UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
ý | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
For the quarterly period ended March 31, | ||
OR | ||
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission File Number 001-33139
HERTZ GLOBAL HOLDINGS, INC.
(Exact name of Registrantregistrant as specified in its charter)
Delaware (State or other jurisdiction of incorporation or organization) | 20-3530539 (I.R.S. Employer Identification Number) |
225 Brae Boulevard
Park Ridge, New Jersey 07656-0713
(201) 307-2000
(Address, including Zip Code, and telephone number,
including area code, of Registrant'sregistrant's principal executive offices)
Not Applicable
(Former name, former address and former fiscal year,
if changed since last report.)
Indicate by check mark whether the Registrantregistrant (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 ý No o
Indicate by check mark whether the Registrantregistrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrantregistrant was required to submit and post such files). Yes oý No o
Indicate by check mark whether the Registrantregistrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer ý | Accelerated filer o | Non-accelerated filer o (Do not check if a smaller reporting company) | Smaller reporting company o |
Indicate by check mark whether the Registrantregistrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No ý
There were 411,722,103415,808,391 shares of the Registrant'sregistrant's common stock, par value $0.01 per share, issued and outstanding as of April 30, 2010.May 2, 2011.
HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
INDEX
ITEM l. Condensed Consolidated Financial Statements
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and
Shareholders of Hertz Global Holdings, Inc.:
We have reviewed the accompanying condensed consolidated balance sheet of Hertz Global Holdings, Inc. and its subsidiaries as of March 31, 2010,2011, and the related consolidated statements of operations for the three-month periods ended March 31, 20102011 and March 31, 20092010 and the consolidated statements of cash flows for the three monththree-month periods ended March 31, 20102011 and March 31, 2009.2010. These interim financial statements are the responsibility of the Company's management.
We conducted our review in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board (United States), the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should be made to the accompanying condensed consolidated interim financial statements for them to be in conformity with accounting principles generally accepted in the United States of America.
We previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet as of December 31, 2009,2010, and the related consolidated statements of operations, of changes in equity and of cash flows for the year then ended (not presented herein), and in our report dated February 26, 2010,25, 2011, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of December 31, 2009,2010, is fairly stated in all material respects in relation to the consolidated balance sheet from which it has been derived.
/s/ PricewaterhouseCoopers LLP
Florham Park, New Jersey
May 5, 20106, 2011
HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands of Dollars)
Unaudited
| | March 31, 2010 | December 31, 2009 | | March 31, 2011 | December 31, 2010 | ||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
ASSETS | ASSETS | ASSETS | ||||||||||||||||||
Cash and cash equivalents | Cash and cash equivalents | $ | 800,749 | $ | 985,642 | Cash and cash equivalents | $ | 1,365,759 | $ | 2,374,170 | ||||||||||
Restricted cash and cash equivalents | Restricted cash and cash equivalents | 221,338 | 365,159 | Restricted cash and cash equivalents | 190,886 | 207,576 | ||||||||||||||
Receivables, less allowance for doubtful accounts of $20,361 and $21,268 | 1,446,373 | 1,325,332 | ||||||||||||||||||
Receivables, less allowance for doubtful accounts of $21,323 and $19,708 | Receivables, less allowance for doubtful accounts of $21,323 and $19,708 | 1,311,755 | 1,356,553 | |||||||||||||||||
Inventories, at lower of cost or market | Inventories, at lower of cost or market | 92,933 | 93,415 | Inventories, at lower of cost or market | 97,472 | 87,429 | ||||||||||||||
Prepaid expenses and other assets | Prepaid expenses and other assets | 283,516 | 300,125 | Prepaid expenses and other assets | 428,879 | 352,782 | ||||||||||||||
Revenue earning equipment, at cost: | Revenue earning equipment, at cost: | Revenue earning equipment, at cost: | ||||||||||||||||||
Cars | 8,764,868 | 8,205,579 | Cars | 8,970,894 | 8,435,077 | |||||||||||||||
Less accumulated depreciation | (1,115,837 | ) | (1,186,299 | ) | Less accumulated depreciation | (1,256,743 | ) | (1,199,355 | ) | |||||||||||
Other equipment | 2,567,353 | 2,582,029 | Other equipment | 2,766,600 | 2,756,101 | |||||||||||||||
Less accumulated depreciation | (823,925 | ) | (749,724 | ) | Less accumulated depreciation | (1,079,491 | ) | (1,052,414 | ) | |||||||||||
Total revenue earning equipment | 9,392,459 | 8,851,585 | Total revenue earning equipment | 9,401,260 | 8,939,409 | |||||||||||||||
Property and equipment, at cost: | Property and equipment, at cost: | Property and equipment, at cost: | ||||||||||||||||||
Land, buildings and leasehold improvements | 1,031,177 | 1,023,891 | Land, buildings and leasehold improvements | 1,101,047 | 1,071,987 | |||||||||||||||
Service equipment and other | 850,159 | 838,906 | Service equipment and other | 945,999 | 900,271 | |||||||||||||||
1,881,336 | 1,862,797 | 2,047,046 | 1,972,258 | |||||||||||||||||
Less accumulated depreciation | (711,347 | ) | (674,668 | ) | Less accumulated depreciation | (860,537 | ) | (808,689 | ) | |||||||||||
Total property and equipment | 1,169,989 | 1,188,129 | Total property and equipment | 1,186,509 | 1,163,569 | |||||||||||||||
Other intangible assets, net | Other intangible assets, net | 2,580,697 | 2,597,682 | Other intangible assets, net | 2,535,570 | 2,550,559 | ||||||||||||||
Goodwill | Goodwill | 290,311 | 295,350 | Goodwill | 309,495 | 300,174 | ||||||||||||||
Total assets | $ | 16,278,365 | $ | 16,002,419 | Total assets | $ | 16,827,585 | $ | 17,332,221 | |||||||||||
LIABILITIES AND EQUITY | LIABILITIES AND EQUITY | LIABILITIES AND EQUITY | ||||||||||||||||||
Accounts payable | Accounts payable | $ | 1,223,859 | $ | 658,671 | Accounts payable | $ | 1,204,927 | $ | 944,973 | ||||||||||
Accrued liabilities | Accrued liabilities | 885,952 | 1,024,822 | Accrued liabilities | 983,420 | 1,070,082 | ||||||||||||||
Accrued taxes | Accrued taxes | 143,727 | 108,356 | Accrued taxes | 121,602 | 108,940 | ||||||||||||||
Debt | Debt | 10,387,856 | 10,364,367 | Debt | 10,750,019 | 11,306,429 | ||||||||||||||
Public liability and property damage | Public liability and property damage | 267,017 | 277,828 | Public liability and property damage | 282,127 | 278,685 | ||||||||||||||
Deferred taxes on income | Deferred taxes on income | 1,429,919 | 1,470,934 | Deferred taxes on income | 1,450,797 | 1,491,789 | ||||||||||||||
Total liabilities | 14,338,330 | 13,904,978 | Total liabilities | 14,792,892 | 15,200,898 | |||||||||||||||
Commitments and contingencies (Note 16) | ||||||||||||||||||||
Commitments and contingencies | Commitments and contingencies | |||||||||||||||||||
Equity: | Equity: | Equity: | ||||||||||||||||||
Hertz Global Holdings Inc. and Subsidiaries stockholders' equity | Hertz Global Holdings Inc. and Subsidiaries stockholders' equity | Hertz Global Holdings Inc. and Subsidiaries stockholders' equity | ||||||||||||||||||
Common Stock, $0.01 par value, 2,000,000,000 shares authorized, 411,366,789 and 410,245,225 shares issued and outstanding | 4,114 | 4,102 | Preferred Stock, $0.01 par value, 200,000,000 shares authorized, no shares issued and outstanding | — | — | |||||||||||||||
Preferred Stock, $0.01 par value, 200,000,000 shares authorized, no shares issued and outstanding | — | — | Common Stock, $0.01 par value, 2,000,000,000 shares authorized, 414,938,766 and 413,462,889 shares issued and outstanding | 4,149 | 4,135 | |||||||||||||||
Additional paid-in capital | 3,146,981 | 3,141,695 | Additional paid-in capital | 3,184,496 | 3,183,225 | |||||||||||||||
Accumulated deficit | (1,212,723 | ) | (1,062,318 | ) | Accumulated deficit | (1,242,975 | ) | (1,110,362 | ) | |||||||||||
Accumulated other comprehensive loss | (16,233 | ) | (3,331 | ) | Accumulated other comprehensive income | 68,873 | 37,823 | |||||||||||||
Total Hertz Global Holdings, Inc. and Subsidiaries stockholders' equity | 1,922,139 | 2,080,148 | Total Hertz Global Holdings, Inc. and Subsidiaries stockholders' equity | 2,014,543 | 2,114,821 | |||||||||||||||
Noncontrolling interest | Noncontrolling interest | 17,896 | 17,293 | Noncontrolling interest | 20,150 | 16,502 | ||||||||||||||
Total equity | 1,940,035 | 2,097,441 | Total equity | 2,034,693 | 2,131,323 | |||||||||||||||
Total liabilities and equity | $ | 16,278,365 | $ | 16,002,419 | Total liabilities and equity | $ | 16,827,585 | $ | 17,332,221 | |||||||||||
The accompanying notes are an integral part of these financial statements.
HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands of Dollars, except share and per share data)
Unaudited
| Three Months Ended March 31, | ||||||||
---|---|---|---|---|---|---|---|---|---|
| 2011 | 2010 | |||||||
Revenues: | |||||||||
Car rental | $ | 1,478,938 | $ | 1,396,571 | |||||
Equipment rental | 268,086 | 236,971 | |||||||
Other | 32,979 | 27,346 | |||||||
Total revenues | 1,780,003 | 1,660,888 | |||||||
Expenses: | |||||||||
Direct operating | 1,073,665 | 1,012,999 | |||||||
Depreciation of revenue earning equipment and lease charges | 436,089 | 459,173 | |||||||
Selling, general and administrative | 182,221 | 167,743 | |||||||
Interest expense | 196,889 | 181,098 | |||||||
Interest income | (1,855 | ) | (2,278 | ) | |||||
Other (income) expense, net | 51,876 | — | |||||||
Total expenses | 1,938,885 | 1,818,735 | |||||||
Loss before income taxes | (158,882 | ) | (157,847 | ) | |||||
Benefit for taxes on income | 29,940 | 11,020 | |||||||
Net loss | (128,942 | ) | (146,827 | ) | |||||
Less: Net income attributable to noncontrolling interest | (3,673 | ) | (3,578 | ) | |||||
Net loss attributable to Hertz Global Holdings, Inc. and Subsidiaries' common stockholders | $ | (132,615 | ) | $ | (150,405 | ) | |||
Weighted average shares outstanding (in thousands) | |||||||||
Basic | 414,065 | 410,740 | |||||||
Diluted | 414,065 | 410,740 | |||||||
Loss per share attributable to Hertz Global Holdings, Inc. and Subsidiaries' common stockholders: | |||||||||
Basic | $ | (0.32 | ) | $ | (0.37 | ) | |||
Diluted | $ | (0.32 | ) | $ | (0.37 | ) |
The accompanying notes are an integral part of these financial statements.
HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
CASH FLOWS
(In Thousands of Dollars, except share and per share data)
Dollars)
Unaudited
| Three Months Ended March 31, | ||||||||
---|---|---|---|---|---|---|---|---|---|
| 2010 | 2009 | |||||||
Revenues: | |||||||||
Car rental | $ | 1,396,571 | $ | 1,260,902 | |||||
Equipment rental | 236,971 | 279,332 | |||||||
Other | 27,346 | 24,652 | |||||||
Total revenues | 1,660,888 | 1,564,886 | |||||||
Expenses: | |||||||||
Direct operating | 1,012,999 | 955,320 | |||||||
Depreciation of revenue earning equipment | 459,173 | 489,828 | |||||||
Selling, general and administrative | 167,743 | 166,724 | |||||||
Interest expense | 181,098 | 165,109 | |||||||
Interest and other income, net | (2,278 | ) | (2,021 | ) | |||||
Total expenses | 1,818,735 | 1,774,960 | |||||||
Loss before income taxes | (157,847 | ) | (210,074 | ) | |||||
Benefit for taxes on income | 11,020 | 49,654 | |||||||
Net loss | (146,827 | ) | (160,420 | ) | |||||
Less: Net income attributable to noncontrolling interest | (3,578 | ) | (3,089 | ) | |||||
Net loss attributable to Hertz Global Holdings, Inc. and Subsidiaries' common stockholders | $ | (150,405 | ) | $ | (163,509 | ) | |||
Weighted average shares outstanding (in thousands) | |||||||||
Basic | 410,740 | 323,371 | |||||||
Diluted | 410,740 | 323,371 | |||||||
Loss per share attributable to Hertz Global Holdings, Inc. and Subsidiaries' common stockholders: | |||||||||
Basic | $ | (0.37 | ) | $ | (0.51 | ) | |||
Diluted | $ | (0.37 | ) | $ | (0.51 | ) |
The accompanying notes are an integral part of these financial statements.
HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CASH FLOWS(In Thousands of Dollars)Unaudited
| | Three Months Ended March 31, | ||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | 2010 | 2009 | | Three Months Ended March 31, | |||||||||||||||
| | | (Note 2) | | 2011 | 2010 | ||||||||||||||
Cash flows from operating activities: | Cash flows from operating activities: | Cash flows from operating activities: | ||||||||||||||||||
Net loss | $ | (146,827 | ) | $ | (160,420 | ) | Net loss | $ | (128,942 | ) | $ | (146,827 | ) | |||||||
Adjustments to reconcile net loss to net cash provided by operating activities: | Adjustments to reconcile net loss to net cash provided by operating activities: | |||||||||||||||||||
Depreciation of revenue earning equipment | 459,173 | 489,828 | Depreciation of revenue earning equipment | 412,508 | 442,671 | |||||||||||||||
Depreciation of property and equipment | 39,630 | 38,086 | Depreciation of property and equipment | 37,695 | 39,630 | |||||||||||||||
Amortization of other intangible assets | 16,372 | 15,514 | Amortization of other intangible assets | 16,784 | 16,372 | |||||||||||||||
Amortization and write-off of deferred financing costs | 15,573 | 11,693 | Amortization and write-off of deferred financing costs | 44,598 | 15,573 | |||||||||||||||
Amortization of debt discount | 12,356 | 5,823 | Amortization and write-off of debt discount | 15,297 | 12,356 | |||||||||||||||
Stock-based compensation charges | 8,997 | 7,364 | Stock-based compensation charges | 9,078 | 8,997 | |||||||||||||||
Loss on derivative | 1,649 | — | (Gain) loss on derivatives | (6,917 | ) | 9,838 | ||||||||||||||
Amortization of cash flow hedges | 20,899 | 7,487 | Amortization of cash flow hedges | — | 20,899 | |||||||||||||||
Provision for losses on doubtful accounts | 5,087 | 8,317 | Provision for losses on doubtful accounts | 6,362 | 5,087 | |||||||||||||||
Asset writedowns | 676 | 3,130 | Asset writedowns | 742 | 676 | |||||||||||||||
Deferred taxes on income | 32,233 | 7,256 | Deferred taxes on income | (26,465 | ) | 32,233 | ||||||||||||||
Gain on sale of property and equipment | (409 | ) | (1,291 | ) | Gain on sale of property and equipment | (2,317 | ) | (409 | ) | |||||||||||
Changes in assets and liabilities, net of effects of acquisition: | Changes in assets and liabilities, net of effects of acquisition: | |||||||||||||||||||
Receivables | (28,545 | ) | 96,058 | Receivables | (26,035 | ) | (28,545 | ) | ||||||||||||
Inventories, prepaid expenses and other assets | (5,338 | ) | 8,460 | Inventories, prepaid expenses and other assets | (48,280 | ) | (8,975 | ) | ||||||||||||
Accounts payable | 48,868 | (47,564 | ) | Accounts payable | 28,813 | 48,868 | ||||||||||||||
Accrued liabilities | (118,560 | ) | (226,547 | ) | Accrued liabilities | (165,747 | ) | (123,112 | ) | |||||||||||
Accrued taxes | (56,487 | ) | (62,258 | ) | Accrued taxes | 3,934 | (56,487 | ) | ||||||||||||
Public liability and property damage | (4,175 | ) | (16,456 | ) | Public liability and property damage | (5,468 | ) | (4,175 | ) | |||||||||||
Net cash provided by operating activities | 301,172 | 184,480 | Net cash provided by operating activities | 165,640 | 284,670 | |||||||||||||||
Cash flows from investing activities: | Cash flows from investing activities: | Cash flows from investing activities: | ||||||||||||||||||
Net change in restricted cash and cash equivalents | 139,905 | 401,225 | Net change in restricted cash and cash equivalents | 20,611 | 139,905 | |||||||||||||||
Revenue earning equipment expenditures | (2,214,469 | ) | (1,399,612 | ) | Revenue earning equipment expenditures | (1,963,814 | ) | (2,214,469 | ) | |||||||||||
Proceeds from disposal of revenue earning equipment | 1,589,945 | 2,026,075 | Proceeds from disposal of revenue earning equipment | 1,690,159 | 1,606,447 | |||||||||||||||
Property and equipment expenditures | (51,292 | ) | (26,723 | ) | Property and equipment expenditures | (56,770 | ) | (51,292 | ) | |||||||||||
Proceeds from disposal of property and equipment | 6,683 | 5,266 | Proceeds from disposal of property and equipment | 14,451 | 6,683 | |||||||||||||||
Acquisitions, net of cash acquired | — | (10,153 | ) | Acquisitions, net of cash acquired | (9,774 | ) | — | |||||||||||||
Sales of short-term investments | 3,360 | — | Sale of short-term investments, net | — | 3,360 | |||||||||||||||
Other investing activities | 341 | 844 | Other investing activities | 1,192 | 341 | |||||||||||||||
Net cash provided by (used in) investing activities | $ | (525,527 | ) | $ | 996,922 | Net cash used in investing activities | $ | (303,945 | ) | $ | (509,025 | ) | ||||||||
The accompanying notes are an integral part of these financial statements.
HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(In Thousands of Dollars)
Unaudited
| | Three Months Ended March 31, | ||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | 2010 | 2009 | | Three Months Ended March 31, | |||||||||||||||
| | | (Note 2) | | 2011 | 2010 | ||||||||||||||
Cash flows from financing activities: | Cash flows from financing activities: | Cash flows from financing activities: | ||||||||||||||||||
Proceeds from issuance of long-term debt | $ | 8,472 | $ | 1,286 | Proceeds from issuance of long-term debt | $ | 2,429,456 | $ | 8,472 | |||||||||||
Repayment of long-term debt | (262,593 | ) | (470,523 | ) | Payment of long-term debt | (3,138,875 | ) | (262,593 | ) | |||||||||||
Short-term borrowings: | Short-term borrowings: | |||||||||||||||||||
Proceeds | 66,581 | 69,339 | Proceeds | 67,155 | 66,581 | |||||||||||||||
Repayments | (79,279 | ) | (108,062 | ) | Payments | (225,302 | ) | (79,279 | ) | |||||||||||
Proceeds (repayments) under the revolving lines of credit, net | 347,175 | (690,025 | ) | Proceeds (payments) under the revolving lines of credit, net | 47,928 | 347,175 | ||||||||||||||
Distributions to noncontrolling interest | (2,975 | ) | (2,800 | ) | Distributions to noncontrolling interest | — | (2,975 | ) | ||||||||||||
Proceeds from employee stock purchase plan | 610 | 725 | Proceeds from employee stock purchase plan | 871 | 610 | |||||||||||||||
Proceeds from exercise of stock options | 690 | 926 | Proceeds from exercise of stock options | 1,728 | 690 | |||||||||||||||
Proceeds from disgorgement of stockholder short-swing profits | 41 | 9 | Proceeds from disgorgement of stockholder short-swing profits | 40 | 41 | |||||||||||||||
Net settlement on vesting of restricted stock | (5,262 | ) | — | Net settlement on vesting of restricted stock | (10,703 | ) | (5,262 | ) | ||||||||||||
Payment of financing costs | (1,311 | ) | (1,504 | ) | Payment of financing costs | (64,091 | ) | (1,311 | ) | |||||||||||
Net cash provided by (used in) financing activities | 72,149 | (1,200,629 | ) | Net cash provided by (used in) financing activities | (891,793 | ) | 72,149 | |||||||||||||
Effect of foreign exchange rate changes on cash and cash equivalents | Effect of foreign exchange rate changes on cash and cash equivalents | (32,687 | ) | (17,968 | ) | Effect of foreign exchange rate changes on cash and cash equivalents | 21,687 | (32,687 | ) | |||||||||||
Net decrease in cash and cash equivalents during the period | (184,893 | ) | (37,195 | ) | ||||||||||||||||
Net change in cash and cash equivalents during the period | Net change in cash and cash equivalents during the period | (1,008,411 | ) | (184,893 | ) | |||||||||||||||
Cash and cash equivalents at beginning of period | Cash and cash equivalents at beginning of period | 985,642 | 594,266 | Cash and cash equivalents at beginning of period | 2,374,170 | 985,642 | ||||||||||||||
Cash and cash equivalents at end of period | Cash and cash equivalents at end of period | $ | 800,749 | $ | 557,071 | Cash and cash equivalents at end of period | $ | 1,365,759 | $ | 800,749 | ||||||||||
Supplemental disclosures of cash flow information: | Supplemental disclosures of cash flow information: | Supplemental disclosures of cash flow information: | ||||||||||||||||||
Cash paid during the period for: | ||||||||||||||||||||
Cash paid during the period for: | Cash paid during the period for: | |||||||||||||||||||
Interest (net of amounts capitalized) | $ | 173,247 | $ | 204,101 | Interest (net of amounts capitalized) | $ | 205,812 | $ | 173,247 | |||||||||||
Income taxes | 24,564 | 7,823 | Income taxes | 11,555 | 24,564 | |||||||||||||||
Supplemental disclosures of non-cash flow information: | Supplemental disclosures of non-cash flow information: | Supplemental disclosures of non-cash flow information: | ||||||||||||||||||
Purchases of revenue earning equipment included in accounts payable | $ | 709,052 | $ | 409,606 | Purchases of revenue earning equipment included in accounts payable and accrued liabilities | $ | 487,921 | $ | 709,052 | |||||||||||
Sales of revenue earning equipment included in receivables | 632,336 | 331,501 | Sales of revenue earning equipment included in receivables | 387,620 | 632,336 | |||||||||||||||
Purchases of property and equipment included in accounts payable | 26,164 | 14,467 | Purchases of property and equipment included in accounts payable | 38,782 | 26,164 | |||||||||||||||
Sales of property and equipment included in receivables | 6,271 | 5,627 | Sales of property and equipment included in receivables | 6,760 | 6,271 |
The accompanying notes are an integral part of these financial statements.
HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Unaudited
Note 1—Background and Liquidity
Background
Hertz Global Holdings, Inc., or "Hertz Holdings," is our top-level holding company. The Hertz Corporation, or "Hertz," is our primary operating company and a direct wholly-owned subsidiary of Hertz Investors, Inc., which is wholly-owned by Hertz Holdings. "We," "us" and "our" mean Hertz Holdings and its consolidated subsidiaries, including Hertz.
We are a successor to corporations that have been engaged in the car and truck rental and leasing business since 1918 and the equipment rental business since 1965. Hertz was incorporated in Delaware in 1967. Ford Motor Company, or "Ford," acquired an ownership interest in Hertz in 1987. Prior to this, Hertz was a subsidiary of UAL CorporationUnited Continental Holdings, Inc. (formerly Allegis Corporation), which acquired Hertz's outstanding capital stock from RCA Corporation in 1985. Hertz Holdings was incorporated in Delaware in 2005 and had no operations prior to the Acquisition (as defined below).
On December 21, 2005, investment funds associated with or designated by:
or collectively the "Sponsors," acquired all of Hertz's common stock from Ford Holdings LLC. We refer to the acquisition of all of Hertz's common stock by the Sponsors as the "Acquisition." Following
In March 2011, the Sponsors sold 50,000,000 shares of their Hertz Holdings common stock to Goldman, Sachs & Co. as the sole underwriter in the registered public offering of those shares.
As a result of our initial public offering in November 2006 and subsequent offerings in June 2007, May 2009, and June 2009 and March 2011, the Sponsors currently ownreduced their holdings to approximately 51%39% of the outstanding shares of common stock of Hertz Holdings.
In January 2009, Bank of America Corporation, or "Bank of America," acquired Merrill Lynch & Co., Inc., the parent company of MLGPE.BAMLCP. Accordingly, Bank of America is now an indirect beneficial owner of our common stock held by MLGPEBAMLCP and certain of its affiliates.
Liquidity
Our primary liquidity needs include servicing of corporate and fleet related debt, the payment of operating expenses and purchases of rental vehicles and equipment to be used in our operations. Our primary sources of funding are operating revenue, cash received on the disposal of vehicles and equipment, borrowings under our asset-backed borrowing arrangements and our revolving credit facility.
As of March 31, 2010, we had $10,387.9 million of total indebtedness outstanding. Accordingly, we are highly leveraged and a substantial portion of our liquidity needs arise from debt service on indebtedness incurred in connection with the Acquisition and from the funding of our costs of operations and capital expenditures.
Our liquidity as of March 31, 2010 consists of cash and cash equivalents, unused commitments under our Senior ABL Facility and unused commitments under our Fleet Financing Facilities. For a description of these amounts, see Note 8—Debt.
Based on all that we accomplished in 2009, our current availability under our various credit facilities and our business plan, we believe we have sufficient liquidity to meet our U.S. debt maturities over the next
HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Unaudited
twelve months. However, we have approximately $1.0 billion of international fleet debt outstanding as of March 31, 2010, that matures in December 2010. We are currently in discussions regarding our refinancing options, and based on these discussions and our ability to access the capital markets we expect to refinance these facilities on or prior to maturity. However, the availability of financing is subject to a variety of factors not in our control including economic and market conditions and investor demand, so there is no guarantee that such facilities can be refinanced or that the terms of such financings will be acceptable. In the event financing is not available or is not available on terms we deem acceptable, we would expect to utilize our corporate liquidity to repay these obligations which could reduce our ability to fund operations and replace our fleet. See Note 18—Subsequent Events.
The agreements governing our corporate indebtedness require us to comply with two key covenants based on a consolidated leverage ratio and a consolidated interest expense coverage ratio. Our failure to comply with the obligations contained in any agreements governing our indebtedness could result in an event of default under the applicable instrument, which could result in the related debt becoming immediately due and payable and could further result in a cross default or cross acceleration of our debt issued under other instruments. However, as a result of the above-mentioned actions and planned future actions, we believe that we will remain in compliance with our corporate debt covenants and that cash generated from operations, together with amounts available under various liquidity facilities will be adequate to permit us to meet our debt service obligations, ongoing costs of operations, working capital needs and capital expenditure requirements for the next twelve months. Our future financial and operating performance, ability to service or refinance our debt and ability to comply with covenants and restrictions contained in our corporate debt agreements will be subject to future economic conditions and to financial, business and other factors, many of which are beyond our control.
MBIA Insurance Corporation, or "MBIA," and Ambac Assurance Corporation, or "Ambac," provide credit enhancements in the form of financial guaranties for our 2005 Notes, with each providing guaranties for approximately half of the $2,622.0 million in principal amount of the 2005 Notes that was outstanding as of March 31, 2010, all of which matures during 2010.
An event of bankruptcy with respect to MBIA or Ambac between now and the maturities of the 2005 Notes in 2010 would result in an amortization event under the portion of the 2005 Notes guaranteed by the affected insurer. In addition, if an amortization event continues for 30 days or longer, the noteholders of the affected series of notes would have the right to require liquidation of a portion of the fleet sufficient to repay such notes, provided that the exercise of the right was exercised by a majority of the affected noteholders. Ambac has publicly stated that it has insufficient capital to finance its debt service and operating expense requirements beyond the second quarter of 2011 and may need to seek bankruptcy protection.
Since MBIA and Ambac are facing financial instability, have been downgraded one or more times and are on review for further credit downgrade or under developing outlook by one or more credit agencies, we did not have the Series 2009-1 Notes or the Series 2009-2 Notes guaranteed. Accordingly, if a bankruptcy of MBIA or Ambac were to occur prior to the 2005 Notes maturing, we expect that we would use our corporate liquidity and the borrowings under or proceeds from the Series 2009-1 Notes and the Series 2009-2 Notes to pay down the amounts owed under the affected series of 2005 Notes.
