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 | ||
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 ý 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 412,516,648416,494,442 shares of the Registrant'sregistrant's common stock, par value $0.01 per share, issued and outstanding as of November 3, 2010.August 2, 2011.
HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIESINDEX
INDEX
PART I—FINANCIAL INFORMATION
ITEM l. Condensed Consolidated Financial Statements
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and
Shareholders of Hertz Global Holdings, Inc.:
We have reviewed the accompanying condensed consolidated balance sheet of Hertz Global Holdings, Inc. and its subsidiaries as of SeptemberJune 30, 2010,2011, and the related consolidated statements of operations for the three-month and nine-monthsix-month periods ended SeptemberJune 30, 20102011 and SeptemberJune 30, 20092010 and the consolidated statements of cash flows for the nine-monthsix-month periods ended SeptemberJune 30, 20102011 and SeptemberJune 30, 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 JerseyNovember 9, 2010August 5, 2011
HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands of Dollars)
Unaudited
| | September 30, 2010 | December 31, 2009 | | June 30, 2011 | December 31, 2010 | ||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
ASSETS | ASSETS | ASSETS | ||||||||||||||||||
Cash and cash equivalents | Cash and cash equivalents | $ | 1,483,320 | $ | 985,642 | Cash and cash equivalents | $ | 747,582 | $ | 2,374,170 | ||||||||||
Restricted cash and cash equivalents | Restricted cash and cash equivalents | 739,571 | 365,159 | Restricted cash and cash equivalents | 274,289 | 207,576 | ||||||||||||||
Receivables, less allowance for doubtful accounts of $20,086 and $21,268 | 1,674,946 | 1,325,332 | ||||||||||||||||||
Receivables, less allowance for doubtful accounts of $19,099 and $19,708 | Receivables, less allowance for doubtful accounts of $19,099 and $19,708 | 1,447,170 | 1,356,553 | |||||||||||||||||
Inventories, at lower of cost or market | Inventories, at lower of cost or market | 87,615 | 93,415 | Inventories, at lower of cost or market | 99,999 | 87,429 | ||||||||||||||
Prepaid expenses and other assets | Prepaid expenses and other assets | 329,144 | 300,125 | Prepaid expenses and other assets | 464,947 | 352,782 | ||||||||||||||
Revenue earning equipment, at cost: | Revenue earning equipment, at cost: | Revenue earning equipment, at cost: | ||||||||||||||||||
Cars | 9,281,200 | 8,205,579 | Cars | 10,787,553 | 8,435,077 | |||||||||||||||
Less accumulated depreciation | (1,161,781 | ) | (1,186,299 | ) | Less accumulated depreciation | (1,264,859 | ) | (1,199,355 | ) | |||||||||||
Other equipment | 2,724,937 | 2,582,029 | Other equipment | 2,790,005 | 2,756,101 | |||||||||||||||
Less accumulated depreciation | (1,043,576 | ) | (749,724 | ) | Less accumulated depreciation | (1,087,346 | ) | (1,052,414 | ) | |||||||||||
Total revenue earning equipment | 9,800,780 | 8,851,585 | Total revenue earning equipment | 11,225,353 | 8,939,409 | |||||||||||||||
Property and equipment, at cost: | Property and equipment, at cost: | Property and equipment, at cost: | ||||||||||||||||||
Land, buildings and leasehold improvements | 1,062,154 | 1,023,891 | Land, buildings and leasehold improvements | 1,119,172 | 1,071,987 | |||||||||||||||
Service equipment and other | 880,550 | 838,906 | Service equipment and other | 1,001,807 | 900,271 | |||||||||||||||
1,942,704 | 1,862,797 | 2,120,979 | 1,972,258 | |||||||||||||||||
Less accumulated depreciation | (782,204 | ) | (674,668 | ) | Less accumulated depreciation | (902,437 | ) | (808,689 | ) | |||||||||||
Total property and equipment | 1,160,500 | 1,188,129 | Total property and equipment | 1,218,542 | 1,163,569 | |||||||||||||||
Other intangible assets, net | Other intangible assets, net | 2,554,929 | 2,597,682 | Other intangible assets, net | 2,522,540 | 2,550,559 | ||||||||||||||
Goodwill | Goodwill | 295,825 | 295,350 | Goodwill | 307,212 | 300,174 | ||||||||||||||
Total assets | $ | 18,126,630 | $ | 16,002,419 | Total assets | $ | 18,307,634 | $ | 17,332,221 | |||||||||||
LIABILITIES AND EQUITY | LIABILITIES AND EQUITY | LIABILITIES AND EQUITY | ||||||||||||||||||
Accounts payable | Accounts payable | $ | 928,108 | $ | 658,671 | Accounts payable | $ | 1,560,856 | $ | 944,973 | ||||||||||
Accrued liabilities | Accrued liabilities | 1,123,922 | 1,024,822 | Accrued liabilities | 1,043,938 | 1,070,082 | ||||||||||||||
Accrued taxes | Accrued taxes | 192,460 | 108,356 | Accrued taxes | 134,397 | 108,940 | ||||||||||||||
Debt | Debt | 12,046,930 | 10,364,367 | Debt | 11,693,593 | 11,306,429 | ||||||||||||||
Public liability and property damage | Public liability and property damage | 286,536 | 277,828 | Public liability and property damage | 286,018 | 278,685 | ||||||||||||||
Deferred taxes on income | Deferred taxes on income | 1,405,290 | 1,470,934 | Deferred taxes on income | 1,457,194 | 1,491,789 | ||||||||||||||
Total liabilities | 15,983,246 | 13,904,978 | Total liabilities | 16,175,996 | 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, 412,310,646 and 410,245,225 shares issued and outstanding | 4,123 | 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, 416,415,936 and 413,462,889 shares issued and outstanding | 4,164 | 4,135 | |||||||||||||||
Additional paid-in capital | 3,170,761 | 3,141,695 | Additional paid-in capital | 3,203,452 | 3,183,225 | |||||||||||||||
Accumulated deficit | (1,081,203 | ) | (1,062,318 | ) | Accumulated deficit | (1,187,977 | ) | (1,110,362 | ) | |||||||||||
Accumulated other comprehensive income (loss) | 32,094 | (3,331 | ) | Accumulated other comprehensive income | 97,262 | 37,823 | ||||||||||||||
Total Hertz Global Holdings, Inc. and Subsidiaries stockholders' equity | 2,125,775 | 2,080,148 | Total Hertz Global Holdings, Inc. and Subsidiaries stockholders' equity | 2,116,901 | 2,114,821 | |||||||||||||||
Noncontrolling interest | Noncontrolling interest | 17,609 | 17,293 | Noncontrolling interest | 14,737 | 16,502 | ||||||||||||||
Total equity | 2,143,384 | 2,097,441 | Total equity | 2,131,638 | 2,131,323 | |||||||||||||||
Total liabilities and equity | $ | 18,126,630 | $ | 16,002,419 | Total liabilities and equity | $ | 18,307,634 | $ | 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 September 30, | Nine Months Ended September 30, | | Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | 2010 | 2009 | 2010 | 2009 | | 2011 | 2010 | 2011 | 2010 | ||||||||||||||||||||
Revenues: | Revenues: | Revenues: | ||||||||||||||||||||||||||||
Car rental | $ | 1,862,600 | $ | 1,724,887 | $ | 4,842,154 | $ | 4,436,691 | Car rental | $ | 1,731,200 | $ | 1,582,983 | $ | 3,210,138 | $ | 2,979,554 | |||||||||||||
Equipment rental | 281,138 | 280,281 | 783,815 | 836,421 | Equipment rental | 301,641 | 265,706 | 569,727 | 502,677 | |||||||||||||||||||||
Other | 42,566 | 36,247 | 100,809 | 87,673 | Other | 39,452 | 30,897 | 72,431 | 58,243 | |||||||||||||||||||||
Total revenues | 2,186,304 | 2,041,415 | 5,726,778 | 5,360,785 | Total revenues | 2,072,293 | 1,879,586 | 3,852,296 | 3,540,474 | |||||||||||||||||||||
Expenses: | Expenses: | Expenses: | ||||||||||||||||||||||||||||
Direct operating | 1,157,485 | 1,118,596 | 3,245,521 | 3,062,489 | Direct operating | 1,187,306 | 1,075,037 | 2,260,971 | 2,088,036 | |||||||||||||||||||||
Depreciation of revenue earning equipment | 501,009 | 499,050 | 1,416,902 | 1,468,228 | Depreciation of revenue earning equipment and lease charges | 419,669 | 456,720 | 855,758 | 915,893 | |||||||||||||||||||||
Selling, general and administrative | 168,717 | 179,778 | 508,445 | 488,012 | Selling, general and administrative | 195,591 | 171,985 | 377,812 | 339,728 | |||||||||||||||||||||
Interest expense | 202,158 | 169,294 | 572,129 | 498,238 | Interest expense | 165,826 | 188,873 | 362,715 | 369,971 | |||||||||||||||||||||
Interest and other income, net | (1,355 | ) | (1,066 | ) | (10,424 | ) | (52,598 | ) | Interest income | (1,546 | ) | (6,791 | ) | (3,401 | ) | (9,069 | ) | |||||||||||||
Other (income) expense, net | 10,801 | — | 62,677 | — | ||||||||||||||||||||||||||
Total expenses | 2,028,014 | 1,965,652 | 5,732,573 | 5,464,369 | ||||||||||||||||||||||||||
Total expenses | 1,977,647 | 1,885,824 | 3,916,532 | 3,704,559 | ||||||||||||||||||||||||||
Income (loss) before income taxes | Income (loss) before income taxes | 158,290 | 75,763 | (5,795 | ) | (103,584 | ) | Income (loss) before income taxes | 94,646 | (6,238 | ) | (64,236 | ) | (164,085 | ) | |||||||||||||||
(Provision) benefit for taxes on income | 3,014 | (6,792 | ) | (176 | ) | 19,873 | ||||||||||||||||||||||||
Provision for taxes on income | Provision for taxes on income | (34,561 | ) | (14,210 | ) | (4,621 | ) | (3,190 | ) | |||||||||||||||||||||
Net income (loss) | Net income (loss) | 161,304 | 68,971 | (5,971 | ) | (83,711 | ) | Net income (loss) | 60,085 | (20,448 | ) | (68,857 | ) | (167,275 | ) | |||||||||||||||
Less: Net income attributable to noncontrolling interest | Less: Net income attributable to noncontrolling interest | (4,664 | ) | (4,443 | ) | (12,915 | ) | (11,408 | ) | Less: Net income attributable to noncontrolling interest | (5,087 | ) | (4,673 | ) | (8,760 | ) | (8,251 | ) | ||||||||||||
Net income (loss) attributable to Hertz Global Holdings, Inc. and Subsidiaries' common stockholders | Net income (loss) attributable to Hertz Global Holdings, Inc. and Subsidiaries' common stockholders | $ | 156,640 | $ | 64,528 | $ | (18,886 | ) | $ | (95,119 | ) | Net income (loss) attributable to Hertz Global Holdings, Inc. and Subsidiaries' common stockholders | $ | 54,998 | $ | (25,121 | ) | $ | (77,617 | ) | $ | (175,526 | ) | |||||||
Weighted average shares outstanding (in thousands) | Weighted average shares outstanding (in thousands) | Weighted average shares outstanding (in thousands) | ||||||||||||||||||||||||||||
Basic | 412,179 | 407,364 | 411,590 | 358,452 | Basic | 415,947 | 411,834 | 415,011 | 411,290 | |||||||||||||||||||||
Diluted | 430,385 | 425,171 | 411,590 | 358,452 | Diluted | 451,818 | 411,834 | 415,011 | 411,290 | |||||||||||||||||||||
Earnings (loss) per share attributable to Hertz Global Holdings, Inc. and Subsidiaries' common stockholders: | Earnings (loss) per share attributable to Hertz Global Holdings, Inc. and Subsidiaries' common stockholders: | Earnings (loss) per share attributable to Hertz Global Holdings, Inc. and Subsidiaries' common stockholders: | ||||||||||||||||||||||||||||
Basic | $ | 0.38 | $ | 0.16 | $ | (0.05 | ) | $ | (0.27 | ) | Basic | $ | 0.13 | $ | (0.06 | ) | $ | (0.19 | ) | $ | (0.43 | ) | ||||||||
Diluted | $ | 0.36 | $ | 0.15 | $ | (0.05 | ) | $ | (0.27 | ) | Diluted | $ | 0.12 | $ | (0.06 | ) | $ | (0.19 | ) | $ | (0.43 | ) |
The accompanying notes are an integral part of these financial statements.
HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands of Dollars)
Unaudited
| | Nine Months Ended September 30, | | Six Months Ended June 30, | ||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | 2010 | 2009 | | 2011 | 2010 | ||||||||||||||
Cash flows from operating activities: | Cash flows from operating activities: | Cash flows from operating activities: | ||||||||||||||||||
Net loss | $ | (5,971 | ) | $ | (83,711 | ) | Net loss | $ | (68,857 | ) | $ | (167,275 | ) | |||||||
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 | 1,416,902 | 1,468,228 | Depreciation of revenue earning equipment | 809,433 | 881,540 | |||||||||||||||
Depreciation of property and equipment | 116,238 | 119,712 | Depreciation of property and equipment | 77,140 | 78,571 | |||||||||||||||
Amortization of other intangible assets | 48,990 | 50,161 | Amortization of other intangible assets | 33,679 | 32,700 | |||||||||||||||
Amortization and write-off of deferred financing costs | 56,722 | 42,249 | Amortization and write-off of deferred financing costs | 64,251 | 38,508 | |||||||||||||||
Amortization of debt discount | 31,298 | 26,731 | Amortization and write-off of debt discount | 22,677 | 21,104 | |||||||||||||||
Stock-based compensation charges | 28,011 | 26,603 | Stock-based compensation charges | 16,630 | 19,308 | |||||||||||||||
Loss on derivatives | 16,406 | 3,853 | (Gain) loss on derivatives | (2,203 | ) | 5,047 | ||||||||||||||
Amortization of cash flow hedges | 56,836 | 52,227 | Amortization of cash flow hedges | — | 38,868 | |||||||||||||||
Provision for losses on doubtful accounts | 15,203 | 22,459 | Provision for losses on doubtful accounts | 14,313 | 10,295 | |||||||||||||||
Asset writedowns | 19,523 | 26,463 | Asset writedowns | 23,311 | 14,215 | |||||||||||||||
Deferred taxes on income | (29,621 | ) | 99,922 | Deferred taxes on income | (29,184 | ) | (3,818 | ) | ||||||||||||
Gain on sale of property and equipment | (2,660 | ) | (1,149 | ) | Gain on sale of property and equipment | (4,748 | ) | (2,176 | ) | |||||||||||
Changes in assets and liabilities, net of effects of acquisition: | Changes in assets and liabilities, net of effects of acquisition: | |||||||||||||||||||
Receivables | (97,820 | ) | (25,118 | ) | Receivables | (187,818 | ) | (105,472 | ) | |||||||||||
Inventories, prepaid expenses and other assets | (47,604 | ) | 2,077 | Inventories, prepaid expenses and other assets | (57,878 | ) | (25,509 | ) | ||||||||||||
Accounts payable | 203,179 | (188,137 | ) | Accounts payable | 138,214 | 254,809 | ||||||||||||||
Accrued liabilities | (66,724 | ) | (195,327 | ) | Accrued liabilities | (179,327 | ) | (69,523 | ) | |||||||||||
Accrued taxes | 14,952 | (112,994 | ) | Accrued taxes | 21,667 | (5,220 | ) | |||||||||||||
Public liability and property damage | 12,720 | (27,047 | ) | Public liability and property damage | (4,393 | ) | 252 | |||||||||||||
Net cash provided by operating activities | 1,786,580 | 1,307,202 | Net cash provided by operating activities | 686,907 | 1,016,224 | |||||||||||||||
Cash flows from investing activities: | Cash flows from investing activities: | Cash flows from investing activities: | ||||||||||||||||||
Net change in restricted cash and cash equivalents | (378,796 | ) | 330,627 | Net change in restricted cash and cash equivalents | (60,233 | ) | (389,242 | ) | ||||||||||||
Revenue earning equipment expenditures | (7,144,387 | ) | (5,194,514 | ) | Revenue earning equipment expenditures | (5,466,856 | ) | (5,317,298 | ) | |||||||||||
Proceeds from disposal of revenue earning equipment | 5,089,044 | 4,162,671 | Proceeds from disposal of revenue earning equipment | 3,488,890 | 3,443,510 | |||||||||||||||
Property and equipment expenditures | (134,269 | ) | (68,970 | ) | Property and equipment expenditures | (125,370 | ) | (92,018 | ) | |||||||||||
Proceeds from disposal of property and equipment | 25,459 | 6,140 | Proceeds from disposal of property and equipment | 28,388 | 15,194 | |||||||||||||||
Acquisitions, net of cash acquired | (12,074 | ) | (76,212 | ) | Acquisitions, net of cash acquired | (10,976 | ) | (157 | ) | |||||||||||
(Purchase) sale of short-term investments, net | 3,171 | (4,169 | ) | (Purchase) sale of short-term investments, net | (32,891 | ) | 3,171 | |||||||||||||
Other investing activities | 1,694 | 652 | Other investing activities | 1,303 | 817 | |||||||||||||||
Net cash used in investing activities | $ | (2,550,158 | ) | $ | (843,775 | ) | Net cash used in investing activities | $ | (2,177,745 | ) | $ | (2,336,023 | ) | |||||||
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
| | Nine Months Ended September 30, | | Six Months Ended June 30, | ||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | 2010 | 2009 | | 2011 | 2010 | ||||||||||||||
Cash flows from financing activities: | Cash flows from financing activities: | Cash flows from financing activities: | ||||||||||||||||||
Proceeds from issuance of long-term debt | $ | 2,133,958 | $ | 7,151 | Proceeds from issuance of long-term debt | $ | 3,028,591 | $ | 681,370 | |||||||||||
Proceeds from convertible debt offering | — | 459,483 | Payment of long-term debt | (3,631,480 | ) | (756,964 | ) | |||||||||||||
Payment of long-term debt | (2,074,930 | ) | (814,099 | ) | Short-term borrowings: | |||||||||||||||
Short-term borrowings: | Proceeds | 285,803 | 274,730 | |||||||||||||||||
Proceeds | 422,896 | 324,576 | Payments | (489,217 | ) | (281,009 | ) | |||||||||||||
Payments | (528,333 | ) | (272,559 | ) | Proceeds (payments) under the revolving lines of credit, net | 728,855 | 1,423,403 | |||||||||||||
Proceeds (payments) under the revolving lines of credit, net | 1,406,666 | (374,846 | ) | Distributions to noncontrolling interest | (10,500 | ) | (7,630 | ) | ||||||||||||
Distributions to noncontrolling interest | (12,600 | ) | (11,900 | ) | Proceeds from employee stock purchase plan | 1,716 | 1,222 | |||||||||||||
Proceeds from sale of common stock | — | 528,758 | Proceeds from exercise of stock options | 11,581 | 2,250 | |||||||||||||||
Proceeds from exercise of stock options | 3,155 | 4,807 | Proceeds from disgorgement of stockholder short-swing profits | 72 | 111 | |||||||||||||||
Proceeds from employee stock purchase plan | 1,857 | 1,846 | Net settlement on vesting of restricted stock | (11,381 | ) | (5,670 | ) | |||||||||||||
Proceeds from disgorgement of stockholder short-swing profits | 111 | 15 | Payment of financing costs | (81,392 | ) | (24,972 | ) | |||||||||||||
Net settlement on vesting of restricted stock | (5,670 | ) | — | |||||||||||||||||
Payment of financing costs | (51,515 | ) | (40,888 | ) | Net cash provided by (used in) financing activities | (167,352 | ) | 1,306,841 | ||||||||||||
Net cash provided by (used in) financing activities | 1,295,595 | (187,656 | ) | |||||||||||||||||
Effect of foreign exchange rate changes on cash and cash equivalents | Effect of foreign exchange rate changes on cash and cash equivalents | (34,339 | ) | 56,680 | Effect of foreign exchange rate changes on cash and cash equivalents | 31,602 | (75,836 | ) | ||||||||||||
Net increase in cash and cash equivalents during the period | 497,678 | 332,451 | ||||||||||||||||||
Net change in cash and cash equivalents during the period | Net change in cash and cash equivalents during the period | (1,626,588 | ) | (88,794 | ) | |||||||||||||||
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 | $ | 1,483,320 | $ | 926,717 | Cash and cash equivalents at end of period | $ | 747,582 | $ | 896,848 | ||||||||||
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) | $ | 448,871 | $ | 556,932 | Interest (net of amounts capitalized) | $ | 343,383 | $ | 264,563 | |||||||||||
Income taxes | 41,451 | 20,721 | Income taxes | 25,338 | 30,694 | |||||||||||||||
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 and accrued liabilities | $ | 439,218 | $ | 207,720 | Purchases of revenue earning equipment included in accounts payable and accrued liabilities | $ | 628,695 | $ | 828,881 | |||||||||||
Sales of revenue earning equipment included in receivables | 755,097 | 358,013 | Sales of revenue earning equipment included in receivables | 263,954 | 530,856 | |||||||||||||||
Purchases of property and equipment included in accounts payable | 26,251 | 12,629 | Purchases of property and equipment included in accounts payable | 59,633 | 29,125 | |||||||||||||||
Sales of property and equipment included in receivables | 8,352 | 8,741 | Sales of property and equipment included in receivables | 14,356 | 5,259 |
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 facilities.
As of September 30, 2010, we had $12,046.9 million of total indebtedness outstanding. Accordingly, we are highly leveraged and a substantial portion of our liquidity needs arise from debt service on our indebtedness and from the funding of our costs of operations and capital expenditures.
Our liquidity as of September 30, 2010 consisted 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 our current availability under our various credit facilities and our business plan, we believe we have sufficient liquidity to meet our debt maturities over the next twelve months. See Note 8—Debt.
HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Unaudited
For a description of 2010 financing activities, see Note 8—Debt.
As of September 30, 2010, we have approximately $217.7 million of remaining international fleet debt outstanding that matures in December 2010. We are currently in discussions regarding our remaining refinancing options, and based on these discussions and our ability to access the capital markets, we expect to refinance the remaining debt maturing in December 2010 on or prior to maturity. In the event financing is not available or is not available on terms we deem acceptable, we would expect to utilize our corporate liquidity (availability under corporate debt facilities plus unrestricted cash) to repay these obligations.
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. As of September 30, 2010, we were in compliance with all of these financial covenants.
MBIA Insurance Corporation, or "MBIA," and Ambac Assurance Corporation, or "Ambac," provide credit enhancements in the form of financial guarantees for our Series 2005-1 and 2005-2 Rental Car Asset-Backed Notes, or the "2005 Notes," with each providing guarantees for approximately half of the $875.0 million in principal amount of the 2005 Notes that was outstanding as of September 30, 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. 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 these recent financings to pay down the amounts owed under the affected series of 2005 Notes. The Series 2009-1 Notes, Series 2009-2 Notes, Series 2009-2 Class B Notes or the Series 2010-1 Notes are not guaranteed.
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 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 preparation ofDecember 31, 2010 condensed consolidated balance sheet data was derived from our audited financial statements, in conformity withbut does not include all disclosures required by accounting principles generally accepted in the United States of America, or "GAAP,"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
The December 31, 2009 condensed consolidated balance sheet data was derived from our audited financial statements, but does not include all disclosures required by GAAP.
In our opinion, all 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.
Note 3—Recent Accounting PronouncementsFor the six months ended June 30, 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.
For the six months ended June 30, 2010, we have also revised net cash used in investing activities and net cash provided by financing activities within our consolidated statement of cash flows to classify certain payments to a third party finance company for purchases of revenue earning equipment as cash outflows from financing activities as opposed to investing activities.
In June 2009,2011, the Financial Accounting Standards Board issued guidance, which contains amendments to Accounting Standards Codification 810, "Consolidation,Update No. 2011-05, "Presentation of Comprehensive Income," relatingrequiring companies to how a company determinespresent items of net income and other comprehensive income either in one continuous statement, referred to as the statement of comprehensive income, or in two separate, but consecutive statements of net income and other comprehensive income. The amendments in this update do not change the items that must be reported in other comprehensive income or when an entity that is insufficiently capitalized or is not controlled through voting (or similar rights) shoulditem of other comprehensive income must be consolidated. The determination of whether a company is requiredreclassified 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.net income. These provisions becamewill become effective for us on January 1, 2010, but did not have a material impact onbeginning with our financial position or results of operations.quarterly report for the period ended March 31, 2012.
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 (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 SeptemberJune 30, 20102011 and December 31, 2009,2010, the portion of total restricted cash and cash equivalents that was associated with our Fleet Debt facilities was $663.4$183.2 million and $295.0$115.6 million, respectively. The increase in restricted cash and cash equivalents associated with our Fleet Debtfleet debt of $368.4$67.6 million from December 31, 20092010 to SeptemberJune 30, 2010,2011 was primarily related to 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 | |||||||||
Goodwill acquired during the period | — | 0.8 | 0.8 | ||||||||
Other changes during the period(1) | (0.4 | ) | — | (0.4 | ) | ||||||
Balance as of September 30, 2010 | |||||||||||
Goodwill | 335.4 | 655.3 | 990.7 | ||||||||
Accumulated impairment losses | (43.0 | ) | (651.9 | ) | (694.9 | ) | |||||
$ | 292.4 | $ | 3.4 | $ | 295.8 | ||||||
| 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 | 1.8 | 0.2 | 2.0 | ||||||||
Adjustments to previously recorded purchase price allocation | (0.9 | ) | 1.4 | 0.5 | |||||||
Other changes during the period(1) | 4.3 | 0.2 | 4.5 | ||||||||
5.2 | 1.8 | 7.0 | |||||||||
Balance as of June 30, 2011 | |||||||||||
Goodwill | 341.6 | 660.5 | 1,002.1 | ||||||||
Accumulated impairment losses | (43.0 | ) | (651.9 | ) | (694.9 | ) | |||||
$ | 298.6 | $ | 8.6 | $ | 307.2 | ||||||
| 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):
| | September 30, 2010 | | June 30, 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 | $ | 601.6 | $ | (290.1 | ) | $ | 311.5 | Customer-related | $ | 606.6 | $ | (334.0 | ) | $ | 272.6 | |||||||||||
Other(1) | 52.5 | (17.3 | ) | 35.2 | Other(1) | 64.6 | (22.9 | ) | 41.7 | |||||||||||||||||
Total | 654.1 | (307.4 | ) | 346.7 | Total | 671.2 | (356.9 | ) | 314.3 | |||||||||||||||||
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(2) | 18.2 | — | 18.2 | Other(2) | 18.2 | — | 18.2 | |||||||||||||||||||
Total | 2,208.2 | — | 2,208.2 | Total | 2,208.2 | — | 2,208.2 | |||||||||||||||||||
Total other intangible assets, net | $ | 2,862.3 | $ | (307.4 | ) | $ | 2,554.9 | Total other intangible assets, net | $ | 2,879.4 | $ | (356.9 | ) | $ | 2,522.5 | |||||||||||
| | 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(1) | 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(2) | 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 SeptemberJune 30, 20102011 and 2009,2010, was approximately $16.3$16.9 million and $17.0$16.3 million, respectively, and for the ninesix months ended SeptemberJune 30, 20102011 and 2009,2010, was approximately $49.0$33.7 million and $50.1$32.7 million, respectively. Based on our amortizable intangible assets as of SeptemberJune 30, 2010,2011, we expect amortization expense to be approximately $16.2$32.8 million for the remainder of 20102011, $65.3 million in 2012, $64.0 million in 2013, $61.0 million in 2014, $59.8 million in 2015 and range from $58.2$13.4 million to $64.5 million for each of the next five fiscal years.in 2016.
