following areindenture also provides for customary events of default, underincluding the Indenturefollowing (subject to customary exceptions, thresholds and grace periods)any applicable cure period): nonpayment, breach of covenants in the nonpaymentindenture, payment defaults under or acceleration of principal when due; the nonpayment of interest when due continued for 30 days; thecertain other indebtedness, failure to comply for 60 days after receipt of requisite notice with specified obligations, covenants or agreements contained in the Notes or the Indenture; the failure of any subsidiary guarantor to comply for 45 days with its obligations under its guarantee or a failure of any guarantee of a significant subsidiary to be in full forcedischarge certain judgments and effect; the failure to pay any indebtedness for borrowed money after final maturity or cross acceleration of material debt if the total amount of such indebtedness exceeds $150.0 million; certain events of bankruptcy, insolvency and reorganization. If an event of default occurs or reorganization;is continuing, the failure to dischargetrustee or the holders of at least 30% in aggregate principal amount of the 2027 Notes then outstanding may declare the principal of, premium, if any, judgment in excess of $100.0 million; and the failure ofaccrued and unpaid interest, if any, security

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document securing the Notes to be in full forcedue and effect with respect to any collateral having a fair market value in excess of $150.0 million.payable immediately.


ABL Credit Facility


On July 31, 2019, Herc Holdings, Herc and certain other subsidiaries of Herc Holdings entered into a credit agreement with respect to a senior secured asset-based revolving credit facility. The Company's ABL Credit Facility held by its Herc subsidiary, provides for senior secured revolving loans up to a maximum aggregate principal amount of $1,750 million (subject to availability under a borrowing base), including for aggregate maximum borrowings of up to $1,750 million under a revolving loans in an aggregate principal amount of $350 million available to Canadian borrowers and U.S. borrowers.loan facility.  Up to $250 million of the revolving loan facility is available for the issuance of letters of credit, subject to certain conditions including issuing lender participation.  Extensions of credit under the ABL Credit Facility are limited by a borrowing base calculated periodically based on specified percentages of the value of eligible rental equipment, eligible service vehicles, eligible spare parts and merchandise, eligible accounts receivable, and eligible unbilled accounts subject to certain reserves and other adjustments. Subject to the satisfaction of certain conditions and limitations, the ABL Credit Facility allows for the addition of incremental revolving commitments and/or incremental term loan commitments. In addition, the ABL Credit Facility permits Herc to increase the amount of commitments under the ABL Credit Facility with the consent of each lender providing an additional commitment, subject to satisfaction of certain conditions.loans. 


The following summarizes the significant terms and conditions of the ABL Credit Facility:Maturity

Interest and Fees

The interest rates applicable to the loans under the ABL Credit Facility are based on a fluctuating rate of interest measured by reference to either, at the borrowers’ option, (i) an adjusted London inter-bank offered rate, plus a borrowing margin or (ii) an alternate base rate, plus a borrowing margin (or, in the case of the Canadian borrowers, a rate equal to the rate on bankers’ acceptances with the same maturity, plus a borrowing margin). The borrowing margin on the ABL Credit Facility is determined based on a pricing grid that is bifurcated based on corporate credit ratings, with levels within the grid based on available commitments. Customary fees are also payable in respect of the ABL Credit Facility, including a commitment fee on the unutilized portion thereof.

Maturity and Prepayments


The ABL Credit Facility matures on June 30, 2021. July 31, 2024. 

Guarantees; Collateral/Security

The ABL Credit Facility may be prepaid at the borrowers’ option at any time without premium or penalty and will be subject to mandatory prepayment (i) if the outstanding U.S. dollar or Canadian dollar denominated revolving loans under the ABL Credit Facility exceed either the aggregate commitments with respect thereto or the current applicable borrowing base, in an amount equal to such excess or (ii) if, following the occurrenceobligations of asset dispositions or any settlementeach of or payment in respect of any property or casualty insurance claim or any condemnation proceeding relating to the collateral, less than 100% of the net cash proceeds have been reinvested in Herc’s business within 365 days and the available loan commitments are less than $250 million.

Guarantees and Security

Herc and certain of its subsidiaries, including Canadian subsidiaries, are the borrowers under the ABL Credit Facility.Facility are guaranteed by each of Herc Intermediate Holdings LLC, Herc and eachHoldings’ direct and indirect domestic subsidiaryU.S. and Canadian subsidiaries, with certain exceptions, including special purpose securitization subsidiaries. The obligations of Herc (and, in the case of Canadian obligations, each direct and indirect Canadian subsidiary of Herc) guarantees the borrowers’ payment obligationsborrowers under the ABL Credit Facility, subject to certain exceptions.

The ABL Credit Facility and the guarantees thereof are secured by (i) a first priority pledge of (A)security interests in substantially all of the capital stockassets of Herceach borrower and each domestic borrower, (B)guarantor, including pledges of all of the capital stock of all domesticof their direct subsidiaries, owned by Herc, each domestic borrower and each domestic subsidiary guarantor and (C) 65% of the capital stock of any foreign subsidiary held directly by Herc, any domestic borrower or any domestic subsidiary guarantor and (ii) a first priority security interest in substantially all other tangible and intangible assets owned by Herc, each domestic borrower and each domestic subsidiary guarantor, in each case to the extent permitted by applicable law and subject towith certain exceptions.

The Canadian obligations under the ABL Credit Facility are also secured, pursuant to a Canadian guarantee and collateral agreement made by the Canadian borrowers and certain Canadian subsidiaries of Herc in favor of the Canadian agent and Canadian ABL collateral agent, by a first priority security interest in substantially all assets of the Canadian borrowers and the Canadian guarantors, subject to certain exceptions.

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The liens securing the ABL Credit Facility are first in priority (as betweensubject to certain exceptions.  Also, subject to certain limitations and conditions, the ABL Credit Facility andpermits the Notes)incurrence of future secured debt on a basis either pari passu with, respector subordinated to, the collateral.liens securing the ABL Credit Facility. 


Interest

The interest rates applicable to any loans under the ABL Credit Facility are based, at the option of the borrowers, on (i) a floating rate based on LIBOR (for loans denominated in U.S. dollars) or CDOR (for loans denominated in Canadian dollars) plus an initial margin of 1.50% per annum or (ii) a base rate plus an initial margin of 0.50%, in each case, where margin is adjusted under the ABL Credit Facility based on the quarterly average excess availability under the ABL Credit Facility.

Covenants


The ABL Credit Facility contains a number of negative covenants that, among other things, limit or restrict the ability of the borrowers and in certain cases, their restricted subsidiaries to dispose of assets, incur additional indebtedness, incur guarantee obligations, prepay certainother indebtedness, make certain dividends and other restricted payments, create or incur liens, make acquisitions and other investments, make acquisitions, engage in mergers, change the natureconsolidations or sales of their business,assets, engage in certain transactions with affiliates, and enter into certain restrictive agreements.

Failureagreements limiting the ability to maintaincreate or incur liens.  In addition, under the ABL Credit Facility, upon excess availability falling below certain levels, of liquiditythe borrowers will subject the Herc credit groupbe required to comply with a contractually specifiedminimum fixed charge coverage ratio of notno less than 1:1 for the four quarters most recently ended.1.00:1.00. As of December 31, 2018,2020, the appropriate levels of liquidity have been maintained, therefore this financial maintenance covenant is not applicable.


Covenants in the ABL Credit Facility restrict payment
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HERC HOLDINGS INC. AND SUBSIDIARIES
The ABL Credit Facility also contains certain affirmative covenants, including financial and other reporting requirements.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)




Events of Default


The ABL Credit Facility provides for customarythat the occurrence of any of the following events will constitute an event of default: payment default, (subject to customary exceptions, thresholds and grace periods), including, without limitation, non-paymentbreach of principal, interestrepresentation or fees, violation of covenants, material inaccuracy of representations or warranties, specifiedwarranty, covenant breach, cross default and cross acceleration to other material indebtedness, certain bankruptcy events, certain ERISA events, materialdissolution, invalidity of guaranteesthe credit agreement or any intercreditor agreement (if any), judgment in excess of a certain monetary threshold, any security interest, material judgments andor guarantee documents cease to be in effect, an ERISA event, pension event or a change of control. Upon the occurrence and during the continuation of an event of default, the agent may exercise remedies on behalf of the lenders, including accelerating the repayment of outstanding loans under the ABL Credit Facility. 


Accounts Receivable Securitization Facility

In September 2018, the Company entered into an accounts receivable securitization facility (the "AR Facility") with aggregate commitments of $175.0 million that matures on$175 million. The AR Facility was amended in September 16, 2020.2020 to extend the maturity date to August 31, 2021. In connection with the AR Facility, Herc and one of its wholly-owned subsidiaries sell their accounts receivablereceivables on an ongoing basis to Herc Receivables U.S. LLC, a wholly-owned special-purpose entity (the "SPE"). The SPE's sole business consists of the purchase by the SPE of accounts receivable from Herc and the Herc subsidiary seller and borrowing by the SPE against the eligible accounts receivable from the lenders under the facility. The borrowings are secured by liens on the accounts receivable and other assets of the SPE. Collections on the accounts receivable are used to service the borrowings. The SPE is a separate legal entity that is consolidated in the Company's financial statements. The SPE assets are owned by the SPE and are not available to settle the obligations of the Company or any of its other subsidiaries. Herc is the servicer of the accounts receivable under the AR Facility. All of the obligations of the Herc subsidiary seller and the servicer and certain indemnification obligations of the SPE under the agreements governing the AR Facility are guaranteed by Herc pursuant to a performance guarantee. The AR Facility is excluded from current maturities of long-term debt as the Company has the intent and ability to consummate refinancing and extend the term of the agreement.


The agreements governing the AR Facility contain restrictions and covenants which include limitations applicable to Herc, the Herc subsidiary seller and the SPE on the creation of certain liens, and restrictions and covenants which include limitations applicable to the SPE on the making of certain restricted payments, and limitations applicable to Herc and the SPE with respect to certain corporate acts such as mergers, consolidations and the sale of substantially all assets, with certain exceptions. The Company was in compliance with all such covenants as of December 31, 2018.2020.


The financing agreement with the lenders provides for customary events of default (subject to customary exceptions, thresholds and grace periods) including, without limitation, failure to perform covenants, ineffectiveness of transaction documents, invalidity of security interests or failure to cooperate in the administrative agent's assumption of control of accounts, material inaccuracy of representations or warranties, failure of certain ratios related to the accounts receivables, specified cross default and cross acceleration to other material indebtedness, certain bankruptcy events, certain ERISA events, material judgments, material adverse effect and change in control.

All of the obligations of the Herc subsidiary seller and the servicer and certain indemnification obligations of the SPE under the agreements governing the AR Facility are guaranteed by Herc pursuant to a performance guarantee.

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Other Borrowings

In June 2017, theThe Company's former subsidiary in China entered intohad uncommitted credit agreements with a bank for up to thean aggregate principal amount of $10.0 million. Interest accruesaccrued on the loans drawn under these facilities at aan applicable loan prime rate of 110%plus 0.535% published by National Interbank Funding Center and was payable quarterly. In conjunction with the sale of the prevailing base lending rates published by People's Bank ofCompany's subsidiary in China in April 2020, the credit agreement was terminated and is payable quarterly. As ofno borrowings were outstanding at December 31, 2018, the Company had short-term borrowings under these facilities totaling $4.6 million.2020.


Borrowing Capacity and Availability

After outstanding borrowings, the following was available to the Company as of December 31, 20182020 (in millions):
Remaining
Capacity
 Availability Under
Borrowing Base
Limitation
Remaining
Capacity
Availability Under
Borrowing Base
Limitation
ABL Credit Facility$640.2
 $640.2
ABL Credit Facility$1,471.6 $1,380.3 
AR Facility
 
AR Facility
Total$640.2
 $640.2
Total$1,471.6 $1,380.3 


At December 31, 2018,2020, the Company's borrowing base was capped at $175.0 million by the aggregate commitments under the AR Facility. Subsequent to December 31, 2018, the borrowing base under the AR Facility declined to $159.1 million.

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In addition, as of December 31, 2018, the Company's subsidiary in China had uncommitted credit facilities of which $5.4 million was available for borrowing.HERC HOLDINGS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)




Letters of Credit


As of December 31, 2018, $24.62020, $23.4 million of standby letters of credit were issued and outstanding under the ABL Credit Facility, none of which had been drawn upon. The ABL Credit Facility had $225.4$226.6 million available under the letter of credit facility sublimit, subject to borrowing base restrictions.


Debt Issuance Costs

In connection with the issuance of the Notes and entry into the ABL Credit Facility in 2016, the Company capitalized $41.5 million in deferred debt issuance costs, of which $22.5 million were recorded to "Long-term debt" and $19.0 million were recorded to "Other long-term assets" in the consolidated balance sheet as of December 31, 2018. In addition, in connection with the issuance of the AR Facility in September 2018, the Company capitalized $1.1 million in deferred debt issuance costs, which were recorded to "Other long-term assets" in the consolidated balance sheet as of December 31, 2018. The debt issuance costs are being amortized to interest expense using the effective interest method for costs related to the Notes and on a straight-line basis for costs related to the ABL Credit Facility over the respective contractual terms of the applicable debt. Non-cash interest expense related to the amortization of these debt issuance costs for the years ended December 31, 2018, 2017 and 2016 were $6.1 million, $6.3 million and $3.4 million, respectively. The Company wrote off $1.7 million of unamortized deferred financing costs during the year ended December 31, 2018 related to the July partial redemption of its Notes. The Company wrote off $1.7 million and $4.0 million of unamortized deferred financing costs during the years ended December 31, 2018 and 2017, respectively, related to the partial redemptions of its Notes.

Note 10—12—Financing Obligations


In October 2017, Herc consummated a sale-leaseback transaction pursuant to which it sold 42 of its properties located in the U.S. for gross proceeds of approximately $119.5 million, and during the fourth quarter of 2018, entered into sale-leaseback transactions with respect to 2 additional properties for gross proceeds of $6.4 million. Herc entered into a master lease agreement pursuant to which it has continued operations at those properties as a tenant. The triple net lease agreement has an initial term of 20 years, subject to extension, at Herc's option, for up to five5 additional periods of five years each. The sale of the properties did not qualify for sale-leaseback accounting due to continuing involvement with the properties. Therefore, the book value of the buildings and land remains on the Company's consolidated balance sheet. Additionally, during 2018, the Company

During March 2019, Herc entered into a sale-leaseback transactions with respect to two additional propertiestransaction for grosscertain service vehicles that did not qualify for sale-leaseback accounting, therefore the book value of the vehicles remains on the Company's consolidated balance sheet. Gross proceeds of $6.4from the sale-leaseback transaction were $4.7 million.