Note 2—Basis of Presentation
The significant accounting policies summarized in Note 12 to our audited consolidated financial statements contained in our Annual Report on Form 10-K and Form 10-K/A for the fiscal year ended
HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Unaudited
December 31, 2009,2010, filed with the United States Securities and Exchange Commission, or "SEC," on February 26, 2010 and March 1, 2010, respectively,25, 2011, or collectively known as our "Annual Report,the "Form 10-K," have been followed in preparing the accompanying condensed consolidated financial statements.
The December 31, 20092010 condensed consolidated balance sheet data was derived from our audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America, or "GAAP."
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and footnotes. Actual results could differ materially from those estimates.
HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Unaudited
In our opinion, all adjustments (which include only normal recurring adjustments) necessary for a fair statement of the results of operations for the interim periods have been made. Results for interim periods are not necessarily indicative of results for a full year.
Certain prior period amounts have been reclassified to conform with current reporting.
ForThere have been no new accounting pronouncements issued or changes to existing guidance during the three months ended March 31, 2009, we have revised our consolidated statements of cash flows to exclude the impact of non-cash purchases and sales of revenue earning equipment and property and equipment which were included in "accounts payable" or "receivables" at the end of the period. See Note 17 in our Form 10-Q for the quarterly period ended June 30, 2009 filed with the SEC on August 7, 2009.
Note 3—Recent Accounting Pronouncements
In June 2009, the Financial Accounting Standards Board issued guidance, which contains amendments to Accounting Standards Codification 810, "Consolidation," relating to how a company determines when an entity2011 that is insufficiently capitalized or is not controlled through voting (or similar rights) should be consolidated. The determination of whether a company is required to consolidate an entity is based on, among other things, an entity's purpose and design and a company's ability to direct the activities of the entity that most significantly impact the entity's economic performance. These provisions became effective for us on January 1, 2010, but did notwould have a material impact on our financial position or results of operations.
For the three months ended March 31, 2010, we have revised net cash provided by operating activities and net cash used in investing activities within our consolidated statement of cash flows due to a gross-up of cash lease payments relating to our revenue earning equipment in the non-cash add back previously included in depreciation of revenue earning equipment and proceeds from disposal of revenue earning equipment.
Note 4—3—Cash and Cash Equivalents and Restricted Cash and Cash Equivalents
We consider all highly liquid debt instruments purchased with an original maturity of three months or less to be cash equivalents.
In our Consolidated Statements of Cash Flows, we net cash flows from revolving borrowings in the line item "Proceeds (repayments)(payments) under the revolving lines of credit, net." The contractual maturities of such borrowings may exceed 90 days in certain cases.
Restricted cash and cash equivalents includes cash and cash equivalents that are not readily available for our normal disbursements. Restricted cash and cash equivalents are restricted for the purchase of revenue earning vehicles and other specified uses under our Fleet Debt facilities, for our Like-Kind Exchange Program, or "LKE Program," and to satisfy certain of our self-insurance regulatory reserve requirements. As of March 31, 20102011 and December 31, 2009,2010, the portion of total restricted cash and cash equivalents that was associated with our Fleet Debt facilities was $129.6$110.2 million and $295.0$115.6 million, respectively. The decrease in restricted cash and cash equivalents associated with our Fleet Debtfleet debt of $165.4$5.4 million from December 31, 20092010 to March 31, 2010,2011 was primarily related to payments to reduce fleet debt and the timing of purchases and sales of revenue earning vehicles.
HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Unaudited
Note 5—4—Goodwill and Other Intangible Assets
The following summarizes the changes in our goodwill, by segment for the periods presented (in millions of dollars):
| Car Rental | Equipment Rental | Total | ||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
Balance as of January 1, 2010 | |||||||||||
Goodwill | $ | 335.8 | $ | 654.5 | $ | 990.3 | |||||
Accumulated impairment losses | (43.0 | ) | (651.9 | ) | (694.9 | ) | |||||
292.8 | 2.6 | 295.4 | |||||||||
Other changes during the year(1) | (4.9 | ) | (0.2 | ) | (5.1 | ) | |||||
Balance as of March 31, 2010 | |||||||||||
Goodwill | 330.9 | 654.3 | 985.2 | ||||||||
Accumulated impairment losses | (43.0 | ) | (651.9 | ) | (694.9 | ) | |||||
$ | 287.9 | $ | 2.4 | $ | 290.3 | ||||||
| Car Rental | Equipment Rental | Total | ||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
Balance as of January 1, 2011 | |||||||||||
Goodwill | $ | 336.4 | $ | 658.7 | $ | 995.1 | |||||
Accumulated impairment losses | (43.0 | ) | (651.9 | ) | (694.9 | ) | |||||
293.4 | 6.8 | 300.2 | |||||||||
Goodwill acquired during the period | 5.0 | — | 5.0 | ||||||||
Adjustments to previously recorded purchase price allocation | (0.9 | ) | 1.4 | 0.5 | |||||||
Other changes during the period(1) | 3.6 | 0.2 | 3.8 | ||||||||
7.7 | 1.6 | 9.3 | |||||||||
Balance as of March 31, 2011 | |||||||||||
Goodwill | 344.1 | 660.3 | 1,004.4 | ||||||||
Accumulated impairment losses | (43.0 | ) | (651.9 | ) | (694.9 | ) | |||||
$ | 301.1 | $ | 8.4 | $ | 309.5 | ||||||
| Car Rental | Equipment Rental | Total | ||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
Balance as of January 1, 2009 | |||||||||||
Goodwill | $ | 307.1 | $ | 651.9 | $ | 959.0 | |||||
Accumulated impairment losses | (43.0 | ) | (651.9 | ) | (694.9 | ) | |||||
264.1 | — | 264.1 | |||||||||
Goodwill acquired during the year | 24.0 | 2.4 | 26.4 | ||||||||
Other changes during the year(1) | 4.7 | 0.2 | 4.9 | ||||||||
Balance as of December 31, 2009 | |||||||||||
Goodwill | 335.8 | 654.5 | 990.3 | ||||||||
Accumulated impairment losses | (43.0 | ) | (651.9 | ) | (694.9 | ) | |||||
$ | 292.8 | $ | 2.6 | $ | 295.4 | ||||||
| Car Rental | Equipment Rental | Total | ||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
Balance as of January 1, 2010 | |||||||||||
Goodwill | $ | 335.8 | $ | 654.5 | $ | 990.3 | |||||
Accumulated impairment losses | (43.0 | ) | (651.9 | ) | (694.9 | ) | |||||
292.8 | 2.6 | 295.4 | |||||||||
Goodwill acquired during the year | 2.7 | 4.3 | 7.0 | ||||||||
Other changes during the year(1) | (2.1 | ) | (0.1 | ) | (2.2 | ) | |||||
0.6 | 4.2 | 4.8 | |||||||||
Balance as of December 31, 2010 | |||||||||||
Goodwill | 336.4 | 658.7 | 995.1 | ||||||||
Accumulated impairment losses | (43.0 | ) | (651.9 | ) | (694.9 | ) | |||||
$ | 293.4 | $ | 6.8 | $ | 300.2 | ||||||
HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Unaudited
Other intangible assets, net, consisted of the following major classes (in millions of dollars):
| | March 31, 2010 | | March 31, 2011 | ||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | Gross Carrying Amount | Accumulated Amortization | Net Carrying Value | | Gross Carrying Amount | Accumulated Amortization | Net Carrying Value | ||||||||||||||||||
Amortizable intangible assets: | Amortizable intangible assets: | Amortizable intangible assets: | ||||||||||||||||||||||||
Customer-related | $ | 600.3 | $ | (260.9 | ) | $ | 339.4 | Customer-related | $ | 606.6 | $ | (319.3 | ) | $ | 287.3 | |||||||||||
Other | 49.7 | (14.0 | ) | 35.7 | Other(1) | 60.8 | (20.7 | ) | 40.1 | |||||||||||||||||
Total | 650.0 | (274.9 | ) | 375.1 | Total | 667.4 | (340.0 | ) | 327.4 | |||||||||||||||||
Indefinite-lived intangible assets: | Indefinite-lived intangible assets: | Indefinite-lived intangible assets: | ||||||||||||||||||||||||
Trade name | 2,190.0 | — | 2,190.0 | Trade name | 2,190.0 | — | 2,190.0 | |||||||||||||||||||
Other | 15.6 | — | 15.6 | Other(2) | 18.2 | — | 18.2 | |||||||||||||||||||
Total | 2,205.6 | — | 2,205.6 | Total | 2,208.2 | — | 2,208.2 | |||||||||||||||||||
Total other intangible assets, net | $ | 2,855.6 | $ | (274.9 | ) | $ | 2,580.7 | Total other intangible assets, net | $ | 2,875.6 | $ | (340.0 | ) | $ | 2,535.6 | |||||||||||
| | December 31, 2009 | | December 31, 2010 | ||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | Gross Carrying Amount | Accumulated Amortization | Net Carrying Value | | Gross Carrying Amount | Accumulated Amortization | Net Carrying Value | ||||||||||||||||||
Amortizable intangible assets: | Amortizable intangible assets: | Amortizable intangible assets: | ||||||||||||||||||||||||
Customer-related | $ | 600.6 | $ | (246.5 | ) | $ | 354.1 | Customer-related | $ | 606.5 | $ | (304.6 | ) | $ | 301.9 | |||||||||||
Other | 50.0 | (12.0 | ) | 38.0 | Other(1) | 59.1 | (18.6 | ) | 40.5 | |||||||||||||||||
Total | 650.6 | (258.5 | ) | 392.1 | Total | 665.6 | (323.2 | ) | 342.4 | |||||||||||||||||
Indefinite-lived intangible assets: | Indefinite-lived intangible assets: | Indefinite-lived intangible assets: | ||||||||||||||||||||||||
Trade name | 2,190.0 | — | 2,190.0 | Trade name | 2,190.0 | — | 2,190.0 | |||||||||||||||||||
Other | 15.6 | — | 15.6 | Other(2) | 18.2 | — | 18.2 | |||||||||||||||||||
Total | 2,205.6 | — | 2,205.6 | Total | 2,208.2 | — | 2,208.2 | |||||||||||||||||||
Total other intangible assets, net | $ | 2,856.2 | $ | (258.5 | ) | $ | 2,597.7 | Total other intangible assets, net | $ | 2,873.8 | $ | (323.2 | ) | $ | 2,550.6 | |||||||||||
Amortization of other intangible assets for the three months ended March 31, 20102011 and 2009,2010, was approximately $16.4$16.8 million and $15.5$16.4 million, respectively. Based on our amortizable intangible assets as of March 31, 2010,2011, we expect amortization expense to be approximately $48.3$49.4 million for the remainder of 2010 and range from $58.22011, $64.9 million toin 2012, $63.6 million for each of the next five fiscal years.in 2013, $60.7 million in 2014, $59.5 million in 2015 and $13.2 million in 2016.
Note 6—Taxes on Income
The effective tax rate forDuring the three months ended March 31, 20102011, we added eight international car rental locations from an external acquisition. This transaction has been accounted for using the acquisition method of accounting in accordance with GAAP and 2009 was 7.0% and 23.6%, respectively. The benefit for taxes on incomeoperating results of $11.0 million in the three months ended March 31, 2010 decreased from $49.6 million in the three months ended March 31, 2009, primarily due to losses in certain non-U.S. jurisdictions for which a tax benefit cannot be recognized and an increase in discrete items which includes a $4.3 million tax chargeacquired locations from the newly enacted tax lawdate of acquisition are included in France which became effective January 1, 2010.our consolidated statement of operations. The allocation of the purchase price to the tangible and intangible net assets acquired is preliminary and subject to finalization. This
HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Unaudited
acquisition is not material to the consolidated amounts presented within our statement of operations for the three months ended March 31, 2011.
Note 7—5—Taxes on Income
The effective tax rate for the three months ended March 31, 2011 and 2010 was 18.8% and 7.0%, respectively. The benefit for taxes on income of $30.0 million in the three months ended March 31, 2011 increased from $11.0 million in the three months ended March 31, 2010, primarily due to changes in geographic earnings mix and changes in losses in certain non-U.S. jurisdictions for which tax benefits cannot be realized.
Note 6—Depreciation of Revenue Earning Equipment and Lease Charges
Depreciation of revenue earning equipment and lease charges includes the following (in millions of dollars):
| | Three Months Ended March 31, | | Three Months Ended March 31, | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | 2010 | 2009 | | 2011 | 2010 | ||||||||||
Depreciation of revenue earning equipment | Depreciation of revenue earning equipment | $ | 431.6 | $ | 429.3 | Depreciation of revenue earning equipment | $ | 418.7 | $ | 427.9 | ||||||
Adjustment of depreciation upon disposal | 14.8 | 45.1 | ||||||||||||||
Adjustment of depreciation upon disposal of revenue earning equipment | Adjustment of depreciation upon disposal of revenue earning equipment | (6.2 | ) | 14.8 | ||||||||||||
Rents paid for vehicles leased | Rents paid for vehicles leased | 12.8 | 15.4 | Rents paid for vehicles leased | 23.6 | 16.5 | ||||||||||
Total | $ | 459.2 | $ | 489.8 | Total | $ | 436.1 | $ | 459.2 | |||||||
The adjustment of depreciation upon disposal of revenue earning equipment for the three months ended March 31, 2011 and 2010, included a net gain of $6.1 million and 2009, includeda net lossesloss of $11.2 million and $15.0 million, respectively, on the disposal of vehicles used in our car rental operations and a net lossesgain of $0.1 million and a net loss of $3.6 million and $30.1 million, respectively, on the disposal of industrial and construction equipment used in our equipment rental operations.
Depreciation rates are reviewed on an ongoinga quarterly basis based on management's routine review of present and estimated future market conditions and their effect on residual values at the time of disposal. During the three months ended March 31, 2010,2011, depreciation rates being used to compute the provision for depreciation of revenue earning equipment were adjusted on certain vehicles in our car rental operations to reflect changes in the estimated residual values to be realized when revenue earning equipment is sold. These depreciation rate changes resulted in a net increasesdecrease of $7.5$0.6 million in depreciation expense for the three months ended March 31, 2010.2011. During the three months ended March 31, 2010,2011, depreciation rate changes in certain of our equipment rental operations resulted in a net increasesdecrease of $2.0$1.0 million in depreciation expense.
For the three months ended March 31, 20102011 and 2009,2010, our worldwide car rental operations sold approximately 38,90030,600 and 28,40042,300 non-program cars, respectively, a 37.0%27.7% year over year increasedecrease primarily due to a higher average fleet size.an increase in car rental demand.
HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Unaudited
Note 8—7—Debt
Our debt consists of the following (in millions of dollars):
| March 31, 2010 | December 31, 2009 | ||||||||
---|---|---|---|---|---|---|---|---|---|---|
Corporate Debt | ||||||||||
Senior Term Facility, average interest rate: 2010, 2.0%; 2009, 2.0% (effective average interest rate: 2010, 2.0%; 2009, 2.0%); net of unamortized discount: 2010, $12.7; 2009, $13.9 | $ | 1,342.4 | $ | 1,344.7 | ||||||
Senior ABL Facility; net of unamortized discount: 2010, $8.5; 2009, $9.6 | (8.5 | ) | (9.6 | ) | ||||||
Senior Notes, average interest rate: 2010, 8.7%; 2009, 8.7% | 2,035.1 | 2,054.7 | ||||||||
Senior Subordinated Notes, average interest rate: 2010, 10.5%; 2009, 10.5% | 518.5 | 518.5 | ||||||||
Promissory Notes, average interest rate: 2010, 7.3%; 2009, 7.3% (effective average interest rate: 2010, 7.4%; 2009, 7.4%); net of unamortized discount: 2010, $3.7; 2009, $3.3 | 392.0 | 391.4 | ||||||||
Convertible Senior Notes, average interest rate: 2010, 5.25%; 2009, 5.25%; (effective average interest rate: 2010, 6.7%; 2009, 6.8%); net of unamortized discount: 2010, $102.7; 2009, $107.3 | 372.1 | 367.4 | ||||||||
Notes payable, average interest rate: 2010, 6.2%; 2009, 8.0% | 9.4 | 9.6 | ||||||||
Foreign subsidiaries' debt denominated in foreign currencies: | ||||||||||
Short-term bank borrowings, average interest rate: 2010, 9.0%; 2009, 10.8% | 8.3 | 7.3 | ||||||||
Other borrowings, average interest rate: 2010, 2.5%; 2009, 2.5% | 5.4 | 5.4 | ||||||||
Total Corporate Debt | 4,674.7 | 4,689.4 | ||||||||
Fleet Debt | ||||||||||
U.S. Fleet Debt, average interest rate: 2010, 4.5%; 2009, 4.7% (effective average interest rate: 2010, 4.5%; 2009, 4.7%); net of unamortized discount: 2010, $15.5; 2009, $16.7 | 4,284.5 | 4,058.3 | ||||||||
International Fleet Debt, average interest rate: 2010, 2.3%; 2009, 2.1% (effective average interest rate: 2010, 2.4%; 2009, 2.2%); net of unamortized discount: 2010, $6.1; 2009, $8.7 | 555.4 | 705.3 | ||||||||
International ABS Fleet Financing Facility, average interest rate: 2010, 3.7%; 2009, 3.6%; (effective average interest rate: 2010, 3.7%; 2009, 3.6%); net of unamortized discount: 2010, $4.1; 2009, $5.7 | 313.3 | 383.2 | ||||||||
Fleet Financing Facility, average interest rate: 2010, 1.5%; 2009, 1.5% (effective average interest rate: 2010, 1.5%; 2009, 1.5%); net of unamortized discount: 2010, $0.7; 2009, $0.8 | 162.4 | 147.2 | ||||||||
Brazilian Fleet Financing Facility, average interest rate: 2010, 9.9%; 2009, 13.3% | 70.0 | 69.3 | ||||||||
Canadian Fleet Financing Facility, average interest rate: 2010, 0.4%; 2009, 0.5% | 96.3 | 55.6 | ||||||||
Belgian Fleet Financing Facility, average interest rate: 2010, 1.8%; 2009, 1.8% | 32.9 | 33.7 | ||||||||
Capitalized Leases, average interest rate: 2010, 4.3%; 2009, 4.8% | 198.4 | 222.4 | ||||||||
Total Fleet Debt | 5,713.2 | 5,675.0 | ||||||||
Total Debt | $ | 10,387.9 | $ | 10,364.4 | ||||||
Facility | Average Interest Rate at March 31, 2011(1) | Fixed or Floating Interest Rate | Maturity | March 31, 2011 | December 31, 2010 | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Corporate Debt | ||||||||||||||||
Senior Term Facility(2) | 3.75 | % | Floating | 3/2018 | $ | 1,400.0 | $ | 1,345.0 | ||||||||
Senior ABL Facility(2) | N/A | Floating | 3/2016 | — | — | |||||||||||
Senior Notes(3) | 7.56 | % | Fixed | 1/2014–1/2021 | 3,143.6 | 3,229.6 | ||||||||||
Senior Subordinated Notes | 10.50 | % | Fixed | 1/2016 | — | 518.5 | ||||||||||
Promissory Notes | 7.48 | % | Fixed | 6/2012–1/2028 | 224.7 | 345.6 | ||||||||||
Convertible Senior Notes | 5.25 | % | Fixed | 6/2014 | 474.8 | 474.8 | ||||||||||
Other Corporate Debt | 4.26 | % | Floating | Various | 42.2 | 22.0 | ||||||||||
Unamortized Net (Discount) Premium (Corporate)(4) | (83.1 | ) | (104.8 | ) | ||||||||||||
Total Corporate Debt | 5,202.2 | 5,830.7 | ||||||||||||||
Fleet Debt | ||||||||||||||||
U.S. ABS Program | ||||||||||||||||
U.S. Fleet Variable Funding Notes: | ||||||||||||||||
Series 2009-1(5) | 1.27 | % | Floating | 3/2013 | 1,538.0 | 1,488.0 | ||||||||||
Series 2010-2(5) | 1.30 | % | Floating | 3/2013 | 145.0 | 35.0 | ||||||||||
U.S. Fleet Medium Term Notes | ||||||||||||||||
Series 2009-2 Notes(5) | 4.95 | % | Fixed | 3/2013–3/2015 | 1,384.3 | 1,384.3 | ||||||||||
Series 2010-1 Notes(5) | 3.77 | % | Fixed | 2/2014–2/2018 | 749.8 | 749.8 | ||||||||||
Other Fleet Debt | ||||||||||||||||
U.S. Fleet Financing Facility | 1.50 | % | Floating | 12/2011 | 163.0 | 163.0 | ||||||||||
European Revolving Credit Facility | 4.58 | % | Floating | 6/2013 | 155.3 | 168.6 | ||||||||||
European Fleet Notes | 8.50 | % | Fixed | 7/2015 | 564.5 | 529.0 | ||||||||||
European Securitization(5) | 4.18 | % | Floating | 7/2012 | 202.8 | 236.9 | ||||||||||
Canadian Securitization(5) | 1.19 | % | Floating | 11/2011 | 82.6 | 80.4 | ||||||||||
Australian Securitization(5) | 6.29 | % | Floating | 12/2012 | 170.8 | 183.2 | ||||||||||
Brazilian Fleet Financing Facility | 13.52 | % | Floating | 7/2011 | 18.6 | 77.8 | ||||||||||
Capitalized Leases | 4.92 | % | Floating | 4/2011–2/2013 | 389.8 | 398.1 | ||||||||||
Unamortized Discount (Fleet) | (16.7 | ) | (18.4 | ) | ||||||||||||
Total Fleet Debt | 5,547.8 | 5,475.7 | ||||||||||||||
Total Debt | $ | 10,750.0 | $ | 11,306.4 | ||||||||||||
HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Unaudited
Senior Notes | Outstanding Principal | |
---|---|---|
8.875% Senior Notes due January 2014 | $642.3 million | |
7.875% Senior Notes due January 2014 | $301.3 million (€213.5 million) | |
7.50% Senior Notes due October 2018 | $700 million | |
7.375% Senior Notes due January 2021 | $500 million | |
6.75% Senior Notes due April 2019 | $1,000 million |
Maturities
The aggregate amounts of maturities of debt for each of the twelve-month periods ending March 31 (in millions of dollars) are as follows: 2011, $4,727.5 (including $1,927.4
2012 | $3,859.3 (including $3,356.1 of other short-term borrowings) | |
2013 | $773.9 | |
2014 | $743.9 | |
2015 | $842.7 | |
2016 | $953.4 | |
After 2016 | $3,676.6 |
We are highly leveraged and a substantial portion of other short-term borrowings); 2012, $4.3; 2013, $2,032.2; 2014, $2,035.6; 2015, $1,196.0; after 2015, $546.3.our liquidity needs arise from debt service on our indebtedness and from the funding of our costs of operations and capital expenditures. We believe that cash generated from operations, together with amounts available under various liquidity facilities will be adequate to permit us to meet our debt maturities over the next twelve months.
Our short-term borrowings as of March 31, 20102011 include, among other items, the amounts outstanding under our International Fleet Debt facility, International ABSthe European Securitization, Australian Securitization, U.S. Fleet Financing Facility, Brazilian Fleet Financing Facility, Canadian Securitization, Capitalized Leases and European Revolving Credit Facility. These amounts are reflected as short-term borrowings, regardless of the facility maturity date, as these facilities are revolving in nature and/or the outstanding borrowings have maturities of three months or less. Short-term borrowings also include the Convertible Senior Notes which became convertible on January 1, 2011 and remain as such through June 30, 2011. As of March 31, 2011, short-term borrowings had a weighted average interest rate of 3.0%.
In March 2011, Hertz issued an additional $500 million aggregate principal of the 6.75% Senior Notes due 2019 in a private offering, the proceeds of which were used in April 2011 to redeem $480 million principal amount of its outstanding 8.875% Senior Notes due 2014. The redeemed portion of the 8.875% Senior Notes has been included in the 2012 maturities in the table above.
Letters of Credit
As of March 31, 2011, there were outstanding standby letters of credit totaling $516.9 million. Of this amount, $467.6 million was issued under the Senior Credit Facilities ($226.6 million of which was issued for the benefit of the ABS Program) and the remainder is primarily to support self-insurance programs
HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Unaudited
Facility, Brazilian Fleet Financing Facility, Canadian Fleet Financing Facility, Belgian Fleet Financing Facility and Capitalized Leases. These amounts are considered short-term in nature since they have maturity dates of three months or less; however these facilities are revolving in nature and do not expire at the time of the short-term debt maturity. In addition, we include certain scheduled payments of principal under our ABS Program as short-term borrowings.
As of March 31, 2010, there were outstanding standby letters of credit totaling $598.2 million. Of this amount, $310.0 million has been issued for the benefit of the ABS Program ($200.0 million of which was issued by Ford Motor Company, or "Ford," and $110.0 million of which was used under the Senior Credit Facilities) and the remainder is primarily to support self-insurance programs (including(including insurance policies with respect to which we have indemnifiedagreed to indemnify the policy issuers for any losses) in the United States, Canada and Europe and to supportas well as airport concession obligations in the United States, Canada and Canada.Europe. As of March 31, 2010,2011, none of these letters of credit have been drawn upon.
First Quarter Events
On January 1, 2011, our Convertible Senior Notes became convertible. This conversion right was triggered because our closing common stock price per share exceeded $10.77 for at least 20 trading days during the 30 consecutive trading day period ending on December 31, 2010. Since this same trigger was met in the first quarter of 2011, the Convertible Senior Notes continue to be convertible through June 30, 2011, and may be convertible thereafter, if one or more of the conversion conditions specified in the indenture is satisfied during future measurement periods. Our policy has been and continues to be to settle conversions of Convertible Senior Notes using a combination of cash and our common stock, which calls for settling the fixed dollar amount per $1,000 in principal amount in cash and settling in shares the excess conversion, if any.
In NovemberJanuary 2011, Hertz redeemed in full its outstanding ($518.5 million principal amount) 10.5% Senior Subordinated Notes due 2016 which resulted in premiums paid of $27.2 million and the write-off of unamortized debt costs of $8.6 million. In January and February 2011, Hertz redeemed $1,105 million principal amount of its outstanding 8.875% Senior Notes due 2014 which resulted in premiums paid of $24.5 million and the write-off of unamortized debt costs of $14.4 million. Hertz used the proceeds from the September 2010 issuance of $700 million aggregate principal amount of 7.50% Senior Notes, the "Ford"December 2010 issuance of $500 million aggregate principal amount of 7.375% Senior Notes and the February 2011 issuance of $500 million aggregate principal amount of 6.75% Senior Notes (see below) for these redemptions. Total premiums paid during the three months ended March 31, 2011, of $51.7 million are recorded in "Other (income) expense, net" on our consolidated statement of operations.
In February 2011, Hertz issued $500 million aggregate principal amount of 6.75% Senior Notes due 2019. The 6.75% Senior Notes are guaranteed on a senior unsecured basis by the domestic subsidiaries of Hertz that guarantee its Senior Credit Facilities.
In February 2011, Hertz used existing corporate liquidity to pay off the maturing amount of the Brazilian Fleet Financing Facility.
In March 2011, Hertz issued an additional $500 million aggregate principal of the 6.75% Senior Notes due 2019 in a private offering. The proceeds of which were used in April 2011 to redeem $480 million principal amount of its outstanding 8.875% Senior Notes due 2014. See Note 17—Subsequent Events.
In March 2011, Hertz refinanced its 2005 Senior Term Facility and 2005 Senior ABL Facility. A description of the new Senior Term Facility and Senior ABL Facility is set forth below. During the three months ended March 31, 2011, we recorded an expense of $9.3 million in "Interest expense" on our consolidated statement of operations associated with the write-off of debt costs in connection with the refinancing of our 2005 Senior Term Facility and 2005 Senior ABL Facility. Additionally, a portion of the unamortized debt costs associated with the 2005 Senior Term Facility and 2005 Senior ABL Facility are continuing to be amortized over the terms of the new Senior Term Facility and Senior ABL Facility. The determination of whether these costs were expensed or further deferred was dependent upon whether the terms of the old and new instruments were considered to be substantially different. In regards to the Senior Term Facility, the determination as to whether the 2005 Senior Term Facility and the new Senior Term Facility
HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Unaudited
were considered to be substantially different was made on a lender by lender basis using the "net method" which compares the cash flows related to the lowest common principal balance between the old and new instruments.