During the ninesix months ended SeptemberJune 30, 2010,2011, we added eight international car rental locations by acquiring former franchiseesand one domestic equipment rental location through external acquisitions. These transactions have been accounted for using the acquisition method of accounting in accordance with GAAP and operating results of the acquired locations from the date of acquisition are included in our domestic car rental operations and four equipment rental locations related to external acquisitions done within our equipment rental operations. Total intangible assets acquired during the nine months ended September 30, 2010 was $6.6 million, of which $4.0 million and $2.6 million was allocated to amortizable intangible assets and indefinite-lived intangible assets,consolidated statement
HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Unaudited
respectively. Each of these transactions has been accounted for using the acquisition method of accounting in accordance with GAAP and operating resultsoperations. The allocation of the purchase price to the tangible and intangible net assets acquired locations fromis preliminary and subject to finalization. These acquisitions are not material to the datesconsolidated amounts presented within our statement of acquisition are included in our Consolidated Statements of Operations.operations for the three-month and six-month periods ended June 30, 2011.
Note 6—5—Taxes on Income
The effective tax rate for the three and ninesix months ended SeptemberJune 30, 20102011 was (1.9)%36.5% and (3.0)(7.2)%, respectively. The effective tax rate for the three and nine months ended September 30, 2009 was 9.0% and 19.2%, respectively. The benefitprovision for taxes on income was $3.0of $34.5 million in the three months ended SeptemberJune 30, 2011 increased from $14.2 million in the three months ended June 30, 2010, comparedprimarily due to ahigher income before income taxes, changes in geographic earnings mix and changes in losses in certain non-U.S. jurisdictions for which tax benefits cannot be realized. The provision for taxes on income of $6.9$4.6 million in the threesix months ended SeptemberJune 30, 2009. The change was primarily due to the mix of income before income taxes in various taxing jurisdictions and discrete benefits recorded in the three months ended September 30, 2010 compared to the three months ended September 30, 2009. The provision for taxes on income was $0.22011 increased from $3.2 million in the ninesix months ended SeptemberJune 30, 2010, compared to a benefit for taxes on income of $19.9 million in the nine months ended September 30, 2009. The year-over-year increase in tax expense was primarily due to a lower loss before income taxes, changes in geographic earnings mix and a reductionchanges in discretelosses in certain non-U.S. jurisdictions for which tax benefits in the nine months ended September 30, 2010, compared to the nine months ended September 30, 2009.cannot be realized.
Note 7—6—Depreciation of Revenue Earning Equipment and Lease Charges
Depreciation of revenue earning equipment and lease charges includes the following (in millions of dollars):
| | Three Months Ended September 30, | | Three Months Ended June 30, | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | 2010 | 2009 | | 2011 | 2010 | ||||||||||
Depreciation of revenue earning equipment | Depreciation of revenue earning equipment | $ | 471.3 | $ | 480.3 | Depreciation of revenue earning equipment | $ | 453.3 | $ | 426.1 | ||||||
Adjustment of depreciation upon disposal | 10.6 | 0.8 | ||||||||||||||
Adjustment of depreciation upon disposal of revenue earning equipment | Adjustment of depreciation upon disposal of revenue earning equipment | (56.3 | ) | 12.7 | ||||||||||||
Rents paid for vehicles leased | Rents paid for vehicles leased | 19.1 | 18.0 | Rents paid for vehicles leased | 22.7 | 17.9 | ||||||||||
Total | $ | 501.0 | $ | 499.1 | Total | $ | 419.7 | $ | 456.7 | |||||||
| | Nine Months Ended September 30, | | Six Months Ended June 30, | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | 2010 | 2009 | | 2011 | 2010 | ||||||||||
Depreciation of revenue earning equipment | Depreciation of revenue earning equipment | $ | 1,332.8 | $ | 1,350.5 | Depreciation of revenue earning equipment | $ | 871.8 | $ | 854.0 | ||||||
Adjustment of depreciation upon disposal | 38.0 | 64.5 | ||||||||||||||
Adjustment of depreciation upon disposal of revenue earning equipment | Adjustment of depreciation upon disposal of revenue earning equipment | (62.4 | ) | 27.5 | ||||||||||||
Rents paid for vehicles leased | Rents paid for vehicles leased | 46.1 | 53.2 | Rents paid for vehicles leased | 46.3 | 34.4 | ||||||||||
Total | $ | 1,416.9 | $ | 1,468.2 | Total | $ | 855.7 | $ | 915.9 | |||||||
The adjustment of depreciation upon disposal of revenue earning equipment for the three months ended SeptemberJune 30, 2011 and 2010, included a net gain of $53.6 million and 2009, included a net loss of $7.1 million and a net gain of $2.5$9.4 million, respectively, on the disposal of vehicles used in our car rental operations and a net lossesgain of $3.5$2.7 million and a net loss of $3.3 million, respectively, on the disposal of industrial and construction equipment used in our equipment rental operations. The adjustment of depreciation upon disposal of revenue earning equipment for the ninesix months ended SeptemberJune 30, 2011 and 2010, and 2009, included a net lossesgain of $27.6$59.7 million and $24.2a net loss of $20.6 million, respectively, on the disposal of vehicles used in our car rental operations and a net lossesgain of $10.4$2.7 million and $40.3a net loss of $6.9 million, respectively, on the disposal of industrial and construction equipment used in our equipment rental operations.
HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Unaudited
Depreciation rates are reviewed on a quarterly basis based on management's routine review of present and estimated future market conditions and their effect on residual values at the time of disposal. During the ninesix months ended SeptemberJune 30, 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 net increasesdecreases of $5.7$8.0 million and $16.6$8.6 million in depreciation expense for the three and ninesix months ended SeptemberJune 30, 2010,2011, respectively. During the ninethree and six months ended SeptemberJune 30, 2010,2011, depreciation rate changes in certain of our equipment rental operations resulted in net increasesdecreases of $2.7$1.3 million and $2.3 million in depreciation expense.
For the three months ended SeptemberJune 30, 20102011 and 2009,2010, our worldwide car rental operations sold approximately 41,60042,800 and 45,20042,000 non-program cars, respectively, an 8.0% year-over-yeara 1.9% year over year increase. For the six months ended June 30, 2011 and 2010, our worldwide car rental operations sold approximately 74,900 and 84,000 non-program cars, respectively, a 10.8% year over year decrease primarily due to an increase in rental demand which required us to maintain our fleet size. For the nine months ended September 30, 2010 and 2009, our worldwide car rental operations sold approximately 126,900 and 113,000 non-program cars, respectively, a 12.3% year-over-year increase primarily due to a higher average fleet size.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):
| September 30, 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, $10.4; 2009, $13.9 | $ | 1,338.0 | $ | 1,344.7 | |||||
Senior ABL Facility; net of unamortized discount: 2010, $6.2; 2009, $9.6 | (6.2 | ) | (9.6 | ) | |||||
Senior Notes, average interest rate: 2010, 8.7%; 2009, 8.7% | 2,037.3 | 2,054.7 | |||||||
2010 Senior Notes, average interest rate: 2010, 7.5% | 700.0 | — | |||||||
Senior Subordinated Notes, average interest rate: 2010, 10.5%; 2009, 10.5% | 518.5 | 518.5 | |||||||
Promissory Notes, average interest rate: 2010, 7.5%; 2009, 7.3% (effective average interest rate: 2010, 7.5%; 2009, 7.4%); net of unamortized discount: 2010, $2.8; 2009, $3.3 | 342.8 | 391.4 | |||||||
Convertible Senior Notes, average interest rate: 2010, 5.25%; 2009, 5.25%; (effective average interest rate: 2010, 6.5%; 2009, 6.8%); net of unamortized discount: 2010, $92.9; 2009, $107.3 | 381.9 | 367.4 | |||||||
Other borrowings, average interest rate: 2010, 4.8%; 2009, 7.6% | 22.4 | 22.3 | |||||||
Total Corporate Debt | 5,334.7 | 4,689.4 | |||||||
Fleet Debt | |||||||||
U.S. Fleet Debt, average interest rate: 2010, 4.0%; 2009, 4.7% (effective average interest rate: 2010, 4.0%; 2009, 4.7%); net of unamortized discount: 2010, $13.4; 2009, $16.7 | 4,588.7 | 4,058.3 | |||||||
International Fleet Debt(1), average interest rate: 2009, 2.1% (effective average interest rate: 2009, 2.2%); net of unamortized discount: 2009, $8.7 | — | 705.3 | |||||||
International ABS Fleet Financing Facility, average interest rate: 2010, 4.5%; 2009, 3.6%; (effective average interest rate: 2010, 4.5%; 2009, 3.6%); net of unamortized discount: 2010, $0.2; 2009, $5.7 | 130.8 | 383.2 | |||||||
European Securitization, average interest rate: 2010, 4.5%; (effective average interest rate: 4.5%); net of unamortized discount: 2010, $1.2 | 401.1 | — | |||||||
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, $0.4; 2009, $0.8 | 162.6 | 147.2 | |||||||
Brazilian Fleet Financing Facility, average interest rate: 2010, 11.3%; 2009, 13.3% | 86.9 | 69.3 | |||||||
Canadian Fleet Financing Facility, average interest rate: 2010, 1.0%; 2009, 0.5% | 117.0 | 55.6 | |||||||
Belgian Fleet Financing Facility(1), average interest rate: 2009, 1.8% | — | 33.7 | |||||||
Capitalized Leases, average interest rate: 2010, 4.0%; 2009, 4.8% | 386.3 | 222.4 | |||||||
Euro Notes(1), average interest rate: 2010, 8.5% (effective average interest rate: 2010, 8.5%); net of unamortized discount: 2010, $2.7 | 540.7 | — | |||||||
European Credit Facility(1), average interest rate: 2010, 4.4% | 298.1 | — | |||||||
Total Fleet Debt | 6,712.2 | 5,675.0 | |||||||
Total Debt | $ | 12,046.9 | $ | 10,364.4 | |||||
Facility | Average Interest Rate at June 30, 2011(1) | Fixed or Floating Interest Rate | Maturity | June 30, 2011 | December 31, 2010 | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Corporate Debt | ||||||||||||||||
Senior Term Facility(2) | 3.75 | % | Floating | 3/2018 | $ | 1,396.5 | $ | 1,345.0 | ||||||||
Senior ABL Facility(2) | 2.26 | % | Floating | 3/2016 | 125.0 | — | ||||||||||
Senior Notes(3) | 7.32 | % | Fixed | 1/2014–1/2021 | 2,669.1 | 3,229.6 | ||||||||||
Senior Subordinated Notes | 10.50 | % | Fixed | 1/2016 | — | 518.5 | ||||||||||
Promissory Notes | 7.48 | % | Fixed | 6/2012–1/2028 | 224.8 | 345.6 | ||||||||||
Convertible Senior Notes | 5.25 | % | Fixed | 6/2014 | 474.7 | 474.8 | ||||||||||
Other Corporate Debt | 4.45 | % | Floating | Various | 34.3 | 22.0 | ||||||||||
Unamortized Net (Discount) Premium (Corporate)(4) | (77.6 | ) | (104.8 | ) | ||||||||||||
Total Corporate Debt | 4,846.8 | 5,830.7 | ||||||||||||||
Fleet Debt | ||||||||||||||||
U.S. ABS Program | ||||||||||||||||
U.S. Fleet Variable Funding Notes: | ||||||||||||||||
Series 2009-1(5) | 1.13 | % | Floating | 3/2013 | 1,713.0 | 1,488.0 | ||||||||||
Series 2010-2(5) | 1.22 | % | Floating | 3/2013 | 127.0 | 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 | ||||||||||
Series 2011-1 Notes(5) | 2.86 | % | Fixed | 3/2015–3/2017 | 598.0 | — | ||||||||||
Other Fleet Debt | ||||||||||||||||
U.S. Fleet Financing Facility | 1.44 | % | Floating | 12/2011 | 165.0 | 163.0 | ||||||||||
European Revolving Credit Facility | 5.05 | % | Floating | 6/2013 | 315.3 | 168.6 | ||||||||||
European Seasonal Revolving Credit Facility | 3.81 | % | Floating | 11/2011 | 100.6 | — | ||||||||||
European Fleet Notes | 8.50 | % | Fixed | 7/2015 | 574.8 | 529.0 | ||||||||||
European Securitization(5) | 4.51 | % | Floating | 7/2012 | 332.4 | 236.9 | ||||||||||
Canadian Securitization(5) | 1.16 | % | Floating | 11/2011 | 127.9 | 80.4 | ||||||||||
Australian Securitization(5) | 6.44 | % | Floating | 12/2012 | 142.3 | 183.2 | ||||||||||
Brazilian Fleet Financing Facility | 13.34 | % | Floating | 12/2011 | 19.4 | 77.8 | ||||||||||
Capitalized Leases | 4.64 | % | Floating | Various | 511.9 | 398.1 | ||||||||||
Unamortized Discount (Fleet) | (14.9 | ) | (18.4 | ) | ||||||||||||
Total Fleet Debt | 6,846.8 | 5,475.7 | ||||||||||||||
Total Debt | $ | 11,693.6 | $ | 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 | $162.3 million | |
7.875% Senior Notes due January 2014 | $306.8 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 SeptemberJune 30 (in millions of dollars) are as follows: 2011, $4,191.0 (including $3,190.2
2012 | $ | 4,364.1 | (including $4,167.7 of other short-term borrowings) | ||
2013 | $ | 597.8 | |||
2014 | $ | 743.1 | |||
2015 | $ | 1,210.7 | |||
2016 | $ | 963.9 | |||
After 2016 | $ | 3,906.5 |
We are highly leveraged and a substantial portion of other short-term borrowings); 2012, $179.6; 2013, $1,969.3; 2014, $2,749.6; 2015, $1,413.5; after 2015, $1,674.1.our liquidity needs arise from debt service on our indebtedness and from the funding of our costs of operations and capital expenditures. We believe that cash generated from operations and cash received on the disposal of vehicles and equipment, together with amounts available under various liquidity facilities, will be adequate to permit us to meet our debt maturities over the next twelve months.
Our short-term borrowings of $3,190.2 million as of SeptemberJune 30, 20102011 include, among other items, the amounts outstanding under our International ABSthe European Securitization, Australian Securitization, U.S. Fleet Financing Facility, European Securitization, Fleet Financing Facility,U.S. Variable Funding Notes, Brazilian Fleet Financing Facility, Canadian Fleet Financing Facility,Securitization, Capitalized Leases and European Revolving Credit Facility. These amounts are consideredreflected as short-term in nature since they haveborrowings, regardless of the facility maturity dates of three months or less; howeverdate, 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 do not expire at the timeremain as such through September 30, 2011. As of theJune 30, 2011, short-term debt maturity except for our International ABS Fleet Financing Facility and Brazilian Fleet Financing Facility which mature in December 2010.borrowings had a weighted average interest rate of 3.0%.
Letters of Credit
As of SeptemberJune 30, 2010,2011, there were outstanding standby letters of credit totaling $678.0$580.3 million. Of this amount, $423.5$532.8 million has been issued for the benefit of certain of our noteholders of our various asset-backed securities, or "ABS," facilities, or our "ABS Program," ($200.0 million of which was issued by Ford and $223.5 million of which was issued under the Senior Credit Facilities)Facilities ($288.6 million of which was issued for the benefit of the ABS Program) and the remainder is primarily to support self-insurance programs (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 support airport concession obligations in the United States, Canada and Europe. In November 2010, the "Ford" letter of credit by its terms will expire in conjunction with the maturity of the 2005 Notes.
U.S. Fleet Debt
In June 2010, Hertz Vehicle Financing, LLC, or "HVF," our wholly-owned subsidiary, issued $184.3 million in aggregate principal amount of 3-year and 5-year Subordinated Series 2009-2 Rental Car Asset Backed Notes, Class B, or the "Series 2009-2 Class B Notes." The 3-year notes carry a 4.94% coupon (5.00% yield at issuance) and the 5-year notes carry a 5.93% coupon (6.01% yield at issuance) with expected final maturities in 2013 and 2015, respectively. The net proceeds of the offering were used to purchase vehicles under our ABS Program, used to pay other ABS indebtedness or distributed to Hertz and used for general corporate purposes. The Series 2009-2 Class B Notes are included in U.S. Fleet Debt. As of September 30, 2010, $184.3 million in borrowings were outstanding under the Series 2009-2 Class B Notes.
Euro Notes and European Credit Facility
In June 2010, Hertz issued EUR 400 million (the equivalent of $543.4 million as of September 30, 2010) aggregate principal amount of 8.5% Senior Secured Notes due 2015, or the "Euro Notes," and entered into a EUR 220 million (the equivalent of $298.9 million) revolving credit facility that matures in 2013, or the "European Credit Facility." The net proceeds of the Euro Notes and European Credit Facility were used to refinance our International Fleet Debt and Belgian Fleet Financing Facility, both of which were due to mature in December 2010, and the excess was used for general corporate purposes. The Euro Notes and the European Credit Facility are the primary fleet financing for our rental car operations in Germany, Italy, Spain, Belgium, Luxembourg and Switzerland. The Euro Notes and the European Credit Facility are guaranteed on a senior unsecured basis by Hertz and certain U.S. subsidiaries of Hertz and on a senior secured basis by certain non-U.S. subsidiaries of Hertz.
HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Unaudited
any losses) as well as airport concession obligations in the United States, Canada and Europe. As of June 30, 2011, none of these letters of credit have been drawn upon.
Third Quarter2011 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 periods ending March 31, 2011 and June 30, 2011, the Convertible Senior Notes continue to be convertible through September 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 JulyJanuary 2011, Hertz redeemed in full its outstanding ($518.5 million principal amount) 10.50% 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 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. Premiums paid during the six months ended June 30, 2011 of $51.7 million are recorded in "Other (income) expense, net" on our consolidated statement of operations.
In February 2011, Hertz entered intoissued $500 million aggregate principal amount of 6.75% Senior Notes due 2019. The 6.75% Senior Notes are guaranteed on a EUR 400senior 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 (the equivalentaggregate principal of $543.4 million as of September 30, 2010) asset-backed securitization facility, or "European Securitization," which maturesthe 6.75% Senior Notes due 2019 in 2012, thea private offering. The proceeds of which were used in April 2011 to refinance the portion of our existing International ABS Fleet Financing Facility relating to France and the Netherlands, which was due to mature in December 2010.
In addition, in July 2010, HVF issued approximately $750redeem $480 million in aggregate principal amount of 3-year, 5-yearHertz's outstanding 8.875% Senior Notes due 2014 which resulted in premiums paid during the three months ended June 30, 2011, of $10.7 million recorded in "Other (income) expense, net" on our consolidated statement of operations and 7-year Series 2010-1 Rental Car Asset Backed Notes, or the "Series 2010-1 Notes." The 3-year, 5-yearwrite-off of unamortized debt costs of $5.8 million.
In March 2011, Hertz refinanced its 2005 Senior Term Facility and 7-year notes have expected final maturities in 2014, 2016 and 2018, respectively. The net proceeds2005 Senior ABL Facility. A description of the offering were used to purchase vehicles undernew Senior Term Facility and Senior ABL Facility is set forth below. During the ABS Programthree months ended March 31, 2011, we recorded an expense of HVF, to pay other ABS indebtedness or distributed to Hertz and used for general corporate purposes. As of September 30, 2010, $749.6$9.3 million in borrowings were outstanding under"Interest expense" on our consolidated statement of operations associated with the Series 2010-1 Notes. The Series 2010-1 Notes are included as partwrite-off of unamortized debt costs in connection with the refinancing of our U.S. Fleet Debt.
In September 2010, Hertz entered into amendments2005 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 itsbe amortized over the terms of the new Senior Term Facility and Senior ABL Facility. The amendments provide, among other things, for additional capacity underdetermination of whether these costs were expensed or further deferred was dependent upon whether the covenants interms of the old and new instruments were considered to be substantially different. In regards to the
HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Unaudited
Senior Term Facility, the determination as to whether the 2005 Senior Term Facility and the new Senior Term Facility 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 facility in an aggregate principal amount of $200.0 million. Subject to the satisfaction of certain conditions and limitations, the Senior ABLTerm 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 incur refinancingrefinance 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 acquisition indebtedness. The amendment"Payment of long-term debt." During the six months ended June 30, 2011, we recorded financing costs of $6.6 million in "Interest expense" on our consolidated statement of operations associated with the new 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 Senior ABL Facility increasesis available for the overall letterissuance of letters of credit sublimitsubject to certain conditions including issuing lender participation. Subject to the satisfaction of certain conditions and limitations, the Senior ABL Facility allows for Australian dollar denominated lettersthe addition of credit.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 addition,March 2011, Hertz amended the Canadian Securitization to extend the maturity date from May 2011 to November 2011.
In June 2011, Hertz Vehicle Financing LLC, or "HVF," a special purpose bankruptcy remote limited liability company of which Hertz is the sole member, closed on $598 million in September 2010, Hertz issued $700 million aggregate principal amount of 7.5% Senior3.5 year and 5.5 year weighted average life Series 2011-1 Rental Car Asset Backed Notes, due 2018,Class A and Class B.
In June 2011, Hertz Holdings Netherlands B.V., an indirect wholly-owned subsidiary of Hertz organized under the laws of The Netherlands, entered into an accordion facility, or "2010 Senior Notes.the "European Seasonal Revolving Credit Facility," The net proceedsunder the European Revolving Credit Facility that provides for aggregate maximum borrowings of the offerings were used for general corporate purposes, including repayment€100 million (the equivalent of consolidated indebtedness.$143.7 million as of June 30, 2011), subject to borrowing base availability.
Registration Rights
Pursuant to the terms of aexchange and registration rights agreementagreements entered into in connection with the issuanceseparate issuances of the 20107.5% 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 the 2010 Senior Notessuch notes for registered notes having terms substantially identical to the 2010 Senior Notes or, in the alternative, the registered resale of the 2010 Senior Notes.such notes. Hertz's failure to meet its obligations under the exchange and registration rights agreement,agreements, including by failing to have the respective registration statement become or declared effective by September 30, 2011a specified date or failing to complete the respective exchange offer by October 30, 2011,a specified
HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Unaudited
date, will result in Hertz incurring special interest on the 2010 Senior Notessuch 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 and on May 25, 2011, Hertz filed an amended registration statement. 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 SeptemberJune 30, 20102011 has been issued from the terms as disclosed in our Annual Report, except as described above.Form 10-K.
CovenantsFinancial Covenant Compliance
CertainUnder the new terms of our debt instrumentsamended 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 June 30, 2011, no triggering event had occurred requiring testing of the springing financial maintenance covenant.
Borrowing Capacity and Availability
As of June 30, 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 | $ | 1,340.8 | $ | 828.9 | ||||
Total Corporate Debt | 1,340.8 | 828.9 | ||||||
Fleet Debt | ||||||||
U.S. Fleet Variable Funding Notes | 298.1 | 29.6 | ||||||
European Seasonal Revolving Credit Facility | 43.1 | 43.1 | ||||||
European Securitization | 174.3 | 34.6 | ||||||
Canadian Securitization | 101.4 | 20.3 | ||||||
Australian Securitization | 121.2 | 2.6 | ||||||
Brazilian Fleet Financing Facility | 0.9 | — | ||||||
Capitalized Leases | 15.0 | — | ||||||
Total Fleet Debt | 754.0 | 130.2 | ||||||
Total | $ | 2,094.8 | $ | 959.1 | ||||
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 containhave a numberclaim on a specific pool of covenants that,assets as collateral. Our ability to borrow under each revolving credit facility is a function of, among other things, limit or restrict the abilityvalue 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
HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Unaudited
affiliates. Someassets in the relevant collateral pool. We refer to the amount of these agreements also requiredebt we can borrow given a certain pool of assets as the maintenance"borrowing base."
We refer to "Remaining Capacity" as the maximum principal amount of certain financial covenants. Asdebt permitted to be outstanding under the respective facility (i.e., the amount of September 30, 2010,debt we were in compliance with allcould borrow assuming we possessed sufficient assets as collateral) less the principal amount of these financial covenants.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 SeptemberJune 30, 2010, we had an aggregate principal amount outstanding of $1,348.4 million pursuant to our Senior Term Facility and no amounts outstanding in our Senior ABL Facility. As of September 30, 2010, Hertz was required under the Senior Term Facility to have a consolidated leverage ratio of not more than 5.25:1 and a consolidated interest expense coverage ratio of not less than 2.00:1. In addition, under our Senior ABL Facility, if there was less than $200.0 million of available borrowing capacity under that facility as of September 30, 2010, Hertz was required to have a consolidated leverage ratio of not more than 5.25:1 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 September 30, 2010, we had a consolidated leverage ratio of 4.20:1 and a consolidated interest expense coverage ratio of 3.57:1. Since we had maintained sufficient borrowing capacity under our Senior ABL Facility as of September 30, 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.