In connection with the sale-leaseback,these transactions, the Company capitalized $2.7$2.9 million in deferred financing obligations issuance costs. The

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)




costs are being amortized to interest expense using the effective interest method. Interest expense related to the amortization of these costs for the year ended December 31, 2020, 2019 and 2018 was $0.5 million, $0.4 million and 2017 was $0.2 million, and $0.1 million, respectively.


The Company's financing obligations consist of the following (in millions):
Weighted Average Effective Interest Rate at December 31, 2020MaturityDecember 31, 2020December 31, 2019
Financing obligations5.11%2026-2038$120.5 $123.5 
Unamortized financing issuance costs(2.4)(2.5)
Total financing obligations118.1 121.0 
Less: Current maturities of financing obligations(3.6)(3.4)
Financing obligations, net$114.5 $117.6 
  Weighted Average Effective Interest Rate at December 31, 2018 Maturity December 31, 2018December 31, 2017
Financing obligations 4.73% 2038 $122.1
$118.2
Unamortized financing issuance costs     (2.8)(2.6)
Total financing obligations     119.3
115.6
Less: Current maturities of financing obligations     (3.0)(2.7)
Financing obligations, net     $116.3
$112.9


As of December 31, 2018,2020, future minimum financing payments for the agreementagreements referred to above are as follows (in millions):
2021$9.5 
20229.5 
20239.5 
20249.5 
20259.5 
Thereafter103.4 
Total minimum financing obligations payments150.9 
Obligations subject to non-cash gain on future sale of property34.6 
Less amount representing interest (at a weighted-average interest rate of 5.11%)(65.0)
Total financing obligations$120.5 

63
2019 $8.5
2020 8.5
2021 8.5
2022 8.5
2023 8.5
Thereafter 117.1
Total minimum financing obligations payments 159.6
Obligations subject to non-cash gain on future sale of property 33.2
Less amount representing interest (at a weighted-average interest rate of 4.73%) (70.7)
Total financing obligations $122.1

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HERC HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)



Note 11—13—Employee Retirement Benefits


401(k) Savings Plan and Other Defined Contribution PlansPlan

Prior to the Spin-Off, the Company participated in a THC-sponsored U.S. defined contribution plan covering substantially all U.S. employees (the "Hertz Savings Plan"), as well as certain non-U.S. defined contribution plans covering eligible non-U.S. employees, primarily in Canada.


On July 1, 2016, the Company established the Herc Holdings Savings Plan covering all of its U.S. employees. Following the Spin-Off, the accounts (including loans) of the Company's current and former employees were transferred from the Hertz Savings Plan to the new Herc Holdings Savings Plan.

Contributions to the plans are made by both the employee and the Company. Company contributions to these plans are based on the level of employee contributions and formulas determined by the Company. Expenses for the defined contribution plans for the years ended December 31, 2018, 20172020, 2019 and 20162018 were approximately $10.5$10.9 million, $9.4$11.4 million and $7.5$10.5 million, respectively.


Defined Benefit Pension and Postretirement Plans

Prior to the Spin-Off, the Company participated in certain THC-sponsored U.S. defined benefit pension and postretirement plans covering substantially all U.S. employees, as well as certain non-U.S. defined benefit plans covering eligible non-U.S. employees. Qualified U.S. employees of the Company, after completion of specified periods of service, were eligible to participate in The Hertz Corporation Account Balance Defined Benefit Pension Plan (the "Hertz Plan"), a cash balance plan that was frozen effective December 31, 2014.


In July 2016, the Company established the Herc Holdings Retirement Plan (the "Plan"), a U.S. qualified pension plan. The majority ofPlans assets and liabilities of the Hertz Plan attributable to current and former employees of the equipment rental business were

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transferred to the Plan following the Spin-Off based on a preliminary allocation.Spin-Off. The final allocations and transfers were completed in 2017 and were lower than the preliminary allocation, resulting in a $3.6 million increasePlan has been frozen to the pension liability funded status and a corresponding offset of $2.0 million, net of taxes, to additional paid-in capital.new participants since it was established.


Postretirement benefits, other than pensions, provide healthcare benefits, and in some instances, life insurance benefits for certain eligible retired employees in the U.S.


The Company reflects the funded status of defined benefit pension and other postretirement benefit plans as an asset or liability. This amount is defined as the difference between the fair value of plan assets and the benefit obligation. The Company is required to recognize as a component of other comprehensive income (loss), net of tax, the actuarial gains/losses and prior service credits that arise but were not previously required to be recognized as components of net periodic benefit cost. Other comprehensive income (loss) is adjusted as these amounts are later recognized in the statement of operations as components of net periodic benefit cost.


The Company’s policy for funded plans is to contribute, at a minimum, amounts required by applicable laws, regulations and union agreements. The Plan represents approximately 98%99% of the Company's defined benefit plan obligations and 100% of its plan assets. The Company did not make any cashmade contributions to the Plan or the predecessor Hertz Planof $2.5 million and $2.8 million in 2018, 2017 or 20162020 and does not anticipate making any contributions during 2019.2019, respectively however, no cash contribution was made in 2018. 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.


Additionally, pursuant to various collective bargaining agreements, certain union-represented employees participate in multiemployer pension plans.

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The following table provides a reconciliation of benefit obligations and plan assets of the Company’s pension plans and postretirement benefit plans (in millions):
PensionPostretirement
2020201920202019
Change in Projected Benefit Obligations
Benefit obligations at beginning of year$163.5 $148.5 $1.0 $1.0 
Interest cost5.1 6.2 
Plan settlements(8.0)(6.3)
Benefits paid(0.3)(0.4)
Actuarial (gain) loss16.5 15.5 0.1 
Benefit obligations at end of year$176.8 $163.5 $1.1 $1.0 
Change in Fair Value of Plan Assets
Fair value of plan assets at beginning of year$143.7 $123.6 $$
Actual return on plan assets19.6 24.0 
Employer contribution2.5 2.8 
Plan settlements(8.0)(6.3)
Benefits paid(0.3)(0.4)
Fair value of plan assets at end of year$157.5 $143.7 $$
Funded Status$(19.3)$(19.8)$(1.1)$(1.0)
Accumulated benefit obligations$176.8 $163.5 
 Pension Postretirement
 2018 2017 2018 2017
Change in Projected Benefit Obligations       
Benefit obligations at beginning of year$160.0
 $149.4
 $1.1
 $1.0
Interest cost5.7
 6.1
 
 
Plan settlements(7.9) (6.8) 
 
Benefits paid(0.2) (0.3) 
 
Adjustment (1)
1.1
 
 
 
Actuarial (gain) loss(10.2) 11.6
 (0.1) 0.1
Benefit obligations at end of year$148.5
 $160.0
 $1.0
 $1.1
        
Change in Fair Value of Plan Assets       
Fair value of plan assets at beginning of year$140.4
 $133.2
 $
 $
Actual return on plan assets(10.2) 17.9
 
 
Plan settlements(7.9) (6.8) 
 
Benefits paid(0.2) (0.3) 
 
Adjustment (1)
1.5
 (3.6) 
 
Fair value of plan assets at end of year$123.6
 $140.4
 $
 $
        
Funded Status$(24.9) $(19.6) $(1.0) $(1.1)
        
Accumulated benefit obligations$148.5
 $160.0
    

(1) In connection with the Spin-Off, assets were allocated between THC and the Company in proportion to the associated liability. The adjustment for 2018 represented the final allocation and settlement with the Hertz Plan.


PensionPostretirement
2020201920202019
Amounts Recognized in Balance Sheet
Accrued liabilities$(0.1)$(0.1)$(0.1)$(0.1)
Other long-term liabilities(19.2)(19.7)(1.0)(0.9)
Net amount recognized$(19.3)$(19.8)$(1.1)$(1.0)
Amounts Recognized in Accumulated Other Comprehensive Loss
Net actuarial gain (loss)$(21.7)$(20.3)$0.2 $0.2 
Prior service credits0.1 0.1 
Net amount recognized$(21.6)$(20.2)$0.2 $0.2 
Weighted‑Average Assumptions Used to Determine Projected Benefit Obligations
Discount rate2.3 %3.2 %2.2 %3.2 %
Average rate of increase in compensation%%%%
Interest credit rate3.8 %3.8 %%%
Initial healthcare cost trend rateN/AN/A5.5 %5.8 %
Ultimate healthcare cost trend rateN/AN/A4.5 %4.5 %
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 Pension Postretirement
 2018 2017 2018 2017
Amounts Recognized in Balance Sheet       
Accrued liabilities$(0.1) $(0.1) $(0.1) $(0.1)
Other long-term liabilities(24.8) (19.5) (0.9) (1.0)
Net amount recognized$(24.9) $(19.6) $(1.0) $(1.1)
        
Amounts Recognized in Accumulated Other Comprehensive Loss       
Net actuarial gain (loss)$(25.6) $(21.8) $0.2
 $0.1
Prior service credits0.1
 0.2
 
 
Net amount recognized$(25.5) $(21.6) $0.2
 $0.1
        
Weighted‑Average Assumptions Used to Determine Projected Benefit Obligations       
Discount rate4.3% 3.6% 4.2% 3.5%
Average rate of increase in compensation% % % %
Initial healthcare cost trend rate    6.1% 6.4%
Ultimate healthcare cost trend rate    4.5% 4.5%
The benefit obligations and fair value of plan assets for the Company’s qualified and non-qualified pension and postretirement plans with projected benefit obligations or accumulated benefit obligations in excess of plan assets are as follows (in millions):
 PensionPostretirement
 2020201920202019
Plans with Benefit Obligations in Excess of Plan Assets
Projected benefit obligations$176.8 $163.5 $1.1 $1.0 
Accumulated benefit obligations176.8 163.5 
Fair value of plan assets157.5 143.7 
 Pension Postretirement
 2018 2017 2018 2017
Plans with Benefit Obligations in Excess of Plan Assets       
Projected benefit obligations$148.5
 $160.0
 $1.0
 $1.1
Accumulated benefit obligations148.5
 160.0
 ���
 
Fair value of plan assets123.6
 140.4
 
 


The following table sets forth the net periodic pension cost (benefit) (in millions):
Years Ended December 31,
202020192018
Components of Net Periodic Pension Cost (Benefit):
Interest cost$5.1 $6.2 $5.7 
Expected return on plan assets(6.1)(5.2)(6.0)
Net amortization of actuarial net loss0.7 1.1 0.7 
Settlement loss1.0 0.8 1.2 
Net periodic pension cost (benefit)$0.7 $2.9 $1.6 
Weighted‑Average Assumptions Used to Determine Net Periodic Pension Cost (Benefit)
Discount rate3.2 %4.3 %3.6 %
Expected return on assets5.2 %5.8 %5.6 %
Average rate of increase in compensation%%%
Interest credit rate3.8 %3.8 %3.8 %
 Years Ended December 31,
 2018 2017 2016
Components of Net Periodic Pension Cost (Benefit):     
Service cost$
 $
 $0.1
Interest cost5.7
 6.1
 5.8
Expected return on plan assets(6.0) (6.2) (8.0)
Net amortization of actuarial net loss0.7
 1.4
 1.4
Settlement loss1.2
 0.9
 
Net periodic pension cost (benefit)$1.6
 $2.2
 $(0.7)
      
Weighted‑Average Assumptions Used to Determine Net Periodic Pension Cost (Benefit)     
Discount rate3.6% 4.1% 4.3%
Expected return on assets5.6% 6.5% 7.2%
Average rate of increase in compensation% % 4.3%


The net periodic postretirement cost was insignificantimmaterial in 2018, 20172020, 2019 and 2016.2018.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)






The discount rate reflects the rate the Company would have to pay to purchase high-quality investments that would provide cash sufficient to settle its current pension obligations. The discount rate is determined based on a range of factors, including the rates of return on high-quality, fixed-income corporate bonds and the related expected duration of the obligations. The discount rate for the Plan is based on the rate from the Mercer Pension Discount Curve-Above Mean Yield that is appropriate for the duration of the obligations. The discount rate used to measure the pension obligation at the end of the year is also used to measure pension cost in the following year.


The expected return on plan assets for the U.S. qualified plan is based on expected future investment returns considering the target investment mix of plan assets. It reflects the average rate of earnings expected on the funds invested, or to be invested, to provide for the benefits included in the projected benefit obligations. In determining the expected long-term rate of return on plan assets, the Company considers the relative weighting of plan assets, the historical performance of total plan assets and individual asset classes and economic and other indicators of future performance.


There was no average rate of increase in compensation for 20182020, 2019 or 20172018 as there are no longer any employees in the Plan accruing benefits. Rates in 2016 reflected expected long-term average rate of salary increases and were based on historic salary increase experience and management’s expectations of future salary increases.


The ultimate healthcare cost trend rates for the postretirement benefit plans are expected to be reached in 2038. Changing the assumed health care cost trend rates by one percentage point is estimated to have an insignificant (less than $0.1 million) impact on the accumulated postretirement benefit obligation as



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The Company expects to amortize $1.2 million of net actuarial losses from accumulated other comprehensive loss into net periodic pension cost (benefit) in 2019.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)




Plan Assets


The Company has a long-term investment outlook for its Plan assets, which is consistent with the long-term nature of the Plan's respective liabilities.


The Plan currently has a target asset allocation of 35%30% equity and 65%70% fixed income. The equity portion of the assets is actively managed in U.S. small/mid cap and international funds and a small allocation to a passively managed U.S. large cap index fund. The fixed income portion of the assets is actively managed in long/intermediate duration government/credit funds and small allocations to an actively managed high yield fund, a bank loan fund, a preferred securities fund and an emerging market debt fund. A modest amount of cash is maintained to facilitate payment of benefits and plan expenses.