In March 2011, Hertz entered into a credit agreement that provides a $1,400.0 million secured term loan facility (as amended, the "Senior Term Facility"). In addition, the Senior Term Facility includes a pre-funded synthetic letter of credit will expirefacility in conjunctionan aggregate principal amount of $200.0 million. Subject to the satisfaction of certain conditions and limitations, the Senior Term Facility allows for the addition of incremental term and/or revolving loans. Hertz used approximately $1,345.0 million of borrowings under the Senior Term Facility to refinance indebtedness under the 2005 Senior Term Facility. We reflected this transaction on a gross basis in our Consolidated Statement of Cash Flows in "Proceeds from issuance of long-term debt" and "Payment of long-term debt." During the three months ended March 31, 2011, we recorded financing costs of $6.6 million in "Interest expense" on our consolidated statement of operations associated with the maturitynew Senior Term Facility.
In March 2011, Hertz, Hertz Equipment Rental Corporation and certain other of our subsidiaries entered into a credit agreement that provides for aggregate maximum borrowings of $1,800.0 million (subject to borrowing base availability) on a revolving basis under an asset-based revolving credit facility (as amended, the "Senior ABL Facility"). Up to $1,500.0 million of the 2005 Series Notes.Senior ABL Facility is available for the issuance of letters of credit subject to certain conditions including issuing lender participation. Subject to the satisfaction of certain conditions and limitations, the Senior ABL Facility allows for the addition of incremental revolving and/or term loan commitments. In addition, the Senior ABL Facility permits Hertz to increase the amount of commitments under the Senior ABL with the consent of each lender providing an additional commitment, subject to satisfaction of certain conditions.
In March 2011, Hertz amended the Canadian Securitization to extend the maturity date from May 2011 to November 2011.
Registration Rights
Pursuant to the terms of exchange and registration rights agreements entered into in connection with the separate issuances of the 7.5% Senior Notes due 2018, the 7.375% Senior Notes due 2021 and the 6.75% Senior Notes due 2019, Hertz has agreed to file a registration statement under the Securities Act of 1933, as amended, to permit either the exchange of such notes for registered notes or, in the alternative, the registered resale of such notes. Hertz's failure to meet its obligations under the exchange and registration rights agreements, including by failing to have the respective registration statement become effective by a specified date or failing to complete the respective exchange offer by a specified date, will result in Hertz incurring special interest on such notes at a per annum rate of 0.25% for the first 90 days of any period where a default has occurred and is continuing, which rate will be increased by an additional 0.25% during each subsequent 90 day period, up to a maximum of 0.50%. On March 23, 2011, Hertz filed a registration statement for such notes. We do not believe the special interest obligation is probable, and as such, we have not recorded any amounts with respect to this registration payment arrangement.
Guarantees and Security
There have been no material changes to the guarantees and security provisions of the debt instruments and credit facilities under which our indebtedness as of March 31, 20102011 has been issued from the terms as disclosed in our Annual Report.
Covenants
Certain of our debt instruments and credit facilities contain a number of covenants that, among other things, limit or restrict the ability of the borrowers and the guarantors to dispose of assets, incur additional indebtedness, incur guarantee obligations, prepay other indebtedness, make dividends and other restricted payments, create liens, make investments, make acquisitions, engage in mergers, change the nature of their business, make capital expenditures, or engage in certain transactions with affiliates. Some of these agreements also require the maintenance of certain financial covenants. As of March 31, 2010, we were in compliance with all of these financial covenants.
As of March 31, 2010, we had an aggregate principal amount outstanding of $1,355.1 million pursuant to our Senior Term Facility and no amounts outstanding in our Senior ABL Facility. As of March 31, 2010, Hertz was required under the Senior Term Facility to have a consolidated leverage ratio of not more than 4.75:1 and a consolidated interest expense coverage ratio of not less than 2.25:1. In addition, under our Senior ABL Facility, if there was less than $200.0 million of available borrowing capacity under that facility as of March 31, 2010, Hertz was required to have a consolidated leverage ratio of not more than 4.75:1 and a consolidated fixed charge coverage ratio of not less than 1:1 for the quarter then ended. Under the Senior Term Facility, as of March 31, 2010, we had a consolidated leverage ratio of 3.71:1 and a consolidated interest expense coverage ratio of 3.29:1. Since we had maintained sufficient borrowing capacity under our Senior ABL Facility as of March 31, 2010, and expect to maintain such capacity in the future, the consolidated fixed charge coverage ratio was not deemed relevant for presentation. For further information on the terms of our senior credit facilities, see Note 3 of the Notes to our audited annual consolidated financial statements included in our Annual Report under the caption "Item 8—Financial Statements and Supplementary Data."
Derivatives
We utilize certain derivative instruments to enhance our ability to manage risks relating to cash flow and interest rate exposure. See Note 14—Financial Instruments.
HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Unaudited
Credit Facilities
As of March 31, 2010, the following credit facilities were available for the use of Hertz and its subsidiaries (in millions of dollars):
| Remaining Capacity | Availability Under Borrowing Base Limitation | ||||||
---|---|---|---|---|---|---|---|---|
Corporate Debt | ||||||||
Senior Term Facility | $ | — | $ | — | ||||
Senior ABL Facility | 1,636.1 | 866.1 | ||||||
Total Corporate Debt | 1,636.1 | 866.1 | ||||||
Fleet Debt | ||||||||
U.S. Fleet Debt | 1,663.1 | 28.0 | ||||||
International Fleet Debt | 899.6 | 101.6 | ||||||
International ABS Fleet Financing Facility | 674.1 | 88.8 | ||||||
Fleet Financing Facility | — | — | ||||||
Brazilian Fleet Financing Facility | 6.3 | — | ||||||
Canadian Fleet Financing Facility | 124.0 | 38.8 | ||||||
Belgian Fleet Financing Facility | — | — | ||||||
Capitalized Leases | 107.0 | — | ||||||
Total Fleet Debt | 3,474.1 | 257.2 | ||||||
Total | $ | 5,110.2 | $ | 1,123.3 | ||||
As of March 31, 2010, the Senior Term Facility had approximately $4.1 million available under the letter of credit facility and the Senior ABL Facility had $96.1 million available under the letter of credit facility sublimit.
Our liquidity as of March 31, 2010 was $5,140.9 million, which consisted of $800.7 million of cash and cash equivalents, $866.1 million of unused commitments under our Senior ABL Facility and $3,474.1 million of unused commitments under our Fleet Financing Facilities. Taking into consideration the borrowing base limitations in our Senior ABL Facility and in our Fleet Debt, the amount that we had available for immediate use as of March 31, 2010 under our Senior ABL Facility was $866.1 million and we had $257.2 million of over-enhancement that was available under our Fleet Debt. Accordingly, as of March 31, 2010 we had $1,924.0 million ($800.7 million in cash and cash equivalents, $866.1 million available under our Senior ABL Facility and $257.2 million available under our various Fleet Debt facilities) in liquidity that was available for our immediate use. Future availability of borrowings under these facilities will depend on borrowing base requirements and other factors, many of which are outside our control.
Also, substantially all of our revenue earning equipment and certain related assets are owned by special purpose entities, or are subject to liens in favor of our lenders under our various credit facilities. Substantially all our other assets in the United States are also subject to liens in favor of our lenders under our various credit facilities. None of these assets would be available to satisfy the claims of our general creditors, if we failed to perform our obligations to such creditors.Form 10-K.
HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Unaudited
Financial Covenant Compliance
Under the new terms of our amended Senior Term Facility and Senior ABL Facility, we are not subject to ongoing financial maintenance covenants; however, under the Senior ABL Facility we are subject to a springing financial maintenance covenant upon the occurrence of certain triggering events. As of March 31, 2011, no triggering event had occurred requiring testing of the springing financial maintenance covenant.
Borrowing Capacity and Availability
As of March 31, 2011, the following facilities were available for the use of Hertz and its subsidiaries (in millions of dollars):
| Remaining Capacity | Availability Under Borrowing Base Limitation | ||||||
---|---|---|---|---|---|---|---|---|
Corporate Debt | ||||||||
Senior ABL Facility | $ | 1,800.0 | $ | 896.4 | ||||
Total Corporate Debt | 1,800.0 | 896.4 | ||||||
Fleet Debt | ||||||||
U.S. Fleet Variable Funding Notes | 455.1 | 90.5 | ||||||
U.S. Fleet Financing Facility | 2.0 | 2.0 | ||||||
European Revolving Credit Facility | 154.4 | 154.4 | ||||||
European Securitization | 314.6 | 71.6 | ||||||
Canadian Securitization | 148.3 | 4.8 | ||||||
Australian Securitization | 86.4 | 7.6 | ||||||
Brazilian Fleet Financing Facility | 0.9 | 0.9 | ||||||
Capitalized Leases | 108.1 | 28.9 | ||||||
Total Fleet Debt | 1,269.8 | 360.7 | ||||||
Total | $ | 3,069.8 | $ | 1,257.1 | ||||
Our borrowing capacity and availability primarily comes from our "revolving credit facilities," which are a combination of asset-backed securitization facilities and asset-based revolving credit facilities. Creditors under each of our revolving credit facilities have a claim on a specific pool of assets as collateral. Our ability to borrow under each revolving credit facility is a function of, among other things, the value of the assets in the relevant collateral pool. We refer to the amount of debt we can borrow given a certain pool of assets as the "borrowing base."
We refer to "Remaining Capacity" as the maximum principal amount of debt permitted to be outstanding under the respective facility (i.e., the amount of debt we could borrow assuming we possessed sufficient assets as collateral) less the principal amount of debt then-outstanding under such facility.
We refer to "Availability Under Borrowing Base Limitation" and "borrowing base availability" as the lower of Remaining Capacity or the borrowing base less the principal amount of debt then-outstanding under such facility (i.e., the amount of debt we could borrow given the collateral we possess at such time).
As of March 31, 2011, the Senior Term Facility had approximately $3.2 million available under the letter of credit facility and the Senior ABL Facility had $1,095.2 million available under the letter of credit facility sublimit, subject to borrowing base restrictions.
HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Unaudited
Substantially all of our revenue earning equipment and certain related assets are owned by special purpose entities, or are encumbered in favor of our lenders under our various credit facilities.
Some of these special purpose entities are consolidated variable interest entities, of which Hertz is the primary beneficiary, whose sole purpose is to provide commitments to lend in various currencies subject to borrowing bases comprised of rental vehicles and related assets of certain of Hertz International, Ltd.'s subsidiaries. As of March 31, 20102011 and December 31, 2009,2010, our International Fleet Financing No. 1 B.V., International Fleet Financing No. 2 B.V. and HA Funding and Hertz Fleet LimitedPty, Ltd. variable interest entities had total assets primarily comprised of loans receivable and revenue earning equipment of $396.6$503.0 million and $367.6$652.1 million, respectively, and total liabilities primarily comprised of debt of $691.7$502.5 million and $710.3$651.6 million, respectively. For further information on the terms of our International Fleet Debt, see Note 3 of the Notes to our audited annual consolidated financial statements included in our Annual Report under the caption "Item 8—Financial Statements and Supplementary Data."
Accrued Interest
As of March 31, 2010 and December 31, 2009, accrued interest was $78.8 million and $120.9 million, respectively, which is reflected in our condensed consolidated balance sheet in "Accrued liabilities."
Note 9—8—Employee Retirement Benefits
The following table sets forth the net periodic pension and postretirement (including health care, life insurance and auto) expense (in millions of dollars):
| Pension Benefits | | | |||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Postretirement Benefits (U.S.) | |||||||||||||||||||
| U.S. | Non-U.S. | ||||||||||||||||||
| Three Months Ended March 31, | |||||||||||||||||||
| 2010 | 2009 | 2010 | 2009 | 2010 | 2009 | ||||||||||||||
Components of Net Periodic Benefit Cost: | ||||||||||||||||||||
Service cost | $ | 6.7 | $ | 5.4 | $ | 1.3 | $ | 1.3 | $ | 0.1 | $ | — | ||||||||
Interest cost | 6.8 | 7.0 | 2.6 | 2.2 | 0.2 | 0.2 | ||||||||||||||
Expected return on plan assets | (6.7 | ) | (5.9 | ) | (2.5 | ) | (1.7 | ) | — | — | ||||||||||
Net amortizations | 1.7 | 0.1 | (0.1 | ) | (0.1 | ) | (0.1 | ) | (0.1 | ) | ||||||||||
Settlement loss | 0.3 | 0.7 | — | — | — | — | ||||||||||||||
Net pension/postretirement expense | $ | 8.8 | $ | 7.3 | $ | 1.3 | $ | 1.7 | $ | 0.2 | $ | 0.1 | ||||||||
| Pension Benefits | | | |||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Postretirement Benefits (U.S.) | |||||||||||||||||||
| U.S. | Non-U.S. | ||||||||||||||||||
| Three Months Ended March 31, | |||||||||||||||||||
| 2011 | 2010 | 2011 | 2010 | 2011 | 2010 | ||||||||||||||
Components of Net Periodic Benefit Cost: | ||||||||||||||||||||
Service cost | $ | 6.2 | $ | 6.7 | $ | 1.7 | $ | 1.3 | $ | 0.1 | $ | 0.1 | ||||||||
Interest cost | 6.5 | 6.8 | 2.8 | 2.6 | 0.2 | 0.2 | ||||||||||||||
Expected return on plan assets | (7.1 | ) | (6.7 | ) | (3.1 | ) | (2.5 | ) | — | — | ||||||||||
Net amortization | 2.0 | 1.7 | (0.3 | ) | (0.1 | ) | — | (0.1 | ) | |||||||||||
Settlement loss | 0.3 | 0.3 | — | — | — | — | ||||||||||||||
Net pension/postretirement expense | $ | 7.9 | $ | 8.8 | $ | 1.1 | $ | 1.3 | $ | 0.3 | $ | 0.2 | ||||||||
Our policy for funded plans is to contribute annually, at a minimum, amounts required by applicable laws, regulations and union agreements. From time to time we make contributions beyond those legally required. For the three months ended March 31, 20102011 and 2009,2010, we contributed $36.0$44.8 million and $8.6$36.0 million, respectively, to our worldwide pension plans, including discretionary contributions of $1.8$12.3 million and $1.2$1.8 million, respectively, to our U.K.United Kingdom, or "U.K.," defined benefit pension plan and benefit payments made through unfunded plans. Based upon the significant decline in asset values in 2008, which were in line with the overall market declines, it is likely we will continue to make cash contributions in 20102011 and possibly in future years.
We expect to contribute up to $65 million to our U.S.sponsor a defined benefit pension plan in the full yearU.K. In January 2011, we tentatively agreed with the trustees of 2010.that plan to cease all future benefit accruals and to close the plan to members, contingent on the outcome of the consultation process with employees that ends in May. We will introduce a defined contribution plan with company matching contributions to replace the defined benefit pension plan. The level of 2010 and futurecompany matching contributions will vary, and is dependent on a number of factors including actual and projected investment returns, interest rate fluctuations, plan demographics, funding regulations and the resultsgenerally be 100% of the final actuarial valuation.employee contributions, up to 8% of pay, except that current members of the defined benefit plan will receive an enhanced match for five years.
Our obligation for the U.K. pension plan was $163.4 million, with a fair value of assets of about $145.6 million, as of December 31, 2010. We participaterecognized expense of $1.3 million in various "multiemployer" pension plans administered by labor unions representing some of our employees. We make periodic contributions to these plans to allow them to meet their pension benefit obligations to their participants. In the event that we withdraw from participation in one of these plans, then applicable law could require us to make an additional lump-sum contribution to the2010.
HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Unaudited
If the proposal to close the scheme occurs during 2011, then this will result in somewhat lower contributions this year into the defined benefit plan, which will be offset by matching contributions to the new defined contribution plan.
We participate in various "multiemployer" pension plans. In the event that we withdraw from participation in one of these plans, then applicable law could require us to make an additional lump-sum contribution to the plan, and we would have to reflect that as an expense in our consolidated statement of operations and as a liability on our condensed consolidated balance sheet. Our withdrawal liability for any multiemployer plan would depend on the extent of the plan's funding of vested benefits. In the ordinary course of our renegotiation of collective bargaining agreements with labor unions that maintain these plans, we could decide to discontinue participation in aAt least one multiemployer plan and in that event, we could face a withdrawal liability. Some multiemployer plans, including one in which we participate areis reported to have, and other of our multiemployer plans could have, significant underfunded liabilities. Such underfunding couldmay increase in the sizeevent other employers become insolvent or withdraw from the applicable plan or upon the inability or failure of our potentialwithdrawing employers to pay their withdrawal liability. In addition, such underfunding may increase as a result of lower than expected returns on pension fund assets or other funding deficiencies.
Note 10—9—Stock-Based Compensation
In March 2010,2011, we granted 527,574371,505 Restricted Stock Units, or "RSUs," to keycertain executives and employees at fair values ranging from $9.70$14.60 to $9.99$15.02 and 800,613693,313 Performance Stock Units, or "PSUs," at a fair value of $9.70$14.60 under the Hertz Global Holdings, Inc. 2008 Omnibus Incentive Plan, or the "Omnibus Plan." For the PSUs, 499,515 have a performance condition under which the number of units that will ultimately be awarded will vary from 0% to 150% of the original grant, based on the sum of 2011 and 2012 Corporate EBITDA results. The remaining 193,798 PSUs granted contain a market condition whereby the 20 day average trailing stock price must equal or exceed a certain price target at any time during the five year performance period.
In March 2010,2011, we granted options to acquire 3,208,1552,108,944 shares of our common stock to certain executives and employees at exercise prices ranging from $9.70$14.60 to $9.99$15.02 under the Omnibus Plan.
A summary of the total compensation expense and associated income tax benefits recognized under our Hertz Global Holdings, Inc. Stock Incentive Plan and Hertz Global Holdings, Inc. Director Stock Incentive Plan, or the "Prior Plans," and the Omnibus Plan, including the cost of stock options, RSUs, and PSUs, is as follows (in millions of dollars):
| Three Months Ended March 31, | ||||||||
---|---|---|---|---|---|---|---|---|---|
| 2010 | 2009 | |||||||
Compensation Expense | $ | 9.0 | $ | 7.4 | |||||
Income Tax Benefit | (3.5 | ) | (2.9 | ) | |||||
Total | $ | 5.5 | $ | 4.5 | |||||
| Three Months Ended March 31, | |||||||
---|---|---|---|---|---|---|---|---|
| 2011 | 2010 | ||||||
Compensation Expense | $ | 9.1 | $ | 9.0 | ||||
Income Tax Benefit | (3.5 | ) | (3.5 | ) | ||||
Total | $ | 5.6 | $ | 5.5 | ||||
As of March 31, 2010,2011, there was approximately $67.0$48.0 million of total unrecognized compensation cost related to non-vested stock options, RSUs and PSUs granted by Hertz Holdings under the Prior Plans and the Omnibus Plan, including costs related to modifying the exercise prices of certain option grants in order to preserve the intrinsic value of the options, consistent with applicable tax law, to reflect special cash dividends of $4.32 per share paid on June 30, 2006 and $1.12 per share paid on November 21, 2006. These remaining costs areThe 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.
For the three months ended March 31, 2010 and 2009, we recognized compensation cost
HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Unaudited
Note 11—10—Segment Information
Our operating segments are aggregated into reportable business segments based primarily upon similar economic characteristics, products, services, customers, and delivery methods. We have identified two reportable segments: rental of cars, crossovers and light trucks, or "car rental," and rental of industrial, construction and material handling equipment, or "equipment rental." Other reconciling items includes
HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Unaudited
general corporate assets and expenses, certain interest expense (including net interest on corporate debt), as well as other business activities, such as our third party claim management services.
Adjusted pre-tax income (loss) is the measure utilized by management in making decisions about allocating resources to segments and measuring their performance. We believe this measure best reflects the financial results from ongoing operations. Adjusted pre-tax income (loss) is calculated as income (loss) before income taxes plus other reconciling items, non-cash purchase accounting charges, non-cash debt charges and certain one-time charges and non-operational items. The contribution of our reportable segments to revenues and adjusted pre-tax income (loss) and the reconciliation to consolidated amounts for the three months ended March 31, 2010 and 2009 are summarized below (in millions of dollars).
| | Three Months Ended March 31, | | Three Months Ended March 31, | ||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | Revenues | Adjusted Pre-Tax Income (Loss) | | Revenues | Adjusted Pre-Tax Income (Loss) | ||||||||||||||||||||||||
| | 2010 | 2009 | 2010 | 2009 | | 2011 | 2010 | 2011 | 2010 | ||||||||||||||||||||
Car rental | Car rental | $ | 1,421.7 | $ | 1,282.9 | $ | 27.1 | $ | (33.5 | ) | Car rental | $ | 1,510.3 | $ | 1,421.7 | $ | 61.3 | $ | 27.1 | |||||||||||
Equipment rental | Equipment rental | 237.0 | 279.5 | (5.0 | ) | 0.7 | Equipment rental | 268.2 | 237.0 | 10.2 | (5.0 | ) | ||||||||||||||||||
Total reportable segments | 1,658.7 | 1,562.4 | 22.1 | (32.8 | ) | Total reportable segments | 1,778.5 | 1,658.7 | 71.5 | 22.1 | ||||||||||||||||||||
Other | Other | 2.2 | 2.5 | Other | 1.5 | 2.2 | ||||||||||||||||||||||||
Total | $ | 1,660.9 | $ | 1,564.9 | Total | $ | 1,780.0 | $ | 1,660.9 | |||||||||||||||||||||
Adjustments: | Adjustments: | Adjustments: | ||||||||||||||||||||||||||||
Other reconciling items(1) | (91.3 | ) | (83.8 | ) | Other reconciling items(1) | (87.5 | ) | (91.3 | ) | |||||||||||||||||||||
Purchase accounting(2) | (22.1 | ) | (26.0 | ) | Purchase accounting(2) | (20.6 | ) | (22.1 | ) | |||||||||||||||||||||
Non-cash debt charges(3) | (48.8 | ) | (25.0 | ) | Non-cash debt charges(3) | (59.9 | ) | (48.8 | ) | |||||||||||||||||||||
Restructuring charges | (10.7 | ) | (29.5 | ) | Restructuring charges | (4.9 | ) | (10.7 | ) | |||||||||||||||||||||
Restructuring related charges(4) | (5.3 | ) | (8.9 | ) | Restructuring related charges(4) | (0.5 | ) | (5.3 | ) | |||||||||||||||||||||
Management transition costs | — | (0.7 | ) | Derivative losses(5) | — | (1.7 | ) | |||||||||||||||||||||||
Derivative gains (losses)(5) | (1.7 | ) | 1.0 | Acquisition related costs | (2.8 | ) | — | |||||||||||||||||||||||
Third-party bankruptcy accrual(6) | — | (4.3 | ) | Management transition costs | (2.5 | ) | — | |||||||||||||||||||||||
Premiums paid on debt(6) | (51.7 | ) | — | |||||||||||||||||||||||||||
Loss before income taxes | $ | (157.8 | ) | $ | (210.0 | ) | ||||||||||||||||||||||||
Loss before income taxes | $ | (158.9 | ) | $ | (157.8 | ) | ||||||||||||||||||||||||
HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Unaudited
HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Unaudited
Total assets decreased $504.6 million from December 31, 2010 to March 31, 2011. The decrease was primarily related to a bankrupt European dealer affiliated withdecrease in other cash and cash equivalents relating to the redemption of our 10.5% Senior Subordinated Notes and a U.S.portion of our 8.875% Senior Notes, partly offset by an increase in our car manufacturer.
