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 June 30, | ||
OR | ||
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission File Number 001-33139
HERTZ GLOBAL HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
Delaware (State or other jurisdiction of incorporation or organization) | 20-3530539 (I.R.S. Employer Identification Number) |
225 Brae Boulevard
Park Ridge, New Jersey 07656-0713
(201) 307-2000
(Address, including Zip Code, and telephone number,
including area code, of registrant's principal executive offices)
Not Applicable
(Former name, former address and former fiscal year,
if changed since last report.)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer 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 registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No ý
There were 416,494,442420,318,854 shares of the registrant's common stock, par value $0.01 per share, issued and outstanding as of August 2, 2011.1, 2012.
HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
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 June 30, 2011,2012, and the related consolidated statements of operations and comprehensive income (loss) for the three-month and six-month periods ended June 30, 20112012 and June 30, 20102011 and the consolidated statements of cash flows for the six-month periods ended June 30, 20112012 and June 30, 2010.2011. These interim financial statements are the responsibility of the Company's management.
We conducted our review in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board (United States), the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should be made to the accompanying condensed consolidated interim financial statements for them to be in conformity with accounting principles generally accepted in the United States of America.
We previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet as of December 31, 2010,2011, and the related consolidated statements of operations, of changes in equity and of cash flows for the year then ended (not presented herein), and in our report dated February 25, 2011,27, 2012, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of December 31, 2010,2011, is fairly stated in all material respects in relation to the consolidated balance sheet from which it has been derived.
/s/ PricewaterhouseCoopers LLP
Florham Park, New Jersey
August 5, 20112, 2012
HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands of Dollars)
Unaudited
| | June 30, 2011 | December 31, 2010 | June 30, 2012 | December 31, 2011 | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
ASSETS | ASSETS | ||||||||||||||||
Cash and cash equivalents | Cash and cash equivalents | $ | 747,582 | $ | 2,374,170 | $ | 586,201 | $ | 931,779 | ||||||||
Restricted cash and cash equivalents | Restricted cash and cash equivalents | 274,289 | 207,576 | 175,449 | 308,039 | ||||||||||||
Receivables, less allowance for doubtful accounts of $19,099 and $19,708 | 1,447,170 | 1,356,553 | |||||||||||||||
Receivables, less allowance for doubtful accounts of $21,899 and $20,282 | 1,448,271 | 1,616,382 | |||||||||||||||
Inventories, at lower of cost or market | Inventories, at lower of cost or market | 99,999 | 87,429 | 101,712 | 83,978 | ||||||||||||
Prepaid expenses and other assets | Prepaid expenses and other assets | 464,947 | 352,782 | 419,209 | 421,758 | ||||||||||||
Revenue earning equipment, at cost: | Revenue earning equipment, at cost: | ||||||||||||||||
Cars | 12,027,004 | 9,678,765 | |||||||||||||||
Less accumulated depreciation | (1,619,009 | ) | (1,360,012 | ) | |||||||||||||
Other equipment | 3,046,549 | 2,830,176 | |||||||||||||||
Less accumulated depreciation | (1,016,585 | ) | (1,043,520 | ) | |||||||||||||
Total revenue earning equipment | 12,437,959 | 10,105,409 | |||||||||||||||
Property and equipment, at cost: | |||||||||||||||||
Land, buildings and leasehold improvements | 1,172,743 | 1,146,112 | |||||||||||||||