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The fair value measurements of allmost plan assets are based upon significant other observable inputs (Level 2), except for the high yield mutual fund and cash which isare based upon quoted market prices in active markets for identical assets (Level 1). The following represents the Company's pension plan assets (in millions):


Asset CategoryDecember 31, 2020December 31, 2019
Cash$3.0 $2.3 
Short Term Investments1.5 0.1 
Equity Securities:
U.S. Large Cap19.4 20.0 
U.S. Mid Cap3.5 4.6 
U.S. Small Cap0.5 1.2 
International Developed17.9 18.6 
International Emerging Markets6.5 6.9 
Fixed Income Securities:
U.S. Treasuries22.9 22.2 
Corporate Bonds49.8 41.5 
Government Bonds10.3 9.9 
Municipal Bonds3.1 2.8 
Mortgage-Backed Securities2.3 2.9 
Asset-Backed Securities2.1 2.5 
Bank Loans7.4 7.1 
Preferreds7.3 
Other1.1 
Total fair value of pension plan assets$157.5 $143.7 

67

Asset CategoryDecember 31, 2018 December 31, 2017
Cash$1.9
 $2.2
Short Term Investments0.1
 0.1
Equity Securities:   
U.S. Large Cap14.7
 16.3
U.S. Mid Cap3.2
 7.3
U.S. Small Cap1.2
 1.6
International Developed14.3
 17.8
International Emerging Markets6.8
 6.8
Fixed Income Securities:   
U.S. Treasuries21.0
 20.8
Corporate Bonds37.2
 43.7
Government Bonds7.1
 9.3
Municipal Bonds2.7
 2.3
Mortgage-Backed Securities1.2
 2.8
Asset-Backed Securities3.6
 2.7
Bank Loans6.6
 6.4
Other2.0
 0.3
Total fair value of pension plan assets$123.6
 $140.4
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HERC HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)



Estimated Future Benefit Payments


The following table presents estimated future benefit payments (in millions):
PensionPostretirement
2021$7.0 $0.1 
20227.2 0.1 
20238.3 0.1 
20249.5 0.1 
202510.4 0.1 
2026-203063.9 0.3 
$106.3 $0.8 
 Pension Postretirement
2019$6.1
 $0.1
20206.7
 0.1
20217.2
 0.1
20228.2
 0.1
20239.0
 0.1
2024-202860.2
 0.4
 $97.4
 $0.9


Multiemployer Pension Plans


The Company contributes to several multiemployer defined benefit pension plans under collective bargaining agreements that cover certain union represented employees. The risks of participating in such plans are different from the risks of single-employer plans, in the following respects:
(a) Assets contributed to a multiemployer plan by one employer may be used to provide benefits to employees of other participating employers;


(b) If a participating employer ceases to contribute to the plan, the unfunded obligations of the plan may be borne by the remaining participating employers; and

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(c) If the Company ceases to have an obligation to contribute to the multiemployer plan in which the Company had been a contributing employer, the Company may be required to pay to the plan an amount based on the underfunded status of the plan and on the history of the Company's participation in the plan prior to the cessation of its obligation to contribute. The amount that an employer that has ceased to have an obligation to contribute to a multiemployer plan is required to pay to the plan is referred to as a withdrawal liability.


The Company's participation in multiemployer plans for the annual period ended December 31, 2018 is outlined in the table below. For each planplans that isare not individually significant to the Company, the following informationtotal amount of contributions is provided:

The "EIN / Pension Plan Number" column provides the Employer Identification Number assigned to a plan by the Internal Revenue Service.

The "Pension Protection Act Zone Status" available is for plan years that ended in 2018 and 2017. The zone status is based on information provided to the Company and other participating employers by each plan and is certified by the plan's actuary. A planpresented in the "red" zone has been determined to be in "critical status," based on criteria established under the Internal Revenue Code, or the "Code," and is generally less than 65% funded. A plan in the "yellow" zone has been determined to be in "endangered status," based on criteria established under the Code, and is generally less than 80% funded. A plan in the "green" zone has been determined to be neither in "critical status" nor in "endangered status," and is generally at least 80% funded.

The "FIP/RP Status Pending/Implemented" column indicates whether a Funding Improvement Plan, as required under the Code to be adopted by plans in the "yellow" zone, or a Rehabilitation Plan, as required under the Code to be adopted by plans in the “red” zone, is pending or has been implemented as of the end of the plan year that ended in 2018.

The "Surcharge Imposed" column indicates whether a surcharge was paid during the most recent annual period presented for the Company's contributions to any plan in the red zone in accordance with the requirements of the Code. The last column lists the expiration dates of the collective bargaining agreements pursuant to which the Company contributed to the plans.

aggregate. There are no plans where the amount contributed by the Company represents more than 5% of the total contributions to the plan for the years ended December 31, 2018, 20172020, 2019 and 2016.2018.
(In millions) EIN / Pension
Plan Number
 Pension
Protection Act
Zone Status
 FIP /
RP Status
Pending / Implemented
 Contributions Surcharge Imposed Expiration
Date of
Collective
Bargaining Agreement
(In millions)EIN / Pension
Plan Number
Pension
Protection Act
Zone Status
FIP /
RP Status
Pending / Implemented
ContributionsSurcharge ImposedExpiration
Date of
Collective
Bargaining Agreement
Pension Fund 2018 2017 2018 2017 2016 Pension Fund20202019202020192018
Midwest Operating Engineers 36-6140097 Green Green N/A $0.9
 $0.8
 $0.7
 N/A 5/31/2021Midwest Operating Engineers36-6140097GreenGreenN/A$0.9 $1.0 $0.9 N/A5/31/2021
Other Plans (a)
 1.1
 0.9
 0.8
 
Other Plans (a)
1.1 1.2 1.1 
Total Contributions   $2.0
 $1.7
 $1.5
 
Total contributionsTotal contributions$2.0 $2.2 $2.0 
(a)    Consists of six6 plans, none of which are individually significant to the Company.


Note 12—14—Stock-Based Compensation

Prior to the Spin-Off, certain of the Company's employees participated in stock-based compensation plans sponsored by Hertz Holdings. In connection with the Spin-Off, Herc Holdings inherited the Hertz Global Holdings, Inc. 2008 Omnibus Incentive Plan, which was renamed the Herc Holdings Inc. 2008 Omnibus Incentive Plan (the “2008 Omnibus Plan”). Outstanding equity awards at the time of the Spin-Off were adjusted and converted in accordance with a formula designed to preserve the intrinsic economic value of the original equity awards after taking into account the Spin-Off and the reverse stock split. Adjusted awards for active and former Herc employees were denominated in the common stock of Herc Holdings after the Spin-Off. Generally, the adjusted awards were subject to the same terms and vesting conditions as the original Hertz Holdings awards. The adjusted awards for performance stock units included adjusted performance metrics to reflect the separation of the vehicle rental and equipment rental businesses, and the adjusted awards contained such additional or adjusted provisions as were required. The share data presented in this note has been retroactively adjusted to reflect the impact of the separation and conversion, including the reverse stock split.

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On May 17, 2018, the Herc Holdings Inc. 2018 Omnibus Incentive Plan (the "2018 Omnibus Plan") was approved and replaced the Herc Holdings Inc. 2008 Omnibus Incentive Plan. The 2018 Omnibus Plan provides for grants of both equity and cash awards, including non-qualified stock options, incentive stock options, stock appreciation rights, performance awards (shares and units), restricted awards (shares and units) and deferred stock units to key executives, employees, non-management directors and non-employee consultants. The total number of common shares authorized for issuance under the 2018 Omnibus Plan is 2,200,000, of which approximately 2,186,0001,579,000 remains available as of December 31, 20182020 for future incentive awards. The shares that remained available for awards under the 2008 Omnibus Plan are no longer be available for any future awards granted under either the 2008 Omnibus Plan or the 2018 Omnibus Plan.


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Stock-based compensation awards are measured on their grant date using a fair value method and are recognized in the statement of operations over the requisite service period. The Company's stock-based compensation expense is included in “Selling, general and administrative” expense in the Company's consolidated statements of operations.

The following table summarizes the expenses and associated income tax benefits recognized (in millions):
 Year Ended December 31,
 202020192018
Compensation expense$16.4 $19.5 $13.4 
Income tax benefit(4.2)(5.1)(3.5)
Total$12.2 $14.4 $9.9 
 Year Ended December 31,
 2018 2017 2016
Compensation expense$13.4
 $10.1
 $5.5
Income tax benefit(3.5) (2.5) (2.1)
Total$9.9
 $7.6
 $3.4

During the year ended December 31, 2016, stock-based compensation expense includes an allocation of THC's corporate and shared functional employee expenses of $2.0 million, on a pre-tax basis. The expenses are for the employees of THC and its non-Herc Holdings subsidiaries whose costs of services were allocated to the Company for the applicable period presented. For additional information related to costs allocated to the Company by THC, see Note 20, "Related Party Transactions."


As of December 31, 2018,2020, there was $17.4$18.8 million of total unrecognized compensation cost related to non-vested stock options, restricted stock units ("RSUs") and performance stock units ("PSUs"). The total unrecognized compensation cost is expected to be recognized over the remaining 1.51.7 years, on a weighted average basis, of the requisite service period that began on the grant dates.


Stock Options


All stock options granted had a per-share exercise price of not less than the fair market value of one share of common stock on the grant date. Stock options vest based on a minimum period of service or the occurrence of events (such as a change in control, as defined in the 2018 Omnibus Plan). No stock options are exercisable after ten years from the grant date.


The Company’s practice is to grant stock options at fair market value. OptionsOutstanding options vest over four years with terms of fiveseven years to 10 years, assuming continued employment with certain exceptions. Vesting of the option awards is contingent upon meeting certain service conditions. The fair value of option grants is estimated using the Black-Scholes option pricing model. The fair value is then amortized on a straight-line basis over the requisite service periods of the awards, which is generally the vesting period. Use of a valuation model requires management to make certain assumptions with respect to selected model inputs. For stock option grants during 2016, expected volatility was calculated based on a blended volatility of peer group volatility and implied volatility as the Company does not have sufficient stock price data to calculate historical volatility. The Company used the simplified method under Staff Accounting Bulletin Topic 14, Share-Based Payment as the basis for estimating the expected life of an option because the exercise data for participants who held options as employees of a subsidiary of our former parent is not necessarily indicative of future exercise patterns. The risk-free interest rate wasis based on U.S. Treasury zero-coupon issues with a remaining term which approximates the expected life assumed at the date of grant. The compensation expense recognized for all stock-based awards is net of estimated forfeitures. Forfeitures were estimated based on an analysis of actual option forfeitures.

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The weighted average assumptions used in the Black-Scholes option pricing model are presented below. There were no0 stock options granted during 20182020, 2019 or 2017.2018.
Year Ended
December 31, 2016
Expected volatility50.0%
Expected dividend yield—%
Expected term (years)4.8
Risk-free interest rate1.09%
The weighted average per share grant date fair values of options granted during 2016 was $14.28.


A summary of option activity is presented below.
 Options Weighted
Average
Exercise
Price
 Weighted
Average
Remaining
Contractual
Term (Years)
 Aggregate Intrinsic
Value (in millions of dollars) (a)
Outstanding at December 31, 2017440,642
 $37.25
    
Granted
 
    
Exercised(15,416) 34.40
    
Forfeited or expired(54,953) 35.71
    
Outstanding at December 31, 2018370,273
 $37.56
    
Vested and Unvested Expected to Vest at December 31, 2018161,502
 $35.74
 4.3 
Exercisable at December 31, 2018203,954
 $39.10
 3.9 

OptionsWeighted
Average
Exercise
Price
Weighted
Average
Remaining
Contractual
Term (Years)
Aggregate Intrinsic
Value (in millions of dollars)
(a)
Outstanding at December 31, 2019342,498 $37.94 
Granted
Exercised(165,327)33.51 
Forfeited or expired(21,580)46.99 
Outstanding at December 31, 2020155,591 $41.38 
Expected to Vest at December 31, 2020$— $— 
Exercisable at December 31, 2020155,591 $41.38 3.1$3.9 
(a) Market price per share on December 31, 20182020 was $25.99.$66.41. The intrinsic value is zero for options with exercise prices above market value.

Stock options as of December 31, 2018:
69
 Options Outstanding Options Exercisable
Range of Exercise PricesNumber Outstanding Weighted
Average
Exercise
Price
 Weighted
Average
Remaining
Contractual
Term (Years)
 Number Outstanding Weighted
Average
Exercise
Price
 Weighted
Average
Remaining
Contractual
Term (Years)
$20.00-30.002,892
 $29.83
 1.2
 2,892
 $29.83
 1.2
  30.01-40.00302,529
 33.19
 4.6
 153,193
 33.19
 4.6
  40.01-50.003,968
 42.15
 4.5
 2,210
 42.37
 4.1
  50.01-60.0046,820
 56.12
 1.5
 35,113
 56.12
 1.5
  60.01-70.00
 
 
 
 
 
  70.01-80.0014,064
 70.14
 1.1
 10,546
 70.14
 1.1
 370,273
 $37.56
   203,954
 $39.10
  


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Stock options as of December 31, 2020:
Options OutstandingOptions Exercisable
Range of Exercise PricesNumber OutstandingWeighted
Average
Exercise
Price
Weighted
Average
Remaining
Contractual
Term (Years)
Number OutstandingWeighted
Average
Exercise
Price
Weighted
Average
Remaining
Contractual
Term (Years)
  $30.01-40.00111,006 33.19 2.6111,006 33.19 2.6
  40.01-50.00629 43.59 0.2629 43.59 0.2
  50.01-60.0029,892 58.22 4.529,892 58.22 4.5
  70.01-80.0014,064 70.14 4.214,064 70.14 4.2
155,591 $41.38 155,591 $41.38 

Additional information pertaining to stock option activity under the Omnibus Plan is as follows (in millions):
Year Ended December 31,
202020192018
Aggregate intrinsic value of stock options exercised (a)
$3.7 $0.3 $0.5 
Cash received from the exercise of stock options5.6 0.8 0.5 
Tax benefit realized on exercise of stock options1.0 0.1 0.1 
 Year Ended December 31,
 2018 2017 2016
Aggregate intrinsic value of stock options exercised (a)
$0.5
 $0.3
 $0.1
Cash received from the exercise of stock options (b)
0.5
 0.7
 0.4
Tax benefit realized on exercise of stock options0.1
 0.1
 
(a)    The intrinsic value is the difference between the market value of the shares on the exercise date and the exercise price of the option.

(a)The intrinsic value is the difference between the market value of the shares on the exercise date and the exercise price of the option.

(b)In addition to the cash received in the table above, cash received from exercise of stock options by Hertz Holdings employees prior to the Spin-Off for 2016 was $9.6 million, as reflected in the accompanying consolidated statements of cash flows.


Performance Stock Units


PSUs will vest based on the achievement of pre-determined performance goals over performance periods determined by the Company's Compensation Committee. Each of the units granted represent the right to receive one share of the Company's common stock on a specified future date. Compensation expense for PSUs is based on the grant date fair value and is recognized ratably over the three-yearthree year vesting period. In addition to the service vesting condition, the PSUs have an additional vesting condition which calls forstipulates the number of units to be awarded being based on the achievement of certain performance measures over the applicable measurement period.period and can range from 0% to 200% of the target. In the event of an employee's death or disability, a pro rata portion of the employee's PSUs will vest to the extent performance goals are achieved at the end of the performance period.