Credit Facilities
As of September 30, 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 | 1,591.2 | 851.7 | ||||||
Total Corporate Debt | 1,591.2 | 851.7 | ||||||
Fleet Debt | ||||||||
U.S. Fleet Debt | 545.1 | 77.5 | ||||||
International ABS Fleet Financing Facility | 1.0 | 1.0 | ||||||
European Securitization | 77.9 | 68.3 | ||||||
Fleet Financing Facility | 2.0 | 2.0 | ||||||
Brazilian Fleet Financing Facility | 0.1 | — | ||||||
Canadian Fleet Financing Facility | 101.5 | 13.5 | ||||||
Capitalized Leases | 42.6 | — | ||||||
Total Fleet Debt | 770.2 | 162.3 | ||||||
Total | $ | 2,361.4 | $ | 1,014.0 | ||||
HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Unaudited
As of September 30, 2010,2011, the Senior Term Facility had approximately $11.4$0.5 million available under the letter of credit facility and the Senior ABL Facility had $406.2$1,111.7 million available under the letter of credit facility sublimit.
Our liquidity as of September 30, 2010 was $3,105.2 million, which consisted of $1,483.3 million of cash and cash equivalents, $851.7 million of unused commitments under our Senior ABL Facility and $770.2 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 available for immediate use as of September 30, 2010 under our Senior ABL Facility was $851.7 million and we had $162.3 million of over-enhancement that was available under our Fleet Debt. Accordingly, as of September 30, 2010, we had $2,497.3 million ($1,483.3 million in cash and cash equivalents, $851.7 million available under our Senior ABL Facility and $162.3 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.restrictions.
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 SeptemberJune 30, 20102011 and December 31, 2009,2010, our International Fleet Financing No. 1 B.V., International Fleet Financing No. 2 B.V., Hertz Fleet Limited and HA Funding Pty, Ltd. variable interest entities had total assets primarily comprised of loans receivable and revenue earning equipment of $461.6$651.4 million and $367.6$652.1 million, respectively, and total liabilities primarily comprised of debt of $569.2$650.8 million and $710.3$651.6 million, respectively. For further information on the terms of our 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 September 30, 2010 and December 31, 2009, accrued interest was $88.4 million and $120.9 million, respectively, which is reflected in our condensed consolidated balance sheet in "Accrued liabilities."
HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Unaudited
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 September 30, | |||||||||||||||||||
| 2010 | 2009 | 2010 | 2009 | 2010 | 2009 | ||||||||||||||
Components of Net Periodic Benefit Cost: | ||||||||||||||||||||
Service cost | $ | 4.6 | $ | 5.7 | $ | 1.4 | $ | 1.4 | $ | 0.1 | $ | — | ||||||||
Interest cost | 6.0 | 7.0 | 2.6 | 2.5 | 0.3 | 0.2 | ||||||||||||||
Expected return on plan assets | (6.6 | ) | (5.4 | ) | (2.5 | ) | (2.0 | ) | — | — | ||||||||||
Net amortizations | 0.2 | 0.1 | (0.1 | ) | (0.1 | ) | 0.2 | (0.1 | ) | |||||||||||
Settlement loss | — | 0.8 | — | — | — | — | ||||||||||||||
Net pension/postretirement expense | $ | 4.2 | $ | 8.2 | $ | 1.4 | $ | 1.8 | $ | 0.6 | $ | 0.1 | ||||||||
| Pension Benefits | | | |||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Postretirement Benefits (U.S.) | |||||||||||||||||||
| U.S. | Non-U.S. | ||||||||||||||||||
| Three Months Ended June 30, | |||||||||||||||||||
| 2011 | 2010 | 2011 | 2010 | 2011 | 2010 | ||||||||||||||
Components of Net Periodic Benefit Cost: | ||||||||||||||||||||
Service cost | $ | 6.9 | $ | 6.7 | $ | 1.8 | $ | 1.2 | $ | — | $ | — | ||||||||
Interest cost | 7.5 | 6.8 | 2.8 | 2.5 | 0.3 | 0.2 | ||||||||||||||
Expected return on plan assets | (8.1 | ) | (6.7 | ) | (3.1 | ) | (2.4 | ) | — | — | ||||||||||
Net amortization | 2.3 | 1.6 | (0.3 | ) | — | 0.1 | (0.1 | ) | ||||||||||||
Settlement loss | 0.4 | 0.1 | — | — | — | — | ||||||||||||||
Curtailment gain | — | — | (13.1 | ) | — | — | — | |||||||||||||
Net pension/postretirement expense | $ | 9.0 | $ | 8.5 | $ | (11.9 | ) | $ | 1.3 | $ | 0.4 | $ | 0.1 | |||||||
HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Unaudited
| Pension Benefits | | | |||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Postretirement Benefits (U.S.) | |||||||||||||||||||
| U.S. | Non-U.S. | ||||||||||||||||||
| Nine Months Ended September 30, | |||||||||||||||||||
| 2010 | 2009 | 2010 | 2009 | 2010 | 2009 | ||||||||||||||
Components of Net Periodic Benefit Cost: | ||||||||||||||||||||
Service cost | $ | 18.0 | $ | 16.5 | $ | 3.9 | $ | 4.1 | $ | 0.2 | $ | 0.1 | ||||||||
Interest cost | 19.6 | 21.0 | 7.7 | 7.1 | 0.7 | 0.6 | ||||||||||||||
Expected return on plan assets | (20.0 | ) | (17.1 | ) | (7.4 | ) | (5.6 | ) | — | — | ||||||||||
Net amortizations | 3.5 | 0.3 | (0.2 | ) | (0.3 | ) | — | (0.3 | ) | |||||||||||
Settlement loss | 0.4 | 1.5 | — | — | — | — | ||||||||||||||
Net pension/postretirement expense | $ | 21.5 | $ | 22.2 | $ | 4.0 | $ | 5.3 | $ | 0.9 | $ | 0.4 | ||||||||
| Pension Benefits | | | |||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Postretirement Benefits (U.S.) | |||||||||||||||||||
| U.S. | Non-U.S. | ||||||||||||||||||
| Six Months Ended June 30 | |||||||||||||||||||
| 2011 | 2010 | 2011 | 2010 | 2011 | 2010 | ||||||||||||||
Components of Net Periodic Benefit Cost: | ||||||||||||||||||||
Service cost | $ | 13.1 | $ | 13.4 | $ | 3.5 | $ | 2.5 | $ | 0.1 | $ | 0.1 | ||||||||
Interest cost | 14.0 | 13.6 | 5.6 | 5.1 | 0.5 | 0.4 | ||||||||||||||
Expected return on plan assets | (15.2 | ) | (13.4 | ) | (6.2 | ) | (4.9 | ) | — | — | ||||||||||
Net amortization | 4.3 | 3.3 | (0.6 | ) | (0.1 | ) | 0.1 | (0.2 | ) | |||||||||||
Settlement loss | 0.7 | 0.4 | — | — | — | — | ||||||||||||||
Curtailment gain | — | — | (13.1 | ) | — | — | — | |||||||||||||
Net pension/postretirement expense | $ | 16.9 | $ | 17.3 | $ | (10.8 | ) | $ | 2.6 | $ | 0.7 | $ | 0.3 | |||||||
Our policy for funded plans is to contribute annually, at a minimum, amounts required by applicable laws, regulations and union agreements. From time to time we make contributions beyond those legally required. For the three and ninesix months ended SeptemberJune 30, 2010,2011, we contributed to and made benefit payments of $11.2$12.3 million and $57.8$57.1 million, respectively, to our worldwide pension plans, including discretionary contributions of $2.3$0.8 million and $5.5$13.2 million, respectively, to our United Kingdom, or "U.K.," defined benefit pension plan and benefit payments made through unfunded plans. For the three and six months ended June 30, 2010, we contributed $10.6 million and $46.6 million, respectively, to our worldwide pension plans, including discretionary contributions of $1.4 million and $3.2 million, respectively, to our U.K. defined benefit pension plan and benefit payments made through unfunded plans. For the three and nine months ended September 30, 2009, we contributed to and made benefit payments of $11.7 million and $28.9 million, respectively, to our funded worldwide plans. Of the contributions to worldwide plans, we contributed $6.5 million to the U.S. defined benefit plans during the three months ended September 30, 2009. For the three and nine months ended September 30, 2009, we made discretionary contributions of $1.3 million and $3.9 million, respectively, to our U.K. defined benefit pension plan. Based upon the significant decline in asset values in 2008, which were in line with the overall market declines, it is likely we have and will continue to make cash contributions in 20102011 and possibly in future years.
We expect to contribute up to $54.1 million to our U.S.sponsor a defined benefit pension plan in the full yearU.K. On June 30, 2011, we approved an agreement with the trustees of 2010.that plan to cease all future benefit accruals to existing members and to close the plan to new members. 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.
Tableemployee contributions, up to 8% of Contents
HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Unauditedpay, except that current members of the defined benefit plan will receive an enhanced match for five years. On scheme closure 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 have recognized a gain of $13.1 million for the U.K. plan that represents unamortized prior service cost from a 2010 amendment that eliminated discretionary pension increases related to pre-1997 service primarily related to inactive employees.
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. In addition, such underfunding may increase as a result of lower than expected returns on pension fund assets or other funding deficiencies.
HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Unaudited
Note 10—9—Stock-Based Compensation
In March 2010,2011, we granted 527,574371,505 Restricted Stock Units, or "RSUs," to certain executives and employees at fair values ranging from $9.70$14.60 to $9.99 and 800,613$15.02, 499,515 Performance Stock Units, or "PSUs," at a fair value of $9.70$14.60, and 193,798 PSUs at a fair value of $10.19 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 May 2010,2011, we granted 182,606130,275 RSUs to certain employees at fair values ranging from $11.87 to $12.38 under the Omnibus Plan. In August 2010, we granted 33,083 RSUs to certain employees at a fair value of $9.08.$16.39.
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. In May 2010, we granted options to acquire 29,229 shares of our common stock to certain employees at exercise prices ranging from $11.87 to $12.38, and in August, we granted options to acquire 54,534 shares of our common stock to certain employees at an exercise price of $9.08,$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 September 30, | ||||||||
---|---|---|---|---|---|---|---|---|---|
| 2010 | 2009 | |||||||
Compensation Expense | $ | 8.7 | $ | 9.1 | |||||
Income Tax Benefit | (3.4 | ) | (3.5 | ) | |||||
Total | $ | 5.3 | $ | 5.6 | |||||
| Nine Months Ended September 30, | ||||||||
---|---|---|---|---|---|---|---|---|---|
| 2010 | 2009 | |||||||
Compensation Expense | $ | 28.0 | $ | 25.6 | |||||
Income Tax Benefit | (10.8 | ) | (9.9 | ) | |||||
Total | $ | 17.2 | $ | 15.7 | |||||
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2011 | 2010 | 2011 | 2010 | ||||||||||
Compensation Expense | $ | 7.6 | $ | 10.3 | $ | 16.6 | $ | 19.3 | ||||||
Income Tax Benefit | (3.0 | ) | (4.0 | ) | (6.4 | ) | (7.5 | ) | ||||||
Total | $ | 4.6 | $ | 6.3 | $ | 10.2 | $ | 11.8 | ||||||
As of SeptemberJune 30, 2010,2011, there was approximately $50.0$49.4 million of total unrecognized compensation cost related to non-vested stock options, RSUs and PSUs granted by Hertz Holdings under the Prior
HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Unaudited
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 1.41.7 years, on a weighted average basis, of the requisite service period that began on the grant dates.
For the three and nine months ended September 30, 2010, 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 includesinclude general corporate assets and expenses, certain interest expense (including net interest on corporate debt), as well as other business activities, such as our third-partythird 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
HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Unaudited
reconciliation to consolidated amounts for the three and nine months ended September 30, 2010 and 2009 are summarized below (in millions of dollars).
| | Three Months Ended September 30, | | Three Months Ended June 30, | ||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | Revenues | Adjusted Pre-Tax Income | | Revenues | Adjusted Pre-Tax Income (Loss) | ||||||||||||||||||||||||
| | 2010 | 2009 | 2010 | 2009 | | 2011 | 2010 | 2011 | 2010 | ||||||||||||||||||||
Car rental | Car rental | $ | 1,903.5 | $ | 1,757.7 | $ | 309.3 | $ | 258.3 | Car rental | $ | 1,768.8 | $ | 1,611.4 | $ | 242.2 | $ | 174.9 | ||||||||||||
Equipment rental | Equipment rental | 281.2 | 280.5 | 33.7 | 25.2 | Equipment rental | 301.7 | 265.8 | 33.4 | 14.4 | ||||||||||||||||||||
Total reportable segments | 2,184.7 | 2,038.2 | 343.0 | 283.5 | Total reportable segments | 2,070.5 | 1,877.2 | 275.6 | 189.3 | |||||||||||||||||||||
Other | Other | 1.6 | 3.2 | Other | 1.8 | 2.4 | ||||||||||||||||||||||||
Total | $ | 2,186.3 | $ | 2,041.4 | Total | $ | 2,072.3 | $ | 1,879.6 | |||||||||||||||||||||
Adjustments: | Adjustments: | Adjustments: | ||||||||||||||||||||||||||||
Other reconciling items(1) | (89.4 | ) | (88.2 | ) | Other reconciling items(1) | (91.2 | ) | (93.5 | ) | |||||||||||||||||||||
Purchase accounting(2) | (23.8 | ) | (21.7 | ) | Purchase accounting(2) | (22.5 | ) | (22.5 | ) | |||||||||||||||||||||
Non-cash debt charges(3) | (46.4 | ) | (48.5 | ) | Non-cash debt charges(3) | (27.1 | ) | (49.6 | ) | |||||||||||||||||||||
Restructuring charges | (14.6 | ) | (35.7 | ) | Restructuring charges | (33.7 | ) | (20.3 | ) | |||||||||||||||||||||
Restructuring related charges(4) | (0.6 | ) | (11.4 | ) | Restructuring related charges(4) | (2.8 | ) | (2.0 | ) | |||||||||||||||||||||
Derivative losses(5) | (0.2 | ) | (1.9 | ) | Derivative losses(5) | — | (0.6 | ) | ||||||||||||||||||||||
Management transition costs | — | (0.3 | ) | Acquisition related costs | (6.1 | ) | (7.0 | ) | ||||||||||||||||||||||
Acquisition related costs(6) | (9.7 | ) | — | Pension adjustment(6) | 13.1 | — | ||||||||||||||||||||||||
Premiums paid on debt(7) | (10.7 | ) | — | |||||||||||||||||||||||||||
Income before income taxes | $ | 158.3 | $ | 75.8 | ||||||||||||||||||||||||||
Income (loss) before income taxes | $ | 94.6 | $ | (6.2 | ) | |||||||||||||||||||||||||
HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Unaudited
| | Nine Months Ended September 30, | | Six Months Ended June 30, | ||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | Revenues | Adjusted Pre-Tax Income (Loss) | | Revenues | Adjusted Pre-Tax Income (Loss) | ||||||||||||||||||||||||
| | 2010 | 2009 | 2010 | 2009 | | 2011 | 2010 | 2011 | 2010 | ||||||||||||||||||||
Car rental | Car rental | $ | 4,938.2 | $ | 4,515.3 | $ | 512.7 | $ | 368.4 | Car rental | $ | 3,279.1 | $ | 3,033.1 | $ | 303.5 | $ | 202.0 | ||||||||||||
Equipment rental | Equipment rental | 784.1 | 837.0 | 43.0 | 50.6 | Equipment rental | 569.9 | 502.8 | 43.6 | 9.4 | ||||||||||||||||||||
Total reportable segments | 5,722.3 | 5,352.3 | 555.7 | 419.0 | Total reportable segments | 3,849.0 | 3,535.9 | 347.1 | 211.4 | |||||||||||||||||||||
Other | Other | 4.5 | 8.5 | Other | 3.3 | 4.6 | ||||||||||||||||||||||||
Total | $ | 5,726.8 | $ | 5,360.8 | Total | $ | 3,852.3 | $ | 3,540.5 | |||||||||||||||||||||
Adjustments: | Adjustments: | Adjustments: | ||||||||||||||||||||||||||||
Other reconciling items(1) | (275.6 | ) | (259.3 | ) | Other reconciling items(1) | (178.7 | ) | (184.9 | ) | |||||||||||||||||||||
Purchase accounting(2) | (68.4 | ) | (69.5 | ) | Purchase accounting(2) | (43.1 | ) | (44.6 | ) | |||||||||||||||||||||
Non-cash debt charges(3) | (144.9 | ) | (121.2 | ) | Non-cash debt charges(3) | (87.0 | ) | (98.4 | ) | |||||||||||||||||||||
Restructuring charges | (45.5 | ) | (87.2 | ) | Restructuring charges | (38.4 | ) | (31.0 | ) | |||||||||||||||||||||
Restructuring related charges(4) | (7.9 | ) | (31.6 | ) | Restructuring related charges(4) | (3.3 | ) | (7.3 | ) | |||||||||||||||||||||
Management transition costs | — | (1.0 | ) | Derivative losses(5) | — | (2.3 | ) | |||||||||||||||||||||||
Derivative gains (losses)(5) | (2.5 | ) | 3.0 | Acquisition related costs | (9.0 | ) | (7.0 | ) | ||||||||||||||||||||||
Acquisition related costs(6) | (16.7 | ) | — | Management transition costs | (2.5 | ) | — | |||||||||||||||||||||||
Gain on debt buyback(7) | — | 48.5 | Pension adjustment(6) | 13.1 | — | |||||||||||||||||||||||||
Third-party bankruptcy accrual(8) | — | (4.3 | ) | Premiums paid on debt(7) | (62.4 | ) | — | |||||||||||||||||||||||
Loss before income taxes | $ | (5.8 | ) | $ | (103.6 | ) | Loss before income taxes | $ | (64.2 | ) | $ | (164.1 | ) | |||||||||||||||||
Total assets increased $975.4 million from December 31, 2010 to June 30, 2011. The increase was primarily related to an increase in our car rental segment's revenue earning equipment, partly offset by a decrease in other cash and cash equivalents primarily relating to the redemption of our 10.5% Senior Subordinated Notes and a portion of our 8.875% Senior Subordinated Notes.
HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Unaudited
Total assets increased $2,124.2 million from December 31, 2009 to September 30, 2010. The increase was primarily related to increases in our car rental segment's revenue earning equipment and receivables, as well as increases in other cash and cash equivalents and restricted cash and cash equivalents.
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 | (18.9 | ) | (18.9 | ) | ||||||||||||||||||||||
Change in fair value of derivatives qualifying as cash flow hedges, net of tax of $26.9 | 41.9 | 41.9 | ||||||||||||||||||||||||
Translation adjustment changes | (16.6 | ) | (16.6 | ) | ||||||||||||||||||||||
Unrealized gain on Euro-denominated debt, net of tax of $6.8 | 10.5 | 10.5 | ||||||||||||||||||||||||
Defined benefit pension plans, net | (0.4 | ) | (0.4 | ) | ||||||||||||||||||||||
Total Comprehensive Income | 16.5 | |||||||||||||||||||||||||
Dividend payment to noncontrolling interest | (12.6 | ) | (12.6 | ) | ||||||||||||||||||||||
Net income relating to noncontrolling interest | 13.0 | 13.0 | ||||||||||||||||||||||||
Employee stock purchase plan | 0.2 | 2.2 | 2.2 | |||||||||||||||||||||||
Net settlement on vesting of restricted stock | (5.7 | ) | (5.7 | ) | ||||||||||||||||||||||
Restricted stock | 1.6 | |||||||||||||||||||||||||
Stock-based employee compensation charges, net of tax of $0 | 28.0 | 28.0 | ||||||||||||||||||||||||
Exercise of stock options | 0.3 | 3.2 | 3.2 | |||||||||||||||||||||||
Common shares issued to Directors | 0.0 | 1.0 | 1.0 | |||||||||||||||||||||||
Phantom shares issued to Directors | 0.0 | 0.3 | 0.3 | |||||||||||||||||||||||
Proceeds from disgorgement of stockholder short-swing profits, net of tax of $0 | 0.1 | 0.1 | ||||||||||||||||||||||||
September 30, 2010 | 412.3 | $ | 4.1 | $ | — | $ | 3,170.8 | $ | (1,081.2 | ) | $ | 32.1 | $ | 17.6 | $ | 2,143.4 | ||||||||||
| | 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 | (77.6 | ) | (77.6 | ) | ||||||||||||||||||||||
Translation adjustment changes, net of tax | 58.7 | 58.7 | ||||||||||||||||||||||||
Unrealized holding gains on securities, net of tax | 1.2 | 1.2 | ||||||||||||||||||||||||
Unrealized gain on Euro-denominated debt, net of tax | (14.9 | ) | (14.9 | ) | ||||||||||||||||||||||
Defined benefit pension plans, net of tax | 14.4 | 14.4 | ||||||||||||||||||||||||
Total Comprehensive Loss | (18.2 | ) | ||||||||||||||||||||||||
Net income relating to noncontrolling interest | 8.7 | 8.7 | ||||||||||||||||||||||||
Dividend payment to noncontrolling interest | (10.5 | ) | (10.5 | ) | ||||||||||||||||||||||
Employee stock purchase plan | 0.1 | 2.0 | 2.0 | |||||||||||||||||||||||
Net settlement on vesting of restricted stock | 1.2 | (11.4 | ) | (11.4 | ) | |||||||||||||||||||||
Stock-based employee compensation charges, net of tax | 16.6 | 16.6 | ||||||||||||||||||||||||
Exercise of stock options, net of tax | 1.6 | 0.1 | 11.6 | 11.7 | ||||||||||||||||||||||
Common shares issued to Directors | 1.4 | 1.4 | ||||||||||||||||||||||||
June 30, 2011 | $ | — | 416.4 | $ | 4.2 | $ | 3,203.4 | $ | (1,188.0 | ) | $ | 97.3 | $ | 14.7 | $ | 2,131.6 | ||||||||||
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 | (95.1 | ) | (95.1 | ) | ||||||||||||||||||||||
Change in fair value of derivatives qualifying as cash flow hedges, net of tax of $16.0 | 24.4 | 24.4 | ||||||||||||||||||||||||
Translation adjustment changes | 80.3 | 80.3 | ||||||||||||||||||||||||
Unrealized loss on Euro-denominated debt, net of tax of $5.3 | (8.2 | ) | (8.2 | ) | ||||||||||||||||||||||
Defined benefit pension plans, net | (0.6 | ) | (0.6 | ) | ||||||||||||||||||||||
Total Comprehensive Income | 0.8 | |||||||||||||||||||||||||
Dividend payment to noncontrolling interest | (11.9 | ) | (11.9 | ) | ||||||||||||||||||||||
Net income relating to noncontrolling interest | 11.3 | 11.3 | ||||||||||||||||||||||||
Proceeds from debt offering, net of tax of $44.7 | 69.7 | 69.7 | ||||||||||||||||||||||||
Proceeds from sale of common stock | 85.0 | 0.9 | 527.9 | 528.8 | ||||||||||||||||||||||
Employee stock purchase plan | 0.4 | 2.2 | 2.2 | |||||||||||||||||||||||
Stock-based employee compensation charges, net of tax of $0 | 26.6 | 26.6 | ||||||||||||||||||||||||
Exercise of stock options | 1.1 | 4.8 | 4.8 | |||||||||||||||||||||||
Common shares issued to Directors | 0.1 | 0.2 | 0.2 | |||||||||||||||||||||||
Phantom shares issued to Directors | 0.0 | 0.1 | 0.1 | |||||||||||||||||||||||
September 30, 2009 | 409.6 | $ | 4.1 | $ | — | $ | 3,135.3 | $ | (1,031.4 | ) | $ | (4.2 | ) | $ | 17.1 | $ | 2,120.9 | |||||||||
| | | | | | Accumulated Other Comprehensive Income (Loss) | | | ||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | Common Stock | | | | | ||||||||||||||||||||
| 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 | (175.5 | ) | (175.5 | ) | ||||||||||||||||||||||
Change in fair value of derivatives qualifying as cash flow hedges, net of tax | 29.0 | 29.0 | ||||||||||||||||||||||||
Translation adjustment changes, net of tax | (83.2 | ) | (83.2 | ) | ||||||||||||||||||||||
Unrealized gain on Euro-denominated debt, net of tax | 27.6 | 27.6 | ||||||||||||||||||||||||
Defined benefit pension plans, net of tax | (0.9 | ) | (0.9 | ) | ||||||||||||||||||||||
Total Comprehensive Loss | (203.0 | ) | ||||||||||||||||||||||||
Dividend payment to noncontrolling interest | (7.5 | ) | (7.5 | ) | ||||||||||||||||||||||
Net income relating to noncontrolling interest | 8.2 | 8.2 | ||||||||||||||||||||||||
Employee stock purchase plan | 0.2 | 1.2 | 1.2 | |||||||||||||||||||||||
Net settlement on vesting of restricted stock | 1.5 | (5.7 | ) | (5.7 | ) | |||||||||||||||||||||
Stock-based employee compensation charges, net of tax | 19.3 | 19.3 | ||||||||||||||||||||||||
Exercise of stock options, net of tax | 2.3 | 2.3 | ||||||||||||||||||||||||
Common shares issued to Directors | 1.3 | 1.3 | ||||||||||||||||||||||||
Phantom shares issued to Directors | 0.1 | 0.1 | ||||||||||||||||||||||||
Proceeds from disgorgement of stockholder short-swing profits, net of tax | 0.1 | 0.1 | ||||||||||||||||||||||||
June 30, 2010 | $ | — | 411.9 | $ | 4.1 | $ | 3,160.3 | $ | (1,237.8 | ) | $ | (30.8 | ) | $ | 17.9 | $ | 1,913.7 | |||||||||
Accumulated other comprehensive income (loss) as of SeptemberJune 30, 20102011 and December 31, 20092010 includes accumulated translation gains of $115.5$173.6 million and $132.1$114.9 million, respectively, unrealized losses on cash flow hedgespension benefits of $(7.8)$(55.8) million and $(49.8)$(70.2) million, respectively, changes due to the pension mark-to-market adjustment of $(66.9) million and $(66.5) million, respectively, and unrealized losses on our Euro-denominated debt of $(8.6)$(21.7) million and $(19.2)$(6.8) million, respectively, and unrealized holding gains of $1.3 million and $0.1 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
HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Unaudited
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.