Service equipment and other | 1,112,298 | 1,050,915 | |||||||||||||||
Cars | 10,787,553 | 8,435,077 | |||||||||||||||
Less accumulated depreciation | (1,264,859 | ) | (1,199,355 | ) | 2,285,041 | 2,197,027 | |||||||||||
Less accumulated depreciation | (1,020,772 | ) | (945,173 | ) | |||||||||||||
Other equipment | 2,790,005 | 2,756,101 | |||||||||||||||
Less accumulated depreciation | (1,087,346 | ) | (1,052,414 | ) | |||||||||||||
Total revenue earning equipment | 11,225,353 | 8,939,409 | |||||||||||||||
Property and equipment, at cost: | |||||||||||||||||
Land, buildings and leasehold improvements | 1,119,172 | 1,071,987 | |||||||||||||||
Service equipment and other | 1,001,807 | 900,271 | |||||||||||||||
2,120,979 | 1,972,258 | ||||||||||||||||
Less accumulated depreciation | (902,437 | ) | (808,689 | ) | |||||||||||||
Total property and equipment | 1,218,542 | 1,163,569 | |||||||||||||||
Total property and equipment | 1,264,269 | 1,251,854 | |||||||||||||||
Other intangible assets, net | Other intangible assets, net | 2,522,540 | 2,550,559 | 2,544,011 | 2,562,234 | ||||||||||||
Goodwill | Goodwill | 307,212 | 300,174 | 452,408 | 392,094 | ||||||||||||
Total assets | $ | 18,307,634 | $ | 17,332,221 | |||||||||||||
Total assets | $ | 19,429,489 | $ | 17,673,527 | |||||||||||||
LIABILITIES AND EQUITY | LIABILITIES AND EQUITY | ||||||||||||||||
Accounts payable | Accounts payable | $ | 1,560,856 | $ | 944,973 | $ | 1,487,086 | $ | 897,489 | ||||||||
Accrued liabilities | Accrued liabilities | 1,043,938 | 1,070,082 | 1,064,410 | 1,128,458 | ||||||||||||
Accrued taxes | Accrued taxes | 134,397 | 108,940 | 165,576 | 125,803 | ||||||||||||
Debt | Debt | 11,693,593 | 11,306,429 | 12,467,873 | 11,317,090 | ||||||||||||
Public liability and property damage | Public liability and property damage | 286,018 | 278,685 | 270,640 | 281,534 | ||||||||||||
Deferred taxes on income | Deferred taxes on income | 1,457,194 | 1,491,789 | 1,707,966 | 1,688,478 | ||||||||||||
Total liabilities | 16,175,996 | 15,200,898 | |||||||||||||||
Total liabilities | 17,163,551 | 15,438,852 | |||||||||||||||
Commitments and contingencies | Commitments and contingencies | ||||||||||||||||
Equity: | Equity: | ||||||||||||||||
Hertz Global Holdings, Inc. and Subsidiaries stockholders' equity | Hertz Global Holdings, Inc. and Subsidiaries stockholders' equity | ||||||||||||||||
Preferred Stock, $0.01 par value, 200,000,000 shares authorized, no shares issued and outstanding | — | — | |||||||||||||||
Common Stock, $0.01 par value, 2,000,000,000 shares authorized, 420,302,667 and 417,022,853 shares issued and outstanding | 4,203 | 4,170 | |||||||||||||||
Additional paid-in capital | 3,210,281 | 3,205,964 | |||||||||||||||
Accumulated deficit | (910,508 | ) | (947,064 | ) | |||||||||||||
Accumulated other comprehensive loss | (38,057 | ) | (28,414 | ) | |||||||||||||
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 | 3,203,452 | 3,183,225 | |||||||||||||||
Accumulated deficit | (1,187,977 | ) | (1,110,362 | ) | |||||||||||||
Accumulated other comprehensive income | 97,262 | 37,823 | |||||||||||||||
Total Hertz Global Holdings, Inc. and Subsidiaries stockholders' equity | 2,116,901 | 2,114,821 | |||||||||||||||
Total Hertz Global Holdings, Inc. and Subsidiaries stockholders' equity | 2,265,919 | 2,234,656 | |||||||||||||||
Noncontrolling interest | Noncontrolling interest | 14,737 | 16,502 | 19 | 19 | ||||||||||||
Total equity | 2,265,938 | 2,234,675 | |||||||||||||||
Total equity | 2,131,638 | 2,131,323 | |||||||||||||||
Total liabilities and equity | $ | 19,429,489 | $ | 17,673,527 | |||||||||||||
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 June 30, | Six Months Ended June 30, | Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | 2011 | 2010 | 2011 | 2010 | 2012 | 2011 | 2012 | 2011 | |||||||||||||||||||
Revenues: | Revenues: | |||||||||||||||||||||||||||