A summary of the PSU activity is presented below.
UnitsWeighted
Average Grant Date
Fair Value
Nonvested at December 31, 2019321,793 $48.91 
Granted181,693 38.56 
Vested(143,696)47.78 
Performance change49,716 48.33 
Forfeited(18,741)45.57 
Nonvested at December 31, 2020390,765 $44.60 
 Units Weighted
Average Grant Date
Fair Value
Nonvested at December 31, 2017247,177
 $41.67
Granted107,990
 64.51
Vested(65,987) 48.98
Forfeited(22,073) 47.73
Nonvested at December 31, 2018267,107
 $48.60


The weighted average per share grant-date fair values of PSUs granted during 2020, 2019 and 2018 2017were $38.56, $40.79 and 2016 were $64.51, $47.88 and $29.77, respectively. The total fair value of PSUs that vested during 2020, 2019 and 2018 were $6.9 million, $3.4 million and $3.2 million. There were no PSUs that vested in 2017 or 2016.million, respectively.


Almost all PSUs granted in 20182020, 2019 and 20172018 include vesting conditions based on the achievement of the Company's return on invested capital performance measured over a three-yearthree-year period starting from the year of grant. PSUs granted in 2016 include vesting conditions based on the achievement

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Restricted Stock Units


RSUs granted under the Omnibus Plan will vest based on a minimum period of service or the occurrence of events (such as a change in control, as defined in the Omnibus Plan) specified by the Compensation Committee. Compensation expense for RSUs is based on the grant date fair value and is recognized ratably over the vesting period which generally ranges from one year to three years.

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A summary of the RSU activity under the Omnibus Plan is presented below.
UnitsWeighted
Average Grant Date
Fair Value
Nonvested at December 31, 2019411,069 $47.17 
Granted292,669 35.36 
Vested(267,688)46.41 
Forfeited(23,296)41.95 
Nonvested at December 31, 2020412,754 $39.65 
 Units Weighted
Average Grant Date
Fair Value
Nonvested at December 31, 2017403,177
 $38.33
Granted166,925
 62.89
Vested(81,533) 37.31
Forfeited(31,915) 44.28
Nonvested at December 31, 2018456,654
 $46.57


The weighted average per share grant date fair values of RSUs granted during 2020, 2019 and 2018 2017were $35.36, $41.18 and 2016 were $62.89, $45.61 and $32.63, respectively. The total fair value of RSUs that vested during 2020, 2019 and 2018 2017was $12.4 million, $10.7 million and 2016 was $3.0 million, $1.6respectively.

Note 15—Income Taxes

The components of income (loss) before income taxes for the periods were as follows (in millions):
Years Ended December 31,
202020192018
Domestic$95.5 $61.9 $60.5 
Foreign(1.4)1.7 8.3 
Income before income taxes$94.1 $63.6 $68.8 

The provision (benefit) for income taxes consists of the following (in millions):
Years Ended December 31,
202020192018
Current:
Federal$$(1.4)$2.2 
Foreign1.8 3.5 1.9 
State and local6.1 3.7 5.5 
Total current7.9 5.8 9.6 
Deferred:
Federal22.5 15.9 (7.0)
Foreign(7.1)0.4 (1.9)
State and local(2.9)(6.0)(1.0)
Total deferred12.5 10.3 (9.9)
Total income tax provision (benefit)$20.4 $16.1 $(0.3)

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The principal items of the U.S. and foreign net deferred tax assets (liabilities) are as follows (in millions):
December 31, 2020December 31, 2019
Deferred tax assets:
Employee benefit plans$5.3 $5.5 
Tax credit carryforwards0.5 2.1 
Right-of-use assets48.5 54.7 
Accrued expenses37.0 35.0 
Net operating loss carryforwards75.1 122.9 
Total deferred tax assets166.4 220.2 
Less: valuation allowance(3.2)(9.0)
Total net deferred tax assets163.2 211.2 
Deferred tax liabilities:
Lease liabilities(46.4)(53.2)
Outside basis difference in foreign subsidiaries and other(1.8)(2.0)
Depreciation on tangible assets(517.4)(545.7)
Intangible assets(71.6)(69.6)
Total deferred tax liabilities(637.2)(670.5)
Net deferred tax liability$(474.0)$(459.3)

As of December 31, 2020, a deferred tax asset of $61.8 million was recorded for unutilized federal net operating loss carryforwards ("NOL carryforwards"). The total federal NOL carryforwards are $302.6 million and $0.3have an indefinite carryforward period. State NOL carryforwards have generated a deferred tax asset of $10.6 million respectively.and expire over various years beginning in 2021.


As of December 31, 2020, deferred tax assets of $0.5 million were recorded for federal and various state tax credit carryforwards. As of December 31, 2020, deferred tax assets of $2.5 million were recorded for foreign NOL carryforwards of $15.5 million, all of which have an indefinite carryforward period.
Note 13—Income Taxes

In determining the valuation allowance, an assessment of positive and negative evidence was performed regarding realization of the net deferred tax assets in accordance with Topic 740. This assessment included the evaluation of scheduled reversals of deferred tax liabilities, the availability of carryforwards and estimates of projected future taxable income. Based on the assessment, as of December 31, 2020, total valuation allowances of $3.2 million were recorded against deferred tax assets. Although realization is not assured, the Company has concluded that it is more likely than not the remaining deferred tax assets of $163.2 million will be realized and as such no valuation allowance has been provided on these assets.
For the first half
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)



The income tax in the accompanying consolidated income tax returnstatements of Hertz Holdings. With respect to this time period,operations differs from the income tax provision included in these financial statements has been calculated using a separate return basis, as ifby applying the Company filed separate consolidated groupstatutory federal income tax returns, and was not part ofrate to income (loss) before income taxes due to the consolidated income tax returns of Hertz Holdings.following (in millions):

Years Ended December 31,
202020192018
Income tax (benefit) provision at statutory rate$19.8 $13.3 $14.4 
Increases (decreases) resulting from:
Foreign taxes(0.1)0.9 0.9 
State and local income taxes, net of federal income tax3.1 (3.7)3.6 
Federal and foreign3.5 3.1 1.1 
Enactment of the 2017 Tax Act(a)
(20.8)
Change in valuation allowance(5.8)2.6 (1.5)
Outside basis difference in foreign subsidiaries(0.9)0.9 
All other items, net(0.1)0.8 1.1 
Income tax (benefit) provision$20.4 $16.1 $(0.3)
(a) In December 2017, the 2017 Tax Act was enacted. This legislation had significant impact on the current tax environment in the U.S. Subsequent to the enactment of the 2017 Tax Act, the Securitiesenacted and Exchange Commission ("SEC") provided guidance issued in Staff Accounting Bulletin No. 118 ("SAB 118") on how public companies should report the effects of the 2017 Tax Act in future SEC filings. The Company performed an initial analysis of the 2017 Tax Act in accordance with this guidance. The Company recognized, as an estimate, an income tax net benefit of $207.1 million forduring the year ended December 31, 2017 associated with2018, the items that were reasonably estimable. ThisCompany finalized its estimates and recorded a net benefit reflectedof $20.8 million comprised of (i) a $245.2$14.3 million expense related to the revaluation of the Company's net deferred tax liability based on a U.S. federal tax rate of 21%, partially offset by and (ii) a $35.1 million benefit related to the one-time transition tax of $38.1 million on unremittedpreviously unrepatriated earnings from foreign earnings and profits (the $38.1 million did not represent cash taxes paid due to the utilization of net operating loss ("NOL") carryforwards.)operations.


During the fourth quarter of 2018, the Company completed the analysisAs a result of the 2017 Tax Act, in accordance with SAB 118. Below is a summarypreviously undistributed earnings from foreign subsidiaries are deemed to have been repatriated as of the key provisions of theDecember 31, 2017 Tax Act as finalized (in millions):

  Years ended December 31,
  2018 2017
Tax Rate Reduction $14.3
 $(245.2)
Deemed Repatriation (35.1) 38.1
Total benefit related to the 2017 Tax Act $(20.8) $(207.1)

Tax Rate Reduction

The 2017 Tax Act reduced thefor federal income tax ratepurposes. Beginning in 2018, companies are generally able to repatriate earnings from 35% to 21% beginning in 2018. Accordingly,foreign subsidiaries with no U.S. federal income tax impact. As of December 31, 2020, the Company recorded an estimated tax benefit of $245.2 million for the year ended December 31, 2017 associated with the reduction in net deferred tax liabilities. The tax impact of this rate change was finalized in 2018 as part of the completion of the 2017 income tax returns. Based on the completion of this analysis, the Company recorded an adjustment of $14.3 millioncontinues to the 2017 estimate resulting in a final tax benefit of $230.9 million.

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Deemed Repatriation

Under the 2017 Tax Act, companies were required, as part of the December 31, 2017 income tax reporting, to calculate the amount of previously unrepatriatedassert that earnings from foreign operations and remit a one-time tax (“Toll Charge”) on these previously untaxed earnings.are not permanently invested. The Company, recognized an estimatedas a matter of policy, looks to repatriate foreign earnings in a tax expenseefficient manner.  Many foreign jurisdictions impose taxes on distributions to other jurisdictions.  Due to the variations and complexities of $38.1 millionthese laws, the Company believes it would be impractical to calculate and accrue these taxes beyond the normal earnings and profits standard for U.S. tax purposes.

As of December 31, 2020, the Company is maintaining the assertion that future earnings associated with this deemed repatriation for the year ended December 31, 2017. Based on the finalizationpotential stock sale or liquidation of the analysis in 2018,foreign subsidiaries are permanently reinvested. Accordingly, the Company has not recorded a benefit of approximately $35.1 millionany deferred tax liabilities associated with respect to the Toll Charge. This benefit was partially offset by a rate reduction on federal NOL carryforwards previously utilized at 35% and reduced to 21%. The Company elected to utilize current NOL carryforwards to offset the remaining deemed repatriation income balance and therefore recorded no income tax payable for U.S. federal tax purposes.

Interest Expense Limitation

Beginning in 2018, interest expense deductions are limited to 30% of adjusted taxable income, subject to certain provisions. The Company completed the analysis with respect to the interest expense limitation. The Company was not subject to this limitation in 2018.

Territorial Taxation

The 2017 Tax Act generally allows for the receipt of foreign dividends on a tax-free basis beginning in 2018. However, the 2017 Tax Act also enacts various new taxes with respect to transactions with, and operations of, foreign related parties.these book-to-tax differences. The Company has completedanalyzed the analysispotential tax liability associated with respectthese differences to these new taxes and concludedbe approximately $46.6 million.

The total cumulative amount of unrecognized tax benefits is $2.7 million as follows:of December 31, 2020.


Global Intangible Low-Taxed Income ("GILTI") - The Company conducts business globally and, as a result, files one or more income tax returns in accordance with the GILTI regulations with respect to foreign subsidiaries, was in a tested loss position for 2018U.S. and therefore recorded no GILTI. Additionally, sincenon-U.S. jurisdictions. In the normal course of business, the Company was notis subject to examination by taxing authorities throughout the GILTI,world. The open tax years for these jurisdictions span from 2005 to 2018. The IRS completed its audit of the Company's 2007 to 2011 consolidated income tax returns, in which Herc was included, and had no election has currently been made with respectchanges to GILTI and deferred taxes or valuation allowances with respect to GILTI.

Base Erosion Anti-Abuse Tax ("BEAT") -the previously filed tax returns. The Company made no payment to foreign subsidiaries subject to BEAT in 2018. Therefore, no BEAT has been recorded.

Foreign Derived Intangible Income ("FDII") -is currently under audit for the 2014 through 2016 income tax years. Several U.S. state and non-U.S. jurisdictions are under audit. The Company received no amountsdoes not expect any material assessments resulting from foreign subsidiaries subject to FDII in 2018. Therefore, no FDII has been recorded.these audits.

Fixed Assets

The 2017 Tax Act allows for a special 100% bonus depreciation deduction to be claimed on many fixed assets purchased subsequent to September 27, 2017 through December 2022. Additionally, the 2017 Tax Act terminated the availability of Section 1031 LKE treatment with respect to personal property items. As a result, the Company elected to cease matching asset sales with newly acquired assets effective October 1, 2017 and began utilizing the 100% expensing provision effective as of October 1, 2017.


Reclassifications

In February 2018, the FASB issued guidance that allows reclassification from accumulated other comprehensive income to retained earnings for certain tax effects resulting from the 2017 Tax Act that would otherwise be stranded in accumulated other comprehensive income. This guidance is effective for annual and interim periods beginning after December 15, 2018, with early adoption permitted. The Company has elected to early adopt this guidance and as a result has recorded an adjustment of $2.2 million to retained earningsaccumulated deficit as of January 1, 2018.




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The components of income (loss) before income taxes for the periods were as follows (in millions):
 Years Ended December 31,
 2018 2017 2016
Domestic$60.5
 $(59.2) $2.5
Foreign8.3
 (5.2) (7.4)
Income (loss) before income taxes$68.8
 $(64.4) $(4.9)

The provision for income taxes consists of the following (in millions):
 Years Ended December 31,
 2018 2017 2016
Current:     
Federal$2.2
 $2.0
 $
Foreign1.9
 5.0
 2.4
State and local5.5
 (3.3) 0.1
Total current9.6
 3.7
 2.5
Deferred:     
Federal(7.0) (214.9) 3.5
Foreign(1.9) (4.6) (2.3)
State and local(1.0) (8.9) 11.1
Total deferred(9.9) (228.4) 12.3
Total income tax (benefit) provision$(0.3) $(224.7) $14.8

The principal items of the U.S. and foreign net deferred tax assets and liabilities are as follows (in millions):
 December 31, 2018 December 31, 2017
Deferred tax assets:   
Employee benefit plans$6.8
 $5.4
Tax credit carryforwards4.2
 4.2
Accrued expenses34.9
 33.6
Net operating loss carryforwards101.8
 46.5
Total deferred tax assets147.7
 89.7
Less: valuation allowance(5.8) (7.6)
Total net deferred tax assets141.9
 82.1
Deferred tax liabilities:   
Deferred state gain(6.3) (5.8)
Outside basis difference in foreign subsidiaries and other(3.4) (1.9)
Depreciation on tangible assets(512.5) (469.7)
Intangible assets(67.8) (66.2)
Total deferred tax liabilities(590.0) (543.6)
Net deferred tax liability$(448.1) $(461.5)

In connection with the Spin-Off in 2016, NOL carryforwards were split between the Company and New Hertz pursuant to the Code and regulations. The split of net operating loss carryforwards was adjusted in 2017 after the 2016 income tax returns were finalized and the Company recorded an adjustment to the federal and state net operating losses of $0.9 million and $4.0 million, respectively. As of December 31, 2018, a deferred tax asset of $86.5 million was recorded for unutilized federal NOL carryforwards.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)




The total federal NOL carryforwards are $412.1 million and the federal NOL carryforwards begin to expire in 2031. State NOL carryforwards have generated a deferred tax asset of $10.1 million and expire over various years beginning in 2019.