Note 12—11—Total Equity
(in Millions) | Number of Shares | Common Stock | Preferred Stock | Additional Paid-In Capital | Accumulated Deficit | Accumulated Other Comprehensive Income (Loss) | Non- controlling Interest | Total Equity | ||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
December 31, 2009 | 410.2 | $ | 4.1 | $ | — | $ | 3,141.7 | $ | (1,062.3 | ) | $ | (3.3 | ) | $ | 17.2 | $ | 2,097.4 | |||||||||
Net loss attributable to Hertz Global Holdings, Inc. and Subsidiaries' common stockholders | (150.4 | ) | (150.4 | ) | ||||||||||||||||||||||
Change in fair value of derivatives qualifying as cash flow hedges, net of tax of $9.5 | 14.6 | 14.6 | ||||||||||||||||||||||||
Translation adjustment changes | (39.0 | ) | (39.0 | ) | ||||||||||||||||||||||
Unrealized gain on Euro-denominated debt, net of tax of $7.6 | 11.9 | 11.9 | ||||||||||||||||||||||||
Defined benefit pension plans, net | (0.4 | ) | (0.4 | ) | ||||||||||||||||||||||
Total Comprehensive Loss | (163.3 | ) | ||||||||||||||||||||||||
Dividend payment to noncontrolling interest | (3.0 | ) | (3.0 | ) | ||||||||||||||||||||||
Net income relating to noncontrolling interest | 3.6 | 3.6 | ||||||||||||||||||||||||
Employee stock purchase plan | 0.1 | 0.7 | 0.7 | |||||||||||||||||||||||
Net settlement on vesting of restricted stock | (5.3 | ) | (5.3 | ) | ||||||||||||||||||||||
Restricted stock | 1.0 | — | — | |||||||||||||||||||||||
Stock-based employee compensation charges, net of tax of $0 | 0.1 | 9.0 | 9.0 | |||||||||||||||||||||||
Exercise of stock options | 0.7 | 0.7 | ||||||||||||||||||||||||
Common shares issued to Directors | — | 0.1 | 0.1 | |||||||||||||||||||||||
Phantom shares issued to Directors | 0.1 | 0.1 | ||||||||||||||||||||||||
March 31, 2010 | 411.4 | $ | 4.1 | $ | — | $ | 3,147.0 | $ | (1,212.7 | ) | $ | (16.2 | ) | $ | 17.8 | $ | 1,940.0 | |||||||||
| | Common Stock | | | Accumulated Other Comprehensive Income (Loss) | | | |||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Preferred Stock | Additional Paid-In Capital | Accumulated Deficit | Non- controlling Interest | Total Equity | |||||||||||||||||||||
(in Millions) | Shares | Amount | ||||||||||||||||||||||||
December 31, 2010 | $ | — | 413.5 | $ | 4.1 | $ | 3,183.2 | $ | (1,110.4 | ) | $ | 37.9 | $ | 16.5 | $ | 2,131.3 | ||||||||||
Net loss attributable to Hertz Global Holdings, Inc. and Subsidiaries' common stockholders | (132.6 | ) | (132.6 | ) | ||||||||||||||||||||||
Translation adjustment changes, net of tax of $0 | 42.5 | 42.5 | ||||||||||||||||||||||||
Unrealized gain on Euro-denominated debt, net of tax of $7.4 | (11.6 | ) | (11.6 | ) | ||||||||||||||||||||||
Defined benefit pension plans, net of tax of $0 | 0.1 | 0.1 | ||||||||||||||||||||||||
Total Comprehensive Loss | (101.6 | ) | ||||||||||||||||||||||||
Net income relating to noncontrolling interest | 3.7 | 3.7 | ||||||||||||||||||||||||
Employee stock purchase plan | 0.1 | 1.0 | 1.0 | |||||||||||||||||||||||
Net settlement on vesting of restricted stock | 1.0 | (10.7 | ) | (10.7 | ) | |||||||||||||||||||||
Stock-based employee compensation charges, net of tax of $0 | 9.1 | 9.1 | ||||||||||||||||||||||||
Exercise of stock options, net of tax of $0 | 0.3 | 1.8 | 1.8 | |||||||||||||||||||||||
Common shares issued to Directors | 0.1 | 0.1 | ||||||||||||||||||||||||
March 31, 2011 | $ | — | 414.9 | $ | 4.1 | $ | 3,184.5 | $ | (1,243.0 | ) | $ | 68.9 | $ | 20.2 | $ | 2,034.7 | ||||||||||
HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Unaudited
(in Millions) | Number of Shares | Common Stock | Preferred Stock | Additional Paid-In Capital | Accumulated Deficit | Accumulated Other Comprehensive Income (Loss) | Non- controlling Interest | Total Equity | ||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
December 31, 2008 | 323.0 | $ | 3.2 | $ | — | $ | 2,503.8 | $ | (936.3 | ) | $ | (100.1 | ) | $ | 17.7 | $ | 1,488.3 | |||||||||
Net loss attributable to Hertz Global Holdings, Inc. and Subsidiaries' common stockholders | (163.5 | ) | (163.5 | ) | ||||||||||||||||||||||
Change in fair value of derivatives qualifying as cash flow hedges, net of tax of $0.1 | (0.2 | ) | (0.2 | ) | ||||||||||||||||||||||
Translation adjustment changes | (34.8 | ) | (34.8 | ) | ||||||||||||||||||||||
Unrealized gain on Euro-denominated debt, net of tax of $5.6 | 8.7 | 8.7 | ||||||||||||||||||||||||
Total Comprehensive Loss | (189.8 | ) | ||||||||||||||||||||||||
Dividend payment to noncontrolling interest | (2.8 | ) | (2.8 | ) | ||||||||||||||||||||||
Net income relating to noncontrolling interest | 3.1 | 3.1 | ||||||||||||||||||||||||
Employee stock purchase plan | 0.2 | 0.9 | 0.9 | |||||||||||||||||||||||
Stock-based employee compensation charges, net of tax of $0 | 0.2 | 7.4 | 7.4 | |||||||||||||||||||||||
Exercise of stock options | 0.9 | 0.9 | ||||||||||||||||||||||||
Phantom shares issued to Directors | 0.1 | 0.1 | ||||||||||||||||||||||||
March 31, 2009 | 323.4 | $ | 3.2 | $ | — | $ | 2,513.1 | $ | (1,099.8 | ) | $ | (126.4 | ) | $ | 18.0 | $ | 1,308.1 | |||||||||
| | Common Stock | | | Accumulated Other Comprehensive Income (Loss) | | | |||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Preferred Stock | Additional Paid-In Capital | Accumulated Deficit | Non- controlling Interest | Total Equity | |||||||||||||||||||||
(in Millions) | Shares | Amount | ||||||||||||||||||||||||
December 31, 2009 | $ | — | 410.2 | $ | 4.1 | $ | 3,141.7 | $ | (1,062.3 | ) | $ | (3.3 | ) | $ | 17.2 | $ | 2,097.4 | |||||||||
Net loss attributable to Hertz Global Holdings, Inc. and Subsidiaries' common stockholders | (150.4 | ) | (150.4 | ) | ||||||||||||||||||||||
Change in fair value of derivatives qualifying as cash flow hedges, net of tax of $9.5 | 14.6 | 14.6 | ||||||||||||||||||||||||
Translation adjustment changes, net of tax of $0 | (39.0 | ) | (39.0 | ) | ||||||||||||||||||||||
Unrealized gain on Euro-denominated debt, net of tax of $7.6 | 11.9 | 11.9 | ||||||||||||||||||||||||
Defined benefit pension plans, net of tax of $0 | (0.4 | ) | (0.4 | ) | ||||||||||||||||||||||
Total Comprehensive Loss | (163.3 | ) | ||||||||||||||||||||||||
Dividend payment to noncontrolling interest | (3.0 | ) | (3.0 | ) | ||||||||||||||||||||||
Net income relating to noncontrolling interest | 3.6 | 3.6 | ||||||||||||||||||||||||
Employee stock purchase plan | 0.1 | 0.7 | 0.7 | |||||||||||||||||||||||
Net settlement on vesting of restricted stock | 1.0 | (5.3 | ) | (5.3 | ) | |||||||||||||||||||||
Stock-based employee compensation charges, net of tax of $0 | 0.1 | 9.0 | 9.0 | |||||||||||||||||||||||
Exercise of stock options, net of tax of $0 | 0.7 | 0.7 | ||||||||||||||||||||||||
Common shares issued to Directors | — | 0.1 | 0.1 | |||||||||||||||||||||||
Phantom shares issued to Directors | 0.1 | 0.1 | ||||||||||||||||||||||||
March 31, 2010 | $ | — | 411.4 | $ | 4.1 | $ | 3,147.0 | $ | (1,212.7 | ) | $ | (16.2 | ) | $ | 17.8 | $ | 1,940.0 | |||||||||
Accumulated other comprehensive lossincome (loss) as of March 31, 20102011 and December 31, 20092010 includes accumulated translation gains of $93.1$157.3 million and $132.1$114.9 million, respectively, unrealized losses on cash flow hedgespension benefits of $(35.1)$(70.1) million and $(49.8) million, respectively, changes due to the pension mark-to-market adjustment of $(66.9) million and $(66.5)$(70.2) million, respectively, and unrealized losses on our Euro-denominated debt of $(7.3)$(18.4) million and $(19.2)$(6.8) million, respectively.
Note 13—12—Restructuring
As part of our ongoing effort to implement our strategy of reducing operating costs, we have evaluated our workforce and operations and made adjustments, including headcount reductions and business process re-engineeringreengineering resulting in optimized work flow at rental locations and maintenance facilities as well as streamlined our back-office operations and evaluated potential outsourcing opportunities. When we made adjustments to our workforce and operations, we incurred incremental expenses that delay the benefit of a more efficient workforce and operating structure, but we believe that increased operating efficiency and reduced costs associated with the operation of our business are important to our long-term competitiveness.
HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Unaudited
For further information on actions takenDuring 2007 through 2010, we announced several initiatives to improve our competitiveness and industry leadership through targeted job reductions. These initiatives included, but were not limited to, job reductions at our corporate headquarters and back-office operations in 2009, see Note 11 to the Notes toU.S. and Europe. As part of our audited annual consolidated financial statements includedre-engineering optimization we outsourced selected functions globally. In addition, we streamlined operations and reduced costs by initiating the closure of targeted car rental locations and equipment rental branches throughout the world. The largest of these closures occurred in 2008 which resulted in closures of approximately 250 off-airport locations and 22 branches in our Annual Report under caption "Item 8—Financial Statements and Supplementary Data."U.S. equipment rental business. These initiatives impacted approximately 8,500 employees.
During the first quarter of 20102011, we continued to streamline operations and reduce costs with the closure of several car rental and equipment rental locations globally as well as a reduction in our workforce by approximately 100 employees.
From January 1, 2007 through March 31, 2011, we incurred $479.0 million ($240.7 million for our car rental segment, $184.9 million for our equipment rental business incurred charges for losses on the disposal of surplus equipmentsegment and recognition of future facility lease obligations related to branch closures in North America. Additionally, first quarter restructuring charges included employee termination liabilities covering approximately 200 employees.
For the three months ended March 31, 2010, our consolidated statement of operations includes restructuring charges relating to the initiatives discussed above of $10.7 million which is composed of $3.6 million in facility closure and lease obligation costs, $3.4$53.4 million of termination benefits, $1.3 million in relocation and temporary labor costs, $0.7 million in revenue earning equipment and fixed asset impairment charges, $0.5 million in consulting costs, and $1.2 millionother) of other restructuring charges. The after-tax effect of the restructuring charges increased diluted loss per share by $0.02 for the three months ended March 31, 2010.
For the three months ended March 31, 2009, our consolidated statement of operations includes restructuring charges of $29.5 million which is composed of $10.3 million of involuntary termination benefits, $9.8 million in facility closure and lease obligation costs, $5.7 million in consulting costs, $1.7 million in contract termination costs and $2.0 million of other restructuring charges. The after-tax effect of the restructuring charges increased diluted loss per share by $0.07 for the three months ended March 31, 2009.
Additional efficiency and cost saving initiatives are being developed during 2010. However,2011. In April 2011, we presently do not have firm plansclosed eleven equipment rental locations and expect to close an additional one or estimatestwo locations in the remainder of any related expenses.the second quarter of 2011. We estimate that these equipment rental location closures will result in $20 to $30 million of restructuring charges in the second quarter of 2011.
Restructuring charges in our consolidated statement of operations can be summarized as follows (in millions of dollars):
| Three Months Ended March 31, | ||||||||
---|---|---|---|---|---|---|---|---|---|
| 2010 | 2009 | |||||||
By Caption: | |||||||||
Direct operating | $ | 7.0 | $ | 16.8 | |||||
Selling, general and administrative | 3.7 | 12.7 | |||||||
Total | $ | 10.7 | $ | 29.5 | |||||
| Three Months ended March 31, | ||||||||
---|---|---|---|---|---|---|---|---|---|
| 2011 | 2010 | |||||||
By Type: | |||||||||
Involuntary termination benefits | $ | 1.0 | $ | 3.4 | |||||
Pension and post retirement expense | — | 0.3 | |||||||
Consultant costs | 0.1 | 0.5 | |||||||
Asset writedowns | 0.7 | 0.7 | |||||||
Facility closure and lease obligation costs | 3.1 | 3.6 | |||||||
Relocation costs | — | 1.3 | |||||||
Other | — | 0.9 | |||||||
Total | $ | 4.9 | $ | 10.7 | |||||
| Three Months Ended March 31, | ||||||||
---|---|---|---|---|---|---|---|---|---|
| 2010 | 2009 | |||||||
By Segment: | |||||||||
Car rental | $ | 5.3 | $ | 15.1 | |||||
Equipment rental | 4.9 | 7.0 | |||||||
Other reconciling items | 0.5 | 7.4 | |||||||
Total | $ | 10.7 | $ | 29.5 | |||||
| Three Months ended March 31, | ||||||||
---|---|---|---|---|---|---|---|---|---|
| 2011 | 2010 | |||||||
By Caption: | |||||||||
Direct operating | $ | 4.3 | $ | 7.0 | |||||
Selling, general and administrative | 0.6 | 3.7 | |||||||
Total | $ | 4.9 | $ | 10.7 | |||||
HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Unaudited
Our condensed consolidated balance sheet as of
| Three Months ended March 31, | ||||||||
---|---|---|---|---|---|---|---|---|---|
| 2011 | 2010 | |||||||
By Segment: | |||||||||
Car rental | $ | 1.0 | $ | 5.3 | |||||
Equipment rental | 3.9 | 4.9 | |||||||
Other reconciling items | — | 0.5 | |||||||
Total | $ | 4.9 | $ | 10.7 | |||||
During the three months ended March 31, 2011 and 2010, included accruals relating tothe after-tax effect of the restructuring program of $22.0 million. We expect to pay substantially all ofcharges increased the remaining restructuring obligationsloss per share by the end of the second quarter 2010. $0.01 and $0.02, respectively.
The following table sets forth the activity affecting the restructuring accrual during the three months ended March 31, 20102011 (in millions of dollars):. We expect to pay the remaining restructuring obligations relating to involuntary termination benefits over the next twelve months. The remainder of the restructuring accrual relates to future lease obligations which will be paid over the remaining term of the applicable leases.
| Involuntary Termination Benefits | Pension and Post Retirement Expense | Consultant Costs | Other | Total | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Balance as of January 1, 2010 | $ | 19.6 | $ | — | $ | 0.4 | $ | 9.7 | $ | 29.7 | |||||||
Charges incurred | 3.4 | 0.3 | 0.5 | 6.5 | 10.7 | ||||||||||||
Cash payments | (9.3 | ) | — | (0.7 | ) | (4.0 | ) | (14.0 | ) | ||||||||
Other(1) | (1.7 | ) | (0.3 | ) | — | (2.4 | ) | (4.4 | ) | ||||||||
Balance as of March 31, 2010 | $ | 12.0 | $ | — | $ | 0.2 | $ | 9.8 | $ | 22.0 | |||||||
| Involuntary Termination Benefits | Pension and Post Retirement Expense | Consultant Costs | Other | Total | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Balance as of January 1, 2011 | $ | 6.3 | $ | 0.2 | $ | 0.1 | $ | 10.9 | $ | 17.5 | |||||||
Charges incurred | 1.0 | — | 0.1 | 3.8 | 4.9 | ||||||||||||
Cash payments | (3.4 | ) | — | (0.1 | ) | (0.4 | ) | (3.9 | ) | ||||||||
Other(1) | 0.2 | 0.1 | — | (2.5 | ) | (2.2 | ) | ||||||||||
Balance as of March 31, 2011 | $ | 4.1 | $ | 0.3 | $ | 0.1 | $ | 11.8 | $ | 16.3 | |||||||
Note 14—13—Financial Instruments
Cash and Cash Equivalents and Restricted Cash and Cash Equivalents
Fair value approximates the amount indicated on the balance sheet at March 31, 20102011 and December 31, 20092010 because of the short-term maturity of these instruments. Money market accounts, whose fair value at March 31, 2010,2011, is measured using Level 1 inputs, totaling $249.7$239.4 million and $125.6$53.3 million are included in "Cash and cash equivalents" and "Restricted cash and cash equivalents," respectively. Money market accounts, whose fair value at December 31, 2009,2010, is measured using Level 1 inputs, totaling $106.8$1,747.9 million and $294.4$24.1 million are included in "Cash and cash equivalents" and "Restricted cash and cash equivalents," respectively. Level 1 inputs are observable inputs such as quoted prices in active markets.
Debt
For borrowings with an initial maturity of 93 days or less, fair value approximates carrying value because of the short-term nature of these instruments. For all other debt, fair value is estimated based on quoted market rates as well as borrowing rates currently available to us for loans with similar terms and average maturities.maturities (Level 2 inputs). The aggregate fair value of all debt at March 31, 2010 approximated $10,891.22011 was $11,552.9 million, compared to its aggregate carrying valueunpaid principal balance of $10,541.9$10,849.8 million. The aggregate fair value of all debt at December 31, 2009 approximated $10,795.7 million, compared to its aggregate carrying value of $10,530.4 million.
HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Unaudited
debt at December 31, 2010 was $12,063.5 million, compared to its aggregate unpaid principal balance of $11,429.6 million.
Derivative Instruments and Hedging Activities
The following table summarizes our financial assets and liabilities measured at fair value on a recurring basis as of March 31, 2010 and December 31, 2009 (in millions of dollars):
| Fair Value of Derivative Instruments(1) | ||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Asset Derivatives(2) | Liability Derivatives(2) | |||||||||||||
| March 31, 2010 | December 31, 2009 | March 31, 2010 | December 31, 2009 | |||||||||||
Derivatives designated as hedging instruments under ASC 815: | |||||||||||||||
HVF interest rate swaps | $ | — | $ | — | $ | 9.6 | $ | 12.8 | |||||||
Derivatives not designated as hedging instruments under ASC 815: | |||||||||||||||
Gasoline swaps | 2.3 | 2.2 | — | — | |||||||||||
Interest rate caps | 3.7 | 8.2 | 2.9 | 5.6 | |||||||||||
Foreign exchange forward contracts | 11.3 | 7.6 | 1.1 | 5.7 | |||||||||||
Foreign exchange options | 0.2 | — | — | — | |||||||||||
Total derivatives not designated as hedging instruments under ASC 815 | 17.5 | 18.0 | 4.0 | 11.3 | |||||||||||
Total derivatives | $ | 17.5 | $ | 18.0 | $ | 13.6 | $ | 24.1 | |||||||
| Fair Value of Derivative Instruments(1) | ||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Asset Derivatives(2) | Liability Derivatives(2) | |||||||||||||
| March 31, 2011 | December 31, 2010 | March 31, 2011 | December 31, 2010 | |||||||||||
Derivatives not designated as hedging instruments under ASC 815: | |||||||||||||||
Gasoline swaps | $ | 4.7 | $ | 3.1 | $ | — | $ | — | |||||||
Interest rate caps | 5.8 | 7.2 | 5.8 | 7.2 | |||||||||||
Foreign exchange forward contracts | 1.5 | 2.6 | 4.7 | 11.1 | |||||||||||
Foreign exchange options | 0.2 | 0.1 | — | — | |||||||||||
Total derivatives not designated as hedging instruments under ASC 815 | $ | 12.2 | $ | 13.0 | $ | 10.5 | $ | 18.3 | |||||||
| Amount of Gain or (Loss) Recognized in Other Comprehensive Income on Derivative (Effective Portion) | Amount of Gain or (Loss) Reclassified from Accumulated Other Comprehensive Income into Income (Effective Portion) | Amount of Gain or (Loss) Recognized in Income on Derivative (Ineffective Portion) | |||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Three Months Ended March 31, | |||||||||||||||||||
| 2010 | 2009 | 2010 | 2009 | 2010 | 2009 | ||||||||||||||
Derivatives in ASC 815 Cash Flow Hedging Relationship: | ||||||||||||||||||||
HVF interest rate swaps | $ | (9.6 | ) | $ | (11.5 | ) | $ | (20.9) | (1) | $ | (7.5) | (1) | $ | — | $ | — |
| Amount of Gain or (Loss) Recognized in Other Comprehensive Income (Loss) on Derivative (Effective Portion) | Amount of Gain or (Loss) Reclassified from Accumulated Other Comprehensive Income (Loss) into Income (Effective Portion) | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Three Months Ended March 31, | |||||||||||||
| 2011 | 2010 | 2011 | 2010 | ||||||||||
Derivatives in ASC 815 Cash Flow Hedging Relationship: | ||||||||||||||
HVF interest rate swaps | $ | — | $ | (9.6 | ) | $ | — | $ | (26.9 | )(1) |
HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Unaudited
| | Amount of Gain or (Loss) Recognized in Income on Derivative | |||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
| | Three Months Ended March 31, | |||||||||
| Location of Gain or (Loss) Recognized on Derivative | ||||||||||
| 2010 | 2009 | |||||||||
Derivatives Not Designated as Hedging Instruments under ASC 815: | |||||||||||
Gasoline swaps | Direct operating | $ | 0.8 | $ | 1.0 | ||||||
Interest rate caps | Selling, general and administrative | (1.7 | ) | — | |||||||
Foreign exchange forward contracts | Selling, general and administrative | 8.7 | (5.8 | ) | |||||||
Foreign exchange options | Selling, general and administrative | (0.1 | ) | (0.1 | ) | ||||||
Total | $ | 7.7 | $ | (4.9 | ) | ||||||
In connection withstatement of operations. No amount of gain or loss was recognized in income (ineffective portion) during the Acquisitionthree months ended March 31, 2011 and 2010.
| | Amount of Gain or (Loss) Recognized in Income on Derivative | |||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
| | Three Months Ended March 31, | |||||||||
| Location of Gain or (Loss) Recognized on Derivative | ||||||||||
| 2011 | 2010 | |||||||||
Derivatives Not Designated as Hedging Instruments under ASC 815: | |||||||||||
Gasoline swaps | Direct operating | $ | 3.1 | $ | 0.8 | ||||||
Interest rate caps | Selling, general and administrative | — | (1.7 | ) | |||||||
Foreign exchange forward contracts | Selling, general and administrative | (0.6 | ) | 8.7 | |||||||
Foreign exchange options | Selling, general and administrative | — | (0.1 | ) | |||||||
Total | $ | 2.5 | $ | 7.7 | |||||||
In conjunction with the respective terms of the associated debt in accordance with GAAP. We expect to amortize approximately $47.9 million from "Accumulated other comprehensive loss" into "Interest expense" over the next eight months. Additionally, a new hedging relationship was designated between the HVF Swaps, which also qualifies for cash flow hedge accounting in accordance with GAAP. Both at the inception of the hedge and on an ongoing basis, we measure ineffectiveness by comparing the fair value of the HVF Swapsrefinanced Series 2009-1 Notes and the fair value of hypothetical swaps, with similar terms, using the Hypothetical Method in accordance with GAAP. The hypothetical swaps represent a perfect hedge of the variability in interest payments associated with the U.S. Fleet Debt. Subsequent to the resetting of the swaps at current market rates, we anticipate that there will be no ineffectiveness in the hedging relationship because the critical terms of the HVF Swaps match the terms of the hypothetical swaps.
As of March 31, 2010 and December 31, 2009, the balance reflected in "Accumulated other comprehensive loss," was a loss of $35.1 million (net of tax of $22.3 million) and a loss of $49.7 million (net of tax of $31.8 million), respectively. The fair values of the HVF Swaps were calculated using the income approach and applying observable market data (i.e. the 1-month LIBOR yield curve and credit default swap spreads).
In connection with the entrance into the HVF Swaps, Hertz entered into seven differential interest rate swap agreements, or the "differential swaps." These differential swaps were required to be put in place to protect the counterparties to the HVF Swaps in the event of an "amortization event" under the asset-backed notes agreements. An "event of bankruptcy" (as defined in the ABS Base Indenture) with
HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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respect to MBIA or Ambac would constitute an "amortization event" under the portion of the U.S. Fleet Debt facilities guaranteed by the affected insurer. In the event of an "amortization event," the amount by which the principal balance on the floating rate portion of the U.S. Fleet Debt is reduced, exclusive of the originally scheduled amortization, becomes the notional amount of the differential swaps and is transferred to Hertz. There was no payment associated with these differential swaps and their notional amounts are and will continue to be zero unless (1) there is an amortization event, which causes the amortization of the loan balance, or (2) the debt is prepaid.
On September 18, 2009, HVF completed the closing of thenew Series 2009-1 Notes. In order to satisfy rating agency requirements related to its bankruptcy-remote status,2010-2 Notes, HVF purchased an interest rate cap for $11.7$6.7 million, with a maximum notional amount equal to the refinanced Series 2009-1 Notes and the new Series 2010-2 Notes with a combined maximum principal amount of $2.1 billion, with a strike rate of 5% and a term until Januaryexpected maturity date of March 25, 2013. Additionally, Hertz sold a 5% interest rate cap for $6.5$6.2 million, with a notional amount equal to 33.3% of the notional amount of the HVF cap through January 2012, and then subsequently with a matching notional amount and term to the HVF interest rate cap. Also in December 2010, the Australian Securitization was completed and our Australian operating subsidiary purchased an interest rate cap through itsfor $0.5 million, with a maximum notional amount equal to the Australian Securitization maximum principal amount of A$250 million, a strike rate of 7% and expected maturity date of January 25, 2013.December 2012. Additionally, Hertz sold a 7% interest rate cap, for $0.4 million with a matching notional amount and term to the Australian operating subsidiary's interest rate cap. The fair valuevalues of theseall interest rate caps waswere calculated using a discounted cash flow method and applying observable market data (i.e. the 1-month LIBOR yield curve and credit default swap spreads). Gains and losses resulting from changes in the fair value of these interest rate caps are included in our results of operations in the periods incurred.
We purchase unleaded gasoline and diesel fuel at prevailing market rates. In January 2009, we beganrates and maintain a program to manage our exposure to changes in fuel prices through the use of derivative commodity instruments. We currently have in place swaps to cover a portion of our fuel price exposure through December 2010.June 2011. We presently hedge a portion of our overall unleaded gasoline and diesel fuel purchases with commodity swaps and have contracts in place that settle on a monthly basis. As of March 31, 2010,2011, our outstanding commodity instruments for unleaded gasoline and diesel fuel totaled approximately 7.95.5 million gallons and 1.8 million gallons, respectively.gallons. The fair value of these commodity instruments was calculated using a discounted cash flow method and applying observable market data (i.e., NYMEX RBOB Gasoline and Department of Energy surveys, etc.)Gasoline). Gains and losses resulting from changes in the fair value of these commodity instruments are included in our results of operations in the periods incurred.
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 for working capital needs. Also, we have purchased foreign exchange options to manage exposure to fluctuations in foreign exchange rates for selected marketing
HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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programs. The effect of exchange rate changes on these financial instruments would not materially affect our consolidated financial position, results of operations or cash flows. Our risks with respect to foreign exchange options are limited to the premium paid for the right to exercise the option and the future performance of the option's counterparty. Premiums paid for options outstanding as of March 31, 2010,2011, were approximately $0.3 million and we$0.2 million. We limit counterparties to the transactions to financial institutions that have strong credit ratings. As of March 31, 20102011 and December 31, 2009,2010, the total notional amount of these foreign exchange options was $5.6$5.8 million and $0.3$3.5 million, respectively, maturingrespectively. As of March 31, 2011, these foreign exchange options mature through January 2011.2012. The fair value of the foreign exchange options was calculated using a discounted cash flow method and applying observable market data (i.e. foreign currency exchange rates). Gains and losses resulting from changes in the fair value of these options are included in our results of operations in the periods incurred.
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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We also manage exposure to fluctuations in currency risk on intercompany loans we make to certain of our subsidiaries by entering into foreign currency forward contracts at the time of the loans which are intended to offset the impact of foreign currency movements on the underlying intercompany loan obligations. As of March 31, 2010,2011, the total notional amount of these forward contracts was $849.0$763.8 million, maturing within threefour months. The fair value of these foreign currency forward contracts was calculated based on foreign currency forward exchange rates.
On October 1, 2006, we designated our 7.875% Senior Euro Notes due 2014 as an effective net investment hedge of our Euro-denominated net investment in our international operations. As a result of this net investment hedge designation, as of March 31, 20102011 and December 31, 2009,2010, losses of $7.3$18.4 million (net of tax of $10.2$12.5 million) and $19.2$6.8 million (net of tax of $17.8$5.1 million), respectively, attributable to the translation of our 7.875% Senior Euro Notes due 2014 into the U.S. dollar are recorded in our condensed consolidated balance sheet in "Accumulated other comprehensive loss.income."
Note 15—14—Related Party Transactions
Relationship with Hertz Investors, Inc. and the Sponsors
Other than as disclosed below, in the three months ended March 31, 2010,2011, there were no material changes to our relationship with Hertz Investors, Inc. or the Sponsors.
Director Compensation Policy
For the three months endedOn March 31, 2010 and 2009, we recognized $0.42011, the Sponsors sold 50 million and $0.4of our common shares to Goldman, Sachs & Co. as the sole underwriter in the registered public offering of those shares. Following this offering, the Sponsors continue to own an aggregate of approximately 160 million respectively,shares, or approximately 39% of expense relating to the Director Compensation Policy in our consolidated statement of operations in "Selling, general and administrative" expenses.outstanding common stock.
Financing Arrangements with Related Parties
Affiliates of ML Global Private Equity, L.P.BAMLCP (which is one of the Sponsors), including Merrill Lynch & Co., Inc., Bank of America, N.A. and its related fundscertain of their affiliates (which are stockholders of Hertz Holdings), have provided various investment and of Merrill Lynch & Co., Inc., commercial banking and financial advisory services to us for which they have received customary fees and commissions. In addition, these parties have acted as agents, lenders, purchasers and/or "ML," one of the underwriters to us under our respective financing arrangements, for which they have received customary fees, commissions, expenses and/or other compensation. More specifically, these parties have acted in the initial public offering of our common stock and the June 2007 secondary offering by the Sponsors, were lenders under the Hertz Holdings Loan Facility (which was repaid with the proceeds of our initial public offering); are lenders under the original and amended Senior Term Facility, the original and amended Senior ABL Facility and the Fleet Financing Facility; acted as initial purchasersfollowing capacities, or similar capacities, with respect to our financing arrangements: lenders and/or agents under the offeringsSenior Credit Facilities, the U.S. Fleet Financing Facility and certain of the U.S. Fleet Variable Funding Notes; purchasers and/or underwriters under the Senior Notes, the Senior Subordinated Notes and certain of the Series 2008-1U.S. Fleet Medium Term Notes; acted asand structuring advisors andand/or agents under ourthe ABS Program; and acted as dealer managers and solicitation agents for Hertz's tender offers for its existing debt securities in connection with the Acquisition.
As of March 31, 2010 and December 31, 2009, approximately $253 million and $246 million, respectively, of our outstanding debt was with related parties.
See Note 8—Debt.Program.
HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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As of March 31, 2011 and December 31, 2010, approximately $191 million and $255 million, respectively, of our outstanding debt was with related parties.
See Note 7—Debt.
Note 16—Commitments15—Contingencies and ContingenciesOff-Balance Sheet Commitments
Off-Balance Sheet Commitments
As of March 31, 20102011 and December 31, 2009,2010, the following guarantees (including indemnification commitments) were issued and outstanding:outstanding.