Car rental | $ | 1,849,327 | $ | 1,731,200 | $ | 3,472,558 | $ | 3,210,138 | ||||||||||||||||||||
Equipment rental | 334,199 | 301,641 | 635,525 | 569,727 | ||||||||||||||||||||||||
Other | 41,622 | 39,452 | 77,990 | 72,431 | ||||||||||||||||||||||||
Car rental | $ | 1,731,200 | $ | 1,582,983 | $ | 3,210,138 | $ | 2,979,554 | ||||||||||||||||||||
Equipment rental | 301,641 | 265,706 | 569,727 | 502,677 | ||||||||||||||||||||||||
Other | 39,452 | 30,897 | 72,431 | 58,243 | ||||||||||||||||||||||||
Total revenues | 2,072,293 | 1,879,586 | 3,852,296 | 3,540,474 | ||||||||||||||||||||||||
Total revenues | 2,225,148 | 2,072,293 | 4,186,073 | 3,852,296 | ||||||||||||||||||||||||
Expenses: | Expenses: | |||||||||||||||||||||||||||
Direct operating | 1,188,933 | 1,187,306 | 2,304,080 | 2,260,971 | ||||||||||||||||||||||||
Depreciation of revenue earning equipment and lease charges | 519,750 | 419,669 | 1,033,867 | 855,758 | ||||||||||||||||||||||||
Selling, general and administrative | 206,569 | 195,591 | 414,321 | 377,812 | ||||||||||||||||||||||||
Interest expense | 152,184 | 165,826 | 314,451 | 362,715 | ||||||||||||||||||||||||
Interest income | (468 | ) | (1,546 | ) | (1,560 | ) | (3,401 | ) | ||||||||||||||||||||
Other (income) expense, net | (554 | ) | 10,801 | (1,011 | ) | 62,677 | ||||||||||||||||||||||
Direct operating | 1,187,306 | 1,075,037 | 2,260,971 | 2,088,036 | ||||||||||||||||||||||||
Depreciation of revenue earning equipment and lease charges | 419,669 | 456,720 | 855,758 | 915,893 | ||||||||||||||||||||||||
Selling, general and administrative | 195,591 | 171,985 | 377,812 | 339,728 | ||||||||||||||||||||||||
Interest expense | 165,826 | 188,873 | 362,715 | 369,971 | ||||||||||||||||||||||||
Interest income | (1,546 | ) | (6,791 | ) | (3,401 | ) | (9,069 | ) | ||||||||||||||||||||
Other (income) expense, net | 10,801 | — | 62,677 | — | ||||||||||||||||||||||||
Total expenses | 1,977,647 | 1,885,824 | 3,916,532 | 3,704,559 | ||||||||||||||||||||||||
Total expenses | 2,066,414 | 1,977,647 | 4,064,148 | 3,916,532 | ||||||||||||||||||||||||
Income (loss) before income taxes | Income (loss) before income taxes | 94,646 | (6,238 | ) | (64,236 | ) | (164,085 | ) | 158,734 | 94,646 | 121,925 | (64,236 | ) | |||||||||||||||
Provision for taxes on income | Provision for taxes on income | (34,561 | ) | (14,210 | ) | (4,621 | ) | (3,190 | ) | (65,847 | ) | (34,561 | ) | (85,370 | ) | (4,621 | ) | |||||||||||
Net income (loss) | Net income (loss) | 60,085 | (20,448 | ) | (68,857 | ) | (167,275 | ) | 92,887 | 60,085 | 36,555 | (68,857 | ) | |||||||||||||||
Less: Net income attributable to noncontrolling interest | Less: Net income attributable to noncontrolling interest | (5,087 | ) | (4,673 | ) | (8,760 | ) | (8,251 | ) | — | (5,087 | ) | — | (8,760 | ) | |||||||||||||
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 | $ | 54,998 | $ | (25,121 | ) | $ | (77,617 | ) | $ | (175,526 | ) | $ | 92,887 | $ | 54,998 | $ | 36,555 | $ | (77,617 | ) | |||||||
Weighted average shares outstanding (in thousands) | ||||||||||||||||||||||||||||
Basic | 415,947 | 411,834 | 415,011 | 411,290 | ||||||||||||||||||||||||
Diluted | 451,818 | 411,834 | 415,011 | 411,290 | ||||||||||||||||||||||||
Weighted average shares outstanding (in thousands): | ||||||||||||||||||||||||||||
Basic | 420,036 | 415,947 | 419,056 | 415,011 | ||||||||||||||||||||||||
Diluted | 447,448 | 451,818 | 447,881 | 415,011 | ||||||||||||||||||||||||
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 | $ | 0.13 | $ | (0.06 | ) | $ | (0.19 | ) | $ | (0.43 | ) | |||||||||||||||||
Diluted | $ | 0.12 | $ | (0.06 | ) | $ | (0.19 | ) | $ | (0.43 | ) | |||||||||||||||||
Basic | $ | 0.22 | $ | 0.13 | $ | 0.09 | $ | (0.19 | ) | |||||||||||||||||||
Diluted | $ | 0.21 | $ | 0.12 | $ | 0.08 | $ | (0.19 | ) |
The accompanying notes are an integral part of these financial statements.
HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In Thousands of Dollars)
Unaudited
| Three Months Ended June 30, 2012 | Three Months Ended June 30, 2011 | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Net income | $ | 92,887 | $ | 60,085 | |||||||||
Other comprehensive income (loss), net of tax: | |||||||||||||
Translation adjustment changes, (net of tax of 2012: $1,756 and 2011: $324) | $ | (46,090 | ) | $ | 16,259 | ||||||||
Unrealized holding gains on securities, (net of tax of 2012: $9 and 2011: $765) | 11 | 1,202 | |||||||||||
Other, (net of tax of 2012: $0 and 2011: $0) | 196 | (18 | ) | ||||||||||
Unrealized loss on Euro-denominated debt, (net of tax of 2012: $0 and 2011: $(2,150)) | — | (3,357 | ) | ||||||||||
Defined benefit pension plans | |||||||||||||
Net gains arising during the period, (net of tax of 2012: $1,251 and 2011: $888) | 2,196 | 15,699 | |||||||||||
Defined benefit pension plans | 2,196 | 15,699 | |||||||||||
Other comprehensive income (loss) | (43,687 | ) | 29,785 | ||||||||||
Comprehensive income | 49,200 | 89,870 | |||||||||||
Less: Comprehensive income attributable to noncontrolling interest | — | (5,087 | ) | ||||||||||
Comprehensive income attributable to Hertz Global Holdings, Inc. and Subsidiaries' common stockholders | $ | 49,200 | $ | 84,783 | |||||||||
| Six Months Ended June 30, 2012 | Six Months Ended June 30, 2011 | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Net income (loss) | $ | 36,555 | $ | (68,857 | ) | ||||||||
Other comprehensive income (loss), net of tax: | |||||||||||||
Translation adjustment changes, (net of tax of 2012: $382 and 2011: ($1,650)) | $ | (16,520 | ) | $ | 58,730 | ||||||||
Unrealized holding gains on securities, (net of tax of 2012: $1,968 and 2011: $765) | 3,097 | 1,235 | |||||||||||
Other, (net of tax of 2012: $0 and 2011: $0) | 108 | (60 | ) | ||||||||||
Unrealized loss on Euro-denominated debt, (net of tax of 2012: $0 and 2011: $(9,548)) | — | (14,915 | ) | ||||||||||
Defined benefit pension plans | |||||||||||||
Net gains arising during the period, (net of tax of 2012: $2,338 and 2011: $1,675) | 3,672 | 17,082 | |||||||||||
Defined benefit pension plans | 3,672 | 17,082 | |||||||||||
Other comprehensive income (loss) | (9,643 | ) | 62,072 | ||||||||||
Comprehensive income (loss) | 26,912 | (6,785 | ) | ||||||||||
Less: Comprehensive income attributable to noncontrolling interest | — | (8,760 | ) | ||||||||||
Comprehensive income (loss) attributable to Hertz Global Holdings, Inc. and Subsidiaries' common stockholders | $ | 26,912 | $ | (15,545 | ) | ||||||||
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
| | Six Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | 2011 | 2010 | 2012 | 2011 | ||||||||||||
Cash flows from operating activities: | Cash flows from operating activities: | ||||||||||||||||
Net income (loss) | $ | 36,555 | $ | (68,857 | ) | ||||||||||||
Adjustments to reconcile net income (loss) to net cash provided by operating activities: | |||||||||||||||||
Depreciation of revenue earning equipment | 989,300 | 809,433 | |||||||||||||||
Depreciation of property and equipment | 83,756 | 77,140 | |||||||||||||||
Amortization of other intangible assets | 39,029 | 33,679 | |||||||||||||||
Amortization and write-off of deferred financing costs | 30,560 | 64,251 | |||||||||||||||
Amortization and write-off of debt discount | 14,888 | 22,677 | |||||||||||||||
Stock-based compensation charges | 14,977 | 16,630 | |||||||||||||||
Gain on derivatives | (856 | ) | (2,203 | ) | |||||||||||||
Loss on revaluation of foreign denominated debt | 2,498 | — | |||||||||||||||
Provision for losses on doubtful accounts | 13,582 | 14,313 | |||||||||||||||
Asset writedowns | 3,181 | 23,311 | |||||||||||||||
Deferred taxes on income | 31,329 | (29,184 | ) | ||||||||||||||
Gain on sale of property and equipment | (716 | ) | (4,748 | ) | |||||||||||||
Changes in assets and liabilities, net of effects of acquisition: | |||||||||||||||||
Receivables | (226,556 | ) | (187,818 | ) | |||||||||||||
Inventories, prepaid expenses and other assets | (33,056 | ) | (57,878 | ) | |||||||||||||
Accounts payable | 142,051 | 138,214 | |||||||||||||||
Accrued liabilities | 7,926 | (179,327 | ) | ||||||||||||||
Accrued taxes | 16,806 | 21,667 | |||||||||||||||
Public liability and property damage | (6,842 | ) | (4,393 | ) | |||||||||||||