As of December 31, 2018, deferred tax assets of $4.2 million were recorded for federal Alternative Minimum Tax and various non-U.S. Tax Credits. As of December 31, 2018, deferred tax assets of $5.1 million were recorded for foreign NOL carryforwards of $22.6 million, of which $22.4 million have an indefinite carryforward period.

In determining the valuation allowance, an assessment of positive and negative evidence was performed regarding realization of the net deferred tax assets in accordance with Topic 740. This assessment included the evaluation of scheduled reversals of deferred tax liabilities, the availability of carryforwards and estimates of projected future taxable income. Based on the assessment, as of December 31, 2018, total valuation allowances of $5.8 million were recorded against deferred tax assets. Although realization is not assured, the Company has concluded that it is more likely than not the remaining deferred tax assets of $141.9 million will be realized and as such no valuation allowance has been provided on these assets.

The income tax in the accompanying consolidated statements of operations differs from the income tax calculated by applying the statutory federal income tax rate to income (loss) before income taxes due to the following (in millions):
 Years Ended December 31,
 2018 2017 2016
Income tax (benefit) provision at statutory rate$14.4
 $(22.5) $(1.7)
      
Increases (decreases) resulting from:     
Foreign taxes0.9
 1.9
 0.8
State and local income taxes, net of federal income tax3.6
 2.6
 11.2
Federal and foreign1.1
 0.5
 3.2
Enactment of the 2017 Tax Act(20.8) (207.1) 
Finalization of estimates from Spin-Off
 (0.9) 
Change in valuation allowance(1.5) 1.1
 1.3
Outside basis difference in foreign subsidiaries0.9
 
 
All other items, net1.1
 (0.3) 
Income tax (benefit) provision$(0.3) $(224.7) $14.8

As a result of the 2017 Tax Act, previously undistributed earnings from foreign subsidiaries are deemed to have been repatriated as of December 31, 2017 for federal income tax purposes. Beginning in 2018, companies are generally able to repatriate earnings from foreign subsidiaries with no U.S. federal income tax impact. As of December 31, 2018, and as part of the finalization of the tax impacts of the 2017 Tax Act under SAB 118, the Company has determined not to assert that earnings from foreign operations are permanently reinvested. The Company therefore recorded a deferred tax liability of $1.8 million with respect to the expected future tax liability associated with the repatriation of these earnings in the future.

As of December 31, 2018, the Company is maintaining the assertion that future earnings associated with the potential stock sale or liquidation of foreign subsidiaries is permanently reinvested. Accordingly, the Company has not recorded any deferred tax liabilities associated with these book-to-tax differences. The Company has analyzed the potential tax liability associated with these differences to be approximately $26.5 million.

As a consequence of the Company’s inclusion in the Hertz Global Holdings, Inc. consolidated income tax returns, it is joint and severally liable, with other members of the consolidated group, for any additional taxes that may be assessed against Hertz Global Holdings, Inc. for the periods prior to June 30, 2016. The Company classifies interest and penalties associated with income tax liabilities as a component of income tax expense.

The Company conducts business globally and, as a result, files one or more income tax returns in the U.S. and non-U.S. jurisdictions. In the normal course of business, the Company is subject to examination by taxing authorities throughout the world. The open tax years for these jurisdictions span from 2005 to 2017. The IRS completed its audit of the Company's 2007 to 2011 consolidated

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income tax returns, in which Herc was included, and had no changes to the previously filed tax returns. The Company is currently under audit for the 2014 and 2015 income tax years. The Company was also recently notified that the IRS will be auditing the 2016 income tax return. Several U.S. state and non-U.S. jurisdictions are under audit. The Company does not expect any material assessments resulting from these audits.

Note 14—Leases

The Company has various operating leases under which the following amounts were expensed (in millions):
 Years Ended December 31,
 2018 2017 2016
Real estate$35.4
 $32.2
 $31.8
Office and other equipment1.5
 2.8
 1.2
 36.9
 35.0
 33.0
Sublease income(0.4) (0.4) (0.5)
Total$36.5
 $34.6
 $32.5

As of December 31, 2018, minimum obligations under existing agreements referred to above are as follows (in millions):
2019 $34.6
2020 29.0
2021 24.0
2022 20.5
2023 18.3
After 2023 75.8
Total $202.2

The future minimum rent payments in the above table have been reduced by minimum future sublease rental inflows in the aggregate amount of $0.6 million as of December 31, 2018.

Many of the Company's real estate leases require the Company to pay or reimburse operating expenses, such as real estate taxes, insurance and maintenance expenses. Such obligations are not reflected in the table of minimum future obligations appearing immediately above. The Company operates from various leased premises under operating leases with terms of up to 15 years. A number of the Company's operating leases contain renewal options. These renewal options vary, but the majority include clauses for renewal for various term lengths at various rates, both fixed and market.

Capital Leases

As of December 31, 2018 and 2017, the Company has gross assets under capital leases of $87.7 million and $107.4 million, respectively. Capital lease obligations consist primarily of service vehicle leases with periods expiring at various dates through 2023.


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As of December 31, 2018, future minimum capital lease payments for existing agreements referred to above are as follows (in millions):
2019 $23.6
2020 13.0
2021 1.5
2022 1.5
2023 0.7
Total minimum lease payments 40.3
Less amount representing interest (at a weighted-average interest rate of 4.02%) (2.2)
Total capital lease obligations $38.1

Note 15—16—Accumulated Other Comprehensive Income (Loss)


The changes in the accumulated other comprehensive income (loss) balance by component (net of tax) are presented in the tables below (in millions):
Pension and Other Post-Employment BenefitsUnrealized Gains on Hedging InstrumentsForeign Currency ItemsAccumulated Other Comprehensive Income (Loss)
Balance at December 31, 2019$(16.0)$1.2 $(94.9)$(109.7)
Other comprehensive income before reclassification(3.2)3.7 0.5 
Amounts reclassified from accumulated other comprehensive loss1.3 (1.2)2.1 2.2 
Net current period other comprehensive income(1.9)(1.2)5.8 2.7 
Balance at December 31, 2020$(17.9)$$(89.1)$(107.0)
Pension and Other Post-Employment BenefitsUnrealized Gains on Hedging InstrumentsForeign Currency ItemsAccumulated Other Comprehensive Income (Loss)
Pension and Other Post-Employment Benefits Unrealized Gains on Hedging Instruments Foreign Currency Items Accumulated Other Comprehensive Income (Loss)
Balance at December 31, 2017$(13.5) $1.3
 $(86.4) $(98.6)
Balance at December 31, 2018Balance at December 31, 2018$(18.7)$2.7 $(106.4)$(122.4)
Other comprehensive income before reclassification(5.6) 1.1
 (20.0) (24.5)Other comprehensive income before reclassification3.3 (1.5)11.5 13.3 
Amounts reclassified from accumulated other comprehensive loss2.9
 
 
 2.9
Amounts reclassified from accumulated other comprehensive loss(0.6)(0.6)
Cumulative effect of accounting change (Note 13)(2.5) 0.3
 
 (2.2)
Net current period other comprehensive income(5.2) 1.4
 (20.0) (23.8)Net current period other comprehensive income2.7 (1.5)11.5 12.7 
Balance at December 31, 2018$(18.7) $2.7
 $(106.4) $(122.4)
Balance at December 31, 2019Balance at December 31, 2019$(16.0)$1.2 $(94.9)$(109.7)

 Pension and Other Post-Employment Benefits Unrealized Gains on Hedging Instruments Foreign Currency Items Accumulated Other Comprehensive Income (Loss)
Balance at December 31, 2016$(14.6) $
 $(104.1) $(118.7)
Other comprehensive income before reclassification
 1.3
 17.7
 19.0
Amounts reclassified from accumulated other comprehensive loss1.1
 
 
 1.1
Net current period other comprehensive income1.1
 1.3
 17.7
 20.1
Balance at December 31, 2017$(13.5) $1.3
 $(86.4) $(98.6)


Amounts reclassified from accumulated other comprehensive income (loss) to net income (loss) were as follows (in millions):
Twelve Months Ended December 31,
Pension and other postretirement benefit plans202020192018Statement of Operations Caption
Amortization of actuarial losses$0.7 $1.1 $0.7 Selling, general and administrative
Settlement loss1.0 0.8 1.2 Selling, general and administrative
Total1.7 1.9 1.9 
Tax benefit (provision)(0.4)(2.5)1.0 Income tax benefit (provision)
Total reclassifications for the period1.3 (0.6)2.9 
Hedging
Gain on settlement(1.5)Interest expense, net
Tax provision0.3 Income tax benefit (provision)
Total reclassifications for the period(1.2)
Reclassification of foreign currency items2.1 Other expense (income), net
Total reclassifications for the period$2.2 $(0.6)$2.9 


  Twelve Months Ended December 31,  
Pension and other postretirement benefit plans 2018 2017 2016 Statement of Operations Caption
Amortization of actuarial losses $0.7
 $1.4
 $1.4
 Selling, general and administrative
Settlement loss 1.2
 0.9
 
 Selling, general and administrative
Total 1.9
 2.3
 1.4
  
Tax benefit (provision) 1.0
 (1.2) (0.5) Income tax benefit (provision)
Total reclassifications for the period $2.9
 $1.1
 $0.9
  


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Note 16—17—Commitments and Contingencies


Legal Proceedings


In re Hertz Global Holdings, Inc. Securities Litigation - In November 2013, a putative shareholder class action, Pedro Ramirez, Jr. v. Hertz Global Holdings, Inc., et al., was commenced in the U.S. District Court for the District of New Jersey naming Hertz Holdings and certain of its officers as defendants and alleging violations of the federal securities laws. The complaint alleged
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that Hertz Holdings made material misrepresentations and/or omission of material fact in its public disclosures during the period from February 25, 2013 through November 4, 2013, in violation of Section 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and Rule 10b-5 promulgated thereunder. The complaint sought unspecified monetary damages on behalf of the purported class and an award of costs and expenses, including counsel fees and expert fees. In June 2014, Hertz Holdings moved to dismiss the amended complaint. In October 2014, the court granted Hertz Holdings’ motion to dismiss without prejudice, allowing the plaintiff to amend the complaint a second time. In November 2014, plaintiff filed a second amended complaint which shortened the putative class period and made allegations that were not substantively very different than the allegations in the prior complaint. In early 2015, Hertz Holdings moved to dismiss the second amended complaint. In July 2015, the court granted Hertz Holdings’ motion to dismiss without prejudice, allowing plaintiff to file a third amended complaint. In August 2015, plaintiff filed a third amended complaint which included additional allegations, named additional then-current and former officers as defendants and expanded the putative class period to extend from February 14, 2013 to July 16, 2015. In November 2015, Hertz Holdings moved to dismiss the third amended complaint. The plaintiff then sought leave to add a new plaintiff because of challenges to the standing of the first plaintiff. The court granted plaintiff leave to file a fourth amended complaint to add the new plaintiff, and the new complaint was filed on March 1, 2016. Hertz Holdings and the individual defendants moved to dismiss the fourth amended complaint with prejudice on March 24, 2016. In April 2017, the court granted Hertz Holdings' and the individual defendants' motions to dismiss and dismissed the action with prejudice. In May 2017, plaintiff filed a notice of appeal and, in June 2018, oral argument was conducted before the U.S. Court of Appeals for the Third Circuit. In September 2018, the court affirmed the dismissal of the action with prejudice. On February 5, 2019, plaintiff filed a motion to set aside the judgment against it, and for leave to file a fifth amended complaint.  The proposed amended complaint would add allegations related to the settlement with the SEC described below.that, among other things, ordered New Hertz to cease and desist from violating certain of the federal securities laws and imposed a civil penalty of $16.0 million. On February 26, 2019, New Hertz filed an opposition to plaintiff’s motion for relief from judgment and leave to file a fifth amended complaint.

Governmental Investigations - In June 2014, Hertz Holdings was advised by On March 8, 2019, plaintiff filed a reply in support of that motion. On September 30, 2019, the staffcourt denied plaintiff’s motion for relief from judgment and leave to file a fifth amended complaint. On October 30, 2019, plaintiff filed a notice of appeal with the U.S. Court of Appeals for the Third Circuit. On October 13, 2020, the U.S. Court of Appeals for the Third Circuit affirmed the denial of the New York Regional Office of the SEC that it was investigating the events disclosed in certain of Hertz Holdings’ filings with the SEC. In addition, Hertz Holdings and New Hertz had communications with the United States Attorney’s Officeplaintiff's motion for the District of New Jersey regarding the same or similar events. New Hertz was responsible for managing these matters. The investigations and communications generally involved the restatements included in Hertz Holdings’ 2014 Form 10-K and related accounting for prior periods. On December 31, 2018, the SEC entered an administrative order that, among other things, orders New Hertz to cease and desistrelief from violating certain of the federal securities laws and imposes a civil penalty of $16.0 million. Pursuant to the Separation and Distribution Agreement that we entered into in connection with the Spin-Off, the Company agreed to indemnify New Hertz for 15% of any shared liabilities. Accordingly, the Company has accrued a loss contingency of $2.4 million for this matterjudgement with respect to the quarter ended December 31, 2018. In addition, Newformer officers. The court did not rule on the appeal with respect to Hertz has advised us that it does not expect any further communications withGlobal Holdings, Inc. due to the United States Attorney’s Office for the District of New Jersey.automatic stay created by Hertz Global Holding, Inc.'s ongoing bankruptcy proceedings.


In addition, the Company is subject to a number of claims and proceedings that generally arise in the ordinary conduct of its business. These matters include, but are not limited to, claims arising from the operation of rented equipment and workers' compensation claims. The Company does not believe that the liabilities arising from such ordinary course claims and proceedings will have a material adverse effect on the Company's consolidated financial position, results of operations or cash flows.