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 11the U.S. and Europe. As part of our re-engineering optimization we outsourced selected functions globally. In addition, we streamlined operations and reduced costs by initiating the Notes to our audited annual consolidated financial statements includedclosure 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 nine months ended Septemberfirst quarter of 2011, 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.
During the second quarter of 2011, we continued to streamline operations and reduce costs with the closure of twelve equipment rental locations in the U.S., consolidation of our European headquarters and the reduction in our global workforce by approximately 50 employees.
From January 1, 2007 through June 30, 2010,2011, we incurred $512.7 million ($244.2 million for our car rental segment, $214.7 million for our equipment rental business incurredsegment and $53.8 million of other) of restructuring charges.
Additional efficiency and cost saving initiatives are being developed during 2011. However, we presently do not have firm plans or estimates of any related expenses.
Restructuring charges for losses on available for sale equipment and the disposal of surplus equipment and recognition of future facility lease obligations related to branch closures in North America. Additionally, our European car rental business has incurred charges primarily associated with employee severance and relocation as a result of the pan-European migration of in-country back office operations to our shared services center in Dublin, Ireland. During the nine months ended September 30, 2010, restructuring charges included employee termination liabilities covering approximately 445 employees.
For the three months ended September 30, 2010, our consolidated statement of operations includes restructuring charges relating to the initiatives discussed abovecan be summarized as follows (in millions of $14.6 million which is composed of $7.5 million in revenue earning equipment and fixed asset impairment charges, $2.8 million in facility closure and lease obligation costs, $2.7 million of termination benefits, $1.3 million in relocation and temporary labor costs and $0.3 million of other restructuring charges. The after-tax effect of the restructuring charges reduced diluted earnings per share by $0.03 for the three months ended September 30, 2010.dollars):
For the nine months ended September 30, 2010, our consolidated statement of operations includes restructuring charges relating to the initiatives discussed above of $45.5 million which is composed of $20.0 million in revenue earning equipment and fixed asset impairment charges, $11.4 million in facility closure and lease obligation costs, $7.5 million of termination benefits, $3.8 million in relocation and temporary labor costs, $0.9 million in consulting costs and $1.9 million of other restructuring charges. The after-tax effect of the restructuring charges increased diluted loss per share by $0.08 for the nine months ended September 30, 2010.
For the three months ended September 30, 2009, our consolidated statement of operations included restructuring charges relating to the initiatives discussed above of $35.7 million which was composed of $18.8 million of involuntary termination benefits, $11.2 million in facility closures and lease obligation costs, $2.7 million in asset impairment charges, $0.8 million in pension liability settlements, $0.8 million in relocation and $1.4 million of other restructuring charges. The after-tax effect of the restructuring charges reduced diluted earnings per share by $0.07 for the three months ended September 30, 2009.
For the nine months ended September 30, 2009, our consolidated statement of operations included restructuring charges relating to the initiatives discussed above of $87.2 million which was composed of $37.4 million of involuntary termination benefits, $23.2 million in facility closures and lease obligation costs, $8.7 million in asset impairment charges, $6.9 million in consulting costs, $4.5 million in lease termination costs, $2.3 million in relocation costs, $1.7 million in contract termination costs and $2.5 million of other restructuring charges. The after-tax effect of the restructuring charges increased diluted loss per share by $0.19 for the nine months ended September 30, 2009.
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2011 | 2010 | 2011 | 2010 | |||||||||||
By Type: | |||||||||||||||
Involuntary termination benefits | $ | 3.4 | $ | 1.4 | $ | 4.4 | $ | 4.8 | |||||||
Pension and post retirement expense | 0.3 | 0.3 | 0.3 | 0.6 | |||||||||||
Consultant costs | 0.2 | — | 0.3 | 0.7 | |||||||||||
Asset writedowns | 22.6 | 13.7 | 23.3 | 14.5 | |||||||||||
Facility closure and lease obligation costs | 6.9 | 3.0 | 10.0 | 6.6 | |||||||||||
Relocation costs and temporary labor costs | — | 1.2 | — | 2.5 | |||||||||||
Other | 0.3 | 0.7 | 0.1 | 1.3 | |||||||||||
Total | $ | 33.7 | $ | 20.3 | $ | 38.4 | $ | 31.0 | |||||||
HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Unaudited
Restructuring charges in our consolidated statement of operations can be summarized as follows (in millions of dollars):
| Three Months Ended September 30, | ||||||||
---|---|---|---|---|---|---|---|---|---|
| 2010 | 2009 | |||||||
By Caption: | |||||||||
Direct operating | $ | 12.5 | $ | 16.5 | |||||
Selling, general and administrative | 2.1 | 19.2 | |||||||
Total | $ | 14.6 | $ | 35.7 | |||||
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2011 | 2010 | 2011 | 2010 | |||||||||||
By Caption: | |||||||||||||||
Direct operating | $ | 30.4 | $ | 18.3 | $ | 34.5 | $ | 25.3 | |||||||
Selling, general and administrative | 3.3 | 2.0 | 3.9 | 5.7 | |||||||||||
Total | $ | 33.7 | $ | 20.3 | $ | 38.4 | $ | 31.0 | |||||||
| Nine Months Ended September 30, | ||||||||
---|---|---|---|---|---|---|---|---|---|
| 2010 | 2009 | |||||||
By Caption: | |||||||||
Direct operating | $ | 37.7 | $ | 51.7 | |||||
Selling, general and administrative | 7.8 | 35.5 | |||||||
Total | $ | 45.5 | $ | 87.2 | |||||
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2011 | 2010 | 2011 | 2010 | |||||||||||
By Segment: | |||||||||||||||
Car rental | $ | 3.5 | $ | 4.2 | $ | 4.5 | $ | 9.5 | |||||||
Equipment rental | 29.8 | 16.0 | 33.6 | 20.9 | |||||||||||
Other reconciling items | 0.4 | 0.1 | 0.3 | 0.6 | |||||||||||
Total | $ | 33.7 | $ | 20.3 | $ | 38.4 | $ | 31.0 | |||||||
During the three and six months ended June 30, 2011, the after-tax effect of the restructuring charges decreased the income per share by $0.05 and increased the loss per share by $0.06, respectively. During the three and six months ended June 30, 2010, the after-tax effect of the restructuring charges increased the loss per share by $0.03 and $0.05, respectively.
| Three Months Ended September 30, | ||||||||
---|---|---|---|---|---|---|---|---|---|
| 2010 | 2009 | |||||||
By Segment: | |||||||||
Car rental | $ | 4.0 | $ | 25.4 | |||||
Equipment rental | 10.6 | 9.1 | |||||||
Other reconciling items | — | 1.2 | |||||||
Total | $ | 14.6 | $ | 35.7 | |||||
| Nine Months Ended September 30, | ||||||||
---|---|---|---|---|---|---|---|---|---|
| 2010 | 2009 | |||||||
By Segment: | |||||||||
Car rental | $ | 13.4 | $ | 50.3 | |||||
Equipment rental | 31.4 | 28.9 | |||||||
Other reconciling items | 0.7 | 8.0 | |||||||
Total | $ | 45.5 | $ | 87.2 | |||||
The following table sets forth the activity affecting the restructuring accrual during the ninesix months ended SeptemberJune 30, 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 | 7.5 | 0.6 | 0.9 | 36.5 | 45.5 | ||||||||||||
Cash payments | (18.8 | ) | — | (1.3 | ) | (11.4 | ) | (31.5 | ) | ||||||||
Other(1) | (0.3 | ) | (0.3 | ) | — | (25.2 | ) | (25.8 | ) | ||||||||
Balance as of September 30, 2010 | $ | 8.0 | $ | 0.3 | $ | — | $ | 9.6 | $ | 17.9 | |||||||
| 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 | 4.4 | 0.3 | 0.3 | 33.4 | 38.4 | ||||||||||||
Cash payments | (7.8 | ) | — | (0.1 | ) | (0.8 | ) | (8.7 | ) | ||||||||
Other(1) | 0.1 | (0.2 | ) | — | (26.0 | ) | (26.1 | ) | |||||||||
Balance as of June 30, 2011 | $ | 3.0 | $ | 0.3 | $ | 0.3 | $ | 17.5 | $ | 21.1 | |||||||
HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Unaudited
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 SeptemberJune 30, 20102011 and December 31, 20092010 because of the short-term maturity of these instruments. Money market accounts, whose fair value at SeptemberJune 30, 2010,2011, is measured using Level 1 inputs, totaling $858.8$309.8 million and $572.6$103.4 million are
HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Unaudited
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.
Marketable Securities
Marketable securities held by us consist of equity securities classified as available-for-sale, which are carried at fair value and are included within "Prepaid expenses and other assets." Unrealized gains and losses, net of related income taxes, are included in "Accumulated other comprehensive income." As of June 30, 2011 and December 31, 2010, the fair value of marketable securities was $34.9 million and $0.0 million, respectively. For the three and six months ended June, 30, 2011, unrealized gains of $2.0 million and $2.0 million, respectively, were recorded in "Accumulated other comprehensive income." Fair values for marketable securities are based on Level 1 inputs are observable inputs such asconsisting of quoted prices in active markets.market prices.
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 (Level 2 inputs). The aggregate fair value of all debt at SeptemberJune 30, 20102011 was $12,468.3$12,496.1 million, compared to its aggregate carrying valueunpaid principal balance of $12,177.1$11,786.1 million. The aggregate fair value of all debt at December 31, 2009 approximated $10,795.72010 was $12,063.5 million, compared to its aggregate carrying valueunpaid principal balance of $10,530.4$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 September 30, 2010 and December 31, 2009 (in millions of dollars):
| Fair Value of Derivative Instruments(1) | ||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Asset Derivatives(2) | Liability Derivatives(2) | |||||||||||||
| September 30, 2010 | December 31, 2009 | September 30, 2010 | December 31, 2009 | |||||||||||
Derivatives designated as hedging instruments under ASC 815: | |||||||||||||||
HVF interest rate swaps | $ | — | $ | — | $ | 0.9 | $ | 12.8 | |||||||
Derivatives not designated as hedging instruments under ASC 815: | |||||||||||||||
Gasoline swaps | 0.7 | 2.2 | — | — | |||||||||||
Interest rate caps | 0.3 | 8.2 | 0.2 | 5.6 | |||||||||||
Foreign exchange forward contracts | 1.3 | 7.6 | 26.8 | 5.7 | |||||||||||
Foreign exchange options | 0.1 | — | — | — | |||||||||||
Total derivatives not designated as hedging instruments under ASC 815 | 2.4 | 18.0 | 27.0 | 11.3 | |||||||||||
Total derivatives | $ | 2.4 | $ | 18.0 | $ | 27.9 | $ | 24.1 | |||||||
| Fair Value of Derivative Instruments(1) | ||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Asset Derivatives(2) | Liability Derivatives(2) | |||||||||||||
| June 30, 2011 | December 31, 2010 | June 30, 2011 | December 31, 2010 | |||||||||||
Derivatives not designated as hedging instruments under ASC 815: | |||||||||||||||
Gasoline swaps | $ | 1.3 | $ | 3.1 | $ | — | $ | — | |||||||
Interest rate caps | 2.4 | 7.2 | 2.4 | 7.2 | |||||||||||
Foreign exchange forward contracts | 1.8 | 2.6 | 13.7 | 11.1 | |||||||||||
Foreign exchange options | 0.2 | 0.1 | — | — | |||||||||||
Total derivatives not designated as hedging instruments under ASC 815 | $ | 5.7 | $ | 13.0 | $ | 16.1 | $ | 18.3 | |||||||
HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Unaudited
| 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 September 30, | |||||||||||||||||||
| 2010 | 2009 | 2010 | 2009 | 2010 | 2009 | ||||||||||||||
Derivatives in ASC 815 Cash Flow Hedging Relationship: | ||||||||||||||||||||
HVF interest rate swaps | $ | 3.1 | $ | (3.5 | ) | $ | (18.0 | )(1) | $ | (22.4 | )(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 June 30, | |||||||||||||
| 2011 | 2010 | 2011 | 2010 | ||||||||||
Derivatives in ASC 815 Cash Flow Hedging Relationship: | ||||||||||||||
HVF interest rate swaps | $ | — | $ | (5.6 | ) | $ | — | $ | (23.6 | )(1) |
| 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) | |||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Nine Months Ended September 30, | |||||||||||||||||||
| 2010 | 2009 | 2010 | 2009 | 2010 | 2009 | ||||||||||||||
Derivatives in ASC 815 Cash Flow Hedging Relationship: | ||||||||||||||||||||
HVF interest rate swaps | $ | 11.9 | $ | (15.5 | ) | $ | (56.9 | )(1) | $ | (52.2 | )(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) | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Six Months Ended June 30, | |||||||||||||
| 2011 | 2010 | 2011 | 2010 | ||||||||||
Derivatives in ASC 815 Cash Flow Hedging Relationship: | ||||||||||||||
HVF interest rate swaps | $ | — | $ | (8.8 | ) | $ | — | $ | (50.5 | )(1) |
| | Amount of Gain or (Loss) Recognized in Income on Derivative | |||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
| | Three Months Ended September 30, | |||||||||
| Location of Gain or (Loss) Recognized on Derivative | ||||||||||
| 2010 | 2009 | |||||||||
Derivatives Not Designated as Hedging Instruments under ASC 815: | |||||||||||
Gasoline swaps | Direct operating | $ | 1.7 | $ | 0.1 | ||||||
Interest rate caps | Selling, general and administrative | (0.2 | ) | (2.0 | ) | ||||||
Foreign exchange forward contracts | Selling, general and administrative | (18.5 | ) | (15.9 | ) | ||||||
Foreign exchange options | Selling, general and administrative | (0.1 | ) | 0.1 | |||||||
Total | $ | (17.1 | ) | $ | (17.7 | ) | |||||
| | Amount of Gain or (Loss) Recognized in Income on Derivative | |||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
| Location of Gain or (Loss) Recognized on Derivative | Three Months Ended June 30, | |||||||||
| | 2011 | 2010 | ||||||||
Derivatives Not Designated as Hedging Instruments under ASC 815: | |||||||||||
Gasoline swaps | Direct operating | $ | (0.2 | ) | $ | (2.5 | ) | ||||
Interest rate caps | Selling, general and administrative | — | (0.6 | ) | |||||||
Foreign exchange forward contracts | Selling, general and administrative | (7.3 | ) | (10.1 | ) | ||||||
Foreign exchange options | Selling, general and administrative | — | — | ||||||||
Total | $ | (7.5 | ) | $ | (13.2 | ) | |||||
HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Unaudited
| | Amount of Gain or (Loss) Recognized in Income on Derivative | |||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
| | Nine Months Ended September 30, | |||||||||
| Location of Gain or (Loss) Recognized on Derivative | ||||||||||
| 2010 | 2009 | |||||||||
Derivatives Not Designated as Hedging Instruments under ASC 815: | |||||||||||
Gasoline swaps | Direct operating | $ | — | $ | 5.0 | ||||||
Interest rate caps | Selling, general and administrative | (2.5 | ) | (2.0 | ) | ||||||
Foreign exchange forward contracts | Selling, general and administrative | (19.9 | ) | (3.5 | ) | ||||||
Foreign exchange options | Selling, general and administrative | (0.2 | ) | 0.2 | |||||||
Total | $ | (22.6 | ) | $ | (0.3 | ) | |||||
| | Amount of Gain or (Loss) Recognized in Income on Derivative | |||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
| Location of Gain or (Loss) Recognized on Derivative | Six Months Ended June 30, | |||||||||
| | 2011 | 2010 | ||||||||
Derivatives Not Designated as Hedging Instruments under ASC 815: | |||||||||||
Gasoline swaps | Direct operating | $ | 2.9 | $ | (1.7 | ) | |||||
Interest rate caps | Selling, general and administrative | — | (2.3 | ) | |||||||
Foreign exchange forward contracts | Selling, general and administrative | (7.9 | ) | (1.4 | ) | ||||||
Foreign exchange options | Selling, general and administrative | — | (0.1 | ) | |||||||
Total | $ | (5.0 | ) | $ | (5.5 | ) | |||||
In connectionconjunction with the Acquisitionrefinanced Series 2009-1 Notes and the issuance of $3,550.0 million of floating rate U.S. Fleet Debt, our subsidiary HVF entered into certain interest rate swap agreements, or the "HVF Swaps," effective December 21, 2005, which qualify as cash flow hedging instruments in accordance with GAAP. These agreements mature at various terms, in connection with the scheduled maturity of the associated debt obligations, through November 2010. Under these agreements, until February 2009, HVF was paying monthly interest at a fixed rate of 4.5% per annum in exchange for monthly interest at one-month LIBOR, effectively transforming the floating rate U.S. Fleet Debt to fixed rate obligations. In March 2009, HVF made a cash payment to have the fixed rate on these swaps reset to the then current market rates of 0.872% and 1.25% for the swaps that matured in February 2010 and that will mature in November 2010, respectively. $80.4 million of this payment was made to an affiliate of MLGPE which is a counterparty to the HVF Swaps. Concurrently with this payment, the hedging relationship was de-designated and the amount remaining in "Accumulated other comprehensive income (loss)" associated with this cash flow hedging relationship was frozen and is being amortized into "Interest expense" over the respective terms of the associated debt in accordance with GAAP. We expect to amortize approximately $12.0 million from "Accumulated other comprehensive income (loss)" into "Interest expense" over the next two 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 Swaps 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 September 30, 2010 and December 31, 2009, the balance reflected in "Accumulated other comprehensive income (loss)," relating to the HVF Swaps, including the amount frozen due to the designation of the previous cash flow hedging relationship, was a loss of $7.8 million (net of tax of $5.0 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-
HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Unaudited
backed notes agreements. An "event of bankruptcy" (as defined in the ABS Base Indenture) with 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 sale of the 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 interest rate 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 June 2011.January 2012. 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 SeptemberJune 30, 2010,2011, our outstanding commodity instruments for unleaded gasoline and diesel fuel totaled approximately 12.36.6 million gallons and 0.71.8 million gallons, respectively. 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 U.S. Department of Energy surveys, etc.). 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 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 SeptemberJune 30, 2010,
HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
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2011, were approximately $0.2 million. We limit counterparties to the transactions to financial institutions that have strong credit ratings. As of SeptemberJune 30, 20102011 and December 31, 2009,2010, the total notional amount of these foreign exchange options was $4.9$7.1 million and $0.3$3.5 million, respectively. As of SeptemberJune 30, 2010,2011, these foreign exchange options mature through January 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.
HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
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 SeptemberJune 30, 2011 and December 31, 2010, the total notional amount of these forward contracts was $1,391.4$808.8 million maturingand $721.8 million, respectively. As of June 30, 2011 these foreign currency forward contracts mature within four 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 SeptemberJune 30, 20102011 and December 31, 2009,2010, losses of $8.6$21.7 million (net of tax of $7.9$14.7 million) and $19.2$6.8 million (net of tax of $14.7$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 income (loss).income."
Note 15—14—Related Party Transactions
Relationship with Hertz Investors, Inc. and the Sponsors
Other than as disclosed below, in the ninesix months ended SeptemberJune 30, 2010,2011, there were no material changes to our relationship with Hertz Investors, Inc. or the Sponsors.
Director Compensation Policy
ForOn March 31, 2011, the three and nine months ended September 30, 2010, we recognized $0.5Sponsors sold 50 million and $1.4of 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. For the three and nine months ended September 30, 2009, we recognized $0.4 million and $1.2 million, respectively, 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., or "ML," one of the underwriters in the initial public offering of our common stockcommercial banking 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 purchasers with respectfinancial advisory services to the offerings of the Senior Notes, the Senior Subordinated Notes and the Series 2008-1 Notes; acted as structuring advisors and agents under our 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.
Banc of America Securities LLC, an affiliate of MLGPE, acted as one of the joint lead book runners in the issuance of the Series 2009-2 Notes and Series 2009-2 Class B Notes, and as a co-lead manager for the issuance of a portion of the 2010 Senior Notes,us for which they have received customary fees and expenses.
Ascommissions. In addition, these parties have acted as agents, lenders, purchasers and/or 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 following capacities, or similar capacities, with respect to our financing arrangements: lenders and/or agents under the Senior Credit Facilities, the U.S. Fleet Financing Facility and certain of September 30, 2010the U.S. Fleet Variable Funding Notes; purchasers and/or underwriters under the Senior Notes and December 31, 2009, approximately $255 millioncertain of the U.S. Fleet Medium Term Notes; and $246 million, respectively, of our outstanding debt was with related parties.
See Note 8—Debt.structuring advisors and/or agents under the ABS Program.
HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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As of June 30, 2011 and December 31, 2010, approximately $197 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 SeptemberJune 30, 20102011 and December 31, 2009,2010, the following guarantees (including indemnification commitments) were issued and outstanding:outstanding.
Indemnification Obligations
In the ordinary course of business, we execute contracts involving indemnification obligations customary in the relevant industry and indemnifications specific to a transaction such as the sale of a business. These indemnification obligations might include claims relating to the following: environmental matters; intellectual property rights; governmental regulations and employment-related matters; customer, supplier and other commercial contractual relationships; and financial matters. Performance under these indemnification obligations would generally be triggered by a breach of terms of the contract or by a third-partythird party claim. We regularly evaluate the probability of having to incur costs associated with these indemnification obligations and have accrued for expected losses that are probable and estimable. The types of indemnification 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 SeptemberJune 30, 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 $1.7 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 factors such as our connection to the site, the materials there, the involvement of other potentially
HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
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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).
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 SeptemberJune 30, 20102011 and December 31, 20092010 our liability recorded for public liability and property damage matters was $286.5$286.0 million and $277.8$278.7 million, respectively. The increase in the reserve balance primarily reflects the timing of payment activity during the period 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 developmentsdevelopment pertaining to a legal proceedingsproceeding described in our Annual Report areForm 10-K is furnished on a supplemental basis:
In August 2010,May 2011, the United States Courtjudge in the related cases of AppealsJanet Sobel et al. v. The Hertz Corporation andLydia Lee et al. v. Enterprise Rent-A-Car Company et al. denied the plaintiffs' motion for the Ninth Circuit affirmed the dismissalfinal approval of the complaintproposed settlement and denied the plaintiffs' motion for attorneys' fees, expenses and incentive awards as moot. The court concluded that the absence of evidence as to all defendantsthe actual value to the class of the coupons offered in settlement and theIn re Tourism Assessment Fee Litigation. The deadline for plaintiffs value of the claims to requestbe surrendered precluded a rehearingfinding that the settlement is fair, reasonable and adequate.
None of this decision has passed.
Aside from the above mentioned, there were no material changes in theother legal proceedings described in our Annual Report and in our quarterly reports on Form 10-Q for the periods ended March 31, 2010 and June 30, 2010, and we are not otherwise required to disclose any pending legal proceedings in response to Item 103 of Regulation S-K.10-K have experienced material changes.
In addition to the above mentioned and those described in our Form 10-K or in our other filings with Securities and Exchange Commission, 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,
HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
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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 abovein our Form 10-K or in our Annual Report,other filings with Securities and Exchange Commission, could be decided unfavorably againstto us or any of our subsidiaries involved. Accordingly, it is possible that an adverse outcome from such a proceeding could exceed the amount accrued in an amount that could be material to our consolidated financial condition, results of operations or cash flows in any particular reporting period.
Note 17—16—Earnings (Loss) Per Share
Basic earnings (loss) per share has been computed based upon the weighted average number of common shares outstanding. Diluted earnings (loss) per share has been computed based upon the weighted average number of common shares outstanding plus the effect of all potentially dilutive common stock equivalents, except when the effect would be anti-dilutive.
The following table sets forth the computation of basic and diluted earnings (loss) per share (in millions of dollars, except per share amounts):
| Three Months Ended September 30, | |||||||
---|---|---|---|---|---|---|---|---|
| 2010 | 2009 | ||||||
Basic and diluted earnings per share: | ||||||||
Numerator: | ||||||||
Net income attributable to Hertz Global Holdings, Inc. and Subsidiaries' common stockholders | $ | 156.6 | $ | 64.5 | ||||
Denominator: | ||||||||
Weighted average shares used in basic computation | 412.2 | 407.4 | ||||||
Add: Stock options, RSUs and PSUs | 7.6 | 8.0 | ||||||
Add: Potential issuance of common stock upon conversion of Convertible Senior Notes | 10.6 | 9.8 | ||||||
Weighted average shares used in diluted computation | 430.4 | 425.2 | ||||||
Earnings per share attributable to Hertz Global Holdings, Inc. and Subsidiaries' common stockholders, basic | $ | 0.38 | $ | 0.16 | ||||
Earnings per share attributable to Hertz Global Holdings, Inc. and Subsidiaries' common stockholders, diluted | $ | 0.36 | $ | 0.15 |
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2011 | 2010 | 2011 | 2010 | ||||||||||
Basic and diluted earnings (loss) per share: | ||||||||||||||
Numerator: | ||||||||||||||
Net income (loss) attributable to Hertz Global Holdings, Inc. and Subsidiaries' common stockholders | $ | 55.0 | $ | (25.1 | ) | $ | (77.6 | ) | $ | (175.5 | ) | |||
Denominator: | ||||||||||||||
Weighted average shares used in basic computation | 415.9 | 411.8 | 415.0 | 411.3 | ||||||||||
Add: Stock options, RSUs and PSUs | 8.3 | — | — | — | ||||||||||
Add: Potential issuance of common stock upon conversion of Convertible Senior Notes | 27.6 | — | — | — | ||||||||||
Weighted average shares used in diluted computation | 451.8 | 411.8 | 415.0 | 411.3 | ||||||||||
Earnings (loss) per share attributable to Hertz Global Holdings, Inc. and Subsidiaries' common stockholders, basic | $ | 0.13 | $ | (0.06 | ) | $ | (0.19 | ) | $ | (0.43 | ) | |||
Earnings (loss) per share attributable to Hertz Global Holdings, Inc. and Subsidiaries' common stockholders, diluted | $ | 0.12 | $ | (0.06 | ) | $ | (0.19 | ) | $ | (0.43 | ) |
HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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| Nine Months Ended September 30, | |||||||
---|---|---|---|---|---|---|---|---|
| 2010 | 2009 | ||||||
Basic and diluted loss per share: | ||||||||
Numerator: | ||||||||
Loss attributable to Hertz Global Holdings, Inc. and Subsidiaries' common stockholders | $ | (18.9 | ) | $ | (95.1 | ) | ||
Denominator: | ||||||||
Weighted average shares used in basic and diluted computation | 411.6 | 358.5 | ||||||
Loss per share attributable to Hertz Global Holdings, Inc. and Subsidiaries' common stockholders, basic | $ | (0.05 | ) | $ | (0.27 | ) | ||
Loss per share attributable to Hertz Global Holdings, Inc. and Subsidiaries' common stockholders, diluted | $ | (0.05 | ) | $ | (0.27 | ) |
Diluted earnings (loss) per share computations for the three and ninesix months ended SeptemberJune 30, 20102011 excluded the weighted-average impact of the assumed exercise of approximately 9.55.0 million and 23.621.2 million shares, respectively, of stock options, RSUs and PSUs, respectively, because such impact would be antidilutive. Additionally, for the ninesix months ended SeptemberJune 30, 2010,2011, there was no impact to the diluted earnings (loss) per share computations associated with the Convertible Senior Notes, because such impact would be antidilutive. Diluted earnings (loss) per share computations for the three and ninesix months ended SeptemberJune 30, 20092010 excluded the weighted-average impact of the assumed exercise of approximately 8.123.7 million and 22.6 million shares, respectively, of stock options, RSUs and PSUs because such impact would be antidilutive. Additionally, for the ninethree and six months ended SeptemberJune 30, 2009,2010, there was no impact to the diluted earnings (loss) per share computations associated with the Convertible Senior Notes, because such impact would be antidilutive.