Net loss | $ | (68,857 | ) | $ | (167,275 | ) | |||||||||||
Adjustments to reconcile net loss to net cash provided by operating activities: | |||||||||||||||||
Depreciation of revenue earning equipment | 809,433 | 881,540 | |||||||||||||||
Depreciation of property and equipment | 77,140 | 78,571 | |||||||||||||||
Amortization of other intangible assets | 33,679 | 32,700 | |||||||||||||||
Amortization and write-off of deferred financing costs | 64,251 | 38,508 | |||||||||||||||
Amortization and write-off of debt discount | 22,677 | 21,104 | |||||||||||||||
Stock-based compensation charges | 16,630 | 19,308 | |||||||||||||||
(Gain) loss on derivatives | (2,203 | ) | 5,047 | ||||||||||||||
Amortization of cash flow hedges | — | 38,868 | |||||||||||||||
Provision for losses on doubtful accounts | 14,313 | 10,295 | |||||||||||||||
Asset writedowns | 23,311 | 14,215 | |||||||||||||||
Deferred taxes on income | (29,184 | ) | (3,818 | ) | |||||||||||||
Gain on sale of property and equipment | (4,748 | ) | (2,176 | ) | |||||||||||||
Changes in assets and liabilities, net of effects of acquisition: | |||||||||||||||||
Receivables | (187,818 | ) | (105,472 | ) | |||||||||||||
Inventories, prepaid expenses and other assets | (57,878 | ) | (25,509 | ) | |||||||||||||
Accounts payable | 138,214 | 254,809 | |||||||||||||||
Accrued liabilities | (179,327 | ) | (69,523 | ) | |||||||||||||
Accrued taxes | 21,667 | (5,220 | ) | ||||||||||||||
Public liability and property damage | (4,393 | ) | 252 | ||||||||||||||
Net cash provided by operating activities | 686,907 | 1,016,224 | |||||||||||||||
Net cash provided by operating activities | 1,158,412 | 686,907 | |||||||||||||||
Cash flows from investing activities: | Cash flows from investing activities: | ||||||||||||||||
Net change in restricted cash and cash equivalents | 130,137 | (60,233 | ) | ||||||||||||||
Revenue earning equipment expenditures | (5,698,892 | ) | (5,466,856 | ) | |||||||||||||
Proceeds from disposal of revenue earning equipment | 3,608,323 | 3,488,890 | |||||||||||||||
Property and equipment expenditures | (137,168 | ) | (125,370 | ) | |||||||||||||
Proceeds from disposal of property and equipment | 56,421 | 28,388 | |||||||||||||||
Acquisitions, net of cash acquired | (161,844 | ) | (10,976 | ) | |||||||||||||
Purchase of short-term investments, net | — | (32,891 | ) | ||||||||||||||
Other investing activities | (625 | ) | 1,303 | ||||||||||||||
Net change in restricted cash and cash equivalents | (60,233 | ) | (389,242 | ) | |||||||||||||
Net cash used in investing activities | $ | (2,203,648 | ) | $ | (2,177,745 | ) | |||||||||||
Revenue earning equipment expenditures | (5,466,856 | ) | (5,317,298 | ) | |||||||||||||
Proceeds from disposal of revenue earning equipment | 3,488,890 | 3,443,510 | |||||||||||||||
Property and equipment expenditures | (125,370 | ) | (92,018 | ) | |||||||||||||
Proceeds from disposal of property and equipment | 28,388 | 15,194 | |||||||||||||||
Acquisitions, net of cash acquired | (10,976 | ) | (157 | ) | |||||||||||||
(Purchase) sale of short-term investments, net | (32,891 | ) | 3,171 | ||||||||||||||
Other investing activities | 1,303 | 817 | |||||||||||||||
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
| | Six Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | 2011 | 2010 | 2012 | 2011 | ||||||||||||
Cash flows from financing activities: | Cash flows from financing activities: | ||||||||||||||||
Proceeds from issuance of long-term debt | $ | 270,529 | $ | 3,028,591 | |||||||||||||
Payment of long-term debt | (643,083 | ) | (3,631,480 | ) | |||||||||||||
Short-term borrowings: | |||||||||||||||||
Proceeds | 246,664 | 285,803 | |||||||||||||||
Payments | (656,231 | ) | (489,217 | ) | |||||||||||||
Proceeds (payments) under the revolving lines of credit, net | 1,543,770 | 728,855 | |||||||||||||||
Distributions to noncontrolling interest | — | (10,500 | ) | ||||||||||||||
Purchase of noncontrolling interest | (38,000 | ) | — | ||||||||||||||
Proceeds from employee stock purchase plan | 1,988 | 1,716 | |||||||||||||||
Proceeds from exercise of stock options | 5,742 | 11,581 | |||||||||||||||
Proceeds from disgorgement of stockholder short-swing profits | 17 | 72 | |||||||||||||||
Net settlement on vesting of restricted stock | (19,976 | ) | (11,381 | ) | |||||||||||||
Payment of financing costs | (6,949 | ) | (81,392 | ) | |||||||||||||