The Company has established reserves for matters where the Company believes the losses are probable and can be reasonably estimated. For matters where a reserve has not been established, the ultimate outcome or resolution cannot be predicted at this time, or the amount of ultimate loss, if any, cannot be reasonably estimated. Litigation is subject to many uncertainties and there can be no assurance as to the outcome of the individual litigated matters. It is possible that certain of the actions, claims, inquiries or proceedings, could be decided unfavorably to the Company or any of its subsidiaries involved. Accordingly, it is possible that an adverse outcome from such a proceeding could exceed the amount accrued in an amount that could be material to the Company's consolidated financial condition, results of operations or cash flows in any particular reporting period.


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Off-Balance Sheet Commitments


Indemnification Obligations


In the ordinary course of business, the Company executes contracts involving indemnification obligations customary in the relevant industry and indemnifications specific to a transaction such as the sale of a business or assets or a financial transaction. These indemnification obligations might include claims relating to the following: accuracy of representations; compliance with covenants and agreements by the Company or third parties; environmental matters; intellectual property rights; governmental regulations; employment-related matters; customer, supplier and other commercial contractual relationships; condition of assets; and financial or other matters. Performance under these indemnification obligations would generally be triggered by a breach of terms of the contract or by a third-party claim. The Company regularly evaluates the probability of having to incur costs associated with these indemnification obligations and has accrued for expected losses that are probable and estimable. The types of indemnification obligations for which payments are possible include the following:

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The Spin-Off


In connection with the Spin-Off, pursuant to the separation and distribution agreement (as discussed in Note 21,, "Arrangements "Arrangements with New Hertz"Hertz"), the Company has assumed the liability for, and control of, all pending and threatened legal matters related to its equipment rental business and related assets, as well as assumed or retained liabilities, and will indemnify New Hertz for any liability arising out of or resulting from such assumed legal matters. The separation and distribution agreement also provides for certain liabilities to be shared by the parties. The Company is responsible for a portion of these shared liabilities (typically 15%), as set forth in that agreement. New Hertz is responsible for managing the settlement or other disposition of such shared liabilities. Pursuant to the tax matters agreement, the Company has agreed to indemnify New Hertz for any resulting taxes and related losses if the Company takes or fails to take any action (or permits any of its affiliates to take or fail to take any action) that causes the Spin-Off and related transactions to be taxable, or if there is an acquisition of the equity securities or assets of the Company or of any member of the Company’s group that causes the Spin-Off and related transactions to be taxable.


EnvironmentalGuarantee


The Company has indemnified various parties for the costs associated with remediating numerous hazardous substance storage, recycling or disposal sites in many states and, in some instances, for natural resource damages. The amount of any such expenses or related natural resource damages for which the Company may be held responsible could be substantial. The probable expenses that the Company expects to incur for such matters have been accrued, and those expenses are reflected in the Company's consolidated financial statements. As of December 31, 2018 and December 31, 2017, the aggregate amounts accrued for environmental liabilities, including liability for environmental indemnities, reflected in the Company's consolidated balance sheets in "Accrued liabilities" were $0.1 million. The accrual generally represents the estimated cost to study potential environmental issues at sites deemed to require investigation or clean-up activities, and the estimated cost to implement remediation actions, including on-going maintenance, as required. Cost estimates are developed by site. Initial cost estimates are based on historical experience at similar sites and are refined over time on the basis of in-depth studies of the sites. For many sites, the remediation costs and other damages for which the Company ultimately may be responsible cannot be reasonably estimated because of uncertainties with respect to factors such as the Company's connection to the site, the materials there, the involvement of other potentially responsible parties, the application of laws and other standards or regulations, site conditions, and the nature and scope of investigations, studies, and remediation to be undertaken (including the technologies to be required and the extent, duration, and success of remediation).

Guarantee

The Company has a joint venture with a third-party that it accounts for using the equity method. The joint venture has an outstanding bank loan to which the Company is alsoin connection with a guarantor.previous joint venture. The Company has determined the maximum potential payment amount under the guarantee is approximately $7.6 million,$5.3 million; however the probability of any payment is remote and therefore the Company has not recorded a liability on its balance sheet as of December 31, 2018. The2020 as the bank loan is collateralized by the rental equipment and other assets of the joint venture entity and has maturities through 2023.

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Note 17—Financial Instruments

The Company established risk management policies and procedures, which seek to reduce the Company’s risk exposure to fluctuations in foreign currency exchange rates and interest rates. However, there can be no assurance that these policies and procedures will be successful. Although the instruments utilized involve varying degrees of credit, market and interest risk, the counterparties to the agreements are expected to perform fully under the terms of the agreements. The Company monitors counterparty credit risk, including lenders, on a regular basis, but cannot be certain that all risks will be discerned or that its risk management policies and procedures will always be effective. Additionally, in the event of default under the Company’s master derivative agreements, the non-defaulting party has the option to set-off any amounts owed with regard to open derivative positions.

Foreign Currency Exchange Rate Risk

The Company’s objective in managing exposure to foreign currency fluctuations is to limit the exposure of certain cash flows and earnings to foreign currency exchange rate changes through the use of various derivative contracts. The Company experiences foreign currency risks in its global operations as a result of various factors, including intercompany local currency denominated loans, rental operations in various currencies and purchasing fleet in various currencies.

Interest Rate Swap Arrangement

In March 2017, the Company entered into a three-year LIBOR-based interest rate swap arrangement on a portion of its outstanding ABL Credit Facility. The aggregate amount of the swap is equal to a portion of the U.S. dollar principal amount of the ABL Credit Facility and the payment dates of the swap coincide with the interest payment dates of the ABL Credit Facility. The swap contract provides for the Company to pay a fixed interest rate and receive a floating rate. The variable interest rate resets monthly. The swap has been accounted for as cash flow hedge of a portion of the ABL Credit Facility.


The following table summarizes the outstanding interest rate swap arrangement as of December 31, 2018 (dollars in millions):
 Aggregate Notional Amount Receive Rate Receive Rate as of December 31, 2018 Pay Rate
ABL Credit Facility$350.0
 1-month LIBOR + 2.00% 4.5% 3.7%

The following table summarizes the estimated fair value of the Company's financial instruments (in millions):
 Fair Value of Financial Instruments
 Other Long-Term Assets Accrued Liabilities
 December 31,
2018
 December 31,
2017
 December 31,
2018
 December 31,
2017
Derivatives Designated as Hedging Instruments       
Interest rate swap$3.6
 $2.1
 $
 $

The following table summarizes the gains and losses on derivative instruments for the periods indicated. Gains and losses recognized on foreign currency forward contracts and the effective portion of interest rate swaps are included in the consolidated statements of operations together with the corresponding offsetting gains and losses on the underlying hedged transactions. All gains and losses recognized are included in "Selling, general and administrative" in the consolidated statements of operations (in millions).
 Gain (Loss) Recognized
 2018 2017 2016
Derivatives Not Designated as Hedging Instruments     
Foreign currency forward contracts$0.2
 $(4.0) $5.0

Note 18—Fair Value Measurements


Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants in the principal market or, if none exists, the most advantageous market, for the specific asset or

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liability at the measurement date (referred to as the "exit price"). Fair value is a market-based measurement that should be determined based upon assumptions that market participants would use in pricing an asset or liability, including consideration of nonperformance risk.


The Company assesses the inputs used to measure fair value using the three-tier hierarchy promulgated under U.S. GAAP. This hierarchy indicates the extent to which inputs used in measuring fair value are observable in the market.


Level 1: Inputs that reflect quoted prices for identical assets or liabilities in active markets that are observable.


Level 2: Inputs other than quoted prices included in Level 1 that are observable either directly or indirectly, including quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; or model-derived valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data.


Level 3: Inputs that are unobservable to the extent that observable inputs are not available for the asset or liability at the measurement date and include management's judgment about assumptions that market participants would use in pricing the asset or liability.


Under U.S. GAAP, entities are allowed to measure certain financial instruments and other items at fair value. The Company has not elected the fair value measurement option for any of its assets or liabilities that meet the criteria for this option. Irrespective of the fair value option previously described, U.S. GAAP requires certain financial and non-financial assets and liabilities of the Company to be measured on either a recurring basis or on a nonrecurring basis as shown in the sections that follow.


Assets and Liabilities Measured at Fair Value on a Recurring Basis


The fair value of cash, accounts receivable, accounts payable and accrued liabilities, to the extent the underlying liability will be settled in cash, approximates carrying values because of the short-term nature of these instruments. The Company's assessment of goodwill and other intangible assets for impairment includes an assessment using various Level 2 (EBITDA multiples and discount rate) and Level 3 (forecasted cash flows) inputs. See Note 2,"Basis of Presentation and Recently Issued Accounting Pronouncements,," for more information on the application of the use of fair value methodology.

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Cash Equivalents and Investments


Cash equivalents, when held, primarily consist of money market accounts which are classified as Level 1 assets which the Company measures at fair value on a recurring basis. The Company determines the fair value of cash equivalents using a market approach based on quoted prices in active markets. The Company had no cash equivalents at December 31, 20182020 or 2017.2019.

Financial Instruments

The fair value of the Company's financial instruments as of December 31, 2018 and 2017 are shown in Note 17, "Financial Instruments." The Company's financial instruments are classified as Level 2 assets and liabilities and are priced using quoted market prices for similar assets or liabilities in active markets.


Debt Obligations


The fair values of the Company's ABL Credit Facility, AR Facility, capital leasesfinance lease liabilities and other borrowings approximated their book values as of December 31, 20182020 and 2017.2019. The fair value of the Company's 2027 Notes are estimated based on quoted market rates as well as borrowing rates currently available to the Company for loans with similar terms and average maturities (Level 2 inputs) (in millions).
December 31, 2020December 31, 2019
Nominal Unpaid Principal BalanceAggregate Fair ValueNominal Unpaid Principal BalanceAggregate Fair Value
2027 Notes$1,200.0 $1,276.4 $1,200.0 $1,265.0 


 December 31, 2018 December 31, 2017
 Nominal Unpaid Principal Balance Aggregate Fair Value Nominal Unpaid Principal Balance Aggregate Fair Value
Debt$864.5
 $901.2
 $988.0
 $1,074.6


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Note 19—Equity and Earnings (Loss) Per Share


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

On June 30, 2016, the Company effected a 1-for-15 reverse stock split. All share data, per share amounts and dilutive and antidilutive amounts have been retroactively adjusted to reflect the impact of the separation and conversion, including the reverse stock split, in the accompanying consolidated financial statements and notes thereto for the year ended December 31, 2016.


The following table sets forth the computation of basic and diluted earnings (loss) per share (in millions, except per share data).
Years Ended December 31,
202020192018
Basic and diluted earnings per share:
Numerator:
Net income, basic and diluted$73.7 $47.5 $69.1 
Denominator:  
Basic weighted average common shares29.1 28.7 28.4 
Stock options, RSUs and PSUs0.3 0.4 0.5 
Weighted average shares used to calculate diluted earnings per share29.4 29.1 28.9 
Earnings per share:
Basic$2.53 $1.66 $2.43 
Diluted$2.51 $1.63 $2.39 
Antidilutive stock options, RSUs and PSUs0.4 0.3 0.2 

 Year Ended December 31,
 2018 2017 2016
Basic and diluted earnings (loss) per share:     
Numerator:     
Net income (loss), basic and diluted$69.1
 $160.3
 $(19.7)
Denominator:     
Basic weighted average common shares28.4
 28.3
 28.3
Stock options, RSUs and PSUs(a)
0.5
 0.3
 
Weighted average shares used to calculate diluted earnings (loss) per share28.9
 28.6
 28.3
Earnings (loss) per share:     
Basic$2.43
 $5.66
 $(0.70)
Diluted$2.39
 $5.60
 $(0.70)
Antidilutive stock options, RSUs and PSUs0.2
 0.4
 0.3
(a) The dilutive impact of stock options, RSUs and PSUs for the year ended December 31, 2016 rounds to zero.

Share Repurchase Program

In March 2014, Hertz Holdings announced a $1.0 billion share repurchase program (the "Share Repurchase Program"), which replaced an earlier program. The Share Repurchase Program permits the Company, as the successor to Hertz Holdings, to purchase shares through a variety of methods, including in the open market or through privately negotiated transactions, in accordance with applicable securities laws. It does not obligate the Company to make any repurchases at any specific time or in any specific amount. The timing and extent to which the Company repurchases its shares will depend upon, among other things, market conditions, share price, liquidity targets, contractual restrictions and other factors. Share repurchases may be commenced or suspended at any time or from time to time, subject to legal and contractual requirements, without prior notice. During 2015, Hertz Holdings repurchased 2.5 million shares (on a reverse split adjusted basis) at an aggregate purchase price of approximately $604.5 million under the Share Repurchase Program. Repurchases are included in treasury stock in the accompanying consolidated balance sheets as of December 31, 2018 and December 31, 2017. There were no share repurchases during the years ended December 31, 2018 or 2017. As of December 31, 2018, the approximate dollar value that remains available for share purchases under the Share Repurchase Program is $395.9 million.

Note 20—Related Party Transactions


Agreements with Carl C. Icahn


The Company is subject to the Nomination and Standstill Agreement, dated September 15, 2014 (the "Nomination and Standstill Agreement"), with Carl C. Icahn and certain related entities and individuals. In connection with their appointments or nomination, as applicable, to the Company’s board of directors (the "Board"), each of Courtney Mather, Louis J. Pastor andJonathan Frates, Nicholas F. Graziano and Andrew Langham (collectively, the "Icahn Designees," and, together with Carl C. Icahn and the other parties to the Nomination and Standstill Agreements the "Icahn Group") executed a Joinder Agreement agreeing to become bound as a party to the terms and conditions of the Nomination and Standstill Agreement (such Joinder Agreements, together with the Nomination and Standstill Agreement,

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)







Nomination and Standstill Agreement, are collectively referred to herein as the "Icahn Agreements").


Pursuant to the Icahn Agreements, the Icahn Designees were appointed to the Company’s Board. So long as an Icahn Designee is a member of the Board, the Board will not be expanded beyond its current size of 11 members without approval from the Icahn Designees then on the Board. In addition, pursuant to the Icahn Agreements, subject to certain restrictions and requirements, the Icahn Group will have certain replacement rights in the event an Icahn Designee resigns or is otherwise unable to serve as a director (other than as a result of not being nominated by the Company for an annual meeting).