Note 18—17—Subsequent Events
On April 25, 2010, weJuly 12, 2011, Hertz entered into a definitive merger agreement or the "Merger Agreement," under which we agreed toit will acquire Dollar Thrifty Automotive Group, Inc.a fleet leasing and management services company, Donlen Corporation, or "Dollar Thrifty,"Donlen," for an aggregate purchase price of $250 million, subject to certainadjustment either upward or downward based on the net assets of Donlen at closing. In addition, Hertz will assume or refinance approximately $680 million of Donlen's outstanding fleet debt. The transaction is subject to customary closing conditions includingand regulatory approvals and has been approved by the condition that Dollar Thrifty shareholders vote to adopt the Merger Agreement. The Merger Agreement was subsequently amended on September 10, 2010, to increase the consideration payable by us to Dollar Thrifty stockholders. On September 30, 2010,board of directors and stockholders of Dollar Thrifty did not vote in favor of the proposal to adopt the Merger Agreement. As a result, on October 1, 2010, we terminated the Merger Agreement. We incurred legal, accounting, financial advisory and other expenses of approximately $20.5 million during the nine months ended September 30, 2010 in connection with the terminated Dollar Thrifty transaction.Donlen.
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 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, 2010 and March 1, 2010, respectively,25, 2011, or collectively known as our "Annual Report,"Form 10-K," and in Part II, "Item 1A- 1A—Risk Factors" included in Hertz Holdings' Quarterly Report on thethis Form 10-Q for the quarterly period ended June 30, 2010, or "Second Quarter Form 10-Q" and the following, which were derived in part from the risks set forth in the Annual Report and the Second Quarter Form 10-Q: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)
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.
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations (Continued)
Our revenues primarily are derived from rental and related charges and consist of:
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)
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.
On July 12, 2011, Hertz entered into a definitive merger agreement under which it will acquire a fleet leasing and management services company, Donlen Corporation, or "Donlen," for an aggregate purchase price of $250 million, subject to adjustment either upward or downward based on the net assets of Donlen at closing. In addition, Hertz will assume or refinance approximately $680 million of Donlen's outstanding fleet debt. The transaction is subject to customary closing conditions and regulatory approvals and has been approved by the board of directors and stockholders of Donlen.
Car Rental
In the U.S., as of SeptemberJune 30, 2011, the percentage of non-program cars was 68% as compared to 61% as of June 30, 2010. Internationally, as of June 30, 2011, the percentage of non-program cars was 58% as compared to 48% as of June 30, 2010. In the U.S., as of December 31, 2010, the percentage of non-program cars was 64%72% as compared to 66%67% as of September 30,December 31, 2009. Internationally, as of September 30,
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations (Continued)
December 31, 2010, the percentage of non-program cars was 60%70%, compared to 59% as of September 30, 2009. In the U.S.,71% as of December 31, 2009,2009.
In recent periods we have decreased the percentage of program cars in our car rental fleet. 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 the percentage of non-program cars was 67%in our car rental fleet 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.
In the six months ended June 30, 2011, our vehicle depreciation costs decreased as compared to 74% as of December 31, 2008. Internationally, as of December 31, 2009, the percentageprior year period due to improved residual values, a continued move towards a greater proportion of non-program cars was 71%, comparedvehicles, mix optimization and improved procurement and remarketing efforts. We believe the increase in residual values is partially due to 68%the recent events in Japan and we are unsure if they will remain this high as of December 31, 2008.these events work their way through the vehicle and equipment supply chain.
For the ninesix months ended SeptemberJune 30, 2010,2011, we experienced a 9.1%6.5% increase in transaction days versus the prior period in the United States, andwhile rental rate revenue per transaction day, or "RPD," increased 0.3%declined by 3.0%. During the ninesix months ended SeptemberJune 30, 2010,2011, in our European operations, we experienced a 3.6%6.9% improvement in transaction days and a 1.8% improvement in our car rentalwhile RPD declined by 2.5% compared to the ninesix months ended SeptemberJune 30, 2009.2010.
Our U.S. off-airport operations represented $816.6$550.3 million and $722.0$496.0 million of our total car rental revenues in the ninesix months ended SeptemberJune 30, 20102011 and 2009,2010, respectively. As of SeptemberJune 30, 2010,2011, we have 1,890approximately 2,030 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" included in our Annual Report and Second Quarter Form 10-Q.Equipment Rental
HERC experienced lowerhigher rental volumes and pricing worldwide for the ninesix months ended SeptemberJune 30, 20102011 compared to the prior year period.period as the industry begins to recover and fleet levels begin to align with demand in the industry. Specifically, we saw increases in HERC specialty services as well as government work.
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations (Continued)
HERC locations:
| Total | U.S. | Canada | France | Spain | Italy | China | ||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
December 31, 2009 | 322 | 214 | 35 | 66 | 4 | — | 3 | ||||||||||||||||
Net increase (decrease) | (9 | ) | (9 | ) | — | (1 | ) | — | — | 1 | |||||||||||||
Additions relating to acquisitions | 1 | — | — | — | — | 1 | — | ||||||||||||||||
September 30, 2010 | 314 | 205 | 35 | 65 | 4 | 1 | 4 | ||||||||||||||||
| Total | U.S. | Canada | France | Spain | Italy | China | Saudi Arabia | ||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
December 31, 2010 | 322 | 210 | 38 | 65 | 4 | 1 | 4 | — | ||||||||||||||||||
Net increase (decrease) | (8 | ) | (9 | ) | — | — | — | — | — | 1 | ||||||||||||||||
Additions relating to acquisitions | 1 | 1 | — | — | — | — | — | — | ||||||||||||||||||
June 30, 2011 | 315 | 202 | 38 | 65 | 4 | 1 | 4 | 1 | ||||||||||||||||||
Seasonality
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. 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.
Restructuring
During the nine months ended September 30, 2010, ourfirst quarter of 2011, we continued to streamline operations and reduce costs with the closure of several car rental and equipment rental business incurred charges for losses on available for salelocations globally as well as a reduction in our workforce by approximately 100 employees.
During the second quarter of 2011, we continued to streamline operations and reduce costs with the closure of twelve equipment rental locations in the U.S., consolidation of our European headquarters and the disposal of surplus equipment and recognition of future facility lease obligations related to branch closuresreduction in North America. Additionally, our European car rental business has incurred charges primarily associated with employee severance and relocation as a result of the pan-European migration of in-country back office operations to our shared services center in Dublin, Ireland. During the nine months ended September 30, 2010, restructuring charges included employee termination liabilities coveringglobal workforce by approximately 44550 employees.
For the three and ninesix months ended SeptemberJune 30, 2011, our consolidated statement of operations includes restructuring charges of $33.7 million and $38.4 million, respectively. For the three and six months ended June 30, 2010, our consolidated statement of operations includes restructuring charges relating to the initiatives discussed above of $14.6$20.3 million and $45.5 million, respectively. For the three and nine months ended September 30, 2009, our consolidated statement of operations includes restructuring charges relating to the initiatives discussed above of $35.7 million and $87.2$31.0 million, respectively.
Additional efficiency and cost saving initiatives are being developed during 2011. However, we presently do not have firm plans or estimates of any related expenses. See Note 13 of12 to the Notes to our condensed consolidated financial statements included in this Report.
On April 25, 2010, we entered into a definitive merger agreement, or the "Merger Agreement," under which we agreed to acquire Dollar Thrifty Automotive Group, Inc. or "Dollar Thrifty," subject to certain conditions, including the condition that Dollar Thrifty shareholders vote to adopt the Merger Agreement. The Merger Agreement was subsequently amended on September 10, 2010, to increase the consideration payable by us to Dollar Thrifty stockholders. On September 30, 2010, stockholders of Dollar Thrifty did not vote in favor of the proposal to adopt the Merger Agreement. As a result, on October 1, 2010, we terminated the Merger Agreement. We incurred legal, accounting, financial advisory and other expenses of approximately $20.5 million during the nine months ended September 30, 2010 in connection with the terminated Dollar Thrifty transaction.
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations (Continued)
RESULTS OF OPERATIONS
Three Months Ended SeptemberJune 30, 20102011 Compared with Three Months Ended SeptemberJune 30, 20092010
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 SeptemberJune 30, 20102011 and 20092010 (in millions of dollars):
| | | Percentage of Revenues | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Three Months Ended September 30, | Three Months Ended September 30, | |||||||||||||
| 2010 | 2009 | 2010 | 2009 | |||||||||||
Revenues: | |||||||||||||||
Car rental | $ | 1,862.6 | $ | 1,724.9 | 85.2 | % | 84.5 | % | |||||||
Equipment rental | 281.1 | 280.3 | 12.9 | 13.7 | |||||||||||
Other | 42.6 | 36.2 | 1.9 | 1.8 | |||||||||||
Total revenues | 2,186.3 | 2,041.4 | 100.0 | 100.0 | |||||||||||
Expenses: | |||||||||||||||
Direct operating | 1,157.5 | 1,118.6 | 52.9 | 54.8 | |||||||||||
Depreciation of revenue earning equipment | 501.0 | 499.1 | 22.9 | 24.4 | |||||||||||
Selling, general and administrative | 168.7 | 179.7 | 7.7 | 8.8 | |||||||||||
Interest expense | 202.2 | 169.3 | 9.3 | 8.3 | |||||||||||
Interest and other income, net | (1.4 | ) | (1.1 | ) | — | — | |||||||||
Total expenses | 2,028.0 | 1,965.6 | 92.8 | 96.3 | |||||||||||
Income before income taxes | 158.3 | 75.8 | 7.2 | 3.7 | |||||||||||
(Provision) benefit for taxes on income | 3.0 | (6.9 | ) | 0.2 | (0.3 | ) | |||||||||
Net income | 161.3 | 68.9 | 7.4 | 3.4 | |||||||||||
Less: Net income attributable to noncontrolling interest | (4.7 | ) | (4.4 | ) | (0.2 | ) | (0.2 | ) | |||||||
Net income attributable to Hertz Global Holdings, Inc. and Subsidiaries' common stockholders | $ | 156.6 | $ | 64.5 | 7.2 | % | 3.2 | % | |||||||
| | | Percentage of Revenues | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Three Months Ended June 30, | Three Months Ended June 30, | |||||||||||||
| 2011 | 2010 | 2011 | 2010 | |||||||||||
Revenues: | |||||||||||||||
Car rental | $ | 1,731.2 | $ | 1,583.0 | 83.5 | % | 84.2 | % | |||||||
Equipment rental | 301.6 | 265.7 | 14.6 | 14.1 | |||||||||||
Other | 39.5 | 30.9 | 1.9 | 1.7 | |||||||||||
Total revenues | 2,072.3 | 1,879.6 | 100.0 | 100.0 | |||||||||||
Expenses: | |||||||||||||||
Direct operating | 1,187.3 | 1,075.0 | 57.3 | 57.2 | |||||||||||
Depreciation of revenue earning equipment and lease charges | 419.7 | 456.7 | 20.3 | 24.3 | |||||||||||
Selling, general and administrative | 195.6 | 172.0 | 9.4 | 9.2 | |||||||||||
Interest expense | 165.8 | 188.9 | 8.0 | 10.0 | |||||||||||
Interest income | (1.5 | ) | (6.8 | ) | (0.1 | ) | (0.4 | ) | |||||||
Other (income) expense, net | 10.8 | — | 0.5 | — | |||||||||||
Total expenses | 1,977.7 | 1,885.8 | 95.4 | 100.3 | |||||||||||
Income (loss) before income taxes | 94.6 | (6.2 | ) | 4.6 | (0.3 | ) | |||||||||
Provision for taxes on income | (34.5 | ) | (14.2 | ) | (1.7 | ) | (0.8 | ) | |||||||
Net income (loss) | 60.1 | (20.4 | ) | 2.9 | (1.1 | ) | |||||||||
Less: Net income attributable to noncontrolling interest | (5.1 | ) | (4.7 | ) | (0.2 | ) | (0.2 | ) | |||||||
Net income (loss) attributable to Hertz Global Holdings, Inc. and Subsidiaries' common stockholders | $ | 55.0 | $ | (25.1 | ) | 2.7 | % | (1.3 | )% | ||||||
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 SeptemberJune 30, 20102011 and 2009:2010:
| | Three Months Ended or as of September 30, | | Three Months Ended or as of June 30, | ||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | 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) | 6,969 | 6,489 | Worldwide number of transactions (in thousands) | 7,146 | 6,821 | |||||||||||||
Domestic | 5,016 | 4,629 | Domestic | 5,255 | 5,021 | |||||||||||||
International | 1,953 | 1,860 | International | 1,891 | 1,800 | |||||||||||||
Worldwide transaction days (in thousands)(a) | 36,441 | 33,668 | Worldwide transaction days (in thousands)(a) | 34,826 | 32,194 | |||||||||||||
Domestic | 23,637 | 21,705 | Domestic | 23,889 | 22,061 | |||||||||||||
International | 12,804 | 11,963 | International | 10,937 | 10,133 | |||||||||||||
Worldwide rental rate revenue per transaction day(b) | $ | 45.53 | $ | 45.02 | Worldwide rental rate revenue per transaction day(b) | $ | 41.16 | $ | 42.83 | |||||||||
Domestic | $ | 44.21 | $ | 43.47 | Domestic | $ | 39.32 | $ | 41.07 | |||||||||
International | $ | 47.96 | $ | 47.82 | International | $ | 45.17 | $ | 46.66 | |||||||||
Worldwide average number of company-operated cars during the period | 487,100 | 447,800 | Worldwide average number of company-operated cars during the period | 487,600 | 448,400 | |||||||||||||
Domestic | 312,400 | 285,500 | Domestic | 328,200 | 300,000 | |||||||||||||
International | 174,700 | 162,300 | International | 159,400 | 148,400 | |||||||||||||
Adjusted pre-tax income (in millions of dollars)(c) | $ | 309.3 | $ | 258.3 | Adjusted pre-tax income (in millions of dollars)(c) | $ | 242.2 | $ | 174.9 | |||||||||
Worldwide revenue earning equipment, net (in millions of dollars) | $ | 8,119.4 | $ | 7,157.1 | Worldwide revenue earning equipment, net (in millions of dollars) | $ | 9,522.7 | $ | 8,762.1 | |||||||||
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) | $ | 259.9 | $ | 256.7 | Rental and rental related revenue (in millions of dollars)(d) | $ | 267.8 | $ | 239.6 | |||||||||
Same store revenue growth (decline), including growth initiatives(e) | 2.6 | % | (34.1 | )% | Same store revenue growth (decline), including growth initiatives(e) | 10.4 | % | (5.0 | )% | |||||||||
Average acquisition cost of rental equipment operated during the period (in millions of dollars) | $ | 2,691.9 | $ | 2,833.7 | Average acquisition cost of rental equipment operated during the period (in millions of dollars) | $ | 2,778.8 | $ | 2,704.4 | |||||||||
Adjusted pre-tax income (in millions of dollars)(c) | $ | 33.7 | $ | 25.2 | Adjusted pre-tax income (in millions of dollars)(c) | $ | 33.4 | $ | 14.4 | |||||||||
Revenue earning equipment, net (in millions of dollars) | $ | 1,681.4 | $ | 1,893.1 | Revenue earning equipment, net (in millions of dollars) | $ | 1,702.7 | $ | 1,649.1 |
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 SeptemberJune 30, 20102011 and 20092010 (in millions of dollars, except as noted):
| Three Months Ended September 30, | |||||||
---|---|---|---|---|---|---|---|---|
| 2010 | 2009 | ||||||
Car rental segment revenues | $ | 1,903.5 | $ | 1,757.7 | ||||
Non-rental rate revenue | (297.5 | ) | (257.2 | ) | ||||
Foreign currency adjustment | 53.0 | 15.1 | ||||||
Rental rate revenue | $ | 1,659.0 | $ | 1,515.6 | ||||
Transaction days (in thousands) | 36,441 | 33,668 | ||||||
Rental rate revenue per transaction day (in whole dollars) | $ | 45.53 | $ | 45.02 |
| Three Months Ended June 30, | ||||||
---|---|---|---|---|---|---|---|
| 2011 | 2010 | |||||
Car rental segment revenues | $ | 1,768.8 | $ | 1,611.4 | |||
Non-rental rate revenue | (292.4 | ) | (261.4 | ) | |||
Foreign currency adjustment | (43.1 | ) | 29.0 | ||||
Rental rate revenue | $ | 1,433.3 | $ | 1,379.0 | |||
Transaction days (in thousands) | 34,826 | 32,194 | |||||
Rental rate revenue per transaction day (in whole dollars) | $ | 41.16 | $ | 42.83 |
| Three Months Ended September 30, 2010 | ||||||||
---|---|---|---|---|---|---|---|---|---|
| Car Rental | Equipment Rental | |||||||
Income before income taxes | $ | 261.2 | $ | 7.6 | |||||
Adjustments: | |||||||||
Purchase accounting(1) | 9.1 | 13.9 | |||||||
Non-cash debt charges(2) | 34.4 | 1.6 | |||||||
Restructuring charges | 4.0 | 10.6 | |||||||
Restructuring related charges(3) | 0.6 | — | |||||||
Adjusted pre-tax income | $ | 309.3 | $ | 33.7 | |||||
| Three Months Ended June 30, | |||||||||
---|---|---|---|---|---|---|---|---|---|---|
| 2011 | 2010 | ||||||||
Adjusted pre-tax income: | ||||||||||
Car rental | $ | 242.2 | $ | 174.9 | ||||||
Equipment rental | 33.4 | 14.4 | ||||||||
Total reportable segments | 275.6 | 189.3 | ||||||||
Adjustments: | ||||||||||
Other reconciling items(1) | (91.2 | ) | (93.5 | ) | ||||||
Purchase accounting(2) | (22.5 | ) | (22.5 | ) | ||||||
Non-cash debt charges(3) | (27.1 | ) | (49.6 | ) | ||||||
Restructuring charges | (33.7 | ) | (20.3 | ) | ||||||
Restructuring related charges(4) | (2.8 | ) | (2.0 | ) | ||||||
Derivative losses(5) | — | (0.6 | ) | |||||||
Acquisition related costs | (6.1 | ) | (7.0 | ) | ||||||
Pension adjustment(6) | 13.1 | — | ||||||||
Premiums paid on debt(7) | (10.7 | ) | — | |||||||
Income (loss) before income taxes | $ | 94.6 | $ | (6.2 | ) | |||||
| Three Months Ended September 30, 2009 | ||||||||
---|---|---|---|---|---|---|---|---|---|
| Car Rental | Equipment Rental | |||||||
Income before income taxes | $ | 174.2 | $ | 3.0 | |||||
Adjustments: | |||||||||
Purchase accounting(1) | 10.4 | 10.8 | |||||||
Non-cash debt charges(2) | 37.7 | 2.2 | |||||||
Restructuring charges | 25.4 | 9.1 | |||||||
Restructuring related charges(3) | 10.6 | 0.1 | |||||||
Adjusted pre-tax income | $ | 258.3 | $ | 25.2 | |||||
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)
| Three Months Ended September 30, | |||||||
---|---|---|---|---|---|---|---|---|
| 2010 | 2009 | ||||||
Equipment rental segment revenues | $ | 281.2 | $ | 280.5 | ||||
Equipment sales and other revenue | (24.1 | ) | (26.5 | ) | ||||
Foreign currency adjustment | 2.8 | 2.7 | ||||||
Rental and rental related revenue | $ | 259.9 | $ | 256.7 | ||||
| Three Months Ended June 30, | ||||||
---|---|---|---|---|---|---|---|
| 2011 | 2010 | |||||
Equipment rental segment revenues | $ | 301.7 | $ | 265.8 | |||
Equipment sales and other revenue | (29.4 | ) | (28.7 | ) | |||
Foreign currency adjustment | (4.5 | ) | 2.5 | ||||
Rental and rental related revenue | $ | 267.8 | $ | 239.6 | |||
REVENUES
| | Three Months Ended September 30, | | | | Three Months Ended June 30, | | | ||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(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 | $ | 1,903.5 | $ | 1,757.7 | $ | 145.8 | 8.3 | % | Car rental | $ | 1,768.8 | $ | 1,611.4 | $ | 157.4 | 9.8 | % | |||||||||||||
Equipment rental | 281.2 | 280.5 | 0.7 | 0.2 | % | Equipment rental | 301.7 | 265.8 | 35.9 | 13.5 | % | |||||||||||||||||||
Other reconciling items | 1.6 | 3.2 | (1.6 | ) | (50.0 | )% | Other reconciling items | 1.8 | 2.4 | (0.6 | ) | (25.0 | )% | |||||||||||||||||
Total revenues | $ | 2,186.3 | $ | 2,041.4 | $ | 144.9 | 7.1 | % | Total revenues | $ | 2,072.3 | $ | 1,879.6 | $ | 192.7 | 10.3 | % | |||||||||||||
Car Rental Segment
Revenues from our car rental segment increased 8.3%9.8%, primarily as a result of increases in car rental transaction days worldwide of 8.2%, worldwide RPD of 1.1%, refueling fees of $11.0$15.2 million and airport concession recovery fees of $10.7$9.8 million partly offset byas well as the effects of foreign currency translation of approximately $38.0 million.$74.1 million, partly offset by a decrease in worldwide RPD.
RPD for worldwide car rental for the three months ended SeptemberJune 30, 2010 increased 1.1%2011 decreased 3.9% from 2009,2010, due to increasesdecreases in U.S. RPD of 1.7% and in International RPD of 0.3%.4.3% and 3.2%, respectively. U.S. off-airport RPD improveddeclined by 4.8%1.8% and U.S. airport RPD increased 0.7%decreased 5.1%. U.S. airport RPD decreased due to the lower RPD that our Advantage brand generates, as well as the competitive pricing environment. International RPD decreased primarily due to a decrease in Europe's airport RPD.
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations (Continued)
Equipment Rental Segment
Revenues from our equipment rental segment increased 0.2%13.5%, primarily due to a 3.2% increaseincreases of 11.3% and 2.2% in equipment rental volumevolumes and pricing, respectively, as well as the effects of foreign currency translation of approximately $0.3 million, partly offset by a 2.9% decline$8.1 million. The increase in pricing and a decrease in equipment sales of $2.0 million.volume was primarily due to strong industrial performance.
Other
Revenues from all other sources decreased $1.6 million, primarily due to a decrease in revenues from our third-party claim management services.$0.6 million.
EXPENSES
| | Three Months Ended September 30, | | | | Three Months Ended June 30, | | | ||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(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 | $ | 284.3 | $ | 253.8 | $ | 30.5 | 12.0 | % | Fleet related expenses | $ | 287.0 | $ | 248.8 | $ | 38.2 | 15.4 | % | |||||||||||||||
Personnel related expenses | 353.0 | 347.0 | 6.0 | 1.7 | % | Personnel related expenses | 373.5 | 354.7 | 18.8 | 5.3 | % | |||||||||||||||||||||
Other direct operating expenses | 520.2 | 517.8 | 2.4 | 0.5 | % | Other direct operating expenses | 526.8 | 471.5 | 55.3 | 11.7 | % | |||||||||||||||||||||
Direct operating | 1,157.5 | 1,118.6 | 38.9 | 3.5 | % | Direct operating | 1,187.3 | 1,075.0 | 112.3 | 10.4 | % | |||||||||||||||||||||
Depreciation of revenue earning equipment | 501.0 | 499.1 | 1.9 | 0.4 | % | Depreciation of revenue earning equipment and lease charges | 419.7 | 456.7 | (37.0 | ) | (8.1 | )% | ||||||||||||||||||||
Selling, general and administrative | 168.7 | 179.7 | (11.0 | ) | (6.2 | )% | Selling, general and administrative | 195.6 | 172.0 | 23.6 | 13.7 | % | ||||||||||||||||||||
Interest expense | 202.2 | 169.3 | 32.9 | 19.4 | % | Interest expense | 165.8 | 188.9 | (23.1 | ) | (12.2 | )% | ||||||||||||||||||||
Interest and other income, net | (1.4 | ) | (1.1 | ) | (0.3 | ) | 27.1 | % | Interest income | (1.5 | ) | (6.8 | ) | 5.3 | (77.2 | )% | ||||||||||||||||
Other (income) expense, net | 10.8 | — | 10.8 | 100.0 | % | |||||||||||||||||||||||||||
Total expenses | $ | 2,028.0 | $ | 1,965.6 | $ | 62.4 | 3.2 | % | ||||||||||||||||||||||||
Total expenses | $ | 1,977.7 | $ | 1,885.8 | $ | 91.9 | 4.9 | % | ||||||||||||||||||||||||
Total expenses increased 3.2%4.9%, however,but total expenses as a percentage of revenues decreased from 96.3%100.3% for the three months ended SeptemberJune 30, 20092010 to 92.8%95.4% for the three months ended SeptemberJune 30, 2010.2011.