Proceeds from issuance of long-term debt | $ | 3,028,591 | $ | 681,370 | |||||||||||||
Payment of long-term debt | (3,631,480 | ) | (756,964 | ) | |||||||||||||
Short-term borrowings: | |||||||||||||||||
Proceeds | 285,803 | 274,730 | |||||||||||||||
Payments | (489,217 | ) | (281,009 | ) | |||||||||||||
Proceeds (payments) under the revolving lines of credit, net | 728,855 | 1,423,403 | |||||||||||||||
Distributions to noncontrolling interest | (10,500 | ) | (7,630 | ) | |||||||||||||
Proceeds from employee stock purchase plan | 1,716 | 1,222 | |||||||||||||||
Proceeds from exercise of stock options | 11,581 | 2,250 | |||||||||||||||
Proceeds from disgorgement of stockholder short-swing profits | 72 | 111 | |||||||||||||||
Net settlement on vesting of restricted stock | (11,381 | ) | (5,670 | ) | |||||||||||||
Payment of financing costs | (81,392 | ) | (24,972 | ) | |||||||||||||
Net cash provided by (used in) financing activities | (167,352 | ) | 1,306,841 | ||||||||||||||
Net cash provided by (used in) financing activities | 704,471 | (167,352 | ) | ||||||||||||||
Effect of foreign exchange rate changes on cash and cash equivalents | Effect of foreign exchange rate changes on cash and cash equivalents | 31,602 | (75,836 | ) | (4,813 | ) | 31,602 | ||||||||||
Net change in cash and cash equivalents during the period | (1,626,588 | ) | (88,794 | ) | |||||||||||||
Net decrease in cash and cash equivalents during the period | (345,578 | ) | (1,626,588 | ) | |||||||||||||
Cash and cash equivalents at beginning of period | Cash and cash equivalents at beginning of period | 2,374,170 | 985,642 | 931,779 | 2,374,170 | ||||||||||||
Cash and cash equivalents at end of period | Cash and cash equivalents at end of period | $ | 747,582 | $ | 896,848 | $ | 586,201 | $ | 747,582 | ||||||||
Supplemental disclosures of cash flow information: | Supplemental disclosures of cash flow information: | ||||||||||||||||
Cash paid during the period for: | Cash paid during the period for: | ||||||||||||||||
Interest (net of amounts capitalized) | $ | 343,383 | $ | 264,563 | |||||||||||||
Income taxes | 25,338 | 30,694 | |||||||||||||||
Interest (net of amounts capitalized) | $ | 281,864 | $ | 343,383 | |||||||||||||
Income taxes | 37,655 | 25,338 | |||||||||||||||
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 | $ | 628,695 | $ | 828,881 | |||||||||||||
Sales of revenue earning equipment included in receivables | 263,954 | 530,856 | |||||||||||||||
Purchases of property and equipment included in accounts payable | 59,633 | 29,125 | |||||||||||||||
Sales of property and equipment included in receivables | 14,356 | 5,259 | |||||||||||||||
Purchases of revenue earning equipment included in accounts payable and accrued liabilities | $ | 598,620 | $ | 628,695 | |||||||||||||
Sales of revenue earning equipment included in receivables | 178,409 | 263,954 | |||||||||||||||
Purchases of property and equipment included in accounts payable | 42,060 | 59,633 | |||||||||||||||
Sales of property and equipment included in receivables | 9,163 | 14,356 |
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
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 United Continental Holdings, Inc. (formerly Allegis Corporation), which acquired Hertz's outstanding capital stock from RCA Corporation in 1985. Hertz Holdings was incorporated in Delaware in 2005 and had no operations prior to the Acquisition (as defined below).
On December 21, 2005, investment funds associated with or designated by:
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."
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, June 2009 and March 2011, the Sponsors reduced their holdings to approximately 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 former parent company of BAMLCP.MLGPE. Accordingly, Bank of America is now an indirect beneficial owner of our common stock held by BAMLCPthe investment funds associated with MLGPE. We refer to CD&R, Carlyle and certainMLGPE collectively as the "Sponsors." We refer to the acquisition of all of Hertz's common stock by the Sponsors as the "Acquisition."
After giving effect to our initial public offering in November 2006 and subsequent offerings, the Sponsors' holdings represent approximately 38% of the outstanding shares of common stock of Hertz Holdings as of June 30, 2012.