IndemnificationsIndemnification Obligations
In the ordinary course of business, we execute contracts involving indemnifications standardindemnification obligations customary in the relevant industry and indemnifications specific to a transaction such as the sale of a business. These indemnificationsindemnification obligations might include claims relating to the following: environmental matters; intellectual property rights; governmental regulations and employment-related matters; customer, supplier and other commercial contractual relationships; and financial matters. Performance under these indemnitiesindemnification 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 indemnificationsindemnification obligations and have accrued for expected losses that are probable and estimable. The types of indemnificationsindemnification obligations for which payments are possible include the following:
Sponsors; Directors
Hertz has entered into customary indemnification agreements with Hertz Holdings, the Sponsors and our stockholders affiliated with the Sponsors, pursuant to which Hertz Holdings and Hertz will indemnify the Sponsors, our stockholders affiliated with the Sponsors and their respective affiliates, directors, officers, partners, members, employees, agents, representatives and controlling persons, against certain liabilities arising out of performance of a consulting agreement with Hertz Holdings and each of the Sponsors and certain other claims and liabilities, including liabilities arising out of financing arrangements or securities offerings. We also entered into indemnification agreements with each of our directors. We do not believe that these indemnifications are reasonably likely to have a material impact on us.
Environmental
We have 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 we may be held responsible could be substantial. The probable expenses that we expect to incur for such matters have been accrued, and those expenses are reflected in our condensed consolidated financial statements. As of March 31, 20102011 and December 31, 2009,2010, the aggregate amounts accrued for environmental liabilities including liability for environmental indemnities, reflected in our condensed consolidated balance sheetsheets in "Accrued liabilities" were $1.8$1.5 million and $2.0$1.6 million, respectively. 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,
HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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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 we ultimately may be responsible cannot be reasonably estimated because of uncertainties with respect to
HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
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factors such as our 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).remediation.
Legal Proceedings
From time to time we are a party to various legal proceedings. We are currently a defendant in numerous actions and have received numerous claims on which actions have not yet been commenced for public liability and property damage arising from the operation of motor vehicles and equipment rented from us and our licensees. The obligation for public liability and property damage on self-insured U.S. and international vehicles and equipment, as stated on our balance sheet, represents an estimate for both reported accident claims not yet paid and claims incurred but not yet reported. The related liabilities are recorded on a non-discounted basis. Reserve requirements are based on actuarial evaluations of historical accident claim experience and trends, as well as future projections of ultimate losses, expenses, premiums and administrative costs. At March 31, 20102011 and December 31, 20092010 our liability recorded for public liability and property damage matters was $267.0$282.1 million and $277.8$278.7 million, respectively. The decrease in the reserve balance primarily reflects lower claim costs, the timing of payment activity during the quarter and the effects of foreign currency translation. We believe that our analysis was based on the most relevant information available, combined with reasonable assumptions, and that we may prudently rely on this information to determine the estimated liability. We note the liability is subject to significant uncertainties. The adequacy of the liability reserve is regularly monitored based on evolving accident claim history and insurance related state legislation changes. If our estimates change or if actual results differ from these assumptions, the amount of the recorded liability is adjusted to reflect these results.
For a detailed description of certain of our legal proceedings please see Note 1011 of the Notes to our audited annual consolidated financial statements included in our Annual ReportForm 10-K under the caption "Item 8—Financial Statements and Supplementary Data."
The following recent developments pertaining to legal proceedings described in our Annual Report are furnished on a supplemental basis:
In March 2010, inJanet Sobel, Daniel Dugan, PhD. and Lydia Lee, individually and on behalf of all others similarly situated v. The Hertz Corporation and Enterprise Rent-A-Car Company, the court ruled on the cross motions for summary judgment holding that Hertz violated the since amended Nevada "bundled pricing" statute by separately disclosing and charging airport concession fee recoveries. However, the court also found that Hertz's full disclosure of the estimated total price of the airport rentals was not deceptive within the meaning of Nevada's Deceptive Trade Practices Act. Some additional discovery will now be taken and additional motions are expected to be filed by both sides in the coming months.
Aside from the above mentioned, thereThere were no material changes in the legal proceedings described in our Annual ReportForm 10-K and we are not otherwise required to disclose any pending legal proceedings in response to Item 103 of Regulation S-K.
In addition to those described in our Form 10-K, various other legal actions, claims and governmental inquiries and proceedings are pending or may be instituted or asserted in the future against us and our subsidiaries. Other than with respect to the aggregate claims for public liability and property damage
HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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pending against us, management does not believe that any of the matters resolved, or pending against us, are material to us and our subsidiaries taken as a whole.
We have established reserves for matters where we believe that the losses are probable and reasonably estimated. Other than with respect to the reserve established for claims for public liability and property damage, none of those reserves are material. For matters where we have not established a reserve, the ultimate outcome or resolution cannot be predicted at this time, or the amount of ultimate loss, if any, cannot be reasonably estimated. Litigation is subject to many uncertainties and the outcome of the individual litigated matters is not predictable with assurance. It is possible that certain of the actions, claims, inquiries or proceedings, including those discussed above,in our Form 10-K, could be decided unfavorably to us or any of our subsidiaries involved. Accordingly, it is possible that an adverse outcome
HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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from such a proceeding could exceed the amount accrued in an amount that could be material to our consolidated financial condition, results of operations or cash flows in any particular reporting period.
Note 17—Loss16—Earnings (Loss) Per Share
Basic lossearnings (loss) per share has been computed based upon the weighted average number of common shares outstanding. Diluted lossearnings (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.
The following table sets forth the computation of basic and diluted loss per share (in millions of dollars, except per share amounts):
| | Three Months Ended March 31, | | Three Months Ended March 31, | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | 2010 | 2009 | | 2011 | 2010 | ||||||||||
Basic and diluted loss per share: | Basic and diluted loss per share: | Basic and diluted loss per share: | ||||||||||||||
Numerator: | Numerator: | Numerator: | ||||||||||||||
Net loss attributable to Hertz Global Holdings, Inc. and Subsidiaries' common stockholders | $ | (150.4 | ) | $ | (163.5 | ) | Net loss attributable to Hertz Global Holdings, Inc. and Subsidiaries' common stockholders | $ | (132.6 | ) | $ | (150.4 | ) | |||
Denominator: | Denominator: | Denominator: | ||||||||||||||
Weighted average shares used in basic and diluted computation | 410.7 | 323.4 | Weighted average shares used in basic and diluted computation | 414.1 | 410.7 | |||||||||||
Loss per share attributable to Hertz Global Holdings, Inc. and Subsidiaries' common stockholders, basic | Loss per share attributable to Hertz Global Holdings, Inc. and Subsidiaries' common stockholders, basic | $ | (0.37 | ) | $ | (0.51 | ) | Loss per share attributable to Hertz Global Holdings, Inc. and Subsidiaries' common stockholders, basic | $ | (0.32 | ) | $ | (0.37 | ) | ||
Loss per share attributable to Hertz Global Holdings, Inc. and Subsidiaries' common stockholders, diluted | Loss per share attributable to Hertz Global Holdings, Inc. and Subsidiaries' common stockholders, diluted | $ | (0.37 | ) | $ | (0.51 | ) | Loss per share attributable to Hertz Global Holdings, Inc. and Subsidiaries' common stockholders, diluted | $ | (0.32 | ) | $ | (0.37 | ) |
Diluted earnings (loss)loss per share computations for the three months ended March 31, 20102011 and 20092010 excluded the weighted-average impact of the assumed exercise of approximately 21.821.6 million and 23.221.8 million stock options, RSUs and PSUs, respectively, because such impact would be antidilutive. Additionally, for the three months ended March 31, 2011 and 2010, there was no impact to the earnings (loss)diluted loss per share computations associated with the outstanding Convertible Senior Notes, because such impact would be anti-dilutive.
HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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Note 18—17—Subsequent Events
OnIn April 25, 2010, we entered into a definitive merger agreement under which we will acquire Dollar Thrifty Automotive Group, or "Dollar Thrifty," for a purchase price of $41.00 per share, or a total of $1.27 billion, in a mix of cash and2011, Hertz Holdings common stock, based on our closing stock price on the trading day before the agreement was signed. Under the terms of the agreement, Dollar Thrifty has agreed to pay a special cash dividend of $200redeemed $480 million (expected to be approximately $6.88 per share) to its stockholders immediately prior to closing, and each outstanding share of Dollar Thrifty common stock will be converted into the right to receive from us 0.6366 of a share of our common stock and a cash payment from us equal to $32.80 less theprincipal amount of the special cash dividendits outstanding 8.875% Senior Notes due 2014 which resulted in premiums paid by Dollar Thrifty. At the closing, we will issue an aggregate of approximately 18$10.7 million shares of our common stock (excluding shares issuable upon the exercise of stock options that are being converted to Hertz Holdings stock options) and pay an aggregate of approximately $750 million in cash (which does not include the $200 million special cash dividend to be paid by Dollar Thrifty.) We intend to fund the cash portion of the purchase price with existing liquidity from the combined company. We will also assume or refinance Dollar Thrifty's existing fleet debt outstanding at closing. The transaction is subject to customary closing conditions, regulatory approvals, approval by Dollar Thrifty stockholders and payment of the special dividend. The transaction is not conditioned on receipt of financing by us.
In connection with this transaction, on April 28, 2010, a plaintiff filed a purported class action lawsuit on behalf of himself and other similarly situated shareholders of Dollar Thrifty, entitledHenzel v. Dollar Thrifty Automotive Group, Inc. et al., Case No. CJ-2010-02761, in the District Court of the State of Oklahoma, Tulsa County. The lawsuit was filed against us, Dollar Thrifty, and the memberswrite-off of the boardunamortized debt costs of directors of Dollar Thrifty. The complaint alleges, among other things, that the proposed transaction is the result of an unfair process$5.8 million.
In April 2011, Lois I. Boyd was named Executive Vice President and that the individual defendants breached their fiduciary duties by failing to maximize shareholder value. In addition, the lawsuit asserts that we and Dollar Thrifty aided and abetted the individual defendants' alleged breaches of fiduciary duties. The complaint seeks to, among other things, enjoin the consummation of the merger, or, to the extent already implemented, rescind the proposed transaction. We believe that this action is wholly without merit and intend to defend vigorously against it. However, because this case is in the early stages, we cannot predict the outcome at this time, and we cannot be assured that the action will not delay the consummation of the merger or result in substantial costs.
On May 3, 2010, Avis Budget Group, Inc., or "Avis," sent a letter to the Board of Directors of Dollar Thrifty requesting access to management and due diligence information for the stated purpose of formulating a competing offer. The Avis letter also requested the elimination of certain provisions of our merger agreement with Dollar Thrifty. That merger agreement contains provisions that set forth each party's rights and obligations with respect to potentially competing offers, but at this time we cannot predict the outcome of, or real motivation behind, the Avis letter. It is of course possible that the Avis letter might result in a delay in, and/or jeopardize the completion of, our acquisition of Dollar Thrifty pursuant to the already announced terms.President, Hertz Equipment Rental Corporation.
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations
The following discussion and analysis provides information that we believe to be relevant to an understanding of our consolidated financial condition and results of operations. Unless the context otherwise requires, in this Report on Form 10-Q, (i) "Hertz Holdings" means Hertz Global Holdings, Inc., our top-level holding company, (ii) "Hertz" means The Hertz Corporation, our primary operating company and a direct wholly-owned subsidiary of Hertz Investors, Inc., which is wholly-owned by Hertz Holdings, (iii) "we," "us" and "our" mean (a) prior to December 21, 2005, Hertz and its consolidated subsidiaries and (b) on and after December 21, 2005, Hertz Holdings and its consolidated subsidiaries, including Hertz, (iv) "HERC" means Hertz Equipment Rental Corporation, Hertz's wholly-owned equipment rental subsidiary, together with our various other wholly-owned international subsidiaries that conduct our industrial, construction and material handling equipment rental business, (v) "cars" means cars, crossovers and light trucks (including sport utility vehicles and, outside North America, light commercial vehicles), (vi) "program cars" means cars purchased by car rental companies under repurchase or guaranteed depreciation programs with car manufacturers, (vii) "non-program cars" mean cars not purchased under repurchase or guaranteed depreciation programs for which the car rental company is exposed to residual risk and (viii) "equipment" means industrial, construction and material handling equipment.
You should read the following discussion and analysis together with the section below entitled "Cautionary Note Regarding Forward-Looking Statements," with the financial statements and the related notes thereto contained elsewhere in this Form 10-Q, or this "Report."
Cautionary Note Regarding Forward-Looking Statements
Certain statements contained or incorporated by reference in this Report and in reports we subsequently file with the United States Securities and Exchange Commission, or the "SEC," on Forms10-K,Forms 10-K, 10-Q and file or furnish on Form 8-K, and in related comments by our management, include "forward-looking statements." Forward-looking statements include information concerning our liquidity and our possible or assumed future results of operations, including descriptions of our business strategies. These statements often include words such as "believe," "expect," "project," "anticipate," "intend," "plan," "estimate," "seek," "will," "may," "would," "should," "could," "forecasts" or similar expressions. These statements are based on certain assumptions that we have made in light of our experience in the industry as well as our perceptions of historical trends, current conditions, expected future developments and other factors we believe are appropriate in these circumstances. We believe these judgments are reasonable, but you should understand that these statements are not guarantees of performance or results, and our actual results could differ materially from those expressed in the forward-looking statements due to a variety of important factors, both positive and negative, that may be revised or supplemented in subsequent reports on SEC Forms 10-K, 10-Q and 8-K.
Some important factors that could affect our actual results include, among others, those that may be disclosed from time to time in subsequent reports filed with the SEC, those described under "Item 1A—Risk Factors" included in Hertz Holdings' Annual Report on Form 10-K and Form 10-K/A for the fiscal year ended December 31, 2009,2010, filed with the SEC, on February 26, 201025, 2011, or our "Form 10-K," and March 1, 2010, respectively, or collectively known as our "Annual Report",in Part II, "Item 1A—Risk Factors" included in this Form 10-Q and the following, which were derived in part from the risks set forth in the Annual Report:Form 10-K:
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued)
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations (Continued)
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations (Continued)
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued)
You should not place undue reliance on forward-looking statements. All forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the foregoing cautionary statements. All such statements speak only as of the date made, and we undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise.
Corporate History
We areHertz Holdings was incorporated in Delaware in 2005 to serve as the top-level holding company for the consolidated Hertz business. Hertz was incorporated in Delaware in 1967. Hertz is a successor to corporations that have been engaged in the car and truck rental and leasing business since 1918 and the equipment rental business since 1965. Ford Motor Company, "Ford," acquired an ownership interest in Hertz in 1987. Prior to this, Hertz was a subsidiary of United Continental Holdings, was incorporatedInc. (formerly Allegis Corporation), which acquired Hertz's outstanding capital stock from RCA Corporation in Delaware in 2005 and had no operations prior to the Acquisition (as defined below).1985.
On December 21, 2005, investment funds associated with or designated by:
or collectively the "Sponsors," acquired all of Hertz's common stock from Ford Holdings LLC. We refer to the acquisition of all of Hertz's common stock by the Sponsors as the "Acquisition." Following
In March 2011, the Sponsors sold 50,000,000 shares of their Hertz Holdings common stock to Goldman, Sachs & Co. as the sole underwriter in the registered public offering of those shares.
As a result of our initial public offering in November 2006 and subsequent offerings in June 2007, May 2009, and June 2009 and March 2011, the Sponsors currently ownreduced their holdings to approximately 51%39% of the outstanding shares of common stock of Hertz Holdings.
In January 2009, Bank of America Corporation, or "Bank of America," acquired Merrill Lynch & Co., Inc., the parent company of MLGPE.BAMLCP. Accordingly, Bank of America is now an indirect beneficial owner of our common stock held by MLGPEBAMLCP and certain of its affiliates.
Overview of Our Business
We are engaged principally in the business of renting cars and renting equipment.
Our revenues primarily are derived from rental and related charges and consist of:
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations (Continued)
loss damage waivers)waivers, as well as revenues from the sale of new equipment and consumables); and
Our equipment rental business also derives revenues from the sale of new equipment and consumables.
Our expenses primarily consist of:
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued)
to the operation and rental of revenue earning equipment, such as damage, maintenance and fuel costs);
Our profitability is primarily a function of the volume, mix and pricing of rental transactions and the utilization of cars and equipment. Significant changes in the purchase price or residual values of cars and equipment or interest rates can have a significant effect on our profitability depending on our ability to adjust pricing for these changes. We continue to balance our mix of non-program and program vehicles based on market conditions. Our business requires significant expenditures for cars and equipment, and consequently we require substantial liquidity to finance such expenditures. See "Liquidity and Capital Resources" below.
In the U.S., as of March 31, 2011, the percentage of non-program cars was 77% as compared to 66% as of March 31, 2010. Internationally, as of March 31, 2011 and 2010, the percentage of non-program cars remained the same at 65%. In the U.S., as of December 31, 2010, the percentage of non-program cars was 66%72% as compared to 75%67% as of MarchDecember 31, 2009. Internationally, as of MarchDecember 31, 2010, the percentage of non-program cars was 65%70%, compared to 70%71% as of MarchDecember 31, 2009.
In the U.S., for the year ended December 31, 2009,recent periods we have decreased the percentage of non-programprogram cars was 51%in our car rental fleet and we expect this percentage to continue to decrease in the future. Non-program cars typically have lower acquisition costs and lower depreciation rates than comparable program cars. As a result of decreasing our reliance on program cars, we reduce our risk related to the creditworthiness of the vehicle manufacturers. With fewer program cars in our fleet, we have an increased risk that the market value of a car at the time of its disposition will be less than its estimated residual value. Program cars generally provide us with flexibility to reduce the size of our fleet by returning cars sooner than originally expected without risk of loss in the event of an economic downturn or to respond to changes in rental demand. This flexibility will be reduced as compared to 45% for the year ended December 31, 2008. For the year ended December 31, 2009, the percentage of non-program cars in our internationalcar rental fleet was 39%,increases. Furthermore, it is expected that the average age of our fleet will increase since the average holding period for non-program vehicles is longer than program vehicles. However, the longer holding period does not necessarily equate to higher costs due to the stringent turnback requirements imposed by vehicle manufacturers for program cars.
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations (Continued)
In the three months ended March 31, 2011, our vehicle depreciation costs decreased as compared to 41% for the prior year ended December 31, 2008.period due to improved residual values, a continued move towards a greater proportion of non-program vehicles, mix optimization and improved procurement and remarketing efforts.
For the three months ended March 31, 2010,2011, we experienced an 8.3%a 4.4% increase in transaction days versus the prior period in the United States, while rental rate revenue per transaction day, or "RPD," improveddeclined by 0.3%1.5%. During the three months ended March 31, 2010,2011, in our European operations, we experienced a 1.4% decline5.8% improvement in transaction days and a 0.8% declineincrease in our car rental RPD compared to the three months ended March 31, 2009.2010.
Our U.S. off-airport operations represented $231.6$262.1 million and $212.5$231.7 million of our total car rental revenues in the three months ended March 31, 20102011 and 2009,2010, respectively. As of March 31, 2010,2011, we have approximately 1,8001,960 off-airport locations. Our strategy includes selected openings of new off-airport locations, the disciplined evaluation of existing locations and the pursuit of same-store sales growth. Our strategy also includes increasing penetration in the off-airport market and growing the online leisure market with our Advantage brand, particularly in the longer length weekly sector, which is characterized by lower vehicle costs and lower transaction costs at a lower RPD. Increasing our penetration in these sectors is consistent with our long-term strategy to generate profitable growth. When we open a new off-airport location, we incur a number of costs, including those relating to site selection, lease negotiation, recruitment of employees, selection and development of managers, initial sales activities and integration of our systems with those of the companies who will reimburse the location's replacement renters for their rentals. A new off-airport location, once opened, takes time to generate its full potential revenues and, as a result, revenues at new locations do not initially cover their start-up costs and often do not, for some time, cover the costs of their ongoing operations.
In early 2010, Toyota announced recalls of several of its models. As such, we temporarily took a portion of our Toyota fleet out of service. Approximately 13% of our total U.S. car rental fleet was affected by the largest of these recalls. We rapidly made repairs to the recalled vehicles and returned them to our car rental fleet. There was a short-term impact on our business to cover the costs associated with repairing these vehicles; however, we believe that this recall will not have a long-term material impact on our business. Also, we unfortunately turned away some, but not a significant number of rentals as a result of this recall. See "Item 1A—Risk Factors" in our Annual Report.
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued)
In the year ended December 31, 2009, our per car vehicle depreciation costs decreased approximately 4% and increased approximately 7% in the United States and Europe, respectively, as compared to the prior year period. In the three months ended March 31, 2010, our per car vehicle depreciation costs decreased 14% and 10% in the United States and Europe, respectively, as compared to the prior year period. We expect our per car vehicle depreciation costs in the United States and in Europe for 2010 to be lower than 2009. Our business requires significant expenditures for cars and equipment, and consequently we require substantial liquidity to finance such expenditures. See "Liquidity and Capital Resources" section below.
HERC experienced lowerhigher rental volumes, andwhile pricing remained relatively flat worldwide for the three months ended March 31, 20102011 compared to the prior year period.period as commercial construction markets continued to be suppressed and credit markets for capital expansion remained tight. Pricing remains challenging and irrational at times although as fleet levels begin to align with demand, we expect to see upward movement in the industry. Volume improvements were primarily due to the industrial recovery, HERC specialty services as well as government work, coordinating with efforts to balance our customer portfolio.
HERC locations:
| Total | U.S. | Canada | France | Spain | China | ||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
December 31, 2009 | 322 | 214 | 35 | 66 | 4 | 3 | ||||||||||||||
Net increase (decrease) | (1 | ) | (1 | ) | — | — | — | — | ||||||||||||
Additions relating to acquisitions | — | — | — | — | — | — | ||||||||||||||
March 31, 2010 | 321 | 213 | 35 | 66 | 4 | 3 | ||||||||||||||
| Total | U.S. | Canada | France | Spain | Italy | China | ||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
December 31, 2010 | 322 | 210 | 38 | 65 | 4 | 1 | 4 | ||||||||||||||||
Net increase | 1 | 1 | — | — | — | — | — | ||||||||||||||||
March 31, 2011 | 323 | 211 | 38 | 65 | 4 | 1 | 4 | ||||||||||||||||
Our car rental and equipment rental operations are seasonal businesses, with decreased levels of business in the winter months and heightened activity during the spring and summer. We have the ability to dynamically manage fleet capacity, the most significant portion of our cost structure, to meet market demand. For instance, to accommodate increased demand, we increase our available fleet and staff during the second and third quarters of the year. As business demand declines, fleet and staff are decreased accordingly. A number of our other major operating costs, including airport concession fees, commissions and vehicle liability expenses, are directly related to revenues or transaction volumes. In addition, our management expects to utilize enhanced process improvements, including efficiency initiatives and the use of our information technology systems, to help manage our variable costs.
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations (Continued)
Approximately two-thirds of our typical annual operating costs represent variable costs, while the remaining one-third is fixed or semi-fixed. We also maintain a flexible workforce, with a significant number of part time and seasonal workers. However, certain operating expenses, including minimum concession fees, rent, insurance, and administrative overhead, remain fixed and cannot be adjusted for seasonal demand.
During the first quarter of 2010 our2011, we continued to streamline operations and reduce costs with the closure of several car rental and equipment rental business incurred charges for losses on the disposal of surplus equipment and recognition of future facility lease obligations related to branch closureslocations globally as well as a reduction in North America. Additionally, first quarter restructuring charges included employee termination liabilities coveringour workforce by approximately 200100 employees.
For the three months ended March 31, 20102011 and 2009,2010, our consolidated statement of operations includes restructuring charges relating to the initiatives discussed above of $10.7$4.9 million and $29.5$10.7 million, respectively.
Additional efficiency and cost saving initiatives are being developed during 2010. However,2011. In April 2011, we presently do not have firm plansclosed eleven equipment rental locations and expect to close an additional one or estimatestwo locations in the remainder of any related expenses.the second quarter of 2011. We estimate that these equipment rental location closures will result in $20 to $30 million of restructuring charges in the second quarter of 2011. See Note 1312 to the Notes to our condensed consolidated financial statements included in this Report.