Direct Operating Expenses
Car Rental Segment
Direct operating expenses for our car rental segment of $977.9 million for the three months ended June 30, 2011 increased 3.5%9.7% from $891.5 million for the three months ended June 30, 2010 as a result of increases in other direct operating expenses, fleet related expenses and personnel related expenses and otherexpenses.
Other direct operating expenses.
Fleet related expenses for our car rental segment of $434.7 million for the three months ended June 30, 2011 increased 12.0%.$40.7 million, or 10.3%, from the three months ended June 30, 2010. The increase was primarily related to worldwide car rental and equipment rental volume demand which resulted in increases in self insurance expenseconcession fees of $13.2$7.8 million, gasoline costsa value added tax reclaim of $7.9approximately $4.0 million vehicle damage costsreceived in the three months ended June 30, 2010, field administrative expenses of $5.9$2.8 million, vehicle license taxescommissions of $5.4 million, equipment maintenance costs of $5.3$2.1 million and equipment freight expensescharge card fees of $3.0$1.7 million, partly offset byas well as the effects of foreign currency translation of approximately $8.2$18.4 million.
Personnel related expenses increased 1.7%. These increases were primarily a result of improved worldwide rental volume demand. The increase was primarily related to increases in outside services of $6.4 million and wages and benefits of $5.1 million,other direct operating expenses were partly offset by the effectsdecreases in field systems of foreign currency translation of approximately $4.5$3.7 million and a decrease in incentive compensation costsrestructuring and restructuring related charges of $2.0$2.8 million.
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations (Continued)
Fleet related expenses for our car rental segment of $236.6 million for the three months ended June 30, 2011 increased $34.1 million, or 16.9%, from the three months ended June 30, 2010. The increase was primarily related to worldwide rental volume demand which resulted in increases in gasoline costs of $17.4 million and self insurance expenses of $6.8 million, as well as the effects of foreign currency translation of approximately $10.4 million. The increase in gasoline costs also related to higher gasoline prices.
Personnel related expenses for our car rental segment of $306.6 million for the three months ended June 30, 2011 increased $11.6 million, or 3.9%, from the three months ended June 30, 2010. The increase was primarily related to the effects of foreign currency translation of approximately $10.6 million, as well as an increase in salaries of $7.4 million, partly offset by a decrease in benefits of $9.2 million. The increase in salaries was primarily related to improved volume, as well as additional U.S. off-airport locations in 2011. The decrease in benefits primarily related to the U.K. pension curtailment gain.
Equipment Rental Segment
Direct operating expenses for our equipment rental segment of $208.7 million for the three months ended June 30, 2011 increased 15.7% from $180.5 million for the three months ended June 30, 2010 as a result of increases in other direct operating expenses, fleet related expenses and personnel related expenses.
Other direct operating expenses for our equipment rental segment of $101.4 million for the three months ended June 30, 2011 increased 0.5%.$18.2 million, or 21.8% from the three months ended June 30, 2010. The increase was primarily related to increases in concession fees, commission feesrestructuring charges of $13.7 million and guaranteed charge card fees related to worldwide car rental volume demand. These increases were partly offset by a reduction in restructuring and restructuring related charges andlegal expenses of $2.0 million, as well as the effects of foreign currency translation.translation of approximately $2.1 million.
Fleet related expenses for our equipment rental segment of $50.4 million for the three months ended June 30, 2011 increased $5.1 million, or 11.2% from the three months ended June 30, 2010. The increase was primarily related to increased worldwide rental volume resulting in increased freight and delivery costs of $2.6 million and continued aging of the fleet which resulted in an increase in maintenance costs of $1.6 million, as well as the effects of foreign currency translation of approximately $1.3 million.
Personnel related expenses for our equipment rental segment of $56.9 million for the three months ended June 30, 2011 increased $5.0 million, or 9.6%, from the three months ended June 30, 2010. The increase was related to wages and benefits of $1.4 million and incentives of $1.7 million primarily related to improved results, as well as the effects of foreign currency translation of approximately $1.5 million.
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 $432.7$355.1 million for the three months ended SeptemberJune 30, 2010 increased 1.7%2011 decreased 8.9% from $425.4$389.7 million for the three months ended SeptemberJune 30, 2009.2010. The increasedecrease was primarily relateddue to an 8.8% increaseimprovement in the sizecertain vehicle residual values and a higher mix of our average fleet,non-program cars, partly offset by the effects of foreign currency translation.
Equipment Rental Segment
Depreciation of revenue earning equipment in our equipment rental segment of $68.3 million for the three months ended September 30, 2010 decreased 7.3% from $73.7 million for the three months ended September 30, 2009. The decrease was primarily due to a 5.0% reduction in average acquisition cost of rental equipment operated during the period.
Selling, General and Administrative Expenses
Selling, general and administrative expenses decreased 6.2%, due to a decrease in administrative expenses, partly offset by an increase in advertising.
Administrative expenses decreased $15.7 million, or 13.6%, primarily due to decreases in restructuring and restructuring related charges of $17.4 million, incentive compensation of $4.9 million and the effects of foreign currency translation of approximately $2.1 million, partly offset by increases in legal expenses and consultant fees of $11.2 million primarily related to the terminated Dollar Thrifty transaction.
Advertising expenses increased $4.7 million, or 14.5%, primarily due to increased media advertising.
Interest Expense
Car Rental Segment
Interest expense for our car rental segment of $113.7 million for the three months ended September 30, 2010 increased 49.6% from $76.0 million for the three months ended September 30, 2009. The increase was 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 $9.1 million for the three months ended September 30, 2010 decreased 34.5% from $13.9 million for the three months ended September 30, 2009. The decrease was primarily due to a reduction in the weighted average debt outstanding as a result of reduced fleet size.$16.8 million.
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations (Continued)
Equipment Rental Segment
Depreciation of revenue earning equipment and lease charges in our equipment rental segment of $64.6 million for the three months ended June 30, 2011 decreased 3.6% from $67.0 million for the three months ended June 30, 2010. The decrease was primarily due to higher residual values on the disposal of used equipment, partly offset by a 2.8% increase in the average acquisition cost of rental equipment operated during the period and the effects of foreign currency translation of approximately $1.5 million.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased 13.7%, due to increases in administrative expenses, advertising expenses and sales promotion expenses.
Administrative expenses increased $12.1 million, or 11.3%, primarily due to increases in salaries and related expenses of $5.0 million, restructuring and restructuring related charges of $2.8 million and consultant fees of $1.7 million, as well as the effects of foreign currency translation of approximately $4.4 million. These increases were partly offset by a decrease in stock option expense of $2.8 million.
Advertising expenses increased $6.8 million, or 20.6%, primarily due to increased media and production related to the new campaign ("Gas and Brake"), as well as the effects of foreign currency translation of approximately $2.3 million.
Sales promotion expenses increased $4.7 million, or 14.7%, primarily related to increases in sales salaries and commissions due to improved results, as well as the effects of foreign currency translation of approximately $1.4 million.
Interest Expense
Car Rental Segment
Interest expense for our car rental segment of $79.0 million for the three months ended June 30, 2011 decreased 18.5% from $96.9 million for the three months ended June 30, 2010. The decrease was primarily due to a decrease in interest rates, as well as a decrease in the weighted average debt outstanding.
Equipment Rental Segment
Interest expense for our equipment rental segment of $12.2 million for the three months ended June 30, 2011 increased 19.6% from $10.2 million for the three months ended June 30, 2010. The increase was primarily due to an increase in Senior Term Facility and Senior ABL Facility interest rates in 2011.
Other
Other interest expense relating to interest on corporate debt of $79.4$74.6 million for the three months ended SeptemberJune 30, 2010 remained the same as2011 decreased 8.8% from $81.8 million for the three months ended SeptemberJune 30, 2009.2010. The decrease was primarily due to lower interest rates in 2011, partly offset by the write-off of unamortized debt costs in connection with the redemption of a portion of our 8.875% Senior Notes in 2011.
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations (Continued)
Interest and Income
Interest income decreased $5.3 million primarily due to a value added tax reclaim received in the three months ended June 30, 2010.
Other Income,(Income) Expense, Net
Interest and other income,Other (income) expense, net increased $0.3 million.$10.8 million primarily due to premiums paid in connection with the redemption of portions of our 8.875% Senior Notes during 2011.
ADJUSTED PRE-TAX INCOME (LOSS)
Car Rental Segment
Adjusted pre-tax income for our car rental segment of $309.3$242.2 million increased $67.3 million from $174.9 million for the three months ended SeptemberJune 30, 2010 increased 19.7% from $258.3 million for the three months ended September 30, 2009.2010. The increase was primarily due to stronger volumes, increased pricingimproved 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 SeptemberJune 30, 2011 totaled $10.1 million (which consists of non-cash debt charges of $10.6 million, purchase accounting of $8.5 million, restructuring and related charges of $4.0 million, pension adjustment of $(13.1) million and loss on derivatives of $0.1 million). Adjustments to our car rental segment income before income taxes for the three months ended June 30, 2010 and 2009, totaled $48.1$53.5 million (which consists of non-cash debt charges of $37.7 million, purchase accounting of $9.7 million and $84.1 million, respectively.restructuring and related charges of $6.1 million). 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 income for our equipment rental segment of $33.7$33.4 million increased $19.0 million from $14.4 million for the three months ended SeptemberJune 30, 2010 increased 33.7% from $25.2 million for the three months ended September 30, 2009.2010. The increase was primarily due to stronger volumes and disciplinedpricing, strong cost management performance.performance and higher residual values on the disposal of used equipment. Adjustments to our equipment rental segment incomeloss before income taxes on a GAAP basis for the three months ended SeptemberJune 30, 2011 totaled $46.7 million (which consists of restructuring and related charges of $32.1 million, purchase accounting of $13.1 million and non-cash debt charges of $1.5 million). Adjustments to our equipment rental loss before income taxes for the three months ended June 30, 2010 and 2009, totaled $26.1$30.2 million (which consists of restructuring charges of $16.0 million, purchase accounting of $12.0 million and $22.2 million, respectively.non-cash debt charges of $2.2 million). See footnote c(c) to the table under "Results of Operations" for a summary and description of these adjustments.
(PROVISION) BENEFIT FOR TAXES ON INCOME, NET INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS AND NET INCOME ATTRIBUTABLE TO HERTZ HOLDINGS, INC. AND SUBSIDIARIES' COMMON STOCKHOLDERS
| Three Months Ended September 30, | | | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(in millions of dollars) | 2010 | 2009 | $ Change | % Change | |||||||||
Income before income taxes | $ | 158.3 | $ | 75.8 | $ | 82.5 | 108.9 | % | |||||
(Provision) benefit for taxes on income | 3.0 | (6.9 | ) | 9.9 | 144.4 | % | |||||||
Net income | 161.3 | 68.9 | 92.4 | 133.9 | % | ||||||||
Less: Net income attributable to noncontrolling interests | (4.7 | ) | (4.4 | ) | (0.3 | ) | 5.0 | % | |||||
Net income attributable to Hertz Holdings, Inc. and Subsidiaries' common stockholders | $ | 156.6 | $ | 64.5 | $ | 92.1 | 142.7 | % | |||||
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations (Continued)
(Provision) BenefitPROVISION FOR TAXES ON INCOME, NET INCOME ATTRIBUTABLE TO NONCONTROLLING INTEREST AND NET (INCOME) LOSS ATTRIBUTABLE TO HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES' COMMON STOCKHOLDERS
| Three Months Ended June 30, | | | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(in millions of dollars) | 2011 | 2010 | $ Change | % Change | |||||||||
Income (loss) before income taxes | $ | 94.6 | $ | (6.2 | ) | $ | 100.8 | 1,617.2 | % | ||||
Provision for taxes on income | (34.5 | ) | (14.2 | ) | (20.3 | ) | 143.2 | % | |||||
Net income (loss) | 60.1 | (20.4 | ) | 80.5 | 393.8 | % | |||||||
Less: Net income attributable to noncontrolling interest | (5.1 | ) | (4.7 | ) | (0.4 | ) | 8.9 | % | |||||
Net income (loss) attributable to Hertz Global Holdings, Inc. and Subsidiaries' common stockholders | $ | 55.0 | $ | (25.1 | ) | $ | 80.1 | 318.9 | % | ||||
Provision for Taxes on Income
The benefit for taxes on income for the three months ended September 30, 2010 was $3.0 million and the provision for taxes on income in the three months ended September 30, 2009 was $6.9 million. The change was primarily due to the mix of income before income taxes in various taxing jurisdictions and discrete benefits in the three months ended September 30, 2010 as compared to the mix of income before income taxes in various taxing jurisdictions and discrete benefits in the three months ended September 30, 2009. The effective tax rate for the three months ended SeptemberJune 30, 20102011 was (1.9)%36.5% as compared to 9.0%(227.8)% in the three months ended SeptemberJune 30, 2009.2010. The change in tax rates is generallyprovision for taxes on income increased $20.3 million, primarily due to the factors noted above.higher income before income taxes, changes in geographic earnings mix and changes in losses in certain non-U.S. jurisdictions for which tax benefits cannot be realized.
Net Income Attributable to Noncontrolling InterestsInterest
Net income attributable to noncontrolling interestsinterest increased 5.0%$0.4 million due to an increase in our majority-owned subsidiary Navigation Solutions, L.L.C.'s net income for the three months ended SeptemberJune 30, 20102011 as compared to the three months ended SeptemberJune 30, 2009.2010.
Net Income (Loss) Attributable to Hertz Global Holdings, Inc. and Subsidiaries' Common Stockholders
The net income attributable to Hertz Global Holdings, Inc. and Subsidiaries' common stockholders increased $92.1$80.1 million primarily due to higher rental volumevolumes in our worldwide car and equipment rental operations, increased pricing in our worldwide car rental operationsimproved residual values on the disposal of certain vehicles and used equipment and disciplined cost management, partly offset by lower pricing in our worldwide equipmentcar rental operations. 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.
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations (Continued)
NineSix Months Ended SeptemberJune 30, 20102011 Compared with NineSix Months Ended SeptemberJune 30, 20092010
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 ninesix months ended SeptemberJune 30, 20102011 and 20092010 (in millions of dollars):
| | | | Percentage of Revenues | | | | Percentage of Revenues | ||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | Nine Months Ended September 30, | Nine Months Ended September 30, | | Six Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||||
| | 2010 | 2009 | 2010 | 2009 | | 2011 | 2010 | 2011 | 2010 | ||||||||||||||||||||
Revenues: | Revenues: | Revenues: | ||||||||||||||||||||||||||||
Car rental | $ | 4,842.2 | $ | 4,436.7 | 84.5 | % | 82.8 | % | Car rental | $ | 3,210.1 | $ | 2,979.6 | 83.3 | % | 84.2 | % | |||||||||||||
Equipment rental | 783.8 | 836.4 | 13.7 | 15.6 | Equipment rental | 569.7 | 502.7 | 14.8 | 14.2 | |||||||||||||||||||||
Other | 100.8 | 87.7 | 1.8 | 1.6 | Other | 72.5 | 58.2 | 1.9 | 1.6 | |||||||||||||||||||||
Total revenues | 5,726.8 | 5,360.8 | 100.0 | 100.0 | Total revenues | 3,852.3 | 3,540.5 | 100.0 | 100.0 | |||||||||||||||||||||
Expenses: | Expenses: | Expenses: | ||||||||||||||||||||||||||||
Direct operating | 3,245.5 | 3,062.5 | 56.7 | 57.1 | Direct operating | 2,261.0 | 2,088.0 | 58.7 | 59.0 | |||||||||||||||||||||
Depreciation of revenue earning equipment | 1,416.9 | 1,468.2 | 24.7 | 27.4 | Depreciation of revenue earning equipment and lease charges | 855.7 | 915.9 | 22.2 | 25.9 | |||||||||||||||||||||
Selling, general and administrative | 508.5 | 488.0 | 8.9 | 9.1 | Selling, general and administrative | 377.8 | 339.8 | 9.8 | 9.6 | |||||||||||||||||||||
Interest expense | 572.1 | 498.3 | 10.0 | 9.3 | Interest expense | 362.7 | 370.0 | 9.4 | 10.4 | |||||||||||||||||||||
Interest and other income, net | (10.4 | ) | (52.6 | ) | (0.2 | ) | (1.0 | ) | Interest income | (3.4 | ) | (9.1 | ) | — | (0.3 | ) | ||||||||||||||
Other (income) expense, net | 62.7 | — | 1.6 | — | ||||||||||||||||||||||||||
Total expenses | 5,732.6 | 5,464.4 | 100.1 | 101.9 | ||||||||||||||||||||||||||
Total expenses | 3,916.5 | 3,704.6 | 101.7 | 104.6 | ||||||||||||||||||||||||||
Loss before income taxes | Loss before income taxes | (5.8 | ) | (103.6 | ) | (0.1 | ) | (1.9 | ) | Loss before income taxes | (64.2 | ) | (164.1 | ) | (1.7 | ) | (4.6 | ) | ||||||||||||
Benefit for taxes on income | (0.2 | ) | 19.9 | — | 0.3 | |||||||||||||||||||||||||
Provision for taxes on income | Provision for taxes on income | (4.6 | ) | (3.2 | ) | (0.1 | ) | (0.1 | ) | |||||||||||||||||||||
Net income (loss) | (6.0 | ) | (83.7 | ) | (0.1 | ) | (1.6 | ) | ||||||||||||||||||||||
Net loss | Net loss | (68.8 | ) | (167.3 | ) | (1.8 | ) | (4.7 | ) | |||||||||||||||||||||
Less: Net income attributable to noncontrolling interest | Less: Net income attributable to noncontrolling interest | (12.9 | ) | (11.4 | ) | (0.2 | ) | (0.2 | ) | Less: Net income attributable to noncontrolling interest | (8.8 | ) | (8.2 | ) | (0.2 | ) | (0.3 | ) | ||||||||||||
Net loss attributable to Hertz Global Holdings, Inc. and Subsidiaries' common stockholders | Net loss attributable to Hertz Global Holdings, Inc. and Subsidiaries' common stockholders | $ | (18.9 | ) | $ | (95.1 | ) | (0.3 | )% | (1.8 | )% | Net loss attributable to Hertz Global Holdings, Inc. and Subsidiaries' common stockholders | $ | (77.6 | ) | $ | (175.5 | ) | (2.0 | )% | (5.0 | )% | ||||||||
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 ninesix months ended or as of SeptemberJune 30, 20102011 and 2009:2010:
| | Nine Months Ended or as of September 30, | | Six Months Ended or as of June 30, | ||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | 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) | 19,647 | 18,413 | Worldwide number of transactions (in thousands) | 13,174 | 12,678 | |||||||||||||
Domestic | 14,434 | 13,299 | Domestic | 9,733 | 9,418 | |||||||||||||
International | 5,213 | 5,114 | International | 3,441 | 3,260 | |||||||||||||
Worldwide transaction days (in thousands)(a) | 96,751 | 89,925 | Worldwide transaction days (in thousands)(a) | 64,476 | 60,310 | |||||||||||||
Domestic | 65,638 | 60,162 | Domestic | 44,710 | 42,001 | |||||||||||||
International | 31,113 | 29,763 | International | 19,766 | 18,309 | |||||||||||||
Worldwide rental rate revenue per transaction day(a)(b) | $ | 44.10 | $ | 43.87 | Worldwide rental rate revenue per transaction day(a)(b) | $ | 41.66 | $ | 42.77 | |||||||||
Domestic | $ | 42.47 | $ | 42.33 | Domestic | $ | 40.26 | $ | 41.49 | |||||||||
International | $ | 47.54 | $ | 46.98 | International | $ | 44.83 | $ | 45.69 | |||||||||
Worldwide average number of company-operated cars during the period | 451,000 | 413,100 | Worldwide average number of company-operated cars during the period | 457,500 | 433,100 | |||||||||||||
Domestic | 302,000 | 272,100 | Domestic | 311,900 | 296,900 | |||||||||||||
International | 149,000 | 141,000 | International | 145,600 | 136,200 | |||||||||||||
Adjusted pre-tax income (in millions of dollars)(a)(c) | $ | 512.7 | $ | 368.4 | Adjusted pre-tax income (in millions of dollars)(a)(c) | $ | 303.5 | $ | 202.0 | |||||||||
Worldwide revenue earning equipment, net (in millions of dollars) | $ | 8,119.4 | $ | 7,157.1 | Worldwide revenue earning equipment, net (in millions of dollars) | $ | 9,522.7 | $ | 8,762.1 | |||||||||
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)(a)(d) | $ | 715.4 | $ | 774.8 | Rental and rental related revenue (in millions of dollars)(a)(d) | $ | 511.0 | $ | 455.2 | |||||||||
Same store revenue decline, including growth initiatives(a) | (6.9 | )% | (29.5 | )% | Same store revenue growth (decline), including growth initiatives(a) | 9.9 | % | (11.3 | )% | |||||||||
Average acquisition cost of rental equipment operated during the period (in millions of dollars) | $ | 2,728.5 | $ | 2,888.8 | Average acquisition cost of rental equipment operated during the period (in millions of dollars) | $ | 2,769.2 | $ | 2,741.7 | |||||||||
Adjusted pre-tax income (in millions of dollars)(a)(c) | $ | 43.0 | $ | 50.6 | Adjusted pre-tax income (in millions of dollars)(a)(c) | $ | 43.6 | $ | 9.4 | |||||||||
Revenue earning equipment, net (in millions of dollars) | $ | 1,681.4 | $ | 1,893.1 | Revenue earning equipment, net (in millions of dollars) | $ | 1,702.7 | $ | 1,649.1 |
| Nine Months Ended September 30, | |||||||
---|---|---|---|---|---|---|---|---|
| 2010 | 2009 | ||||||
Car rental segment revenues | $ | 4,938.2 | $ | 4,515.3 | ||||
Non-rental rate revenue | (785.5 | ) | (681.2 | ) | ||||
Foreign currency adjustment | 114.3 | 110.7 | ||||||
Rental rate revenue | $ | 4,267.0 | $ | 3,944.8 | ||||
Transaction days (in thousands) | 96,751 | 89,925 | ||||||
Rental rate revenue per transaction day (in whole dollars) | $ | 44.10 | $ | 43.87 |
| Six Months Ended June 30, | ||||||
---|---|---|---|---|---|---|---|
| 2011 | 2010 | |||||
Car rental segment revenues | $ | 3,279.1 | $ | 3,033.1 | |||
Non-rental rate revenue | (540.4 | ) | (484.3 | ) | |||
Foreign currency adjustment | (52.6 | ) | 30.5 | ||||
Rental rate revenue | $ | 2,686.1 | $ | 2,579.3 | |||
Transaction days (in thousands) | 64,476 | 60,310 | |||||
Rental rate revenue per transaction day (in whole dollars) | $ | 41.66 | $ | 42.77 |
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations (Continued)
| Nine Months Ended September 30, 2010 | ||||||||
---|---|---|---|---|---|---|---|---|---|
| Car Rental | Equipment Rental | |||||||
Income (loss) before income taxes | $ | 355.2 | $ | (31.6 | ) | ||||
Adjustments: | |||||||||
Purchase accounting(1) | 28.6 | 37.4 | |||||||
Non-cash debt charges(2) | 107.8 | 5.7 | |||||||
Restructuring charges | 13.4 | 31.4 | |||||||
Restructuring related charges(3) | 7.7 | 0.1 | |||||||
Adjusted pre-tax income | $ | 512.7 | $ | 43.0 | |||||
| Nine Months Ended September 30, 2009 | ||||||||
---|---|---|---|---|---|---|---|---|---|
| Car Rental | Equipment Rental | |||||||
Income (loss) before income taxes | $ | 164.4 | $ | (23.5 | ) | ||||
Adjustments: | |||||||||
Purchase accounting(1) | 29.7 | 38.1 | |||||||
Non-cash debt charges(2) | 91.9 | 6.8 | |||||||
Restructuring charges | 50.3 | 28.9 | |||||||
Restructuring related charges(3) | 27.8 | 0.3 | |||||||
Third-party bankruptcy accrual(4) | 4.3 | — | |||||||
Adjusted pre-tax income | $ | 368.4 | $ | 50.6 | |||||
| Six Months Ended June 30, | |||||||||
---|---|---|---|---|---|---|---|---|---|---|
| 2011 | 2010 | ||||||||
Adjusted pre-tax income: | ||||||||||
Car rental | $ | 303.5 | $ | 202.0 | ||||||
Equipment rental | 43.6 | 9.4 | ||||||||
Total reportable segments | 347.1 | 211.4 | ||||||||
Adjustments: | ||||||||||
Other reconciling items(1) | (178.7 | ) | (184.9 | ) | ||||||
Purchase accounting(2) | (43.1 | ) | (44.6 | ) | ||||||
Non-cash debt charges(3) | (87.0 | ) | (98.4 | ) | ||||||
Restructuring charges | (38.4 | ) | (31.0 | ) | ||||||
Restructuring related charges(4) | (3.3 | ) | (7.3 | ) | ||||||
Derivative losses(5) | — | (2.3 | ) | |||||||
Acquisition related costs | (9.0 | ) | (7.0 | ) | ||||||
Management transition costs | (2.5 | ) | — | |||||||
Pension adjustment(6) | 13.1 | — | ||||||||
Premiums paid on debt(7) | (62.4 | ) | — | |||||||
Loss before income taxes | $ | (64.2 | ) | $ | (164.1 | ) | ||||
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations (Continued)
| Nine Months Ended September 30, | |||||||
---|---|---|---|---|---|---|---|---|
| 2010 | 2009 | ||||||
Equipment rental segment revenues | $ | 784.1 | $ | 837.0 | ||||
Equipment sales and other revenue | (75.0 | ) | (82.7 | ) | ||||
Foreign currency adjustment | 6.3 | 20.5 | ||||||
Rental and rental related revenue | $ | 715.4 | $ | 774.8 | ||||
| Six Months Ended June 30, | ||||||
---|---|---|---|---|---|---|---|
| 2011 | 2010 | |||||
Equipment rental segment revenues | $ | 569.9 | $ | 502.8 | |||
Equipment sales and other revenue | (52.8 | ) | (50.8 | ) | |||
Foreign currency adjustment | (6.1 | ) | 3.2 | ||||
Rental and rental related revenue | $ | 511.0 | $ | 455.2 | |||
REVENUES
| | Nine Months Ended September 30, | | | | Six Months Ended June 30, | | | ||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(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 | $ | 4,938.2 | $ | 4,515.3 | $ | 422.9 | 9.4 | % | Car rental | $ | 3,279.1 | $ | 3,033.1 | $ | 246.0 | 8.1 | % | |||||||||||||
Equipment rental | 784.1 | 837.0 | (52.9 | ) | (6.3 | )% | Equipment rental | 569.9 | 502.8 | 67.1 | 13.3 | % | ||||||||||||||||||
Other reconciling items | 4.5 | 8.5 | (4.0 | ) | (47.1 | )% | Other reconciling items | 3.3 | 4.6 | (1.3 | ) | (28.3 | )% | |||||||||||||||||
Total revenues | $ | 5,726.8 | $ | 5,360.8 | $ | 366.0 | 6.8 | % | Total revenues | $ | 3,852.3 | $ | 3,540.5 | $ | 311.8 | 8.8 | % | |||||||||||||
Car Rental Segment
Revenues from our car rental segment increased 9.4%8.1%, primarily as a result of increases in car rental transaction days worldwide of 7.6%, worldwide RPD of 0.5%6.9%, refueling fees of $35.0$23.5 million and airport concession recovery fees of $26.6$18.0 million partly offset byas well as the effects of foreign currency translation of approximately $2.1 million.$88.6 million, partly offset by a decrease in worldwide RPD.