On September 1, 2011, Hertz completed the acquisition of Donlen Corporation, or "Donlen," a leading provider of fleet leasing and management services.
On December 31, 2011, Hertz purchased the noncontrolling interest of Navigation Solutions, L.L.C., thereby increasing its affiliates.ownership interest from 65% to 100%.
Note 2—Basis of Presentation and Recently Issued Accounting Pronouncements
Basis of Presentation
The significant accounting policies summarized in Note 2 to our audited consolidated financial statements contained in our Annual Report on Form 10-K for the fiscal year ended December 31, 2010,2011, filed with the United States Securities and Exchange Commission, or "SEC," on February 25, 2011,27, 2012, or the "Form 10-K," have been followed in preparing the accompanying condensed consolidated financial statements.
The December 31, 20102011 condensed consolidated balance sheet data was derived from our audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America, or "GAAP."
HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Unaudited
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and footnotes. Actual results could differ materially from those estimates.
HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Unaudited
In our opinion, all adjustments necessary for a fair statementpresentation 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.period presentation.
For 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.Recently Issued Accounting Pronouncements
In June 2011, the Financial Accounting Standards Board, or "FASB," issued Accounting Standards Update No. 2011-05, "Presentation of Comprehensive Income," requiring companies to present items of net income and other comprehensive income either in one continuous statement, referred to as the statement of comprehensive income, or in two separate, but consecutive statements of net income and other comprehensive income. The amendments in this update do not change the items that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income. These provisions will becomebecame effective for us beginning with ourthe quarterly report for the period ended March 31, 2012. In December 2011, the FASB issued Accounting Standards Update No. 2011-12, "Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05," which defers the timing of implementing only those changes in Update 2011-05 that relate to the presentation of reclassification adjustments.
Note 3—Cash and Cash Equivalents and Restricted Cash and Cash Equivalents
We consider all highly liquid debt instruments purchased with an original maturity of three months or less to be cash equivalents.
In our Consolidated Statements of Cash Flows, we net cash flows from revolving borrowings in the line item "Proceeds (payments) under the revolving lines of credit, net." 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 June 30, 20112012 and December 31, 2010,2011, the portion of total restricted cash and cash equivalents that was associated with our Fleet Debt facilities was $183.2$104.0 million and $115.6$213.6 million, respectively. The increasedecrease in restricted cash and cash equivalents associated with our fleet debt of $67.6$109.6 million from December 31, 20102011 to June 30, 20112012 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 4—Goodwill and Other Intangible Assets
The following summarizes the changes in our goodwill, by segment (in millions of dollars):
| Car Rental | Equipment Rental | Total | ||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
Balance as of January 1, 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, 2012 | ||||||||||
Goodwill | $ | 419.3 | $ | 693.8 | $ | 1,113.1 | ||||
Accumulated impairment losses | (46.1 | ) | (674.9 | ) | (721.0 | ) | ||||
373.2 | 18.9 | 392.1 | ||||||||
Goodwill acquired during the period | — | 76.8 | 76.8 | |||||||
Adjustments to previously recorded purchase price allocation | (15.1 | ) | — | (15.1 | ) | |||||
Other changes during the period(1) | (0.9 | ) | (0.5 | ) | (1.4 | ) | ||||
(16.0 | ) | 76.3 | 60.3 | |||||||
Balance as of June 30, 2012 | ||||||||||
Goodwill | 403.3 | 770.1 | 1,173.4 | |||||||
Accumulated impairment losses | (46.1 | ) | (674.9 | ) | (721.0 | ) | ||||
$ | 357.2 | $ | 95.2 | $ | 452.4 | |||||
| Car Rental | Equipment Rental | Total | |||||||
---|---|---|---|---|---|---|---|---|---|---|
Balance as of January 1, 2011 | ||||||||||
Goodwill | $ | 367.9 | $ | 681.7 | $ | 1,049.6 | ||||