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations (Continued)
RESULTS OF OPERATIONS
Three Months Ended March 31, 2011 Compared with Three Months Ended March 31, 2010
Summary
The following table sets forth the percentage of total revenues represented by the various line items set forth in our consolidated statements of operations for the three months ended March 31, 20102011 and 20092010 (in millions of dollars):
| | | | Percentage of Revenues | | | | Percentage of Revenues | ||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | Three Months Ended March 31, | Three Months Ended March 31, | | Three Months Ended March 31, | Three Months Ended March 31, | ||||||||||||||||||||||||
| | 2010 | 2009 | 2010 | 2009 | | 2011 | 2010 | 2011 | 2010 | ||||||||||||||||||||
Revenues: | Revenues: | Revenues: | ||||||||||||||||||||||||||||
Car rental | $ | 1,396.6 | $ | 1,260.9 | 84.1 | % | 80.6 | % | Car rental | $ | 1,478.9 | $ | 1,396.6 | 83.1 | % | 84.1 | % | |||||||||||||
Equipment rental | 237.0 | 279.3 | 14.3 | 17.8 | Equipment rental | 268.1 | 237.0 | 15.1 | 14.3 | |||||||||||||||||||||
Other | 27.3 | 24.7 | 1.6 | 1.6 | Other | 33.0 | 27.3 | 1.8 | 1.6 | |||||||||||||||||||||
Total revenues | 1,660.9 | 1,564.9 | 100.0 | 100.0 | Total revenues | 1,780.0 | 1,660.9 | 100.0 | 100.0 | |||||||||||||||||||||
Expenses: | Expenses: | Expenses: | ||||||||||||||||||||||||||||
Direct operating | 1,013.0 | 955.3 | 61.0 | 61.1 | Direct operating | 1,073.7 | 1,013.0 | 60.3 | 61.0 | |||||||||||||||||||||
Depreciation of revenue earning equipment | 459.2 | 489.8 | 27.6 | 31.3 | Depreciation of revenue earning equipment and lease charges | 436.1 | 459.2 | 24.5 | 27.6 | |||||||||||||||||||||
Selling, general and administrative | 167.7 | 166.7 | 10.1 | 10.6 | Selling, general and administrative | 182.2 | 167.7 | 10.2 | 10.1 | |||||||||||||||||||||
Interest expense | 181.1 | 165.1 | 10.9 | 10.5 | Interest expense | 196.9 | 181.1 | 11.1 | 10.9 | |||||||||||||||||||||
Interest and other income, net | (2.3 | ) | (2.0 | ) | (0.1 | ) | (0.1 | ) | Interest income | (1.9 | ) | (2.3 | ) | (0.1 | ) | (0.1 | ) | |||||||||||||
Other (income) expense, net | 51.9 | — | 2.9 | — | ||||||||||||||||||||||||||
Total expenses | 1,818.7 | 1,774.9 | 109.5 | 113.4 | ||||||||||||||||||||||||||
Total expenses | 1,938.9 | 1,818.7 | 108.9 | 109.5 | ||||||||||||||||||||||||||
Loss before income taxes | Loss before income taxes | (157.8 | ) | (210.0 | ) | (9.5 | ) | (13.4 | ) | Loss before income taxes | (158.9 | ) | (157.8 | ) | (8.9 | ) | (9.5 | ) | ||||||||||||
Benefit for taxes on income | Benefit for taxes on income | 11.0 | 49.6 | 0.6 | 3.2 | Benefit for taxes on income | 30.0 | 11.0 | 1.7 | 0.6 | ||||||||||||||||||||
Net loss | Net loss | (146.8 | ) | (160.4 | ) | (8.9 | ) | (10.2 | ) | Net loss | (128.9 | ) | (146.8 | ) | (7.2 | ) | (8.9 | ) | ||||||||||||
Less: Net income attributable to noncontrolling interest | Less: Net income attributable to noncontrolling interest | (3.6 | ) | (3.1 | ) | (0.2 | ) | (0.2 | ) | Less: Net income attributable to noncontrolling interest | (3.7 | ) | (3.6 | ) | (0.2 | ) | (0.2 | ) | ||||||||||||
Net loss attributable to Hertz Global Holdings, Inc. and Subsidiaries' common stockholders | Net loss attributable to Hertz Global Holdings, Inc. and Subsidiaries' common stockholders | $ | (150.4 | ) | $ | (163.5 | ) | (9.1 | )% | (10.4 | )% | Net loss attributable to Hertz Global Holdings, Inc. and Subsidiaries' common stockholders | $ | (132.6 | ) | $ | (150.4 | ) | (7.4 | )% | (9.1 | )% | ||||||||
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations (Continued)
The following table sets forth certain of our selected car rental, equipment rental and other operating data for the three months ended or as of March 31, 20102011 and 2009:2010:
| | Three Months Ended or as of March 31, | | Three Months Ended or as of March 31, | ||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | 2010 | 2009 | | 2011 | 2010 | ||||||||||||
Selected Car Rental Operating Data: | Selected Car Rental Operating Data: | Selected Car Rental Operating Data: | ||||||||||||||||
Worldwide number of transactions (in thousands) | 5,860 | 5,548 | Worldwide number of transactions (in thousands) | 6,028 | 5,857 | |||||||||||||
Domestic | 4,398 | 4,042 | Domestic | 4,479 | 4,397 | |||||||||||||
International | 1,462 | 1,506 | International | 1,549 | 1,460 | |||||||||||||
Worldwide transaction days (in thousands)(a) | 28,110 | 26,683 | Worldwide transaction days (in thousands)(a) | 29,648 | 28,116 | |||||||||||||
Domestic | 19,939 | 18,411 | Domestic | 20,821 | 19,939 | |||||||||||||
International | 8,171 | 8,272 | International | 8,827 | 8,177 | |||||||||||||
Worldwide rental rate revenue per transaction day(b) | $ | 43.05 | $ | 42.89 | Worldwide rental rate revenue per transaction day(b) | $ | 42.26 | $ | 42.69 | |||||||||
Domestic | $ | 41.96 | $ | 41.82 | Domestic | $ | 41.34 | $ | 41.96 | |||||||||
International | $ | 45.72 | $ | 45.28 | International | $ | 44.41 | $ | 44.49 | |||||||||
Worldwide average number of company-operated cars during the period | 417,700 | 383,500 | Worldwide average number of company-operated cars during the period | 427,400 | 417,700 | |||||||||||||
Domestic | 293,700 | 260,000 | Domestic | 295,700 | 293,700 | |||||||||||||
International | 124,000 | 123,500 | International | 131,700 | 124,000 | |||||||||||||
Adjusted pre-tax income (loss) (in millions of dollars)(c) | $ | 27.1 | $ | (33.5 | ) | Adjusted pre-tax income (in millions of dollars)(c) | $ | 61.3 | $ | 27.1 | ||||||||
Worldwide revenue earning equipment, net (in millions of dollars) | $ | 7,649.0 | $ | 6,274.4 | Worldwide revenue earning equipment, net (in millions of dollars) | $ | 7,714.2 | $ | 7,649.0 | |||||||||
Selected Worldwide Equipment Rental Operating Data: | Selected Worldwide Equipment Rental Operating Data: | Selected Worldwide Equipment Rental Operating Data: | ||||||||||||||||
Rental and rental related revenue (in millions of dollars)(d) | $ | 215.7 | $ | 264.6 | Rental and rental related revenue (in millions of dollars)(d) | $ | 243.1 | $ | 215.6 | |||||||||
Same store revenue decline, including growth initiatives(e) | (17.8 | )% | (23.6 | )% | Same store revenue growth (decline), including growth initiatives(e) | 10.6 | % | (17.8 | )% | |||||||||
Average acquisition cost of rental equipment operated during the period (in millions of dollars) | $ | 2,780.0 | $ | 2,963.4 | Average acquisition cost of rental equipment operated during the period (in millions of dollars) | $ | 2,756.8 | $ | 2,780.0 | |||||||||
Adjusted pre-tax income (loss) (in millions of dollars)(c) | $ | (5.0 | ) | $ | 0.7 | Adjusted pre-tax income (loss) (in millions of dollars)(c) | $ | 10.2 | $ | (5.0 | ) | |||||||
Revenue earning equipment, net (in millions of dollars) | $ | 1,743.4 | $ | 2,009.1 | Revenue earning equipment, net (in millions of dollars) | $ | 1,687.1 | $ | 1,743.4 |
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations (Continued)
segment revenues to our rental rate revenue and rental rate revenue per transaction day (based on December 31, 20092010 foreign exchange rates) for the three months ended March 31, 20102011 and 20092010 (in millions of dollars, except as noted):
| Three Months Ended March 31, | |||||||
---|---|---|---|---|---|---|---|---|
| 2010 | 2009 | ||||||
Car rental segment revenues | $ | 1,421.7 | $ | 1,282.9 | ||||
Non-rental rate revenue | (223.2 | ) | (197.1 | ) | ||||
Foreign currency adjustment | 11.7 | 58.6 | ||||||
Rental rate revenue | $ | 1,210.2 | $ | 1,144.4 | ||||
Transaction days (in thousands) | 28,110 | 26,683 | ||||||
Rental rate revenue per transaction day (in whole dollars) | $ | 43.05 | $ | 42.89 |
| Three Months Ended March 31, | |||||||
---|---|---|---|---|---|---|---|---|
| 2011 | 2010 | ||||||
Car rental segment revenues | $ | 1,510.3 | $ | 1,421.7 | ||||
Non-rental rate revenue | (248.0 | ) | (222.9 | ) | ||||
Foreign currency adjustment | (9.5 | ) | 1.5 | |||||
Rental rate revenue | $ | 1,252.8 | $ | 1,200.3 | ||||
Transaction days (in thousands) | 29,648 | 28,116 | ||||||
Rental rate revenue per transaction day (in whole dollars) | $ | 42.26 | $ | 42.69 |
| Three Months Ended March 31, 2010 | ||||||||
---|---|---|---|---|---|---|---|---|---|
| Car Rental | Equipment Rental | |||||||
Loss before income taxes | $ | (30.1 | ) | $ | (23.4 | ) | |||
Adjustments: | |||||||||
Purchase accounting(1) | 9.8 | 11.5 | |||||||
Non-cash debt charges(2) | 37.0 | 1.9 | |||||||
Restructuring charges | 5.3 | 4.9 | |||||||
Restructuring related charges(3) | 5.1 | 0.1 | |||||||
Adjusted pre-tax income (loss) | $ | 27.1 | $ | (5.0 | ) | ||||
| Three Months Ended March 31, | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
| 2011 | 2010 | |||||||||
Adjusted pre-tax income (loss): | |||||||||||
Car rental | $ | 61.3 | $ | 27.1 | |||||||
Equipment rental | 10.2 | (5.0 | ) | ||||||||
Total reportable segments | 71.5 | 22.1 | |||||||||
Adjustments: | |||||||||||
Other reconciling items(1) | (87.5 | ) | (91.3 | ) | |||||||
Purchase accounting(2) | (20.6 | ) | (22.1 | ) | |||||||
Non-cash debt charges(3) | (59.9 | ) | (48.8 | ) | |||||||
Restructuring charges | (4.9 | ) | (10.7 | ) | |||||||
Restructuring related charges(4) | (0.5 | ) | (5.3 | ) | |||||||
Derivative losses(5) | — | (1.7 | ) | ||||||||
Acquisition related costs | (2.8 | ) | — | ||||||||
Management transition costs | (2.5 | ) | — | ||||||||
Premiums paid on debt(6) | (51.7 | ) | — | ||||||||
Loss before income taxes | $ | (158.9 | ) | $ | (157.8 | ) | |||||
| Three Months Ended March 31, 2009 | ||||||||
---|---|---|---|---|---|---|---|---|---|
| Car Rental | Equipment Rental | |||||||
Loss before income taxes | $ | (90.2 | ) | $ | (24.8 | ) | |||
Adjustments: | |||||||||
Purchase accounting(1) | 9.4 | 16.1 | |||||||
Non-cash debt charges(2) | 19.3 | 2.3 | |||||||
Restructuring charges | 15.1 | 7.0 | |||||||
Restructuring related charges(3) | 8.6 | 0.1 | |||||||
Third-party bankruptcy reserve(4) | 4.3 | — | |||||||
Adjusted pre-tax income (loss) | $ | (33.5 | ) | $ | 0.7 | ||||
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations (Continued)
| Three Months Ended March 31, | |||||||
---|---|---|---|---|---|---|---|---|
| 2010 | 2009 | ||||||
Equipment rental segment revenues | $ | 237.0 | $ | 279.5 | ||||
Equipment sales and other revenue | (22.1 | ) | (26.4 | ) | ||||
Foreign currency adjustment | 0.8 | 11.5 | ||||||
Rental and rental related revenue | $ | 215.7 | $ | 264.6 | ||||
| Three Months Ended March 31, | |||||||
---|---|---|---|---|---|---|---|---|
| 2011 | 2010 | ||||||
Equipment rental segment revenues | $ | 268.2 | $ | 237.0 | ||||
Equipment sales and other revenue | (23.4 | ) | (22.1 | ) | ||||
Foreign currency adjustment | (1.7 | ) | 0.7 | |||||
Rental and rental related revenue | $ | 243.1 | $ | 215.6 | ||||
Three Months Ended March 31, 2010 Compared with Three Months Ended March 31, 2009
REVENUES
| | Three Months Ended March 31, | | | | Three Months Ended March 31, | | | ||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(in millions of dollars) | (in millions of dollars) | 2010 | 2009 | $ Change | % Change | (in millions of dollars) | 2011 | 2010 | $ Change | % Change | ||||||||||||||||||||
Revenues by Segment | Revenues by Segment | Revenues by Segment | ||||||||||||||||||||||||||||
Car rental | $ | 1,421.7 | $ | 1,282.9 | $ | 138.8 | 10.8 | % | Car rental | $ | 1,510.3 | $ | 1,421.7 | $ | 88.6 | 6.2 | % | |||||||||||||
Equipment rental | 237.0 | 279.5 | (42.5 | ) | (15.2 | )% | Equipment rental | 268.2 | 237.0 | 31.2 | 13.2 | % | ||||||||||||||||||
Other reconciling items | 2.2 | 2.5 | (0.3 | ) | (12.0 | )% | Other reconciling items | 1.5 | 2.2 | (0.7 | ) | (31.8 | )% | |||||||||||||||||
Total revenues | $ | 1,660.9 | $ | 1,564.9 | $ | 96.0 | 6.1 | % | Total revenues | $ | 1,780.0 | $ | 1,660.9 | $ | 119.1 | 7.2 | % | |||||||||||||
Car Rental Segment
Revenues from our car rental segment increased 10.8%6.2%, primarily as a result of a 5.3% increaseincreases in car rental transaction days worldwide higher RPD and increases inof 5.4%, refueling fees of $11.3$8.3 million and airport concession recovery fees of $9.4 million. These increases include revenue relating to Advantage which was acquired in April 2009 and$8.2 million as well as the effects of foreign currency translation of approximately $46.4 million.$14.4 million, partly offset by a decrease in worldwide RPD.
RPD for worldwide car rental for the three months ended March 31, 2011 decreased 1.0% from 2010, due to decreases in U.S. and International RPD of 1.5% and 0.2%, respectively. The decrease in International was lessened by an increase in Europe RPD of 0.8%. U.S. off-airport RPD improved by 0.6% and U.S. airport RPD decreased 1.3%. U.S. airport RPD decreased due to the lower RPD that our Advantage brand generates, as well as the competitive pricing environment.
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations (Continued)
RPD for worldwide car rental for the three months ended March 31, 2010 increased 0.3% from 2009, due to increases in U.S. and International RPD of 0.3% and 1.0%, respectively. U.S. off-airport RPD improved by 1.9% and U.S. airport RPD decreased 0.5%. U.S. airport RPD decreased due to the lower RPD that our Advantage brand generates.
Equipment Rental Segment
Revenues from our equipment rental segment decreased 15.2%increased 13.2%, primarily due to a 14.4% decrease14.3% increase in equipment rental volume an 8.0% decline in pricing and a decrease in equipment sales of $4.1 million, partly offset by the effects of foreign currency translation of approximately $11.0$2.9 million. The increase in volume was primarily due to strong industrial performance.
Other
Revenues from all other sources decreased 12.0%31.8%, primarily due to a decrease in revenues from our third-party claim management services, partly offset by revenues from our car sharing technology subsidiary.services.
EXPENSES
| | Three Months Ended March 31, | | | | Three Months Ended March 31, | | | ||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(in millions of dollars) | (in millions of dollars) | 2010 | 2009 | $ Change | % Change | (in millions of dollars) | 2011 | 2010 | $ Change | % Change | ||||||||||||||||||||||
Expenses: | Expenses: | Expenses: | ||||||||||||||||||||||||||||||
Fleet related expenses | $ | 229.0 | $ | 195.8 | $ | 33.2 | 16.9 | % | Fleet related expenses | $ | 249.9 | $ | 229.0 | $ | 20.9 | 9.1 | % | |||||||||||||||
Personnel related expenses | 346.4 | 324.0 | 22.4 | 6.9 | % | Personnel related expenses | 366.0 | 346.4 | 19.6 | 5.6 | % | |||||||||||||||||||||
Other direct operating expenses | 437.6 | 435.5 | 2.1 | 0.5 | % | Other direct operating expenses | 457.8 | 437.6 | 20.2 | 4.6 | % | |||||||||||||||||||||
Direct operating | 1,013.0 | 955.3 | 57.7 | 6.0 | % | Direct operating | 1,073.7 | 1,013.0 | 60.7 | 6.0 | % | |||||||||||||||||||||
Depreciation of revenue earning equipment | 459.2 | 489.8 | (30.6 | ) | (6.3 | )% | Depreciation of revenue earning equipment and lease charges | 436.1 | 459.2 | (23.1 | ) | (5.0 | )% | |||||||||||||||||||
Selling, general and administrative | 167.7 | 166.7 | 1.0 | 0.6 | % | Selling, general and administrative | 182.2 | 167.7 | 14.5 | 8.6 | % | |||||||||||||||||||||
Interest expense | 181.1 | 165.1 | 16.0 | 9.7 | % | Interest expense | 196.9 | 181.1 | 15.8 | 8.7 | % | |||||||||||||||||||||
Interest and other income, net | (2.3 | ) | (2.0 | ) | (0.3 | ) | 12.7 | % | Interest income | (1.9 | ) | (2.3 | ) | 0.4 | (18.6 | )% | ||||||||||||||||
Other (income) expense, net | 51.9 | — | 51.9 | NM | ||||||||||||||||||||||||||||
Total expenses | $ | 1,818.7 | $ | 1,774.9 | $ | 43.8 | 2.5 | % | ||||||||||||||||||||||||
Total expenses | $ | 1,938.9 | $ | 1,818.7 | $ | 120.2 | 6.6 | % | ||||||||||||||||||||||||
Total expenses increased 2.5%6.6%, butand total expenses as a percentage of revenues decreased from 113.4% for the three months ended March 31, 2009 to 109.5% for the three months ended March 31, 2010.2010 to 108.9% for the three months ended March 31, 2011.
Direct Operating Expenses
Car Rental Segment
Direct operating expenses for our car rental segment of $903.8 million for the three months ended March 31, 2011 increased 6.0%5.2% from $859.4 million for the three months ended March 31, 2010 as a result of increases in personnel related expenses, fleet related expenses and other direct operating expenses.
Personnel related expenses for our car rental segment of $300.2 million for the three months ended March 31, 2011 increased 5.6% from $284.2 million for the three months ended March 31, 2010. The increase was related to increases in outside services, including transporter wages of $5.4 million, incentive compensation costs of $5.1 million and payroll taxes of $2.8 million, as well as the effects of foreign currency translation of approximately $2.1 million. These expense increases were primarily related to improved results, as well as additional U.S. off-airport and Advantage locations in 2011.
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations (Continued)
Fleet related expenses for our car rental segment of $204.9 million for the three months ended March 31, 2011 increased 7.6% from $190.4 million for the three months ended March 31, 2010. The increase was primarily related to worldwide rental volume demand which resulted in increases in gasoline costs of $5.4 million, vehicle license taxes of $3.3 million and vehicle registration fees of $2.3 million, as well as the effects of foreign currency translation of approximately $7.0 million. These increases were partly offset by decreases in self insurance expense of $3.7 million and vehicle damage costs of $2.4 million.
Other direct operating expenses for our car rental segment of $398.7 million for the three months ended March 31, 2011 increased 3.6% from $384.8 million for the three months ended March 31, 2010. The increase was primarily related to increases in field administrative expenses of $14.0 million, third-party claim management expenses of $3.1 million, reservation costs of $1.5 million, concession fees of $1.4 million, charge card fees of $1.4 million and facilities expenses of $1.0 million, as well as the effects of foreign currency translation of approximately $2.7 million. The increases in other direct operating expenses primarily related to improved worldwide rental volume demand. The increase in field administrative expenses also related to a reimbursement received from a manufacturer in the three months ended March 31, 2010. The increases in other direct operating expenses were partly offset by decreases in restructuring and restructuring related charges of $5.7 million and commissions of $2.6 million. The decrease in commissions primarily related to a reduced fee per passenger rate in Europe.
Equipment Rental Segment
Direct operating expenses for our equipment rental segment of $170.8 million for the three months ended March 31, 2011 increased 8.7% from $157.1 million for the three months ended March 31, 2010 as a result of increases in fleet related expenses, personnel relatedother direct operating expenses and other direct operatingpersonnel related expenses.
Fleet related expenses for our equipment rental segment of $45.0 million for the three months ended March 31, 2011 increased 16.9%.14.5% from $39.3 million for the three months ended March 31, 2010. The increase was primarily related to worldwide car rental volume demand and continued aging of the fleet which resulted in increasesan increase in vehicle damage and maintenance costs of $14.2$6.1 million.
Other direct operating expenses for our equipment rental segment of $69.8 million gasoline costsfor the three months ended March 31, 2011 increased 6.7% from $65.4 million for the three months ended March 31, 2010. The increase was primarily related to increases in re-rent expense of $11.0$2.0 million and self insurance expenseamortization of $7.4 million. Allother intangibles of these increases include$0.6 million, as well as the effects of foreign currency translation of approximately $10.6$0.7 million. The increase in re-rent expense primarily related to improved worldwide rental volume demand. The increase was partly offset by a decrease in restructuring and restructuring related charges of $1.2 million.
Personnel related expenses for our equipment rental segment of $56.0 million for the three months ended March 31, 2011 increased 6.9%. from $52.4 million for the three months ended March 31, 2010. The increase was related to an increase in wages and benefits of $3.1 million primarily related to wages and benefitsimproved results, as a result of restructuring activities of $16.9 million and management incentive compensation costs of $6.0 million. These increases includewell as the effects of foreign currency translation of approximately $10.6$0.5 million.
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations (Continued)
Other direct operating expenses increased 0.5%. The increase was primarily related to worldwide car rental volume demand which resulted in increases in fleet related expenses, including the effects of foreign currency translation of approximately $16.4 million. These increases were partly offset by a decrease in restructuring and restructuring related charges, a reimbursement received from a car manufacturer and a decrease in equipment rental cost of goods sold.
Depreciation of Revenue Earning Equipment and Lease Charges
Car Rental Segment
Depreciation of revenue earning equipment and lease charges for our car rental segment of $368.9 million for the three months ended March 31, 2011 decreased 5.0% from $388.3 million for the three months ended March 31, 2010 decreased 0.7% from $391.1 million for the three months ended March 31, 2009.2010. The decrease was primarily relateddue to higheran improvement in certain vehicle residual values on the disposaland a higher mix of used vehicles,non-program cars, partly offset by the effects of foreign currency translation of approximately $14.0 million and a $7.5 million net increase in depreciation in certain of our car rental operations resulting from changes in depreciation rates to reflect the estimated residual value of vehicles.$3.5 million.
Equipment Rental Segment
Depreciation of revenue earning equipment and lease charges in our equipment rental segment of $67.2 million for the three months ended March 31, 2011 decreased 5.2% from $70.9 million for the three months ended March 31, 2010 decreased 28.2% from $98.7 million for the three months ended March 31, 2009.2010. The decrease was primarily due to a 6.2% reduction0.8% decrease in the average acquisition cost of rental equipment operated during the period and higher residual values on the disposal of used equipment, partly offset by the effects of foreign currency translation of approximately $2.1 million.equipment.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased 0.6%8.6%, due to an increaseincreases in advertisingadministrative expenses and sales promotion expenses, partly offset by a decrease in advertising.
Administrative expenses increased $12.6 million, or 12.6%, primarily due to increases in salaries and related expenses of $12.3 million and consulting expenses of $3.0 million, as well as the effects of foreign currency translation of approximately $5.4 million,$1.2 million. These increases were partly offset by decreases in administrative expenses and sales promotion expenses.
Advertising expenses increased $8.8 million, or 32.3%, primarily due to increased media advertising and the effects of foreign currency translation of approximately $1.6 million.
Administrative expenses decreased $7.2 million, or 6.7%, primarily due to decreases in restructuring and restructuring related chargesexpenses of $11.3$3.8 million partly offset byand a decrease in the loss on derivatives relating to our interest rate capcaps of $1.7 million, an increase in stock compensation expense of $1.6 million and an increase in management incentive compensation costs of $1.6 million, including the effects of foreign currency translation of approximately $2.5 million.
Sales promotion expenses decreased $0.6increased $4.7 million, or 1.8%14.8%, primarily related to decreasesincreases in sales salaries and commissions, partly offset by the effects of foreign currency translation of approximately $1.3 million.commissions.
Advertising expenses decreased $2.8 million, or 7.8%, primarily due to decreased media and production.
Interest Expense
Car Rental Segment
Interest expense for our car rental segment of $75.4 million for the three months ended March 31, 2011 decreased 15.6% from $89.3 million for the three months ended March 31, 2010 increased 14.9% from $77.72010. The decrease was primarily due to a decrease in the weighted average debt outstanding.
Equipment Rental Segment
Interest expense for our equipment rental segment of $11.1 million for the three months ended March 31, 2009.2011 increased 8.8% from $10.2 million for the three months ended March 31, 2010. The increase was primarily due to a portion of the write-off of the unamortized debt costs in connection with the refinancing of our Senior ABL Facility which was allocated to our equipment rental segment, partly offset by a reduction in the weighted average debt outstanding as a result of a decreased fleet size.
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations (Continued)
primarily due to an increase in the weighted average debt outstanding as a result of an increased fleet size.
Equipment Rental Segment
Interest expense for our equipment rental segment of $10.2 million for the three months ended March 31, 2010 decreased 30.1% from $14.6 million for the three months ended March 31, 2009. The decrease was primarily due to a decrease in weighted average interest rate on our borrowings and a decrease in the weighted average debt outstanding as a result of reduced fleet size.
Other
Other interest expense relating to interest on corporate debt of $110.4 million for the three months ended March 31, 2011 increased 35.3% from $81.6 million for the three months ended March 31, 2010 increased 12.1% from $72.8 million for the three months ended March 31, 2009.2010. The increase was primarily due to interest expense on the Convertiblewrite-off of unamortized debt costs in connection with the refinancing of our Senior Term Facility and Senior ABL Facility, financing costs incurred in connection with the new Senior Term Facility and the write-off of unamortized debt costs in connection with the redemption of our 10.5% Senior Subordinated Notes and a portion of our 8.875% Senior Notes issued in May 2009.2011.
Interest and Income
Interest income decreased $0.4 million.
Other Income,(Income) Expense, Net
Interest and other income,Other (income) expense, net increased $0.3$51.9 million primarily due to premiums paid in connection with the redemption of our 10.5% Senior Subordinated Notes and a value added tax reclaim, partly offset by decreases in interest income related to lower cash balances and interest ratesportion of our 8.875% Senior Notes during the period.2011.
ADJUSTED PRE-TAX INCOME (LOSS)
Car Rental Segment
Adjusted pre-tax income for our car rental segment of $27.1$61.3 million increased $60.6$34.2 million from an adjusted pre-tax loss of $33.5$27.1 million for the three months ended March 31, 2009.2010. The increase was primarily due to stronger volumes, higher RPDimproved residual values and disciplined cost management.management, partly offset by decreased pricing. Adjustments to our car rental segment income before income taxes on a GAAP basis for the three months ended March 31, 2011 and 2010, totaled $20.3 million (non-cash debt charges of $10.2 million, purchase accounting of $8.1 million, restructuring and 2009, totaledrelated charges of $1.5 million and loss on derivatives of $0.5 million) and $57.2 million (non-cash debt charges of $37.0 million, restructuring and $56.7related charges of $10.4 million and purchase accounting of $9.8 million), respectively. See footnote c(c) to the table under "Results of Operations" for a summary and description of these adjustments.
Equipment Rental Segment
Adjusted pre-tax lossincome for our equipment rental segment of $5.0$10.2 million decreased $5.7increased $15.2 million from adjusted pre-tax incomeloss of $0.7$5.0 million for the three months ended March 31, 2009.2010. The decreaseincrease was primarily due to reductions in volume and pricing, partly offset bystronger volumes, strong cost management performance and higher residual values on the disposal of used equipment.equipment, while pricing remained relatively flat. Adjustments to our equipment rental segment incomeloss before income taxes on a GAAP basis for the three months ended March 31, 2011 and 2010, totaled $18.0 million (purchase accounting of $11.6 million, restructuring charges of $3.9 million and 2009, totalednon-cash debt charges of $2.5 million) and $18.4 million (purchase accounting of $11.5 million, restructuring and $25.5related charges of $5.0 million and non-cash debt charges of $1.9 million), respectively. See footnote c(c) to the table under "Results of Operations" for a summary and description of these adjustments.
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations (Continued)
BENEFIT FOR TAXES ON INCOME, NET INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTSINTEREST AND NET LOSS ATTRIBUTABLE TO HERTZ HOLDINGS, INC. AND SUBSIDIARIES' COMMON STOCKHOLDERS
| Three Months Ended March 31, | | | Three Months Ended March 31, | | | ||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(in millions of dollars) | 2010 | 2009 | $ Change | % Change | 2011 | 2010 | $ Change | % Change | ||||||||||||||||||
Loss before income taxes | $ | (157.8 | ) | $ | (210.0 | ) | $ | 52.2 | (24.9 | )% | $ | (158.9 | ) | $ | (157.8 | ) | $ | (1.1 | ) | 0.7 | % | |||||
Benefit for taxes on income | 11.0 | 49.6 | (38.6 | ) | (77.8 | )% | 30.0 | 11.0 | 19.0 | 171.7 | % | |||||||||||||||
Net loss | (146.8 | ) | (160.4 | ) | 13.6 | (8.5 | )% | (128.9 | ) | (146.8 | ) | 17.9 | (12.2 | )% | ||||||||||||
Less: Net income attributable to noncontrolling interests | (3.6 | ) | (3.1 | ) | (0.5 | ) | 15.8 | % | ||||||||||||||||||
Less: Net income attributable to noncontrolling interest | (3.7 | ) | (3.6 | ) | (0.1 | ) | 2.7 | % | ||||||||||||||||||
Net loss attributable to Hertz Holdings, Inc. and Subsidiaries' common stockholders | $ | (150.4 | ) | $ | (163.5 | ) | $ | 13.1 | (8.0 | )% | ||||||||||||||||
Net loss attributable to Hertz Global Holdings, Inc. and Subsidiaries' common stockholders | $ | (132.6 | ) | $ | (150.4 | ) | $ | 17.8 | (11.8 | )% | ||||||||||||||||
Benefit for Taxes on Income
The effective tax rate for the three months ended March 31, 20102011 was 7.0%18.8% as compared to 23.6%7.0% in the three months ended March 31, 2009.2010. The benefit for taxes on income decreased 77.8%,increased $19.0 million, primarily due to changes in geographic earnings mix and changes in losses in certain non-U.S. jurisdictions for which a tax benefitbenefits cannot be recognized and an increase in discrete items which includes a $4.3 million tax charge from the newly enacted tax law in France which became effective January 1, 2010.realized.
Net Income Attributable to Noncontrolling InterestsInterest
Net income attributable to noncontrolling interestsinterest increased 15.8%2.7% due to an increase in our majority-owned subsidiary Navigation Solutions, L.L.C.'s net income for the three months ended March 31, 20102011 as compared to the three months ended March 31, 2009.2010.
Net Loss Attributable to Hertz Global Holdings, Inc. and Subsidiaries' Common Stockholders
The net loss attributable to Hertz Global Holdings, Inc. and Subsidiaries' common stockholders decreased 8.0%11.8% primarily due to higher rental volume and pricingvolumes in our worldwide car and equipment rental operations, improved residual values on the disposal of used equipment and certain vehicles and disciplined cost management, partly offset by lower rental volume and pricing in our worldwide equipmentcar rental operations, as well ascosts incurred in connection with the net effectrefinancing of other contributing factors noted above.our Senior Term Facility and Senior ABL Facility and the write-off of unamortized debt costs and premiums paid in connection with the redemption of our 10.5% Senior Subordinated Notes and a portion of our 8.875% Senior Notes during 2011. The impact of changes in exchange rates on net loss was mitigated by the fact that not only revenues but also most expenses outside of the United States were incurred in local currencies.