RPD for worldwide car rental for the ninesix months ended SeptemberJune 30, 2010 increased 0.5%2011 decreased 2.6% from 2009,2010, due to increasesdecreases in U.S. and International RPD of 1.2%3.0% and U.S. RPD of 0.3%.1.9%, respectively. U.S. off-airport RPD improveddeclined by 3.4%0.7% and U.S. airport RPD decreased 0.8%3.4%. U.S. airport RPD decreased due to the lower RPD that our Advantage brand generates.generates, as well as the competitive pricing environment. International RPD decreased primarily due to a decrease in Europe's airport RPD.
Equipment Rental Segment
Revenues from our equipment rental segment decreased 6.3%increased 13.3%, primarily due to a 5.4% decreaseincreases of 12.7% and 1.1% in equipment rental volume, a 5.4% decline involumes and pricing, and a decrease in equipment sales of $9.8 million, partly offset byrespectively, as well as the effects of foreign currency translation of approximately $16.5$11.0 million. The increase in volume was primarily due to strong industrial performance.
Other
Revenues from all other sources decreased $4.0$1.3 million, primarily due to a decrease in revenues from our third-party claim management services.
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations (Continued)
EXPENSES
| | Nine Months Ended September 30, | | | | Six Months Ended June 30, | | | ||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(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 | $ | 762.1 | $ | 655.3 | $ | 106.8 | 16.3 | % | Fleet related expenses | $ | 536.9 | $ | 477.8 | $ | 59.1 | 12.4 | % | |||||||||||||||
Personnel related expenses | 1,056.4 | 981.1 | 75.3 | 7.7 | % | Personnel related expenses | 739.5 | 701.1 | 38.4 | 5.5 | % | |||||||||||||||||||||
Other direct operating expenses | 1,427.0 | 1,426.1 | 0.9 | 0.1 | % | Other direct operating expenses | 984.6 | 909.1 | 75.5 | 8.3 | % | |||||||||||||||||||||
Direct operating | 3,245.5 | 3,062.5 | 183.0 | 6.0 | % | Direct operating | 2,261.0 | 2,088.0 | 173.0 | 8.3 | % | |||||||||||||||||||||
Depreciation of revenue earning equipment | 1,416.9 | 1,468.2 | (51.3 | ) | (3.5 | )% | Depreciation of revenue earning equipment and lease charges | 855.7 | 915.9 | (60.2 | ) | (6.6 | )% | |||||||||||||||||||
Selling, general and administrative | 508.5 | 488.0 | 20.5 | 4.2 | % | Selling, general and administrative | 377.8 | 339.8 | 38.0 | 11.2 | % | |||||||||||||||||||||
Interest expense | 572.1 | 498.3 | 73.8 | 14.8 | % | Interest expense | 362.7 | 370.0 | (7.3 | ) | (2.0 | )% | ||||||||||||||||||||
Interest and other income, net | (10.4 | ) | (52.6 | ) | 42.2 | (80.2 | )% | Interest income | (3.4 | ) | (9.1 | ) | 5.7 | (62.5 | )% | |||||||||||||||||
Other (income) expense, net | 62.7 | — | 62.7 | 100.0 | % | |||||||||||||||||||||||||||
Total expenses | $ | 5,732.6 | $ | 5,464.4 | $ | 268.2 | 4.9 | % | ||||||||||||||||||||||||
Total expenses | $ | 3,916.5 | $ | 3,704.6 | $ | 211.9 | 5.7 | % | ||||||||||||||||||||||||
Total expenses increased 4.9%5.7%, but total expenses as a percentage of revenues decreased from 101.9%104.6% for the ninesix months ended SeptemberJune 30, 20092010 to 100.1%101.7% for the ninesix months ended SeptemberJune 30, 2010.2011.
Direct Operating Expenses
Car Rental Segment
Direct operating expenses for our car rental segment of $1,881.7 million for the six months ended June 30, 2011 increased 6.0%$135.5 million, or 7.8%, from the six months ended June 30, 2010 as a result of increases in fleet related expenses, personnel related expenses, other direct operating expenses, fleet related expenses and personnel related expenses.
Other direct operating expenses for our car rental segment of $833.5 million for the six months ended June 30, 2011 increased $59.3 million or 7.7% from the six months ended June 30, 2010. The increase was primarily related to increases in field administrative expenses of $16.8 million, concession fees of $9.1 million, third-party claim management expenses of $6.9 million, charge card fees of $3.1 million and reservation costs of $2.1 million, as well as the effects of foreign currency translation of approximately $11.3$21.1 million. The increases were primarily a result of improved worldwide rental volume demand. The increase in field administrative expenses also related to a reimbursement received from a manufacturer in the six months ended June 30, 2010. The increases in other direct operating expenses were partly offset by a decrease in restructuring and restructuring related charges of $8.5 million.
Fleet related expenses for our car rental segment of $441.5 million for the six months ended June 30, 2011 increased 16.3%.$48.6 million, or 12.4% from the six months ended June 30, 2010. The increase was primarily related to worldwide car rental volume demand which resulted in increases in gasoline costs of $37.4$22.8 million, vehicle license taxes of $4.8 million, vehicle registration fees of $3.6 million and self insurance expenseexpenses of $29.0$3.0 million, as well as the effects of foreign currency translation of approximately $17.5 million. The increase in gasoline costs also related to higher gasoline prices. These increases were partly offset by a decrease in vehicle damage costs of $14.7 million$5.3 million.
ITEM 2. Management's Discussion and vehicle license taxesAnalysis of $11.8 million. Equipment maintenance costs increased by $11.1 million relating to efforts to maximize the useFinancial Condition and Results of our existing fleet.
Operations (Continued)
Personnel related expenses for our car rental segment of $606.7 million for the six months ended June 30, 2011 increased 7.7%.$27.5 million, or 4.7%, from the six months ended June 30, 2010. The increase was related to increases in salaries of $9.6 million, outside services, including transporter wages of $7.2 million and incentive compensation costs of $5.9 million, as well as the effects of foreign currency translation of approximately $12.7 million, partly offset by a decrease in benefits of $10.9 million. The expense increases were primarily related to improved results, as well as additional U.S. off-airport and Advantage locations in 2011. The decrease in benefits primarily related to the U.K. pension plan curtailment gain.
Equipment Rental Segment
Direct operating expenses for our equipment rental segment of $379.5 million for the six months ended June 30, 2011 increased 12.4% from $337.7 million for the six months ended June 30, 2010 as a result of increases in other direct operating expenses, fleet related expenses and personnel related expenses.
Other direct operating expenses for our equipment rental segment of $171.2 million for the six months ended June 30, 2011 increased $22.6 million, or 15.2% from the six months ended June 30, 2010. The increase was primarily related to increases in wagesrestructuring charges of $12.6 million, legal expenses of $2.3 million and benefitsre-rent expense of $26.3$1.9 million, incentive compensation costs of $21.8 million, outside services of $16.9 million andas well as the effects of foreign currency translation of approximately $5.7$2.8 million. The increase in re-rent expense primarily related to improved worldwide rental volume demand.
Other direct operatingFleet related expenses for our equipment rental segment of $95.3 million for the six months ended June 30, 2011 increased 0.1%.$10.7 million, or 12.6% from the six months ended June 30, 2010. The increase was primarily related to worldwide car rental volume demandcontinued aging of the fleet which resulted in increasesan increase in fleet related expenses, includingmaintenance costs of $7.7 million and increased worldwide rental volume resulting in increased freight and delivery costs of $5.0 million, as well as the effects of foreign currency translation. These increases were partly offset by decreases in restructuring and restructuringtranslation of approximately $1.7 million.
Personnel related charges,expenses for our equipment rental costsegment of goods sold and credit and collections expense.$113.0 million for the six months ended June 30, 2011 increased $8.6 million, or 8.2% from the six months ended June 30, 2010. The increase was related to an increase in wages of $5.1 million primarily related to improved results, as well as the effects of foreign currency translation of approximately $2.0 million.
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 $1,210.7$723.9 million for the ninesix months ended SeptemberJune 30, 20102011 decreased 0.8%7.0% from $1,220.6$778.0 million for the ninesix months ended SeptemberJune 30, 2009.2010. The decrease was primarily relateddue to an improvement in certain vehicle residual values and a higher mix of non-program cars, partly offset by the effects of foreign currency translation.translation of approximately $20.3 million.
Equipment Rental Segment
Depreciation of revenue earning equipment and lease charges in our equipment rental segment of $131.8 million for the six months ended June 30, 2011 decreased 4.4% from $137.9 million for the six months ended June 30, 2010. The decrease was primarily due to higher residual values on the disposal of used equipment, partly offset by a 1.0% increase in the average acquisition cost of rental equipment operated during the period, as well as the effects of foreign currency translation of approximately $1.8 million.
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations (Continued)
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased 11.2%, due to increases in administrative expenses, sales promotion expenses and advertising expenses.
Administrative expenses increased $24.6 million, or 11.9%, primarily due to increases in salaries and related expenses of $14.0 million and consulting expenses of $4.7 million, as well as the effects of foreign currency translation of approximately $5.6 million.
Sales promotion expenses increased $9.4 million, or 14.7%, primarily related to increases in sales salaries and commissions due to improved results.
Advertising expenses increased $4.0 million, or 5.8%, primarily due to increased media and production related to the new campaign ("Gas and Brake").
Interest Expense
Car Rental Segment
Interest expense for our car rental segment of $154.5 million for the six months ended June 30, 2011 decreased 17.0% from $186.2 million for the six months ended June 30, 2010. The decrease was primarily due to lower interest rates in 2011, as well as a decrease in the weighted average debt outstanding.
Equipment Rental Segment
Interest expense for our equipment rental segment of $23.3 million for the six months ended June 30, 2011 increased 14.2% from $20.4 million for the six months ended June 30, 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 in 2011.
Other
Other interest expense relating to interest on corporate debt of $184.9 million for the six months ended June 30, 2011 increased 13.2% from $163.4 million for the six months ended June 30, 2010. The increase was primarily due to the write-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 in 2011.
Interest Income
Interest income decreased $5.7 million primarily due to a value added tax reclaim received in the six months ended June 30, 2010.
Other (Income) Expense, Net
Other (income) expense, net increased $62.7 million primarily due to 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.
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations (Continued)
Equipment Rental Segment
Depreciation of revenue earning equipment in our equipment rental segment of $206.2 million for the nine months ended September 30, 2010 decreased 16.7% from $247.6 million for the nine months ended September 30, 2009. The decrease was primarily due to a 5.6% reduction in 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.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased 4.2%, due to increases in advertising, administrative expenses and sales promotion expenses and the effects of foreign currency translation of approximately $1.0 million.
Advertising expenses increased $16.8 million, or 18.8%, primarily due to increased media advertising.
Administrative expenses increased $2.8 million, or 0.9%, primarily due to increases in legal and consulting expenses and salaries and related expenses, partly offset by a decrease in restructuring and restructuring related charges.
Sales promotion expenses increased $0.9 million, or 0.9%, primarily related to the effects of foreign currency translation.
Interest Expense
Car Rental Segment
Interest expense for our car rental segment of $301.4 million for the nine months ended September 30, 2010 increased 34.5% from $224.1 million for the nine months ended September 30, 2009. The increase was 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 $29.6 million for the nine months ended September 30, 2010 decreased 29.9% from $42.2 million for the nine months ended September 30, 2009. The decrease was primarily due to a reduction in the weighted average debt outstanding as a result of reduced fleet size.
Other
Other interest expense relating to interest on corporate debt of $241.1 million for the nine months ended September 30, 2010 increased 3.9% from $232.0 million for the nine months ended September 30, 2009. The increase was primarily due to interest expense on the Convertible Senior Notes issued in May 2009.
Interest and Other Income, Net
Interest and other income, net decreased $42.2 million primarily due to a gain of $48.5 million, net of transaction costs, recorded in connection with the buyback of portions of our Senior Notes and Senior Subordinated Notes in 2009.
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued)
ADJUSTED PRE-TAX INCOME (LOSS)
Car Rental Segment
Adjusted pre-tax income for our car rental segment of $512.7$303.5 million increased $101.5 million from $202.0 million for the ninesix months ended SeptemberJune 30, 2010 increased 39.2% from $368.4 million for the nine months ended September 30, 2009.2010. The increase was primarily due to stronger volumes, increased pricingimproved 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 ninesix months ended SeptemberJune 30, 2011 totaled $30.4 million (which consists of non-cash debt charges of $20.8 million, purchase accounting of $16.6 million, restructuring and restructuring related charges of $5.5 million, pension adjustment of $(13.1) million and loss on derivatives of $0.6 million). Adjustments to our car rental segment income before income taxes for the six months ended June 30, 2010 and 2009, totaled $157.5$110.7 million (which consists of non-cash debt charges of $74.7 million, purchase accounting of $19.5 million and $204.0 million, respectively.restructuring and restructuring related charges of $16.5 million). 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 income for our equipment rental segment of $43.0$43.6 million increased $34.2 million from $9.4 million for the ninesix months ended SeptemberJune 30, 2010 decreased 15.0% from $50.6 million for the nine months ended September 30, 2009.2010. The decreaseincrease was primarily due to reductions in volumestronger volumes and pricing, partly offset by strong cost management performance and higher residual values on the disposal of used equipment. Adjustments to our equipment rental segment loss before income taxes on a GAAP basis for the ninesix months ended SeptemberJune 30, 2011 totaled $64.6 million (which consists of restructuring and restructuring related charges of $35.9 million, purchase accounting of $24.8 million and non-cash debt charges of $3.9 million). Adjustments to our equipment rental loss before income taxes for the six months ended June 30, 2010 totaled $48.6 million (which consists of purchase accounting of $23.5 million, restructuring and 2009, totaled $74.6restructuring related charges of $21.0 million and $74.1 million, respectively.non-cash debt charges of $4.1 million). See footnote c(c) to the table under "Results of Operations" for a summary and description of these adjustments.
(PROVISION) BENEFITPROVISION FOR TAXES ON INCOME, NET INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTSINTEREST AND NET LOSS ATTRIBUTABLE TO HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES' COMMON STOCKHOLDERS
| Nine Months Ended September 30, | | | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(in millions of dollars) | 2010 | 2009 | $ Change | % Change | |||||||||
Loss before income taxes | $ | (5.8 | ) | $ | (103.6 | ) | $ | 97.8 | (94.4 | )% | |||
(Provision) benefit for taxes on income | (0.2 | ) | 19.9 | (20.1 | ) | (100.9 | )% | ||||||
Net income (loss) | (6.0 | ) | (83.7 | ) | 77.7 | (92.9 | )% | ||||||
Less: Net income attributable to noncontrolling interests | (12.9 | ) | (11.4 | ) | (1.5 | ) | 13.2 | % | |||||
Net loss attributable to Hertz Holdings, Inc. and Subsidiaries' common stockholders | $ | (18.9 | ) | $ | (95.1 | ) | $ | 76.2 | (80.1 | )% | |||
| Six Months Ended June 30, | | | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(in millions of dollars) | 2011 | 2010 | $ Change | % Change | |||||||||
Loss before income taxes | $ | (64.2 | ) | $ | (164.1 | ) | $ | 99.9 | (60.9 | )% | |||
Provision for taxes on income | (4.6 | ) | (3.2 | ) | (1.4 | ) | 44.9 | % | |||||
Net loss | (68.8 | ) | (167.3 | ) | 98.5 | (58.8 | )% | ||||||
Less: Net income attributable to noncontrolling interest | (8.8 | ) | (8.2 | ) | (0.6 | ) | 6.2 | % | |||||
Net loss attributable to Hertz Global Holdings, Inc. and Subsidiaries' common stockholders | $ | (77.6 | ) | $ | (175.5 | ) | $ | 97.9 | (55.8 | )% | |||
(Provision) BenefitProvision for Taxes on Income
The effective tax rate for the six months ended June 30, 2011 was (7.2)% as compared to (1.9)% in the six months ended June 30, 2010. The provision for taxes on income was $0.2increased $1.4 million, for the nine months ended September 30, 2010 and the benefit for taxes on income was $19.9 million for the nine months ended September 30, 2009. The change was primarily due to a lower loss before income taxes and a reduction in discrete benefits recorded in the nine months ended September 30, 2010 compared to the nine months ended September 30, 2009. The effective tax rate for the nine months ended September 30, 2010 was (3.0)% as compared to 19.2% in the nine months ended September 30, 2009. The change in tax rates is generally due to the factors noted above.
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations (Continued)
lower loss before income taxes, changes in geographic earnings mix and changes in losses in certain non-U.S. jurisdictions for which tax benefits cannot be realized.
Net Income Attributable to Noncontrolling InterestsInterest
Net income attributable to noncontrolling interestsinterest increased 13.2%$0.6 million due to an increase in our majority-owned subsidiary Navigation Solutions, L.L.C.'s net income for the ninesix months ended SeptemberJune 30, 20102011 as compared to the ninesix months ended SeptemberJune 30, 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 80.1%55.8% primarily due to higher rental volume and increased pricingvolumes in our worldwide car and equipment rental operations, improved residual values on the disposal of certain vehicles and used equipment and disciplined cost management, partly offset by lower rental volume and pricing in our worldwide equipmentcar rental operations.operations, costs incurred in connection with the refinancing of 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.
Cash Flows
As of SeptemberJune 30, 2010,2011, we had cash and cash equivalents of $1,483.3$747.6 million, an increasea decrease of $497.7$1,626.6 million from $985.6$2,374.2 million as of December 31, 2009.2010. The following table summarizes such increase:decrease:
| | Nine Months Ended September 30, | | | Six Months Ended June 30, | | ||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(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 | $ | 1,786.6 | $ | 1,307.2 | $ | 479.4 | Operating activities | $ | 686.9 | $ | 1,016.2 | $ | (329.3 | ) | ||||||||
Investing activities | (2,550.2 | ) | (843.8 | ) | (1,706.4 | ) | Investing activities | (2,177.7 | ) | (2,336.0 | ) | 158.3 | ||||||||||
Financing activities | 1,295.6 | (187.7 | ) | 1,483.3 | Financing activities | (167.4 | ) | 1,306.8 | (1,474.2 | ) | ||||||||||||
Effect of exchange rate changes | Effect of exchange rate changes | (34.3 | ) | 56.7 | (91.0 | ) | Effect of exchange rate changes | 31.6 | (75.8 | ) | 107.4 | |||||||||||
Net change in cash and cash equivalents | Net change in cash and cash equivalents | $ | 497.7 | $ | 332.4 | $ | 165.3 | Net change in cash and cash equivalents | $ | (1,626.6 | ) | $ | (88.8 | ) | $ | (1,537.8 | ) | |||||
During the ninesix months ended SeptemberJune 30, 2010,2011, we generated $479.4$329.3 million moreless cash from operating activities compared with the same period in 2009.2010. The increasedecrease was primarily due to the timing of our equipment rental customer receivables, VAT receivables and vendor payments as a changeresult of improvements in accounts payable driven by effective managementthe operating performance of vendor terms taken in 2010 and a change in accrued liabilitiesour business. The decrease was also due to cash paymentspremiums paid to redeem debt in 2009 relating to the buydown2011 and timing of our rate on our interest rate swaps as well as increased restructuring payments in 2009. On November 2, 2010 we issued our earnings press release which included preliminary results for our net cash provided by operating activities in the third quarter of 2010 of $904.7 million. This amount was overstated by $168.7 million due to the treatment of non-cash revenue earning equipment expenditures in the statement of cash flows.payments.
Our primary use of cash in investing activities wasis for the acquisition of revenue earning equipment, which consists of cars and equipment. During the ninesix months ended SeptemberJune 30, 2010,2011, we used $1,706.4$158.3 million moreless cash for investing activities compared with the same period in 2009.2010. The decrease in the use of funds was primarily due to an increase in revenue earning equipment expenditures and the
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations (Continued)
was primarily due to the year-over-year change in restricted cash and cash equivalents partly offset by anand increase in proceeds from the disposal of revenue earning equipment. The increaseequipment, partly offset by increases in revenue earning equipment expenditures and property and equipment expenditures. 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 forage of our fleet. The increase in revenue earning equipment and our Like Kind Exchange Program, or "LKE Program."expenditures was primarily due to higher equipment rental volumes. As of SeptemberJune 30, 20102011 and December 31, 2009,2010, we had $739.6$274.3 million and $365.2$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 financing facilities, our LKELike Kind Exchange Program, or "LKE Program," and to satisfy certain of our self-insurance regulatory reserve requirements. The increase in restricted cash and cash equivalents of $374.4$66.7 million from December 31, 20092010 to SeptemberJune 30, 2010,2011, primarily related to the timing of purchases and sales of revenue earning vehicles, partly offset by a decrease relating to the temporary suspension of our LKE program. See "Income Taxes" below.vehicles.
During the ninesix months ended SeptemberJune 30, 2010,2011, we generated $1,483.3$1,474.2 million moreless cash from financing activities compared with the same period in 2009.2010. The increasedecrease was primarily due to increasespayment of long-term debt (includes redemption of $518.5 million principal amount of 10.5% Senior Subordinated Notes, redemption of $1,585 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 the issuance of long-term debt and net proceeds under the revolving lines of credit, partly offset by the payment of long-term debt, prior year's proceeds from the sale of common stock and convertible debt offering and repayment of short-term borrowings.
Financing
Our car rental and equipment rental operations are seasonal businesses with decreased levels of business in the winter months 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 financing needs are funded by increasing the utilization of our various corporate and fleet credit facilities and the variable funding notes portion of our U.S. Fleet Debt facilities as defined in 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." As business demand moderates during the winter, we reduce our fleet accordingly and dispose of vehicles and equipment. The disposal proceeds are used to reduce debt.
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 facilities.
As of September 30, 2010, we had $12,046.9 million of total indebtedness outstanding. Cash paid for interest during the nine months ended September 30, 2010, was $448.9 million, net of amounts capitalized. Accordingly, we are highly leveraged and a substantial portion of our liquidity needs arise from debt service on our indebtedness and from the funding of our costs of operations and capital expenditures.
Our liquidity as of September 30, 2010 consisted 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 of the Notes to our condensed consolidated financial statements included in this Report as well as "Credit Facilities" below.
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued)
Based on our current availability under our various credit facilities and our business plan, we believe we have sufficient liquidity to meet our debt maturities over the next twelve months.
In June 2010, HVF, our wholly-owned subsidiary, issued $184.3 million in aggregate principal amount of 3-year and 5-year Subordinated Series 2009-2 Rental Car Asset Backed Notes, Class B, or the "Series 2009-2 Class B Notes." The 3-year notes carry a 4.94% coupon (5.00% yield at issuance) and the 5-year notes carry a 5.93% coupon (6.01% yield at issuance) with expected final maturities in 2013 and 2015, respectively. The net proceeds of the offering were used to purchase vehicles under our ABS Program, used to pay other ABS indebtedness or distributed to Hertz and used for general corporate purposes. The Series 2009-2 Class B Notes are included in U.S. Fleet Debt.
In June 2010, Hertz issued EUR 400 million (the equivalent of $543.4 million as of September 30, 2010) aggregate principal amount of 8.5% Senior Secured Notes due 2015, or the "Euro Notes," and entered into a EUR 220 million (the equivalent of $298.9 million) revolving credit facility that matures in 2013, or the "European Credit Facility." The net proceeds of the Euro Notes and European Credit Facility were used to refinance our International Fleet Debt and Belgian Fleet Financing Facility, both of which were due to mature in December 2010, and the excess was used for general corporate purposes. The Euro Notes and the European Credit Facility are the primary fleet financing for our rental car operations in Germany, Italy, Spain, Belgium, Luxembourg and Switzerland. The Euro Notes and the European Credit Facility are guaranteed on a senior unsecured basis by Hertz and certain U.S. subsidiaries of Hertz and on a senior secured basis by certain non-U.S. subsidiaries of Hertz.
In July 2010, Hertz entered into a EUR 400 million (the equivalent of $543.4 million as of September 30, 2010) asset-backed securitization facility, or "European Securitization," which matures in 2012, the proceeds of which were used to refinance the portion of our existing International ABS Fleet Financing Facility relating to France and the Netherlands, which was due to mature in December 2010.
In addition, in July 2010, HVF issued approximately $750 million in aggregate principal amount of 3-year, 5-year and 7-year Series 2010-1 Rental Car Asset Backed Notes, or "Series 2010-1 Notes." The 3-year, 5-year and 7-year notes have expected final maturities in 2014, 2016 and 2018, respectively. The net proceeds of the offering were used to purchase vehicles under the ABS Program of HVF, to pay other ABS indebtedness or distributed to Hertz and used for general corporate purposes. The Series 2010-1 Notes are included as part of our U.S. Fleet Debt.