In addition, until the date that no Icahn Designee is a member of the Board (or otherwise deemed to be on the Board pursuant to the terms of the Icahn Agreements) the Icahn Group agrees to vote all of its shares of the Company’s common stock in favor of the election of all of the Company’s director nominees at each annual or special meeting of the Company’s stockholders, and, subject to limited exceptions, the Icahn Group further agrees to (i) adhere to certain standstill obligations, including the obligation to not solicit proxies or consents or influence others with respect to the same, and (ii) not acquire or otherwise beneficially own more than 20% of the Company’s outstanding voting securities.


Pursuant to the Icahn Agreements, the Company will not create a separate executive committee of the Board so as long as an Icahn Designee is a member of the Board. Under the Icahn Agreements, if the Icahn Group ceases to hold a “net long position,” as defined in the Nomination and Standstill Agreement, in at least 1,900,000 shares of the Company’s common stock, the Icahn Group will cause one Icahn Designee to resign from the Board; if the Icahn Group’s holdings are further reduced to specified levels, additional Icahn Designees are required to resign.


In addition, pursuant to the Icahn Agreements, the Company entered into a registration rights agreement, effective June 30, 2016 (the "Registration Rights Agreement"), with certain entities related to Carl C. Icahn on behalf of any person who is a member of the "Icahn group" (as such term is defined therein) who owns applicable securities at the relevant time and is or has become a party to the Registration Rights Agreement. The Registration Rights Agreement provides for customary demand and piggyback registration rights and obligations.


Note 21—Arrangements with New Hertz


In connection with the Spin-Off, the Company entered into a separation and distribution agreement (the "Separation Agreement") with New Hertz. In connection therewith, the Company also entered into various other ancillary agreements with New Hertz to effect the Spin-Off and provide a framework for its relationship with New Hertz. The following summarizes some of the most significant agreements and relationships that Herc Holdings continues to have with New Hertz.


Separation and Distribution Agreement


The Separation Agreement sets forth the Company's agreements with New Hertz regarding the principal actions taken in connection with the Spin-Off. It also sets forth other agreements that govern aspects of the Company's relationship with New Hertz following the Spin-Off including (i) the manner in which legal matters and claims are allocated and certain liabilities are shared between the Company and New Hertz; (ii) other matters including transfers of assets and liabilities, treatment or termination of intercompany arrangements and releases of certain claims between the parties and their affiliates; (iii) mutual indemnification clauses; and (iv) allocation of Spin-Off expenses between the parties.

Transition Services Agreement

The Company entered into a transition services agreement ("TSA"), pursuant to which New Hertz or its affiliates provided, during the year ended December 31, 2018, specified services, primarily consisting of IT support, to the Company on a transitional basis to help ensure an orderly transition following the Spin-Off. Effective upon the migration of the Company’s financial systems from the New Hertz system to a stand-alone system in July 2018, the Company receives no further services from New Hertz under the TSA. During the year ended December 31, 2018, the Company incurred expenses of $6.3 million, under the TSA which are included in "Direct operating" and "Selling, general and administrative" expenses in the Company's consolidated statements of operations, compared to $18.4 million and $10.9 million for 2017 and 2016, respectively.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)






Tax Matters Agreement


The Company entered into a tax matters agreement (the "Tax Matters Agreement") with New Hertz that governs the parties' rights, responsibilities and obligations after the Spin-Off with respect to tax liabilities and benefits, tax attributes, tax contests and other tax matters regarding income taxes, other taxes and related tax returns.


Employee Matters Agreement


The Company and New Hertz entered into an employee matters agreement to allocate liabilities and responsibilities relating to employment matters, employee compensation, benefit plans and programs and other related matters for current and former employees of the vehicle rental business and the equipment rental business.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)




Intellectual Property Agreement


The Company and New Hertz entered into an intellectual property agreement (the “Intellectual Property Agreement”) that provides for ownership, licensing and other arrangements regarding the trademarks and related intellectual property that New Hertz and the Company use in conducting their businesses. The Intellectual Property Agreement allocates ownership between New Hertz and the Company of all trademarks, domain names and certain copyrights that Hertz Holdings or its subsidiaries owned immediately prior to the Spin-Off.

Real Estate Arrangements

The Company and New Hertz entered into certain real estate lease agreements pursuant to which the Company leased certain office space from New Hertz through June 30, 2018 and New Hertz leased certain rental facilities space from the Company through April 30, 2018. Rent payments were negotiated based on comparable fair market rental rates.

Note 22—Segment Information


The Company consists of a single reportable segment, worldwide equipment rental. The Company considered guidance in ASC Topic 280, Segment Reporting, and used the management approach in determining its reportable segments.


We generate substantially all of our equipment rental revenue in North America. For each of the last three fiscal years, revenues from our external customers attributed to the U.S. and all foreign countries (primarily Canada) in total are set forth below:

 Years Ended December 31,Years Ended December 31,
 2018 2017 2016202020192018
United States 1,757.8
 1,548.1
 1,361.2
United States$1,624.4 $1,796.6 $1,757.8 
International 218.9
 206.4
 193.6
International156.9 202.4 218.9 
Total revenue 1,976.7
 1,754.5
 1,554.8
Total revenue$1,781.3 $1,999.0 $1,976.7 



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)





Geographic information for long-lived assets, which consist primarily of rental equipment and property and equipment, was as follows (in millions):
December 31, 2020December 31, 2019
Total assets
United States$3,285.9 $3,360.4 
International302.5 456.6 
Total$3,588.4 $3,817.0 
Rental equipment, net
United States$2,061.3 $2,254.2 
International199.1 235.8 
Total$2,260.4 $2,490.0 
Property and equipment, net
United States$271.9 $291.5 
International18.5 20.3 
Total$290.4 $311.8 
79
 December 31, 2018 December 31, 2017
Total assets at end of year   
United States$3,182.7
 $3,259.0
International427.5
 290.7
Total$3,610.2
 $3,549.7
Rental equipment, net, at end of year   
United States$2,248.3
 $2,111.2
International256.4
 263.4
Total$2,504.7
 $2,374.6
Property and equipment, net, at end of year   
United States$256.3
 $256.5
International26.2
 29.8
Total$282.5
 $286.3

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HERC HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)




Note 23—Quarterly Financial Information (Unaudited)


Provided below is a summary of the quarterly operating results during 20182020 and 2017.2019. Amounts are computed independently each quarter. As a result, the sum of the quarter's amounts may not equal the total amount for the respective year.

First QuarterSecond QuarterThird QuarterFourth Quarter
(In millions, except per share data)2020202020202020
Revenues$436.2 $368.0 $456.7 $520.4 
Income (loss) before income taxes(2.6)0.1 51.6 45.0 
Net income (loss)(a)
(3.7)2.0 39.9 35.5 
Earnings (loss) per share:
Basic$(0.13)$0.07 $1.37 $1.22 
Diluted$(0.13)$0.07 $1.35 $1.19 
First QuarterSecond QuarterThird QuarterFourth Quarter
(In millions, except per share data)2019201920192019
Revenues$475.7 $475.1 $508.1 $540.1 
Income (loss) before income taxes(9.8)15.0 5.2 53.2 
Net income (loss)(b)
(6.7)9.7 9.4 35.1 
Earnings (loss) per share:
Basic$(0.23)$0.34 $0.33 1.22 
Diluted$(0.23)$0.33 $0.32 $1.20 
(a)    Net income (loss) for the first, second and fourth quarters includes impairment charges of $6.3 million, $3.2 million and $5.9 million as discussed in Note 8, "Assets Held for Sale and Impairments."
(b)Net income for the second quarter includes a restructuring charge of $7.7 million, the third quarter includes a loss on the early extinguishment of debt of $53.6 million and the fourth quarter includes an impairment of $4.0 million related to certain assets held for sale.
80
 First Quarter Second Quarter Third Quarter Fourth Quarter
(In millions, except per share data)2018 2018 2018 2018
Revenues$431.3
 $485.5
 $516.2
 $543.7
Income (loss) before income taxes(15.2) 0.5
 45.2
 38.3
Net income (loss)(a)
(10.1) (0.3) 46.2
 33.3
Earnings (loss) per share:       
Basic$(0.36) $(0.01) $1.62
 $1.17
Diluted$(0.36) $(0.01) $1.60
 $1.16

 First Quarter Second Quarter Third Quarter Fourth Quarter
(In millions, except per share data)2017 2017 2017 2017
Revenues$389.4
 $415.8
 $457.6
 $491.7
Income (loss) before income taxes(54.3) (49.8) 18.6
 21.1
Net income (loss)(b)
(39.2) (27.6) 12.8
 214.3
Earnings (loss) per share:       
Basic$(1.39) $(0.98) $0.45
 $7.57
Diluted$(1.39) $(0.98) $0.45
 $7.44

(a)
Net income for the third quarter, fourth quarter and full year 2018 includes a net benefit of $14.8 million, $6.0 million and $20.8 million, respectively, associated with the finalization of the impacts of the 2017 Tax Act discussed further in Note 13, "Income Taxes." The third quarter includes the early redemption of $123.5 million of Notes, resulting in a loss on the early extinguishment of debt of $5.4 million as discussed in Note 9, "Debt".
(b)
Net income for the fourth quarter and full year 2017 includes an estimated net benefit of $207.1 million associated with the enactment of the 2017 Tax Act. The second quarter includes an impairment charge of $29.3 million related to the write-off of assets previously capitalized as part of the development of new financial and point of sale systems and the impairment of certain rental equipment discussed further in Note 7, "Impairment." The first and fourth quarters of 2017 each include the early redemption of $123.5 million of Notes, resulting in losses on the early extinguishment of debt of $5.8 million and $5.6 million, respectively.


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SCHEDULE II


VALUATION AND QUALIFYING ACCOUNTS


HERC HOLDINGS INC. AND SUBSIDIARIES


(In millions)

Beginning BalanceProvisionsTranslation AdjustmentsDeductionsEnding Balance
Receivables allowances:
Year to date December 31, 2020$18.8 $31.4 $$(34.7)$15.5 
Year to date December 31, 201921.5 48.2 0.1 (51.0)18.8 
Year to date December 31, 201826.9 57.8 (0.2)(63.0)21.5 
Tax valuation allowances:
Year to date December 31, 2020$9.0 $$0.3 $(6.1)$3.2 
Year to date December 31, 20195.8 4.4 (1.2)9.0 
Year to date December 31, 20187.6 0.3 (0.3)(1.8)5.8 

81
 Beginning Balance Provisions Translation Adjustments Deductions Ending Balance
Receivables allowances:         
Year to date December 31, 2018$26.9
 $57.8
 $(0.2) $(63.0) $21.5
Year to date December 31, 201724.9
 52.4
 0.3
 (50.7) 26.9
Year to date December 31, 201623.8
 44.4
 0.1
 (43.4) 24.9
          
Tax valuation allowances:         
Year to date December 31, 2018$7.6
 $0.3
 $(0.3) $(1.8) $5.8
Year to date December 31, 20174.5
 2.8
 0.3
 
 7.6
Year to date December 31, 20163.6
 1.2
 (0.3) 
 4.5



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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES

None.


ITEM 9A. CONTROLS AND PROCEDURES


Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the design and operation of our disclosure controls and procedures, as defined inunder Exchange Act Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), as of the end of the period covered by this Report.report. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of December 31, 2018,2020, our disclosure controls and procedures were effective to provide reasonable assurance that the information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosures.


Management’s Report on Internal Control Over Financial Reporting


Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our internal control over financial reporting based on the framework in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, management has concluded that we maintained effective internal control over financial reporting as of December 31, 2018.2020.


The effectiveness of our internal control over financial reporting, as of December 31, 20182020 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report, which appears in Part II, Item 8 of this Report.


Remediation of Prior Material Weaknesses

We previously identified and disclosed in our Annual Report on Form 10-K for the year ended December 31, 2017 material weaknesses in our internal control over financial reporting. We undertook actions during 2018 to remediate the material weaknesses, including the re-design and implementation of new controls.

Risk Assessment

We have remediated the material weakness related to risk assessment through designing and maintaining controls responsive to the risk of material misstatement by (i) enhancing risk assessment processes, control procedures and documentation, (ii) hiring key personnel with significant public-company financial reporting experience and (iii) completing a comprehensive review and updating accounting and IT policies, process descriptions and control activities. The remediation of the risk assessment material weakness also contributed to the remediation of the following additional material weaknesses:

Period-end Financial Reporting Process
We have remediated the material weakness associated with certain business processes in the period-end financial reporting process by designing and maintaining policies, procedures and controls over the preparation, analysis and review of transactions and significant account reconciliations. This remediation included enhancing our documentation to reflect the control attributes that are performed. Additionally, we delivered supplemental training to appropriate personnel covering the Company’s account reconciliations policies and review controls.
IT Systems
We have remediated the material weakness associated with our IT systems and IT general controls, including our financial applications and data, by designing and maintaining controls over the effective review of user access, privileged access

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ITEM 9A. CONTROLS AND PROCEDURES (Continued)

and appropriate segregation of duties. We provided training to IT system control owners regarding risk, controls and maintenance of control evidence. In addition, we hired additional resources to administer IT general controls and IT systems.
Outsourced IT Systems
We have remediated the material weakness associated with ineffective design and maintenance of controls to monitor certain IT systems that the Company outsourced to New Hertz under the TSA (the “TSA Controls”). In July 2018, the Company’s financial systems were migrated from the New Hertz system to Company-maintained stand-alone systems that are governed by the Company’s controls in our environment to address the associated risk. The Company receives no further services from New Hertz under the TSA and, therefore, the TSA Controls are no longer required to be maintained as part of our internal control over financial reporting.

Control Activities

Earned but Unbilled Revenue
We have remediated the material weakness over earned but unbilled revenue by enhancing controls over the effective review of the model, assumptions and data used in developing the earned but unbilled revenue accrual. Additionally, we delivered supplemental training to appropriate personnel covering the Company’s earned but unbilled revenue policies, procedures and related internal control activities.
Equipment Rental Revenue
We have remediated the material weakness over ineffective design and maintenance of a control related to the occurrence of equipment rental revenue by designing and maintaining policies, procedures and controls related to validation of the occurrence of equipment rental revenue. Additionally, we delivered supplemental training to appropriate personnel covering the Company’s rental equipment revenue policies, procedures and related internal control activities.

Income Tax
We have remediated the material weakness related to the ineffective design and maintenance of controls over income tax accounts. We enhanced policies, procedures and controls to allow for timely and increased oversight by our management of accounting for the provision for income taxes and the related documentation of such review. Additionally, we delivered supplemental training to appropriate personnel covering the Company’s income taxes policies, procedures and related internal control activities.