LIQUIDITY AND CAPITAL RESOURCES
Our domestic and international operations are funded by cash provided by operating activities and by extensive financing arrangements maintained by us in the United States Europe, Puerto Rico, Australia, New Zealand, Canada and Brazil.internationally.
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations (Continued)
Cash Flows
As of March 31, 2010,2011, we had cash and cash equivalents of $800.7$1,365.8 million, a decrease of $184.9$1,008.4 million from $985.6$2,374.2 million as of December 31, 2009.2010. The following table summarizes such decrease:
| | Three Months Ended March 31, | | | Three Months Ended March 31, | | ||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(in millions of dollars) | (in millions of dollars) | 2010 | 2009 | $ Change | (in millions of dollars) | 2011 | 2010 | $ Change | ||||||||||||||
Cash provided by (used in): | Cash provided by (used in): | Cash provided by (used in): | ||||||||||||||||||||
Operating activities | $ | 301.2 | $ | 184.5 | $ | 116.7 | Operating activities | $ | 165.6 | $ | 284.7 | $ | (119.1 | ) | ||||||||
Investing activities | (525.5 | ) | 996.9 | (1,522.4 | ) | Investing activities | (303.9 | ) | (509.0 | ) | 205.1 | |||||||||||
Financing activities | 72.1 | (1,200.6 | ) | 1,272.7 | Financing activities | (891.8 | ) | 72.1 | (963.9 | ) | ||||||||||||
Effect of exchange rate changes | Effect of exchange rate changes | (32.7 | ) | (18.0 | ) | (14.7 | ) | Effect of exchange rate changes | 21.7 | (32.7 | ) | 54.4 | ||||||||||
Net change in cash and cash equivalents | Net change in cash and cash equivalents | $ | (184.9 | ) | $ | (37.2 | ) | $ | (147.7 | ) | Net change in cash and cash equivalents | $ | (1,008.4 | ) | $ | (184.9 | ) | $ | (823.5 | ) | ||
During the three months ended March 31, 2010,2011, we generated $116.7$119.1 million moreless cash from operating activities compared with the same period in 2009.2010. The increasedecrease was primarily driven by premiums paid to redeem debt in the three months ended March 31, 2011, timing of interest payments and gasoline and parts inventory purchases and a decreasereimbursement received from a manufacturer in net loss before depreciation, amortization and other non-cash expenses, an increase in cash payments in 2009 relating to the buydown of our rate on our interest rate swaps, restructuring and taxes, partly offset by changes in accounts receivable due to increased collections in 2009.three months ended March 31, 2010.
Our primary use of cash in investing activities is for the acquisition of revenue earning equipment, which consists of cars and equipment. During the three months ended March 31, 2010,2011, we generated $1,522.4used $205.1 million less cash fromfor investing activities compared with the same period in 2009.2010. The decrease in the use of funds was primarily due to an increasea decrease in revenue earning equipment expenditures a decreaseand an increase in proceeds from the disposal of revenue earning equipment, andpartly offset by the year-over-year change in restricted cash and cash equivalents. The increasedecrease in revenue earning equipment expenditures and decreasewas primarily due to continued efforts to increase utilization of existing fleet. The increase in proceeds from the disposal of revenue earning equipment was related to higher car rental volumes and a general improvement in the car rental market. The year-over-year change in restricted cash and cash equivalents was primarily related to opportunistically selling our fleet while residuals are at peak levels as well as refreshing the economic conditions which affected the demand for revenue earning equipment andage of our Like Kind Exchange Program, or "LKE Program."fleet. As of March 31, 20102011 and December 31, 2009,2010, we had $221.3$190.9 million and $365.1$207.6 million, respectively, of restricted cash and cash equivalents to be used for the purchase of revenue earning vehicles and other specified uses under our Fleet Financingfleet financing facilities, our LKELike Kind Exchange Program, or "LKE Program," and to satisfy certain of our self-insurance regulatory reserve requirements. The decrease in restricted cash and cash equivalents of $143.8$16.7 million from December 31, 20092010 to March 31, 2010,2011, primarily related to the timing of purchases and sales of revenue earning vehicles.
During the three months ended March 31, 2010,2011, we generated $1,272.7$963.9 million moreless cash from financing activities compared with the same period in 2009.2010. The increasedecrease is primarily due to increasespayment of long-term debt (includes redemption of $518.5 million principal amount of 10.5% Senior Subordinated Notes, redemption of $1,105 million principal amount of our outstanding 8.875% Senior Notes and a payment of $1.3 billion for the 2005 Senior Term Facility), a decrease in proceeds under the revolving lines of credit, net and payments of short-term borrowings, partly offset by an increase in proceeds from a decrease in the repaymentissuance of long-term debt.
Financing
Our car rentaldebt (includes $1.4 billion Senior Term Facility issued March 2011 and equipment rental operations are seasonal businesses with decreased levels$1 billion of business6.75% Senior Notes issued in the winter monthsFebruary and typically heightened activity during the spring and summer. To accommodate increased demand, we maintain a larger fleet by holding vehicles and equipment and purchasing additional fleet which increases our financing requirements. These seasonal financingMarch 2011).
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations (Continued)
Capital Expenditures
The tables below set forth the revenue earning equipment and property and equipment capital expenditures and related disposal proceeds on a cash basis consistent with our consolidated statements of cash flows for the first quarter of 2011 and 2010 (in millions of dollars).
| Revenue Earning Equipment | Property and Equipment | ||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Capital Expenditures | Disposal Proceeds | Net Capital Expenditures (Disposal Proceeds) | Capital Expenditures | Disposal Proceeds | Net Capital Expenditures | ||||||||||||||
2011 | ||||||||||||||||||||
First Quarter | $ | 1,963.8 | $ | (1,690.2 | ) | $ | 273.6 | $ | 56.8 | $ | (14.5 | ) | $ | 42.3 | ||||||
2010 | ||||||||||||||||||||
First Quarter | $ | 2,214.5 | $ | (1,606.4 | ) | $ | 608.1 | $ | 51.3 | $ | (6.7 | ) | $ | 44.6 | ||||||
needs are funded by increasing the
| Three Months Ended March 31, | | | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2011 | 2010 | $ Change | % Change | |||||||||||
Revenue earning equipment expenditures | |||||||||||||||
Car rental | $ | 1,792.2 | $ | 2,181.8 | $ | (389.6 | ) | (17.9 | )% | ||||||
Equipment rental | 171.6 | 32.7 | 138.9 | 424.8 | % | ||||||||||
Total | $ | 1,963.8 | $ | 2,214.5 | $ | (250.7 | ) | (11.3 | )% | ||||||
The decrease in our car rental operations revenue earning equipment expenditures was primarily due to continued efforts to increase utilization of our various corporate andexisting fleet credit facilities andduring the variable funding notes portion of our U.S. Fleet Debt facilitiesthree months ended March 31, 2011 as defined in Note 3compared to the Notes to our audited annual consolidated financial statements includedthree months ended March 31, 2010. The increase in our Annual Report under the caption "Item 8—Financial Statements and Supplementary Data." As business demand moderatesequipment rental operations revenue earning equipment expenditures was primarily due to a continued improvement in economic conditions during the winter, we reduce our fleet accordinglythree months ended March 31, 2011 as compared to the three months ended March 31, 2010.
| Three Months Ended March 31, | | | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2011 | 2010 | $ Change | % Change | |||||||||||
Property and equipment expenditures | |||||||||||||||
Car rental | $ | 47.7 | $ | 44.4 | $ | 3.3 | 7.4 | % | |||||||
Equipment rental | 8.6 | 3.3 | 5.3 | 160.6 | % | ||||||||||
Other | 0.5 | 3.6 | (3.1 | ) | (86.1 | )% | |||||||||
Total | $ | 56.8 | $ | 51.3 | $ | 5.5 | 10.7 | % | |||||||
The increases in car rental and dispose of vehiclesequipment rental property and equipment. The disposal proceeds are usedequipment expenditures were primarily due to reduce debt.a continued improvement in economic conditions.
Financing
Our primary liquidity needs include servicing of corporate and fleet related debt, the payment of operating expenses and purchases of rental vehicles and equipment to be used in our operations. Our primary sources of funding are operating revenue,cash flows, cash received on the disposal of vehicles and equipment, borrowings under our asset-backed borrowing arrangements and our revolving credit facility.
As of March 31, 2010, we had approximately $10,387.9 million of total indebtedness outstanding. Cash paid for interest during the three months ended March 31, 2010, was $173.2 million, net of amounts capitalized. Accordingly, we are highly leveraged and a substantial portion of our liquidity needs arise from debt service on indebtedness incurred in connection with the Acquisition and from the funding of our costs of operations and capital expenditures.
Our liquidity as of March 31, 2010 consists of cash and cash equivalents, unused commitments under our Senior ABL Facility and unused commitments under our Fleet Financing Facilities. For a description of these amounts, see Note 8 to the Notes to our condensed consolidated financial statements included in this Report as well as "Credit Facilities" below.
Based on all that we accomplished in 2009, our current availability under our various credit facilities and our business plan, we believe we have sufficient liquidity to meet our U.S. debt maturities over the next twelve months. However, we have approximately $1.0 billion of international fleet debt outstanding as of March 31, 2010, that matures in December 2010. We are currently in discussions regarding our refinancing options, and based on these discussions and our ability to access the capital markets we expect to refinance these facilities on or prior to maturity. However, the availability of financing is subject to a variety of factors not in our control including economic and market conditions and investor demand, so there is no guarantee that such facilities can be refinanced or that the terms of such financings will be acceptable. In the event financing is not available or is not available on terms we deem acceptable, we would expect to utilize our corporate liquidity to repay these obligations which could reduce our ability to fund operations and replace our fleet.
MBIA Insurance Corporation, or "MBIA," and Ambac Assurance Corporation, or "Ambac," provide credit enhancements in the form of financial guaranties for our 2005 Notes, with each providing guaranties for approximately half of the $2,622.0 million in principal amount of the 2005 Notes that was outstanding as of March 31, 2010, all of which matures during 2010.
An event of bankruptcy with respect to MBIA or Ambac between now and the maturities of the 2005 Notes in 2010 would result in an amortization event under the portion of the 2005 Notes guaranteed by the affected insurer. In addition, if an amortization event continues for 30 days or longer, the noteholders of the affected series of notes would have the right to require liquidation of a portion of the fleet sufficient to repay such notes, provided that the exercise of the right was exercised by a majority of the affected noteholders. Ambac has publicly stated that it has insufficient capital to finance its debt service and operating expense requirements beyond the second quarter of 2011 and may need to seek bankruptcy protection.
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations (Continued)
Since MBIAequipment, borrowings under our asset-backed securitizations and Ambac are facing financial instability, have been downgraded one or more timesour asset-based revolving credit facilities and are on review for further credit downgrade or under developing outlook by one or more credit agencies, we did not have the Series 2009-1 Notes or the Series 2009-2 Notes guaranteed. Accordingly, if a bankruptcy of MBIA or Ambac were to occur prioraccess to the 2005 Notes maturing,credit markets generally.
As of March 31, 2011, we expect thathad $10,750.0 million of total indebtedness outstanding. Cash paid for interest during the three months ended March 31, 2011, was $205.8 million, net of amounts capitalized. Accordingly, we would useare highly leveraged and a substantial portion of our corporate liquidity needs arise from debt service on our indebtedness and the borrowings under or proceeds from the Series 2009-1 Notesfunding of our costs of operations and the Series 2009-2 Notes to pay down the amounts owed under the affected seriescapital expenditures.
Our liquidity as of 2005 Notes.
On April 25, 2010, we entered into a definitive merger agreement under which we will acquire Dollar Thrifty Automotive Group, or "Dollar Thrifty," for a purchase price of $41.00 per share, or a total of $1.27 billion, in a mixMarch 31, 2011 consisted of cash and Hertz Holdings common stock, based oncash equivalents, unused commitments under our closing stock price onSenior ABL Facility and unused commitments under our fleet debt. For a description of these amounts, see Note 7 to the trading day beforeNotes to our condensed consolidated financial statements included in this Report as well as "Borrowing Capacity and Availability," below.
We have a significant amount of debt that will mature over the agreement was signed. Under the termsnext several years. The aggregate amounts of maturities of debt for each of the agreement, Dollar Thrifty has agreedtwelve-month periods ending March 31 (in millions of dollars) are as follows:
2012 | $ | 3,859.3 | (including $3,356.1 of other short-term borrowings) | ||
2013 | $ | 773.9 | |||
2014 | $ | 743.9 | |||
2015 | $ | 842.7 | |||
2016 | $ | 953.4 | |||
After 2016 | $ | 3,676.6 |
Our short-term borrowings as of March 31, 2011 include, among other items, the amounts outstanding under the European Securitization, Australian Securitization, U.S. Fleet Financing Facility, Brazilian Fleet Financing Facility, Canadian Securitization, Capitalized Leases and European Revolving Credit Facility. These amounts are reflected as short-term borrowings, regardless of the facility maturity date, as these facilities are revolving in nature and/or the outstanding borrowings have maturities of three months or less. Short-term borrowings also include the Convertible Senior Notes which became convertible on January 1, 2011 and remain as such through June 30, 2011.
In March 2011, Hertz issued an additional $500 million aggregate principal of the 6.75% Senior Notes due 2019 in a private offering, the proceeds of which were used in April 2011 to pay a special cash dividend of $200redeem $480 million (expected to be approximately $6.88 per share) to its stockholders immediately prior to closing, and each outstanding share of Dollar Thrifty common stock will be converted into the right to receive from us 0.6366 of a share of our common stock and a cash payment from us equal to $32.80 less theprincipal amount of the special cash dividend paid by Dollar Thrifty. At the closing, we will issue an aggregate of approximately 18 million shares of our common stock (excluding shares issuable upon the exercise of stock options that are being converted to Hertz Holdings stock options) and pay an aggregate of approximately $750 million in cash (which does not include the $200 million special cash dividend to be paid by Dollar Thrifty.) We intend to fund the cashits outstanding 8.875% Senior Notes due 2014. The redeemed portion of the purchase price8.875% Senior Notes has been included in the 2012 maturities in the table above.
The agreements governing our indebtedness require us to comply with existing liquidity fromcertain covenants. Our failure to comply with the combined company. We will also assumeobligations contained in any agreements governing our indebtedness could result in an event of default under the applicable instrument, which could result in the related debt becoming immediately due and payable and could further result in a cross default or refinance Dollar Thrifty's existing fleetcross acceleration of our debt outstanding at closing. The transaction is subject to customary closing conditions, regulatory approvals, approval by Dollar Thrifty stockholdersissued under other instruments.
As a result of our successful refinancing efforts in 2009, 2010 and payment of the special dividend. The transaction is not conditioned on receipt of financing by us.
Whilethree months ended March 31, 2011 and the strategic cost reduction actions taken in the past, we anticipate that we have sufficient liquidity to consummate the acquisition of Dollar Thrifty without raising additional funds, it is likelybelieve that we will incur additional financing either before or afterremain in compliance with our debt covenants and that cash generated from operations, together with amounts available under various facilities will be adequate to permit us to meet our debt service obligations, ongoing costs of operations, working capital needs and capital expenditure requirements for the acquisition to replenish our liquidity levels. See "Item 1A—Risk Factors" in this Report.next twelve months.
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations (Continued)
A significant number of cars that we purchase are subject to repurchase by car manufacturers under contractual repurchase or guaranteed depreciation programs. Under these programs, car manufacturers agree to repurchase cars at a specified price or guarantee the depreciation rate on the cars during a specified time period, typically subject to certain car condition and mileage requirements. We use book values derived from this specified price or guaranteed depreciation rate to calculate our asset-backed financing capacity. If any manufacturer of our cars fails to fulfill its repurchase or guaranteed depreciation obligations, due to bankruptcy or otherwise, our asset-backed financing capacity could be decreased, or we may be required to materially increase the credit enhancement levels relating to the financing of the fleet vehicles provided by such bankrupt manufacturer under certain of our Fleet Financing Facilities. For a discussion of the risks associated with a manufacturer's bankruptcy or our reliance on asset-backed and asset-based financing see "Item 1A—Risk Factors" in our Annual Report.
We rely significantly on asset-backed financing to purchase cars for our domestic and international car rental fleet. The amount of financing available to us pursuant to these programs depends on a number of factors, many of which are outside our control. For further information concerning our asset-backed financing programs, see Note 3 to the Notes to our audited annual consolidated financial statements included in our Annual Report under the caption "Item 8—Financial Statements and Supplementary Data." For a discussion of risks related to our reliance on asset-backed financing to purchase cars, see "Item 1A—Risk Factors" in our Annual Report.
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued)arrangements.
In the event of a bankruptcy of a car manufacturer, our liquidity would be impacted by several factors including reductions in fleet residual values as discussed above, and the risk that we would be unable to collect outstanding receivables due to us from such bankrupt manufacturer. In addition, the program cars manufactured by any such company would need to be removed from our fleet or re-designated as non-program vehicles, which would require us to furnish additional collateralcredit enhancement associated with these program vehicles. For a discussion of the risks associated with a manufacturer's bankruptcy or our reliance on asset-backed and asset-based financing, see "Item 1A—Risk Factors" included in our Annual Report.Form 10-K.
We have a significantrely significantly on asset-backed and asset-based financing arrangements to purchase cars for our domestic and international car rental fleet. The amount of debt thatfinancing available to us pursuant to these programs depends on a number of factors, many of which are outside our control, including recently adopted legislation, proposed SEC rules and regulations and other legislative and administrative developments. In this regard, there has been uncertainty regarding the potential impact of recently proposed SEC rules and regulations governing the issuance of asset-backed securities and additional requirements contained in the Dodd-Frank Wall Street Reform and Consumer Protection Act. While we will mature overcontinue to monitor these developments and their impact on our ABS program, the next several years. The aggregate amounts of maturities of debt for each ofSEC rules and regulations, once adopted and implemented, may impact our ability and/or desire to engage in asset-backed financings in the twelve-month periods ending March 31 (in millions of dollars) are as follows: 2011, $4,727.5 (including $1,927.4 of other short-term borrowings); 2012, $4.3; 2013, $2,032.2; 2014, $2,035.6; 2015, $1,196.0; after 2015, $546.3.future. For a discussion of maturities,further information concerning our asset-backed financing programs and our indebtedness, see Note 34 to the Notes to our audited annual consolidated financial statements included in our Annual ReportForm 10-K under the caption "Item 8—Financial Statements and Supplementary Data." The $1,927.4 millionFor a discussion of short-term borrowings included in the 2011 maturity are revolving in naturerisks associated with our reliance on asset-backed and do not expire in 2011. As a result of our successful refinancing efforts in 2009asset-based financing and the strategic cost reduction actions taken in the past as well as those planned for the remaindersignificant amount of 2010, we believe that we will remain in compliance with our debt covenants and that cash generated from operations, together with amounts available under various liquidity facilities will be adequate to permit us to meet our debt service obligations, ongoing costs of operations, working capital needs and capital expenditure requirements for the next twelve months. Our future financial and operating performance, ability to service or refinance our debt and ability to comply with covenants and restrictions containedindebtedness, see "Item 1A—Risk Factors" in our debt agreements will be subject to future economic conditions and to financial, business and other factors, many of which are beyond our control.Form 10-K.
For further information on our indebtedness, see Note 87 to the Notes to our condensed consolidated financial statements included in this Report.
Covenants
Certain of our debt instruments and credit facilities contain a number of covenants that, among other things, limit or restrict the ability of the borrowers and the guarantors to dispose of assets, incur additional indebtedness, incur guarantee obligations, prepay othercertain indebtedness, make dividends and othercertain restricted payments (including paying dividends, redeeming stock or making other distributions), create liens, make investments, make acquisitions, engage in mergers, changefundamentally changing the nature of their business, make capital expenditures, or engage in certain transactions with certain affiliates. Some
Under the new terms of these agreements also requireour amended Senior Term Facility and Senior ABL Facility, we are not subject to ongoing financial maintenance covenants; however, under the Senior ABL Facility we are subject to a springing financial maintenance covenant upon the occurrence of certain financial covenants.triggering events. As of March 31, 2010, we were in compliance with all2011, no triggering event had occurred requiring testing of thesethe springing financial covenants.maintenance covenant.
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations (Continued)
In addition to borrowings under our Senior Credit Facilities, we have a significant amount of additional debt outstanding. For further information on the terms of our Senior Credit Facilities as well as our significant amount of debt outstanding, see Note 7 to the Notes to our condensed consolidated financial statements included in this Report and Note 4 to the Notes to our audited annual consolidated financial statements included in our Form 10-K under the caption "Item 8—Financial Statements and Supplementary Data." For a discussion of the risks associated with our significant indebtedness, see "Item 1A—Risk Factors" in our Form 10-K.
Borrowing Capacity and Availability
As of March 31, 2011, the following facilities were available for the use of Hertz and its subsidiaries (in millions of dollars):
| Remaining Capacity | Availability Under Borrowing Base Limitation | |||||||
---|---|---|---|---|---|---|---|---|---|
Corporate Debt | |||||||||
Senior ABL Facility | $ | 1,800.0 | $ | 896.4 | |||||
Total Corporate Debt | 1,800.0 | 896.4 | |||||||
Fleet Debt | |||||||||
U.S. Fleet Variable Funding Notes | 455.1 | 90.5 | |||||||
U.S. Fleet Financing Facility | 2.0 | 2.0 | |||||||
European Revolving Credit Facility | 154.4 | 154.4 | |||||||
European Securitization | 314.6 | 71.6 | |||||||
Canadian Securitization | 148.3 | 4.8 | |||||||
Australian Securitization | 86.4 | 7.6 | |||||||
Brazilian Fleet Financing Facility | 0.9 | 0.9 | |||||||
Capitalized Leases | 108.1 | 28.9 | |||||||
Total Fleet Debt | 1,269.8 | 360.7 | |||||||
Total | $ | 3,069.8 | $ | 1,257.1 | |||||
Our borrowing capacity and availability primarily comes from our "revolving credit facilities," which are a combination of asset-backed securitization facilities and asset-based revolving credit facilities. Creditors under each of our revolving credit facilities have a claim on a specific pool of assets as collateral. Our ability to borrow under each revolving credit facility is a function of, among other things, the value of the assets in the relevant collateral pool. We refer to the amount of debt we can borrow given a certain pool of assets as the "borrowing base."
We refer to "Remaining Capacity" as the maximum principal amount of debt permitted to be outstanding under the respective facility (i.e., the amount of debt we could borrow assuming we possessed sufficient assets as collateral) less the principal amount of debt then-outstanding under such facility.
We refer to "Availability Under Borrowing Base Limitation" and "borrowing base availability" as the lower of Remaining Capacity or the borrowing base less the principal amount of debt then-outstanding under such facility (i.e., the amount of debt we could borrow given the collateral we possess at such time).
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations (Continued)
As of March 31, 2010, we had an aggregate principal amount outstanding of $1,355.1 million pursuant to our Senior Term Facility and no amounts outstanding in our Senior ABL Facility. As of March 31, 2010, Hertz was required under the Senior Term Facility to have a consolidated leverage ratio of not more than 4.75:1 and a consolidated interest expense coverage ratio of not less than 2.25:1. In addition, under our Senior ABL Facility, if there was less than $200.0 million of available borrowing capacity under that facility as of March 31, 2010, Hertz was required to have a consolidated leverage ratio of not more than 4.75:1 and a consolidated fixed charge coverage ratio of not less than 1:1 for the quarter then ended. Under the Senior Term Facility, as of March 31, 2010, we had a consolidated leverage ratio of 3.71:1 and a consolidated interest expense coverage ratio of 3.29:1. Since we had maintained sufficient borrowing capacity under our Senior ABL Facility as of March 31, 2010, and expect to maintain such capacity in the future, the consolidated fixed charge coverage ratio was not deemed relevant for presentation. For further information on the terms of our senior credit facilities, see Note 3 of the Notes to our audited annual consolidated financial statements included in our Annual Report under the caption "Item 8—Financial Statements and Supplementary Data." In addition to the borrowings under our senior credit facilities, we have a significant amount of additional debt outstanding. For a discussion of the risks associated with our significant leverage, see "Item 1A—Risk Factors" in our Annual Report.
Credit Facilities
As of March 31, 2010, the following credit facilities were available for the use of Hertz and its subsidiaries (in millions of dollars):
| Remaining Capacity | Availability Under Borrowing Base Limitation | |||||||
---|---|---|---|---|---|---|---|---|---|
Corporate Debt | |||||||||
Senior Term Facility | $ | — | $ | — | |||||
Senior ABL Facility | 1,636.1 | 866.1 | |||||||
Total Corporate Debt | 1,636.1 | 866.1 | |||||||
Fleet Debt | |||||||||
U.S. Fleet Debt | 1,663.1 | 28.0 | |||||||
International Fleet Debt | 899.6 | 101.6 | |||||||
International ABS Fleet Financing Facility | 674.1 | 88.8 | |||||||
Fleet Financing Facility | — | — | |||||||
Brazilian Fleet Financing Facility | 6.3 | — | |||||||
Canadian Fleet Financing Facility | 124.0 | 38.8 | |||||||
Belgian Fleet Financing Facility | — | — | |||||||
Capitalized Leases | 107.0 | — | |||||||
Total Fleet Debt | 3,474.1 | 257.2 | |||||||
Total | $ | 5,110.2 | $ | 1,123.3 | |||||
As of March 31, 2010,2011, the Senior Term Facility had approximately $4.1$3.2 million available under the letter of credit facility and the Senior ABL Facility had $96.1$1,095.2 million available under the letter of credit facility sublimit.
Our liquidity as of March 31, 2010 was $5,140.9 million, which consisted of $800.7 million of cash and cash equivalents, $866.1 million of unused commitments under our Senior ABL Facility and $3,474.1 million of unused commitments under our Fleet Financing Facilities. Taking into consideration thesublimit, subject to borrowing base limitations in our Senior ABL Facility and in our Fleet Debt, the amount that we had
Table of Contentsrestrictions.
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued)
available for immediate use as of March 31, 2010 under our Senior ABL Facility was $866.1 million and we had $257.2 million of over-enhancement that was available under our Fleet Debt. Accordingly, as of March 31, 2010 we had $1,924.0 million ($800.7 million in cash and cash equivalents, $866.1 million available under our Senior ABL Facility and $257.2 million available under our various Fleet Debt facilities) in liquidity that was available for our immediate use. Future availability of borrowings under these facilities will depend on borrowing base requirements and other factors, many of which are outside our control. See "Item 1A—Risk Factors" in our Annual Report.
Also, substantiallySubstantially all of our revenue earning equipment and certain related assets are owned by special purpose entities, or are subject to liensencumbered in favor of our lenders under our various credit facilities. Substantially all our other assets in the United States are also subject to liens in favor of our lenders under our various credit facilities. None of these assets would be available to satisfy the claims of our general creditors, if we failed to perform our obligations to such creditors.
Some of these special purpose entities are consolidated variable interest entities, of which Hertz is the primary beneficiary, whose sole purpose is to provide commitments to lend in various currencies subject to borrowing bases comprised of rental vehicles and related assets of certain of Hertz International, Ltd.'s subsidiaries. As of March 31, 20102011 and December 31, 2009,2010, our International Fleet Financing No. 1 B.V., International Fleet Financing No. 2 B.V. and HA Funding and Hertz Fleet LimitedPty, Ltd. variable interest entities had total assets primarily comprised of loans receivable and revenue earning equipment of $396.6$503.0 million and $367.6$652.1 million, respectively, and total liabilities primarily comprised of debt of $691.7$502.5 million and $710.3$651.6 million, respectively. For further information on the terms of our International Fleet Debt, see Note 3 of the Notes to our audited annual consolidated financial statements included in our Annual Report under the caption "Item 8—Financial Statements and Supplementary Data."