In September 2010, Hertz entered into amendments to its(includes $1.4 billion Senior Term Facility issued March 2011 and Senior ABL Facility. The amendments provide, among other things, for additional capacity under the covenants in the Senior Term Facility and Senior ABL Facility to incur refinancing and acquisition indebtedness. The amendment to the Senior ABL Facility increases the overall letter$1 billion of credit sublimit and allows for Australian dollar denominated letters of credit.
In addition, in September 2010, Hertz issued $700 million aggregate principal amount of 7.5%6.75% Senior Notes due 2018, or "2010 Senior Notes." The net proceeds of the offerings were used for general corporate purposes, including repayment of consolidated indebtedness.
As of September 30, 2010, we have approximately $217.7 million of remaining international fleet debt outstanding that maturesissued in December 2010. We are currently in discussions regarding our remaining refinancing options,February and based on these discussions and our ability to access the capital markets, we expect to refinance the remaining debt maturing in December 2010 on or prior to maturity. 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.March 2011).
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued)
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 guarantees for our 2005 Notes, with each providing guarantees for approximately half of the $875.0 million in principal amount of the 2005 Notes that was outstanding as of September 30, 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. 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 these recent financings to pay down the amounts owed under the affected series of 2005 Notes. The Series 2009-1 Notes, Series 2009-2 Notes, Series 2009-2 Class B Notes or the Series 2010-1 Notes are not guaranteed.
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 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 financing, see "Item 1A—Risk Factors" included in our Annual Report and Second Quarter Form 10-Q.
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, including recently adopted legislation, proposed SEC rules and regulations and other legislative and administrative developments. In this regard, there has
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued)
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 continue to monitor these developments and their impact on our ABS program, the SEC rules and regulations, once adopted and implemented, may impact our ability and/or desire to engage in asset-backed financings in the future. For further information concerning our asset-backed financing programs, 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." For a discussion of risks related to our reliance on asset-backed financing to purchase cars, see "Item 1A—Risk Factors" included in our Annual Report and Second Quarter Form 10-Q.
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 collateral enhancement associated with these program vehicles. For a discussion of the risks associated with a manufacturer's bankruptcy or our reliance on asset-backed financing, see "Item 1A—Risk Factors" included in our Annual Report and Second Quarter Form 10-Q.
We have a significant amount of debt that will mature over the next several years. The aggregate amounts of maturities of debt for each of the twelve-month periods ending September 30 (in millions of dollars) are as follows: 2011, $4,191.0 (including $3,190.2 of other short-term borrowings); 2012, $179.6; 2013, $1,969.3; 2014, $2,749.6; 2015, $1,413.5; after 2015, $1,674.1. For a discussion of maturities, 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." Our short-term borrowings of $3,190.2 million as of September 30, 2010 include, among other items, the amounts outstanding under our International ABS Fleet Financing Facility, European Securitization, Fleet Financing Facility, Brazilian Fleet Financing Facility, Canadian Fleet Financing Facility, Capitalized Leases and European Credit Facility. 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 except for our International ABS Fleet Financing Facility and Brazilian Fleet Financing Facility which mature in December 2010. As a result of our successful refinancing efforts in 2009 and the first half of 2010 and the strategic cost reduction actions taken in the past as well as those planned for the remainder 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 contained 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.
For further information on our indebtedness, see Note 8 of 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)
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 September 30, 2010, we were in compliance with all of these financial covenants.
As of September 30, 2010, we had an aggregate principal amount outstanding of $1,348.4 million pursuant to our Senior Term Facility and no amounts outstanding in our Senior ABL Facility. As of September 30, 2010, Hertz was required under the Senior Term Facility to have a consolidated leverage ratio of not more than 5.25:1 and a consolidated interest expense coverage ratio of not less than 2.00:1. In addition, under our Senior ABL Facility, if there was less than $200.0 million of available borrowing capacity under that facility as of September 30, 2010, Hertz was required to have a consolidated leverage ratio of not more than 5.25:1 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 September 30, 2010, we had a consolidated leverage ratio of 4.20:1 and a consolidated interest expense coverage ratio of 3.57:1. Since we had maintained sufficient borrowing capacity under our Senior ABL Facility as of September 30, 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" included in our Annual Report and Second Quarter Form 10-Q.
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued)
Credit Facilities
As of September 30, 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 | 1,591.2 | 851.7 | |||||||
Total Corporate Debt | 1,591.2 | 851.7 | |||||||
Fleet Debt | |||||||||
U.S. Fleet Debt | 545.1 | 77.5 | |||||||
International ABS Fleet Financing Facility | 1.0 | 1.0 | |||||||
European Securitization | 77.9 | 68.3 | |||||||
Fleet Financing Facility | 2.0 | 2.0 | |||||||
Brazilian Fleet Financing Facility | 0.1 | — | |||||||
Canadian Fleet Financing Facility | 101.5 | 13.5 | |||||||
Capitalized Leases | 42.6 | — | |||||||
Total Fleet Debt | 770.2 | 162.3 | |||||||
Total | $ | 2,361.4 | $ | 1,014.0 | |||||
As of September 30, 2010, the Senior Term Facility had approximately $11.4 million available under the letter of credit facility and the Senior ABL Facility had $406.2 million available under the letter of credit facility sublimit.
Our liquidity as of September 30, 2010 was $3,105.2 million, which consisted of $1,483.3 million of cash and cash equivalents, $851.7 million of unused commitments under our Senior ABL Facility and $770.2 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 September 30, 2010 under our Senior ABL Facility was $851.7 million and we had $162.3 million of over-enhancement that was available under our Fleet Debt. Accordingly, as of September 30, 2010, we had $2,497.3 million ($1,483.3 million in cash and cash equivalents, $851.7 million available under our Senior ABL Facility and $162.3 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.
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
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued)
to borrowing bases comprised of rental vehicles and related assets of certain of Hertz International, Ltd.'s subsidiaries. As of September 30, 2010 and December 31, 2009, our International Fleet Financing No. 1 B.V., International Fleet Financing No. 2 B.V., Hertz Fleet Limited and HA Funding Pty, Ltd. variable interest entities had total assets primarily comprised of revenue earning equipment of $461.6 million and $367.6 million, respectively, and total liabilities primarily comprised of debt of $569.2 million and $710.3 million, respectively. For further information on the terms of our 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 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 received by quarter for 2010the first and 2009second quarters 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 | ||||||||||||||
2010 | ||||||||||||||||||||
First Quarter | $ | 2,214.5 | $ | (1,589.9 | ) | $ | 624.6 | $ | 51.3 | $ | (6.7 | ) | $ | 44.6 | ||||||
Second Quarter | 3,215.4 | (1,819.2 | ) | 1,396.2 | 40.7 | (8.5 | ) | 32.2 | ||||||||||||
Third Quarter | 1,714.5 | (1,679.9 | ) | 34.6 | 42.3 | (10.3 | ) | 32.0 | ||||||||||||
$ | 7,144.4 | $ | (5,089.0 | ) | $ | 2,055.4 | $ | 134.3 | $ | (25.5 | ) | $ | 108.8 | |||||||
2009 | ||||||||||||||||||||
First Quarter | $ | 1,399.6 | $ | (2,026.1 | ) | $ | (626.5 | ) | $ | 26.7 | $ | (5.2 | ) | $ | 21.5 | |||||
Second Quarter | 2,140.9 | (1,171.5 | ) | 969.4 | 21.6 | 0.2 | 21.8 | |||||||||||||
Third Quarter | 1,654.0 | (965.1 | ) | 688.9 | 20.7 | (1.1 | ) | 19.6 | ||||||||||||
$ | 5,194.5 | $ | (4,162.7 | ) | $ | 1,031.8 | $ | 69.0 | $ | (6.1 | ) | $ | 62.9 | |||||||
| Nine Months Ended September 30, | | | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2010 | 2009 | $ Change | % Change | |||||||||||
Revenue earning equipment expenditures | |||||||||||||||
Car rental | $ | 7,040.3 | $ | 5,133.9 | $ | 1,906.4 | 37.1 | % | |||||||
Equipment rental | 104.1 | 60.6 | 43.5 | 71.8 | % | ||||||||||
Total | $ | 7,144.4 | $ | 5,194.5 | $ | 1,949.9 | 37.5 | % | |||||||
| 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 | ||||||
Second Quarter | 3,503.0 | (1,798.7 | ) | 1,704.3 | 68.6 | (13.9 | ) | 54.7 | ||||||||||||
5,466.8 | (3,488.9 | ) | 1,977.9 | 125.4 | (28.4 | ) | 97.0 | |||||||||||||
2010 | ||||||||||||||||||||
First Quarter | $ | 2,214.5 | $ | (1,606.4 | ) | $ | 608.1 | $ | 51.3 | $ | (6.7 | ) | $ | 44.6 | ||||||
Second Quarter | 3,102.8 | (1,837.1 | ) | 1,265.7 | 40.7 | (8.5 | ) | 32.2 | ||||||||||||
$ | 5,317.3 | $ | (3,443.5 | ) | $ | 1,873.8 | $ | 92.0 | $ | (15.2 | ) | $ | 76.8 | |||||||
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations (Continued)
| Nine Months Ended September 30, | | | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2010 | 2009 | $ Change | % Change | |||||||||||
Property and equipment expenditures | |||||||||||||||
Car rental | $ | 116.9 | $ | 62.5 | $ | 54.4 | 87.0 | % | |||||||
Equipment rental | 9.7 | 4.4 | 5.3 | 120.5 | % | ||||||||||
Other | 7.7 | 2.1 | 5.6 | 266.7 | % | ||||||||||
Total | $ | 134.3 | $ | 69.0 | $ | 65.3 | 94.6 | % | |||||||
| Six Months Ended June 30, | | | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2011 | 2010 | $ Change | % Change | |||||||||||
Revenue earning equipment expenditures | |||||||||||||||
Car rental | $ | 5,211.3 | $ | 5,259.9 | $ | (48.6 | ) | (0.9 | )% | ||||||
Equipment rental | 255.5 | 57.4 | 198.1 | 345.1 | % | ||||||||||
Total | $ | 5,466.8 | $ | 5,317.3 | $ | 149.5 | 2.8 | % | |||||||
The increasedecrease in our car rental operations revenue earning equipment expenditures was primarily due to higher rental volumescontinued efforts to increase utilization of existing fleet during the ninesix months ended SeptemberJune 30, 20102011 as compared to the ninesix months ended SeptemberJune 30, 2009, which required us to increase our fleet levels.2010. The increase in our equipment rental operations revenue earning equipment expenditures was primarily due to increased demand and due to oura continued improvement in economic conditions as well as efforts to meetreduce the current year's goal in updating agedage of our fleet during the ninesix months ended SeptemberJune 30, 20102011 as compared to the ninesix months ended SeptemberJune 30, 2009.2010.
| Six Months Ended June 30, | | | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2011 | 2010 | $ Change | % Change | |||||||||||
Property and equipment expenditures | |||||||||||||||
Car rental | $ | 98.5 | $ | 82.2 | $ | 16.3 | 19.8 | % | |||||||
Equipment rental | 12.7 | 5.7 | 7.0 | 122.8 | % | ||||||||||
Other | 14.2 | 4.1 | 10.1 | 246.3 | % | ||||||||||
Total | $ | 125.4 | $ | 92.0 | $ | 33.4 | 36.3 | % | |||||||
The increaseincreases in car rental property and equipment expenditures arewere primarily due to increased spendinga continued improvement in responseeconomic 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 an increase in demand and the opening of new off-airport locations. The increased level of expendituresbe used in our operations. Our primary sources of funding are operating cash flows, cash received on the disposal of vehicles and equipment, rentalborrowings under our asset-backed securitizations and our asset-based revolving credit facilities and access to the credit markets generally.
As of June 30, 2011, we had $11,693.6 million of total indebtedness outstanding. Cash paid for interest during the six months ended June 30, 2011, was $343.4 million, net of amounts capitalized. Accordingly, we are highly leveraged and a substantial portion of our liquidity needs arise from debt service on our indebtedness and from the funding of our costs of operations wasand capital expenditures.
Our liquidity as of June 30, 2011 consisted of cash and cash equivalents, unused commitments under our Senior ABL Facility and unused commitments under our fleet debt. For a description of these amounts, see Note 7 to the Notes to our condensed consolidated financial statements included in this Report as well as "Borrowing Capacity and Availability," below.
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations (Continued)
We have a significant amount of debt that will mature over the next several years. The aggregate amounts of maturities of debt for each of the twelve-month periods ending June 30 (in millions of dollars) are as follows:
2012 | $ | 4,364.1 | (including $4,167.7 of other short-term borrowings) | ||
2013 | $ | 597.8 | |||
2014 | $ | 743.1 | |||
2015 | $ | 1,210.7 | |||
2016 | $ | 963.9 | |||
After 2016 | $ | 3,906.5 |
Our short-term borrowings as of June 30, 2011 include, among other items, the amounts outstanding under the European Securitization, Australian Securitization, U.S. Fleet Financing Facility, U.S. Variable Funding Notes, 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 September 30, 2011.
The agreements governing our indebtedness require us to comply with certain covenants. 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.
As a result of increasedour successful refinancing efforts in demand.2009, 2010 and the six months ended June 30, 2011 and the strategic cost reduction actions taken in the past, we believe that we will remain in compliance with our debt covenants and that cash generated from operations and cash received on the disposal of vehicles and equipment, 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 next twelve months.
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 financing capacity under certain asset-backed and asset-based financing 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 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 credit 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 Form 10-K.
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations (Continued)
We rely significantly on asset-backed and asset-based financing arrangements 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, 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 continue to monitor these developments and their impact on our ABS program, the SEC rules and regulations, once adopted and implemented, may impact our ability and/or desire to engage in asset-backed financings in the future. For further information concerning our asset-backed financing programs and our indebtedness, see 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 reliance on asset-backed and asset-based financing and the significant amount of indebtedness, see "Item 1A—Risk Factors" in our Form 10-K.
For further information on our indebtedness, see Note 7 to the Notes to our condensed consolidated financial statements included in this Report.
On May 9, 2011, we announced an offer to exchange each issued and outstanding share of common stock of Dollar Thrifty for $57.60 in cash and 0.8546 shares of our common stock, or the "tender offer." Based on the closing stock price for Hertz Holdings on May 6, 2011, Dollar Thrifty shareholders would have received $72.00 per share, or approximately $2.2 billion in the aggregate. We intend, promptly after completion of the tender offer, to consummate a second-step merger of HDTMS, Inc., or another of our wholly owned subsidiaries, with and into Dollar Thrifty, or the "second-step merger." We intend to fund the transactions contemplated by the tender offer and second-step merger using cash on hand, borrowings under bank credit facilities and/or the issuance of debt securities. We estimate that the total amount of cash required to complete the transactions contemplated by the tender offer and second-step merger, including payment of any fees, expenses and other related amounts incurred in connection with the offer and second-step merger and the refinancing of a portion of Dollar Thrifty's outstanding indebtedness, will be approximately $1.9 billion (exclusive of fees and expenses related to new borrowings and/or issuances of debt securities in connection with the offer and second-step merger and exclusive of any cash and cash equivalents available from Dollar Thrifty). The tender offer is subject to a number of conditions, including, among others, a minimum tender of a number of shares of Dollar Thrifty common stock which, together with Dollar Thrifty shares then owned by Hertz Holdings and its subsidiaries, represents at least a majority of the then outstanding shares of Dollar Thrifty common stock on a fully diluted basis, as well as the receipt of required regulatory approvals.
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 certain indebtedness, make certain restricted payments (including paying dividends, redeeming stock or making other distributions), create liens, make investments, make acquisitions, engage in mergers, fundamentally change the nature of their business, make capital expenditures, or engage in certain transactions with certain affiliates.
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
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations (Continued)
springing financial maintenance covenant upon the occurrence of certain triggering events. As of June 30, 2011, no triggering event had occurred requiring testing of the springing financial maintenance covenant.
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 June 30, 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 | $ | 1,340.8 | $ | 828.9 | |||||
Total Corporate Debt | 1,340.8 | 828.9 | |||||||
Fleet Debt | |||||||||
U.S. Fleet Variable Funding Notes | 298.1 | 29.6 | |||||||
European Seasonal Revolving Credit Facility | 43.1 | 43.1 | |||||||
European Securitization | 174.3 | 34.6 | |||||||
Canadian Securitization | 101.4 | 20.3 | |||||||
Australian Securitization | 121.2 | 2.6 | |||||||
Brazilian Fleet Financing Facility | 0.9 | — | |||||||
Capitalized Leases | 15.0 | — | |||||||
Total Fleet Debt | 754.0 | 130.2 | |||||||
Total | $ | 2,094.8 | $ | 959.1 | |||||
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
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations (Continued)
under such facility (i.e., the amount of debt we could borrow given the collateral we possess at such time).
As of June 30, 2011, the Senior Term Facility had approximately $0.5 million available under the letter of credit facility and the Senior ABL Facility had $1,111.7 million available under the letter of credit facility sublimit, subject to borrowing base restrictions.
Substantially all of our revenue earning equipment and certain related assets are owned by special purpose entities, or are encumbered in favor of our lenders under our various credit facilities.
Some of these special purpose entities are consolidated variable interest entities, of which Hertz is the primary beneficiary, whose sole purpose is to provide commitments to lend in various currencies subject to borrowing bases comprised of rental vehicles and related assets of certain of Hertz International, Ltd.'s subsidiaries. As of June 30, 2011 and December 31, 2010, our International Fleet Financing No. 1 B.V., International Fleet Financing No. 2 B.V. and HA Funding Pty, Ltd. variable interest entities had total assets primarily comprised of loans receivable and revenue earning equipment of $651.4 million and $652.1 million, respectively, and total liabilities primarily comprised of debt of $650.8 million and $651.6 million, respectively.
Off-Balance Sheet Commitments and Arrangements
As of SeptemberJune 30, 20102011 and December 31, 2009,2010, the following guarantees (including indemnification commitments) were issued and outstanding:
Indemnification Obligations
In the ordinary course of business, we execute contracts involving indemnification obligations customary in the relevant industry and indemnifications specific to a transaction such as the sale of a business. These indemnification obligations might include claims relating to the following: environmental matters; intellectual property rights; governmental regulations and employment-related matters; customer, supplier and other commercial contractual relationships; and financial matters. Performance under these indemnification obligations would generally be triggered by a breach of terms of the contract or by a third-partythird party claim. We regularly evaluate the probability of having to incur costs associated with these indemnification obligations and have accrued for expected losses that are probable and estimable. The types of indemnification 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 SeptemberJune 30, 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 $1.7 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" included in our Annual Report.Form 10-K and "Part II, Item 1A—Risk Factors" in our subsequent quarterly reports on Form 10-Q.
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 12 of13 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 14 of13 to the Notes to our condensed consolidated financial statements included in this Report and Notes 34 and 12 of13 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. Fleet Debt, European Credit Facility, 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
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations (Continued)
their equivalents for local currenciescommercial 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.
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 SeptemberJune 30, 2010,2011, our net incomeloss would decreaseincrease by an estimated $20.1$26.4 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. Fleet Debt, European Credit Facility 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-month and six-month periods ended June 30, 2011, our consolidated statement of operations contained realized and unrealized losses relating to the effects of foreign currency of $5.1 million and $7.7 million, respectively.
See Note 14 of13 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-month and six-month periods ended June 30, 2011, we recognized a loss of $0.2 million and a gain of $2.9 million, respectively, in "Direct operating" on our consolidated statement of operations relating to our gasoline swaps. See Note 14 of13 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)
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 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 recognized some taxable gains in the program. TheIn 2009, the bankruptcy filing of an original 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 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 the fleet. 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. For a discussion of risks related to our reliance on asset-backed financing to purchase cars, see "Item 1A—Risk Factors" included in our Annual Report and Second Quarter Form 10-Q.
In 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, oneincluding paying down existing debt obligations, future growth initiatives and for general operating purposes. Purchases of which mayvehicles will continue to be future debt reduction. Existingfunded with a combination of asset-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 be mainly offset by 100% tax depreciation on newly acquired vehicles. Our federal net operating losses will be used to offset the gains from the sales of vehicles during the suspension period. We will not have a significantloss position for U.S. tax liability from the temporary suspension ofpurposes should remain relatively unchanged when the LKE Program.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.
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations (Continued)
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 $33.8$38.3 million, which would represent a decreasean increase of $2.1$6.1 million from 2009.2010. The anticipated decreaseincrease in expense compared to 20092010 is primarily due to lower discountexpected rates offset by increased contributions. We expect to contribute up to $54.1 million to our U.S. pension plan in the full year of 2010. These contributions are necessary primarily because of the significant decline in asset values.
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued)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. In addition, such underfunding may increase as a result of lower than expected returns on pension fund assets or other funding deficiencies.
Recent Accounting Pronouncements
For a discussionIn June 2011, the Financial Accounting Standards Board issued Accounting Standards Update No. 2011-05, "Presentation of recent accounting pronouncements, see Note 3Comprehensive Income," requiring companies to present items of net income and other comprehensive income either in one continuous statement, referred to as the Notes to our condensed consolidated financialstatement of comprehensive income, or in two separate, but consecutive statements includedof net income and other comprehensive income. The amendments in this Report.
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued)other comprehensive income must be reclassified to net income. These provisions will become effective for us beginning with our quarterly report for the period ended March 31, 2012.
Other Financial Information
TheWith respect to the unaudited interim financial information of Hertz Global Holdings, Inc. as of June 30, 2011 and for the three-month and six-month periods ended June 30, 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 August 5, 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," included 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 SeptemberJune 30, 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 10 of11 to the Notes to our annual audited consolidated financial statements included in our Annual Report.Form 10-K.
The following recent developmentsdevelopment pertaining to a legal proceedingsproceeding described in our Annual Report areForm 10-K is furnished on a supplemental basis:
In August 2010,May 2011, the United States Courtjudge in the related cases of AppealsJanet Sobel et al. v. The Hertz Corporation andLydia Lee et al. v. Enterprise Rent-A-Car Company et al. denied the plaintiffs' motion for the Ninth Circuit affirmed the dismissalfinal approval of the complaintproposed settlement and denied the plaintiffs' motion for attorneys' fees, expenses and incentive awards as moot. The court concluded that the absence of evidence as to all defendantsthe actual value to the class of the coupons offered in settlement and theIn re Tourism Assessment Fee Litigation. The deadline for plaintiffs value of the claims to requestbe surrendered precluded a rehearing of this decision has passed.finding that the settlement is fair, reasonable and adequate.
Aside from the above mentioned, there were no material changes innone of the other legal proceedings described in our Annual ReportForm 10-K have experienced material changes.
On June 15, 2011 we received a subpoena from the staff of the Securities and inExchange Commission, or "SEC," seeking production of documents related to our quarterly reportsproposed business combination with Dollar Thrifty Automotive Group, Inc. We intend to cooperate fully with the SEC's investigation. We do not expect this investigation to have any effect on Form 10-Q for the periods ended March 31, 2010 and June 30, 2010, and we are not otherwise required to disclose any pending legal proceedings in response to Item 103 of Regulation S-K.our proposed business combination with Dollar Thrifty.
ITEM 1A. RISK FACTORS
There is no material change in the information reported under "Part I—Item 1A—Risk Factors" contained in our Annual Report on Form 10-K for the fiscal year ended December 31, 20092010 and under "Part II—II, Item 1A—Risk Factors" in our subsequent quarterly reports on Form 10-Q with the exception of the following:
Risks Related to Acquisition of Dollar Thrifty
If we acquire Dollar Thrifty Automotive Group, or "Dollar Thrifty," in addition to the risks described below, we may be subject to the risks and uncertainties associated with Dollar Thrifty's business. See "Item 1A—Risk Factors" in the Dollar Thrifty Form 10-K for the fiscal year ended December 31, 2010 for a discussion of these risks. This item is not incorporated by reference into this quarterly period ended June 30, 2010.report on Form 10-Q and you should not consider the contents of this item to be a part of this quarterly report on Form 10-Q.
ITEM 6. EXHIBITSEven if the proposed acquisition of Dollar Thrifty is consummated, we may fail to realize all of the anticipated benefits of the proposed acquisition.
We announced the Dollar Thrifty exchange offer because we believe that acquiring Dollar Thrifty will be beneficial to us and our stockholders. To realize these anticipated benefits, after the completion of the transactions contemplated by the tender offer and second-step merger, we expect to achieve significant cost savings as we integrate our respective businesses. However, there is no assurance that if the transactions contemplated by the tender offer and second-step merger are consummated, we will be able to integrate the operations of Dollar Thrifty without encountering unexpected difficulties, including unanticipated costs, difficulty in retaining customers, challenges associated with information technology integration, and failure to retain key employees. We may also incur substantial delays or costs in connection with the completion of the transactions contemplated by the tender offer and second-step merger. Additionally, as a condition to their approval of our acquisition of Dollar Thrifty, 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 jeopardize our ability to obtain the anticipated benefits of the transactions contemplated by the tender offer and
ITEM 1A. RISK FACTORS (Continued)
second-step merger, which could have a material adverse effect on our stock price, financial condition and results of operations.
We will incur a substantial amount of indebtedness to acquire the shares of Dollar Thrifty common stock pursuant to the offer and second-step merger, to refinance a portion of Dollar Thrifty's outstanding indebtedness, and to pay related fees and expenses.
We cannot guarantee that the combined company will be able to generate sufficient cash flow to make all of the principal and interest payments under this indebtedness when such payments are due or that it will be able to refinance such indebtedness.
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: August 5, 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 | |
---|---|---|
Series | ||
10.22 | Amended and Restated Indemnification Agreement, dated as of November 23, 2009, by | |
Form of Performance Stock Unit Agreement under the Hertz Global Holdings, Inc. 2008 Omnibus Incentive Plan (form used for agreements entered into after January 1, 2011) (Incorporated by reference to | ||
Form of | ||
Form of | ||
15 | Letter from PricewaterhouseCoopers LLP, Independent Registered Public Accounting Firm, dated | |
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 | |
101.INS | XBRL Instance Document* | |
101.SCH | XBRL Taxonomy Extension Schema Document* | |
101.CAL | XBRL Taxonomy Extension Calculation Linkbase 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* |
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.
EXHIBIT INDEX