Changes in Internal Control Over Financial Reporting

In October 2020, we completed the implementation of a new financial reporting and consolidation system. There were no other changes in our internal control over financial reporting that occurred during the quarter ended December 31, 2018,2020, that have materially affected, or that are reasonably likely to materially affect, our internal control over financial reporting.


ITEM 9B. OTHER INFORMATION


None.



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PART III


ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Executive Officers
The name, age, position and a description of the business experience of each ofinformation regarding our executive officers is provided below. There is no family relationship amongincluded in Part I under the executive officers or between any executive officer and a director.
NameAgePosition
Lawrence H. Silber62President and Chief Executive Officer, Director
Mark Irion52Senior Vice President and Chief Financial Officer
Christian J. Cunningham57Senior Vice President and Chief Human Resources Officer
J. Bruce Dressel55Senior Vice President and Chief Operating Officer
Tamir Peres49Senior Vice President and Chief Information Officer
Maryann A. Waryjas67Senior Vice President, Chief Legal Officer and Secretary
Lawrence H. Silber. Mr. Silber joined the Company in May 2015. Prior to that, Mr. Silber most recently served as an executive advisor at Court Square Capital Partners, LLP, a private equity firm primarily investing in the business services, healthcare, general industrial and technology and telecommunications sectors, from April 2014 to May 2015. Mr. Silber led Hayward Industries, onecaption "Executive Officers of the world’s largest swimming pool equipment manufacturers, as chief operating officer from 2008 to 2012, overseeing a successful transition through the recession and returning the company to solid profitability. From 1978 to 2008, Mr. Silber worked for Ingersoll-Rand plc, a publicly traded manufacturer of industrial products and components, in a number of roles of increasing responsibility. He led major Ingersoll-Rand business groups, including Utility Equipment, Rental and Remarketing and the Equipment and Services businesses. Earlier in his career, he led sales, marketing and operations functions in Ingersoll-Rand’s Power Tool Division and Construction and Mining Group. Mr. Silber served on the board of directors of SMTC Corporation, a mid-size provider of end-to-end electronics manufacturing services, from 2012 to 2015 (and from May 2013 through January 2014 served as its interim president and CEO).Registrant."
Mark Irion.  Mr. Irion joined the Company in June 2018. Prior to that, Mr. Irion most recently served as the chief financial officer of Neff Corporation, a publicly traded equipment rental company, for 19 years until its sale in October 2017. Prior to his role with Neff, he was chief financial officer for Markvision Holdings, Inc., a computer component distribution company, from 1994 to 1998 and, before that, he was an audit senior for Deloitte & Touche LLP in the U.S. and New Zealand.
Christian J. Cunningham. Mr. Cunningham joined the Company in September 2014 from DFC Global Corporation where he served as vice president, corporate HR and HR services since June 2013 with global responsibility for all human resource matters for corporate staff. Previously, Mr. Cunningham held the position of vice president, HR, compensation and benefits at Sunoco Inc. and Sunoco Logistics from 2010 to 2013. Prior to Sunoco, Mr. Cunningham served at ARAMARK as vice president, global compensation and strategy (2008 to 2010); at Scholastic Inc. as vice president, compensation, benefits and HRIS (2006 to 2007); and at Pep Boys as assistant vice president, human resources (2005 to 2006). Previously, Mr. Cunningham held director and regional managerial positions in roles with increasing levels of responsibility at Pep Boys (1995 to 2005) and Tire Service Corporation, Inc. (1985 to 1995).
J. Bruce Dressel. Mr. Dressel joined the Company in June 2015, bringing with him significant expertise in the equipment rental industry and more than 30 years of experience in various leadership and senior management roles. Mr. Dressel served as president and CEO of Sunbelt Rentals, Inc. from February 1997 to July 2003, where he grew the company from 24 to 195 locations and expanded equipment rental offerings. Mr. Dressel began his career in the equipment rental business in 1984 and held various positions in a privately held company that was acquired by Sunbelt in 1996. Following Sunbelt, from 2004 to 2013, Mr. Dressel held roles of increasing responsibility, including serving as chief sales officer, for ADS, Inc., a provider of industry-leading equipment and logistics support solutions to the Department of Defense andThe other federal agencies. From 2013 until he joined the Company in 2015, Mr. Dressel had been consulting within the equipment rental industry.
Tamir Peres. Mr. Peres joined the Company in September 2017 from Sunoco Logistics, a publicly-traded, midstream energy company, where he served as vice president and chief information officer since 2012, leading the Sunoco Logistics Information Technology group.  From 2005 to 2012, Mr. Peres held the position of director of corporate information technology at Sunoco, Inc., where he was responsible for all strategic and tactical aspects of technology across the Refining and Supply, Retail Marketing, Chemicals, Logistics and Coke business units.  He was previously director of Worldwide Financial Systems for Kulicke & Soffa Industries, Inc., a global manufacturer and supplier of semiconductor equipment, and before that he worked for Ernst & Young, including as a Senior Auditor in its Assurance Services area.
Maryann A. Waryjas. Ms. Waryjas joined the Company in November 2015 from Great Lakes Dredge & Dock Corporation, one of the largest providers of dredging services in the United States. At Great Lakes, Ms. Waryjas served as senior vice president,

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ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE (continued)

chief legal officer and corporate secretary from August 2012 to November 2015. From 2000 until joining Great Lakes, Ms. Waryjas was a partner at the law firm of Katten Muchin Rosenman, LLP, and was co-chair of the firm’s Corporate Governance and Mergers and Acquisitions practices during 2011 and 2012. Ms. Waryjas served two consecutive terms on Katten’s board of directors. Prior to Katten, Ms. Waryjas was a partner at the law firms of Jenner & Block LLP and Kirkland & Ellis LLP.

Code of Ethics
We have adopted a Code of Ethics that applies to all of our officers (including the principal executive officer, principal financial officer, principal accounting officer and controller), employees and designated agents and contractors. The Code of Ethics is available through our Internet website (http://ir.hercrentals.com). From time to time we may amend our Code of Ethics. We intend to disclose, by posting on our website, information about any amendments to our Code of Ethics, as well as information concerning any waiver of the Code of Ethics, that may be granted by our Board of Directors to our principal executive officer, principal financial officer, principal accounting officer or controller in accordance with SEC regulations.

Directors and Corporate Governance
Other information required by this Itemitem is incorporated herein by reference to the applicable information contained under the headings "Proposal 1. Election of Directors", "Delinquent Section 16(a) Reports" and "Corporate Governance; Board and Committee Matters" in theour Proxy Statement.



ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated by reference to the applicable information in the Proxy Statement.



ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS


Equity Compensation Plan Information
The following table summarizes the securities authorized for issuance pursuant to our equity compensation plans as of December 31, 2018:2020:
Number of securities to be issued upon exercise of outstanding options, warrants and rights
Weighted average exercise price of outstanding options, warrants and rights (1)
Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (2)
Plan category(a)(b)(c)
Equity compensation plans approved by security holders959,110 41.38 1,579,318 
Equity compensation plans not approved by security holders— — — 
Total959,110 1,579,318 
 Number of securities to be issued upon exercise of outstanding options, warrants and rights 
Weighted average exercise price of outstanding options, warrants and rights (1)
 
Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (2)
Plan category(a) (b) (c)
Equity compensation plans approved by security holders1,094,034
 $37.56
 2,185,556
Equity compensation plans not approved by security holders
 
 
Total1,094,034
   2,185,556
(1)    Represents the weighted average exercise price of 155,591 outstanding stock options as of December 31, 2020. The remaining securities under this plan as of December 31, 2020 are restricted stock units and performance stock units, which have no exercise price and have been excluded from the calculation of the weighted average exercise price above.

(2)    All of the securities remaining available for future issuance are available under our 2018 Omnibus Incentive Plan.
(1)Represents the weighted average exercise price of 370,273 outstanding stock options as of December 31, 2018. The remaining securities under this plan as of December 31, 2018 are restricted stock units and performance stock units, which have no exercise price and have been excluded from the calculation of the weighted average exercise price above.
(2)All of the securities remaining available for future issuance are available under our 2018 Omnibus Incentive Plan.


Security Ownership of Certain Beneficial Owners and Management
Other information required by this Item is incorporated by reference to the applicable information in the Proxy Statement.



ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The information required by this Item is incorporated by reference to the applicable information in the Proxy Statement.



ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information required by this Item is incorporated by reference to the applicable information in the Proxy Statement.



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PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULE


(a) Documents filed as part of this Report


(1) Consolidated financial statements:


Report of Independent Registered Public Accounting Firm
Herc Holdings Inc. and Subsidiaries Consolidated Balance Sheets at December 31, 20182020 and 20172019
Herc Holdings Inc. and Subsidiaries Consolidated Statements of Operations for the years ended December 31, 2018, 20172020, 2019 and 20162018
Herc Holdings Inc. and Subsidiaries Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31, 2018, 20172020, 2019 and 20162018
Herc Holdings Inc. and Subsidiaries Consolidated Statements of Changes in Equity for the years ended December 31, 2018, 20172020, 2019 and 20162018
Herc Holdings Inc. and Subsidiaries Consolidated Statements of Cash Flows for the years ended December 31, 2018, 20172020, 2019 and 20162018
Notes to Consolidated Financial Statements


(2) Schedule to the financial statements


Schedule II Valuation and Qualifying Accounts


(3) Exhibits
Exhibit

Number
Description
2.1***
3.1.1
3.1.2
3.1.3
3.1.4
3.2
4.1
4.2
4.3
4.4
4.54.3

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HERC HOLDINGS INC. AND SUBSIDIARIES
10.1
ABL Credit Agreement, dated as of June 30, 2016,July 31, 2019, among Herc Holdings Inc., Herc Rentals Inc., Matthews Equipment Limited, certain other subsidiaries of Herc RentalsHoldings Inc., Citibank, N.A., as administrative agent and collateral agent, Citibank, N.A., as Canadian administrative agent and Canadian collateral agent, Bank of America, N.A., as co-collateral agent, swingline lender and letter of credit issuer, Bank of America, N.A., JPMorgan Chase Bank N.A., Capital One, National Association, ING Capital LLC and Wells Fargo Bank, National Association as senior managing agents, Barclays Bank PLC, Bank of Montreal, BNP Paribas, Credit Agricole Corporate and Investment Bank, Goldman Sachs Bank USA, JPMorgan ChaseING Capital LLC, MUFG Union Bank, N.A., Royal and TD Bank, of Canada and Regions Bank, as co-documentation agents,N.A., and the other financial institutions party thereto from time to time (Incorporated by reference to Exhibit 10.610.1 to the Current Report on Form 8-K of Herc Holdings (File No. 001-33139), as filed on July 6, 2016)31, 2019).
10.2
10.3
10.4
10.5
10.610.5
10.710.6
10.810.7
10.910.8t
10.1010.9
10.1110.9.1
10.10
10.12.110.11.1t
10.12.210.11.2t
10.12.310.11.3t
10.12.4t
10.12.5t


97

HERC HOLDINGS INC. AND SUBSIDIARIES

10.12.610.11.4t*
10.13.110.11.5*
10.12.1
10.13.210.12.2
10.14.110.13t
10.14.2t
10.14.3t
10.14.4t
10.14.5t
10.14.6t
10.14.7t
10.14.8t
10.15.1t
10.15.210.14.1
10.15.3t
10.14.2*
85

HERC HOLDINGS INC. AND SUBSIDIARIES

98

HERC HOLDINGS INC. AND SUBSIDIARIES

10.1910.16t
10.2010.19
10.21t
14.1
10.22
14.1
21.1*
23.1*
31.1*
31.2*
32.1**
101.INS*XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document
101.SCH*XBRLiXBRL Taxonomy Extension Schema Document
101.CAL*XBRLiXBRL Taxonomy Extension Calculation Linkbase Document
101.DEF*XBRLiXBRL Taxonomy Extension Definition Linkbase Document
101.LAB*XBRLiXBRL Taxonomy Extension Label Linkbase Document
101.PRE*XBRLiXBRL Taxonomy Extension Presentation Linkbase Document

*Filed herewith
**Furnished herewith
***Omitted schedules will be furnished supplementally to the SEC upon request.
tIndicates management contracts and compensatory agreements.

*Filed herewith

**Furnished herewith

***Omitted schedules will be furnished supplementally to the SEC upon request.
tIndicates management contracts and compensatory agreements.



ITEM 16. FORM 10-K SUMMARY


Not applicable.



99
86

HERC HOLDINGS INC. AND SUBSIDIARIES

SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
HERC HOLDINGS INC.

(Registrant)
By:By:/s/ MARK IRION
Name:Name:Mark Irion
Title:Title:Senior Vice President and Chief Financial Officer
Date:February 18, 2021(On behalf of the Registrant)
Date: February 28, 2019
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated as of February 28, 2019:
18, 2021:
SignatureTitle
/s/ LAWRENCE H. SILBERPresident and Chief Executive Officer, Director
Lawrence H. Silber(Principal Executive Officer)
/s/ MARK IRIONSenior Vice President and Chief Financial Officer
Mark Irion(Principal Financial Officer)
/s/ MARK HUMPHREYVice President, Controller and Chief Accounting Officer
Mark Humphrey(Principal Accounting Officer)
/s/ PATRICK D. CAMPBELLNon-Executive Chairman of the Board
Patrick D. Campbell
SignatureTitle
/s/ LAWRENCE H. SILBERPresident and Chief Executive Officer, Director
Lawrence H. Silber(Principal Executive Officer)
/s/ MARK IRIONSenior Vice President and Chief Financial Officer
Mark Irion(Principal Financial Officer)
/s/ MARK HUMPHREYVice President, Controller and Chief Accounting Officer
Mark Humphrey(Principal Accounting Officer)
/s/ HERBERT L. HENKELNon-Executive Chairman of the Board
Herbert L. Henkel
/s/ JAMES H. BROWNINGDirector
James H. Browning
/s/ PATRICK D. CAMPBELLSHARI L. BURGESSDirector
Patrick D. CampbellShari L. Burgess
/s/ JONATHAN FRATESDirector
Jonathan Frates
/s/ JEAN K. HOLLEYDirector
Jean K. Holley
/s/ NICHOLAS GRAZIANODirector
Nicholas Graziano
/s/ JACOB M. KATZDirector
Jacob M. Katz
/s/ MICHAEL A. KELLYDirector
Michael A. Kelly
/s/ COURTNEY MATHERANDREW LANGHAMDirector
Courtney MatherAndrew Langham
/s/ LOUIS J. PASTORDirector
Louis J. Pastor
/s/ MARY PAT SALOMONEDirector
Mary Pat Salomone


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