Capital Expenditures
The following tables set forth the revenue earning equipment and property and equipment capital expenditures and related disposal proceeds received on a cash basis consistent with our revised consolidated statements of cash flows for the first quarter of 2010 and 2009 (in millions of dollars).
| Revenue Earning Equipment | Property and Equipment | ||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Capital Expenditures | Disposal Proceeds | Net Capital Expenditures (Disposal Proceeds) | Capital Expenditures | Disposal Proceeds | Net Capital Expenditures | ||||||||||||||
2010 | ||||||||||||||||||||
First Quarter | $ | 2,214.5 | $ | (1,589.9 | ) | $ | 624.6 | $ | 51.3 | $ | (6.7 | ) | $ | 44.6 | ||||||
2009 | ||||||||||||||||||||
First Quarter | $ | 1,399.6 | $ | (2,026.1 | ) | $ | (626.5 | ) | $ | 26.7 | $ | (5.2 | ) | $ | 21.5 | |||||
| Three Months Ended March 31, | | | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2010 | 2009 | $ Change | % Change | |||||||||||
Revenue earning equipment expenditures | |||||||||||||||
Car rental | $ | 2,181.8 | $ | 1,371.6 | $ | 810.2 | 59.1 | % | |||||||
Equipment rental | �� | 32.7 | 28.0 | 4.7 | 16.8 | % | |||||||||
Total | $ | 2,214.5 | $ | 1,399.6 | $ | 814.9 | 58.2 | % | |||||||
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued)
| Three Months Ended March 31, | | | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2010 | 2009 | $ Change | % Change | |||||||||||
Property and equipment expenditures | |||||||||||||||
Car rental | $ | 44.4 | $ | 21.8 | $ | 22.6 | 103.7 | % | |||||||
Equipment rental | 3.3 | 3.7 | (0.4 | ) | (10.8 | )% | |||||||||
Other | 3.6 | 1.2 | 2.4 | 200.0 | % | ||||||||||
Total | $ | 51.3 | $ | 26.7 | $ | 24.6 | 92.1 | % | |||||||
The increase in our car rental operations revenue earning equipment expenditures was primarily due to higher rental volumes during the three months ended March 31, 2010 as compared to the three months ended March 31, 2009, which required us to increase our fleet levels. The increase in our equipment rental operations revenue earning equipment expenditures was primarily due to our efforts to meet current year's goal in updating aged fleet during the three months ended March 31, 2010 as compared to the three months ended March 31, 2009.
The increase in car rental property and equipment expenditures are due to increased spending in response to an increase in demand. The level of expenditures in our equipment rental operations remained relatively the same.
Off-Balance Sheet Commitments and Arrangements
As of March 31, 20102011 and December 31, 2009,2010, the following guarantees (including indemnification commitments) were issued and outstanding:
IndemnificationsIndemnification Obligations
In the ordinary course of business, we execute contracts involving indemnifications standardindemnification obligations customary in the relevant industry and indemnifications specific to a transaction such as the sale of a business. These indemnificationsindemnification obligations might include claims relating to the following: environmental matters; intellectual property rights; governmental regulations and employment-related matters; customer, supplier and other commercial contractual relationships; and financial matters. Performance under these indemnitiesindemnification 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 indemnificationsindemnification obligations and have accrued for expected losses that are probable and estimable. The types of indemnificationsindemnification obligations for which payments are possible include the following:
Sponsors; Directors
Hertz has entered into customary indemnification agreements with Hertz Holdings, the Sponsors and our stockholders affiliated with the Sponsors, pursuant to which Hertz Holdings and Hertz will indemnify the Sponsors, our stockholders affiliated with the Sponsors and their respective affiliates, directors, officers, partners, members, employees, agents, representatives and controlling persons, against certain liabilities arising out of performance of a consulting agreement with Hertz Holdings and each of the Sponsors and certain other claims and liabilities, including liabilities arising out of financing arrangements or securities offerings. We also entered into indemnification agreements with each of our directors. We do not believe that these indemnifications are reasonably likely to have a material impact on us.
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations (Continued)
Environmental
We have 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 we may be held responsible could be substantial. The probable expenses that we expect to incur for such matters have been accrued, and those expenses are reflected in our condensed consolidated financial statements. As of March 31, 20102011 and December 31, 2009,2010, the aggregate amounts accrued for environmental liabilities, including liability for environmental indemnities, reflected in our condensed consolidated balance sheetsheets in "Accrued liabilities" were $1.8$1.5 million and $2.0$1.6 million, respectively. 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 we ultimately may be responsible cannot be reasonably estimated because of uncertainties with respect to factors such as our 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).
Risk Management
For a discussion of additional risks arising from our operations, including vehicle liability, general liability and property damage insurable risks, see "Item 1—Business—Risk Management" in our Annual Report.Form 10-K.
Market Risks
We are exposed to a variety of market risks, including the effects of changes in interest rates, foreign currency exchange rates and fluctuations in gasoline 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. For more information on these exposures, see Note 1213 to the Notes to our audited annualcondensed consolidated financial statements included in our Annual Report under the caption "Item 8—Financial Statements and Supplementary Data."this Report.
Interest Rate Risk
From time to time, we may enter into interest rate swap agreements and/or interest rate cap agreements to manage interest rate risk. See Notes 87 and 1413 to the Notes to our condensed consolidated financial statements included in this Report and Notes 34 and 1213 to the Notes to our audited annual consolidated financial statements included in our Annual ReportForm 10-K under the caption "Item 8—Financial Statements and Supplementary Data."
We have a significant amount of debt (including under our U.S. and International Fleet Debt facilities, other international fleet debt facilities, International ABS Fleet Financing Facility and Senior ABL Facility) with variable rates of interest based generally on LIBOR, Euro inter-bank offered rate, or "EURIBOR," or their equivalents for local currencies or bank conduit commercial paper rates plus an applicable margin. Increases in interest rates could therefore significantly increase the associated interest payments that we are required to make on this debt.
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations (Continued)
therefore significantly increase the associated interest payments that we are required to make on this debt.
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 debt portfolio as of March 31, 2010,2011, our net incomeloss would decreaseincrease by an estimated $23.9$17.4 million over a twelve-month period.
Consistent with the terms of the agreements governing the respective debt obligations, we may hedge a portion of the floating rate interest exposure under the Senior Credit Facilities, the U.S. and International Fleet Debt and International ABS Fleet Financing Facilityvarious debt facilities to provide protection in respect of such exposure.
Foreign Currency Risk
We have foreign currency exposure to exchange rate fluctuations worldwide and primarily with respect to the Euro, Canadian dollar, Australian dollar and British pound.
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 for working capital needs. Also, we have purchased foreign exchange options to manage exposure to fluctuations in foreign exchange rates for selected marketing programs. The effect of exchange rate changes on these financial instruments would not materially affect our consolidated financial position, results of operations or cash flows. Our risks with respect to foreign exchange options are limited to the premium paid for the right to exercise the option and the future performance of the option's counterparty.
We also manage exposure to fluctuations in currency risk on intercompany loans we make to certain of our subsidiaries by entering into foreign currency forward contracts at the time of the loans which are intended to offset the impact of foreign currency movements on the underlying intercompany loan obligations.
On October 1, 2006, we designated our 7.875% Senior Euro Notes due 2014 as an effective net investment hedge of our Euro-denominated net investment in our international operations.
For the three months ended March 31, 2011, our consolidated statement of operations contained realized and unrealized losses relating to the effects of foreign currency of $2.6 million.
See Note 1413 to the Notes to our condensed consolidated financial statements included in this Report.
Other Risks
We purchase unleaded gasoline and diesel fuel at prevailing market rates. In January 2009, we began a program to manage our exposure to changes in fuel prices through the use of derivative commodity instruments. For the three months ended March 31, 2011, we recognized a gain of $3.1 million in "Direct operating" on our consolidated statement of operations relating to our gasoline swaps. See Note 1413 to the Notes to our condensed consolidated financial statements included in this Report.
Inflation
The increased cost of vehicles is the primary inflationary factor affecting us. Many of our other operating expenses are also expected to increase with inflation, including health care costs and gasoline. Management does not expect that the effect of inflation on our overall operating costs will be greater for us than for our competitors.
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations (Continued)
Income Taxes
In January 2006, we implemented a LKE Program for our U.S. car rental business. Pursuant to the program, we dispose of vehicles and acquire replacement vehicles in a form intended to allow such dispositions and replacements to qualify as tax-deferred "like-kind exchanges" pursuant to section 1031
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued)
of the Internal Revenue Code. The program has resulted in deferral of federal and state income taxes for fiscal years 2006, 2007, 2008 and 2009.2009 and part of 2010. A LKE Program for HERC has also been in place for several years. The program allows tax deferral if a qualified replacement asset is acquired within a specific time period after asset disposal. Accordingly, if a qualified replacement asset is not purchased within this limited time period, taxable gain is recognized. ForOver the last few years, for strategic purposes, such as cash management and fleet reduction, we have triggeredrecognized some taxable gains in the program. TheIn 2009, the bankruptcy filing of an OEMoriginal equipment manufacturer, or "OEM," also resulted in minimal gain recognition. We had sufficient net operating losses to fully offset the taxable gains recognized. We cannot offer assurance that the expected tax deferral will continue or that the relevant law concerning the programs will remain in its current form. An extended reduction in purchases or downsizing of our car rental fleet could result in reduced deferrals in the future, which in turn could require us to make material cash payments for federal and state income tax liabilities. Our inability to obtain replacement financing as our fleet financing facilities mature would likely result in an extended reduction in purchases or downsizing of the fleet. However,In the event of an extended fleet reduction, we believe the likelihood of making material cash tax payments in the near future is low because of our significant net operating losses. ForIn August 2010, we elected to temporarily suspend the U.S. car rental LKE Program allowing cash proceeds from sales of vehicles to be utilized for various business purposes, including paying down existing debt obligations, future growth initiatives and for general operating purposes. Purchases of vehicles will continue to be funded with a discussioncombination of risks relatedasset-backed securitizations, asset-based revolving credit facilities and corporate liquidity. We expect that recent tax legislation, effective September 2010 through December 2011, will result in the LKE suspension having a neutral effect on our taxes. The new law allows 100% bonus depreciation for qualified asset acquisitions during the period the law is effective. We estimate recognized tax gains on vehicle dispositions resulting from the LKE suspension to our reliancebe mainly offset by 100% tax depreciation on asset-backed financing to purchase cars, see "Item 1A—Risk Factors" in our Annual Report.newly acquired vehicles. Our federal net operating loss position for U.S. tax purposes should remain relatively unchanged when the LKE program is re-instated.
On January 1, 2009, Bank of America acquired Merrill Lynch & Co., Inc., the parent company of MLGPE.BAMLCP. Accordingly, Bank of America is now an indirect beneficial owner of our common stock held by MLGPEBAMLCP and certain of its affiliates. For U.S. income tax purposes the transaction, when combined with other unrelated transactions during the previous 36 months, resulted in a change in control as that term is defined in Section 382 of the Internal Revenue Code. Consequently, utilization of all pre-2009 U.S. net operating losses is subject to an annual limitation. The limitation is not expected to result in a loss of net operating losses or have a material adverse impact on taxes.
Employee Retirement Benefits
Pension
We sponsor defined benefit pension plans worldwide. Pension obligations give rise to significant expenses that are dependent on assumptions discussed in Note 45 of the Notes to our audited annual consolidated financial statements included in our Annual ReportForm 10-K under the caption "Item 8—Financial Statements and Supplementary Data." Based on present assumptions, our 2010Our 2011 worldwide pre-tax pension expense is expected to be approximately $39.1$37.7 million, which would represent an increase of $3.2$5.5 million from 2009.2010. The
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations (Continued)
anticipated increase in expense compared to 20092010 is primarily due to the lower discount rates. We expect to contribute up to $65 million to our U.S. pension plan in the full yearexpected rates of 2010. These contributions are necessary primarily because of the significant decline in asset values.return on assets as well as adverse exchange rate movements.
We participate in various "multiemployer" pension plans administered by labor unions representing some of our employees. We make periodic contributions to these plans to allow them to meet their pension benefit obligations to their participants.plans. In the event that we withdraw from participation in one of these plans, then applicable law could require us to make an additional lump-sum contribution to the plan, and we would have to reflect that as an expense in our consolidated statement of operations and as a liability on our condensed consolidated balance sheet. Our withdrawal liability for any multiemployer plan would depend on the extent of the plan's funding of vested benefits. In the ordinary course of our renegotiation of collective bargaining agreements with labor unions that maintain these plans, we could decide to discontinue participation in aAt least one multiemployer plan and in that event, we could face a withdrawal liability. Some multiemployer plans, including one in which we participate areis reported to have, and other of our multiemployer plans could have, significant underfunded liabilities. Such underfunding couldmay increase in the sizeevent other employers become insolvent or withdraw from the applicable plan or upon the inability or failure of our potentialwithdrawing employers to pay their withdrawal liability.
Table In addition, such underfunding may increase as a result of Contents
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued)lower than expected returns on pension fund assets or other funding deficiencies.
Recent Accounting Pronouncements
For a discussion of recentThere have been no new accounting pronouncements see Note 3issued or changes to existing guidance during the Notes tothree months ended March 31, 2011 that would have a material impact on our condensed consolidated financial statements included in this Report.position or results of operations.
Other Financial Information
TheWith respect to the unaudited interim financial information of Hertz Global Holdings, Inc. as of March 31, 2011 and for the three-month periods ended March 31, 2011 and 2010 included in this Report has not been audited byForm 10-Q, PricewaterhouseCoopers LLP or "PwC." In reviewing this interim financial information, PwC hasreported that they applied limited procedures in accordance with professional standards for reviews of such unaudited interim financial information. However, their separate report dated May 6, 2011 included in this Form 10-Q herein states that they did not audit and they do not express an opinion on such unaudited interim financial information. Accordingly, the degree of reliance on their reports on this informationreport should be restricted. PwCrestricted in light of the limited nature of the review procedures applied. PricewaterhouseCoopers LLP is not subject to the liability provisions of Section 11 of the Securities Act of 1933 for its reportstheir report on thesuch unaudited interim financial information because their reports dothat report is not constitute "reports"a "report" or "parts""part" of a registration statementsstatement prepared or certified by PwCPricewaterhouseCoopers LLP within the meaning of Sections 7 and 11 of the Securities Act of 1933.
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk
There is no material change in the information reported under "Part II, Item 7A—Quantitative and Qualitative Disclosures About Market Risk," containedincluded in our Annual ReportForm 10-K for the fiscal year ended December 31, 2009.2010. See "Item 2—Management's Discussion and Analysis of Financial Condition and Results of Operations—Market Risks," included in this Report.
ITEM 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in company reports filed or submitted under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in company reports filed under the Securities Exchange Act of 1934 is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
An evaluation of the effectiveness of our disclosure controls and procedures was performed under the supervision of, and with the participation of, management, including our Chief Executive Officer and Chief Financial Officer, as of the end of the period covered by this Report. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective.
Changes in Internal Control Over Financial Reporting
An evaluation of our internal controls over financial reporting was performed under the supervision of, and with the participation of, management, including our Chief Executive Officer and Chief Financial Officer, to determine whether any changes have occurred during the period covered by this Report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Based upon this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that no changes in our internal control over financial reporting have occurred during the three months ended March 31, 20102011 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II—OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
For a description of certain pending legal proceedings, see Note 1011 to the Notes to our annual audited consolidated financial statements included in our Annual Report.
The following recent developments pertaining to legal proceedings described in our Annual Report are furnished on a supplemental basis:Form 10-K.
In March 2010, inJanet Sobel, Daniel Dugan, PhD. and Lydia Lee, individually and on behalf of all others similarly situated v. The Hertz Corporation and Enterprise Rent-A-Car Company, the court ruled on the cross motions for summary judgment holding that Hertz violated the since amended Nevada "bundled pricing" statute by separately disclosing and charging airport concession fee recoveries. However, the court also found that Hertz's full disclosure of the estimated total price of the airport rentals was not deceptive within the meaning of Nevada's Deceptive Trade Practices Act. Some additional discovery will now be taken and additional motions are expected to be filed by both sides in the coming months.
Aside from the above mentioned, thereThere were no material changes in the legal proceedings described in our Annual ReportForm 10-K and we are not otherwise required to disclose any pending legal proceedings in response to Item 103 of Regulation S-K.
ITEM 1A. RISK FACTORS
There is no material change in the information reported under "Item"Part I—Item 1A—Risk Factors" contained in our Annual Report on Form 10-K for the fiscal year ended December 31, 20092010 with the exception of the following.following:
If we are unableInvestment funds associated with or designated by the Sponsors will continue to completeexercise significant control over our contemplated acquisitionboard of Dollar Thrifty Automotive Group,directors, management, policies and significant transactions, and may have interests that differ from our expected financial results could be adversely affected.other stockholders.
On April 26, 2010, we announced that we entered into a definitive merger agreement under which we will acquire Dollar Thrifty Automotive Group,Investment funds associated with or "Dollar Thrifty,"designated by the Sponsors currently beneficially own, in a cash and stock transaction valued on that date at $41 per share, or a total of $1.27 billion. Consummationthe aggregate, approximately 39% of the merger is subjectoutstanding shares of our common stock. These funds are party to customary conditionsa stockholders agreement pursuant to closing, including the receipt of required regulatory approvals and the approval of Dollar Thrifty's shareholders. If any condition to the merger is not satisfied or waived, the merger will not be completed. We and Dollar Thrifty also may terminate the merger agreement under certain circumstances. As explained elsewhere in this Report, the Avis Budget Group, Inc. recently sent a letter to the Dollar Thrifty Board of Directors making certain requests for the stated purpose of formulating a competing offer. Any or allwhich each of the preceding could jeopardizefunds has agreed to vote in favor of the other funds' nominees to our abilityboard of directors. The Sponsors currently exercise, and will continue to consummate the merger on the already negotiated terms. To the extent the transaction is not completed for any reason, we would have devoted substantial resourcesexercise, significant influence over our board of directors and management attention to the transaction without realizing the accompanying benefits expected bymatters requiring stockholder approval and our management, policies and affairs for so long as the investment funds associated with or designated by the Sponsors continue to hold a significant amount of our stock price, financial condition and results of operations may be adversely affected.
While we anticipate that we have sufficient liquidity to consummate the acquisition of Dollar Thrifty without raising additional funds, it is likely that we will incur additional financing either before or after the acquisition to replenish our liquidity levels.common stock. There can be no assurance that wethe interests of the Sponsors will be ablenot conflict with those of our other stockholders. The Sponsors currently have the ability to raisesignificantly influence the necessary financingvote on acceptable terms, if at all. If we are unableany transaction that requires the approval of stockholders, including many possible change in control transactions, and may discourage or prevent any such transaction regardless of whether or not our other stockholders believe that such a transaction is in the company's or their own best interests.
Additionally, the Sponsors may from time to generate additional liquidity when neededtime acquire and hold interests in businesses that compete directly with us. One or on acceptable terms, wemore of the Sponsors may also pursue acquisition opportunities and other corporate opportunities that may be in breach of the financialcomplementary to our business and as a result, those opportunities may not be available to us.
Restrictive covenants contained in certain of the agreements and instruments governing our debt instrumentsindebtedness may materially adversely affect our financial flexibility or may have other material adverse effects on our business, financial condition and results of operations.
Certain of our credit facilities.facilities and other asset-based and asset-backed financing arrangements contain covenants that, among other things, restrict our ability to: (i) dispose of assets; (ii) incur additional indebtedness; (iii) incur guarantee obligations; (iv) prepay other indebtedness or amend other financing arrangements; (v) pay dividends; (vi) create liens on assets; (vii) enter into sale and leaseback transactions; (viii) make investments, loans, advances or capital expenditures; (ix) make acquisitions; (x) engage in mergers or consolidations; (xi) change the business conducted by us; and (xii) engage in certain transactions with affiliates.
Our Senior ABL Facility contains a financial covenant that obligates us to maintain a specified fixed charge coverage ratio if we fail to maintain a specified minimum level of borrowing base availability thereunder. Our ability to comply with this covenant will depend on our ongoing financial and operating performance, which in turn are subject to, among other things, the risks identified in this section and
ITEM 1A. RISK FACTORS (Continued)
Even ifunder "Part I—Item 1A—Risk Factors—Risks Related to Our Business" included in our Annual Report on Form 10-K.
The agreements governing our financing arrangements contain numerous covenants. The breach of any of these covenants or restrictions could result in a default under the Dollar Thrifty acquisition is consummated,relevant agreement, which can, in turn, cause cross-defaults under our other financing arrangements. In such event, we may failbe unable to realize allborrow under the Senior ABL Facility and certain of the anticipated benefits of the acquisition.
We agreed to acquire Dollar Thrifty because we believe that the merger will be beneficial to usour other financing arrangements and our stockholders. To realize these anticipated benefits, after the completion of the merger, we expect to achieve significant cost savings as we integrate our respective businesses. However, there is no assurance that if the Dollar Thrifty acquisition is consummated, we willmay not be able to integraterepay the amounts due under such arrangements. Therefore, we would need to raise refinancing indebtedness, which may not be available to us on favorable terms, on a timely basis or at all. This could have serious consequences to our financial condition and results of operations of Dollar Thrifty without encountering unexpected difficulties, including unanticipated costs, difficultyand could cause us to become bankrupt or insolvent. Additionally, such defaults could require us to sell assets, if possible, and otherwise curtail our operations in retaining customers, challenges associated with information technology integration, and failureorder to retain key employees. We may also incur substantial delays or costs in connection with the completion of the acquisition, including with respect to any legal proceedings instituted against us or Dollar Thrifty as a result of the acquisition. As explained elsewhere in this Report, at least one class action lawsuit has been filed seeking to block consummation of the merger. Additionally, as a condition to their approval of the merger, regulatory agencies may impose requirements, limitations or costs or require divestitures or place restrictions on the conduct of the combined company's business. Any or all of the preceding could jeopardizepay our ability to obtain the anticipated benefits of the merger, whichcreditors. Such alternative measures could have a material adverse effect on our stock price,business, financial condition and results of operations.
If we are unable to purchase adequate supplies of competitively priced cars or equipment and the cost of the cars or equipment we purchase increases, our financial condition and results of operations may be materially adversely affected.
We are not a party to any long-term car supply arrangements with manufacturers. The price and other terms at which we can acquire cars thus varies based on market and other conditions. For example, certain car manufacturers have in the past, and may in the future, utilize strategies to de-emphasize sales to the car rental industry, which can negatively impact our ability to obtain cars on competitive terms and conditions. In addition, the earthquake and tsunami in Japan may cause disruptions in the overall supply of cars or equipment. Consequently, there is no guarantee that we can purchase a sufficient number of vehicles at competitive prices and on competitive terms and conditions. Reduced or limited supplies of equipment together with increased prices are risks that we also face in our equipment rental business. If we are unable to obtain an adequate supply of cars or equipment, or if we obtain less favorable pricing and other terms when we acquire cars or equipment and are unable to pass on any increased costs to our customers, then our financial condition and results of operations may be materially adversely affected.
The attached list of exhibits in the "Exhibit Index" immediately following the signature page to this Report is filed as part of this Form 10-Q and is incorporated herein by reference in response to this item.
Pursuant to the requirements 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.
Date: May 6, 2011 | HERTZ GLOBAL HOLDINGS, INC. (Registrant) | |||
By: | /s/ ELYSE DOUGLAS | |||
Elyse Douglas | ||||
Executive Vice President and Chief Financial Officer (principal financial officer and duly authorized officer) |
Exhibit Number | Description | |
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3.2 | Amended and Restated By-Laws of Hertz Global Holdings, Inc., effective March 31, 2011 (Incorporated by reference to Exhibit 3.2 to the Current Report on Form 8-K of Hertz Global Holdings, Inc., as filed on April 1, 2011). | |
10.1.1 | Credit Agreement, dated as of March 11, 2011, among The Hertz Corporation, the several lenders from time to time parties thereto, Deutsche Bank AG New York Branch, as Administrative Agent and Collateral Agent, Wells Fargo Bank, National Association, as Syndication Agent, Bank of America, N.A., Barclays Bank PLC, Citibank, N.A., Credit Agricole Corporate and Investment Bank and JPMorgan Chase Bank, N.A., as Co-Documentation Agents, Deutsche Bank Securities Inc., Barclays Capital, Citigroup Global Markets Inc., Credit Agricole Corporate and Investment Bank, J.P. Morgan Securities LLC, Merrill Lynch, Pierce, Fenner & Smith Incorporated and Wells Fargo Securities, LLC, as Joint Lead Arrangers and Joint Bookrunning Managers (referred to as the Senior Term Facility) (Incorporated by reference to Exhibit 99.1 to the Current Report on Form 8-K of Hertz Global Holdings, Inc. as filed on March 17, 2011). | |
10.1.2 | Guarantee and Collateral Agreement, dated as of March 11, 2011, between Hertz Investors, Inc., The Hertz Corporation and certain of its subsidiaries and Deutsche Bank AG New York Branch, as Administrative Agent and Collateral Agent, relating to the Senior Term Facility (Incorporated by reference to Exhibit 99.2 to the Current Report on Form 8-K of Hertz Global Holdings, Inc. as filed on March 17, 2011). | |
10.2.1 | Credit Agreement, dated as of March 11, 2011, between Hertz Equipment Rental Corporation, The Hertz Corporation, the Canadian Borrowers parties thereto, the several lenders from time to time parties thereto, Deutsche Bank AG New York Branch, as Administrative Agent and Collateral Agent, Deutsche Bank AG Canada Branch, as Canadian Agent and Canadian Collateral Agent, Wells Fargo Bank, National Association, as Co-Collateral Agent and Syndication Agent, Bank of America, N.A., Barclays Bank PLC, Citibank, N.A. Credit Agricole Corporate and Investment Bank and JPMorgan Chase Bank, N.A., as Co-Documentation Agents, Wells Fargo Capital Finance, LLC and Deutsche Bank Securities Inc., as Joint Lead Arrangers, and Wells Fargo Capital Finance, LLC, Deutsche Bank Securities Inc., Barclays Capital, Citigroup Global Markets Inc., Credit Agricole Corporate and Investment Bank, J.P. Morgan Securities LLC and Merrill Lynch, Pierce, Fenner and Smith Incorporated as Joint Bookrunning Managers (referred to as the Senior ABL Facility) (Incorporated by reference to Exhibit 99.3 to the Current Report on Form 8-K of Hertz Global Holdings, Inc. as filed on March 17, 2011). | |
10.2.2 | U.S. Guarantee and Collateral Agreement, dated as of March 11, 2011, between Hertz Investors, Inc., The Hertz Corporation and certain of its subsidiaries and Deutsche Bank AG New York Branch, as Administrative Agent and Collateral Agent, relating to the Senior ABL Facility (Incorporated by reference to Exhibit 99.4 to the Current Report on Form 8-K of Hertz Global Holdings, Inc. as filed on March 17, 2011). | |
10.2.3 | Canadian Guarantee and Collateral Agreement, dated as of March 11, 2011, between Matthews Equipment Limited, Western Shut-Down (1995) Limited, Hertz Canada Equipment Rental Partnership, 3222434 Nova Scotia Company and certain of their subsidiaries and Deutsche Bank AG Canada Branch, as Canadian Agent and Canadian Collateral Agent, relating to the Senior ABL Facility (Incorporated by reference to Exhibit 99.5 to the Current Report on Form 8-K of Hertz Global Holdings, Inc. as filed on March 17, 2011). | |
10.28 | Separation Agreement and General Release, dated as of February 28, 2011, between Hertz Global Holdings, Inc. and The Hertz Corporation and Gerald Plescia (Incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K of Hertz Global Holdings, Inc. as filed on March 4, 2011). |
Exhibit Number | Description | |
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15 | Letter from PricewaterhouseCoopers LLP, Independent Registered Public Accounting Firm, dated May | |
31.1–31.2 | Rule 13a-14(a)/15d-14(a) Certifications of Chief Executive Officer and Chief Financial Officer | |
32.1–32.2 | 18 U.S.C. Section 1350 Certifications of Chief Executive Officer and Chief Financial Officer |
SIGNATURE
Pursuant to the requirements 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.
XBRL Instance Document* | ||||
101.DEF | XBRL Taxonomy Extension Definition Linkbase Document* | |
101.LAB | XBRL Taxonomy Extension Label Linkbase Document* | |
101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document* |