Accumulated impairment losses | (46.1 | ) | (674.9 | ) | (721.0 | ) | ||||
321.8 | 6.8 | 328.6 | ||||||||
Goodwill acquired during the year | 53.1 | 12.3 | 65.4 | |||||||
Adjustments to previously recorded purchase price allocation | (0.9 | ) | (0.1 | ) | (1.0 | ) | ||||
Other changes during the year(1) | (0.8 | ) | (0.1 | ) | (0.9 | ) | ||||
51.4 | 12.1 | 63.5 | ||||||||
Balance as of December 31, 2011 | ||||||||||
Goodwill | 419.3 | 693.8 | 1,113.1 | |||||||
Accumulated impairment losses | (46.1 | ) | (674.9 | ) | (721.0 | ) | ||||
$ | 373.2 | $ | 18.9 | $ | 392.1 | |||||
| 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):
| | June 30, 2011 | June 30, 2012 | ||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | Gross Carrying Amount | Accumulated Amortization | Net Carrying Value | Gross Carrying Amount | Accumulated Amortization | Net Carrying Value | ||||||||||||||||
Amortizable intangible assets: | Amortizable intangible assets: | ||||||||||||||||||||||
Customer-related | $ | 689.7 | $ | (399.4 | ) | $ | 290.3 | ||||||||||||||||
Other(1) | 78.4 | (32.9 | ) | 45.5 | |||||||||||||||||||
Customer-related | $ | 606.6 | $ | (334.0 | ) | $ | 272.6 | ||||||||||||||||
Other(1) | 64.6 | (22.9 | ) | 41.7 | |||||||||||||||||||
Total | 671.2 | (356.9 | ) | 314.3 | |||||||||||||||||||
Total | 768.1 | (432.3 | ) | 335.8 | |||||||||||||||||||
Indefinite-lived intangible assets: | Indefinite-lived intangible assets: | ||||||||||||||||||||||
Trade name | 2,190.0 | — | 2,190.0 | ||||||||||||||||||||
Other(2) | 18.2 | — | 18.2 | ||||||||||||||||||||
Trade name | 2,190.0 | — | 2,190.0 | ||||||||||||||||||||
Total | 2,208.2 | — | 2,208.2 | ||||||||||||||||||||
Other(2) | 18.2 | — | 18.2 | ||||||||||||||||||||
Total other intangible assets, net | $ | 2,976.3 | $ | (432.3 | ) | $ | 2,544.0 | ||||||||||||||||
Total | 2,208.2 | — | 2,208.2 | ||||||||||||||||||||
Total other intangible assets, net | $ | 2,879.4 | $ | (356.9 | ) | $ | 2,522.5 | ||||||||||||||||
| December 31, 2011 | |||||||||
---|---|---|---|---|---|---|---|---|---|---|
| Gross Carrying Amount | Accumulated Amortization | Net Carrying Value | |||||||
Amortizable intangible assets: | ||||||||||
Customer-related | $ | 672.6 | $ | (365.5 | ) | $ | 307.1 | |||
Other(1) | 74.7 | (27.8 | ) | 46.9 | ||||||
Total | 747.3 | (393.3 | ) | 354.0 | ||||||
Indefinite-lived intangible assets: | ||||||||||
Trade name | 2,190.0 | — | 2,190.0 | |||||||
Other(2) | 18.2 | — | 18.2 | |||||||
Total | 2,208.2 | — | 2,208.2 | |||||||
Total other intangible assets, net | $ | 2,955.5 | $ | (393.3 | ) | $ | 2,562.2 | |||
| December 31, 2010 | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Gross Carrying Amount | Accumulated Amortization | Net Carrying Value | ||||||||||
Amortizable intangible assets: | |||||||||||||
Customer-related | $ | 606.5 | $ | (304.6 | ) | $ | 301.9 | ||||||
Other(1) | 59.1 | (18.6 | ) | 40.5 | |||||||||
Total | 665.6 | (323.2 | ) | 342.4 | |||||||||
Indefinite-lived intangible assets: | |||||||||||||
Trade name | 2,190.0 | — | 2,190.0 | ||||||||||
Other(2) | 18.2 | — | 18.2 | ||||||||||
Total | 2,208.2 | — | 2,208.2 | ||||||||||
Total other intangible assets, net | $ | 2,873.8 | $ | (323.2 | ) | $ | 2,550.6 | ||||||
Amortization of other intangible assets for the three months ended June 30, 20112012 and 2010,2011, was approximately $16.9$19.8 million and $16.3$16.9 million, respectively, and for the six months ended June 30, 20112012 and 2010,2011, was approximately $33.7$39.0 million and $32.7$33.7 million, respectively. Based on our amortizable intangible assets as of June 30, 2011,2012, we expect amortization expense to be approximately $32.8$37.9 million for the remainder of 2011, $65.3 million in 2012, $64.0$75.3 million in 2013, $61.0$71.4 million in 2014, $59.8$69.1 million in 2015, and $13.4$20.6 million in 2016.
During the six months ended June 30, 2011, we added eight international car rental locations2016 and one domestic equipment rental location through external acquisitions. These transactions have been accounted for using the acquisition method of accounting$8.6 million in accordance with GAAP and operating results of the acquired locations from the date of acquisition are included in our consolidated statement2017.
HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Unaudited
On September 1, 2011, Hertz acquired 100% of the equity interest in Donlen, a leading provider of fleet leasing and management services. The amount of revenue and earnings of the combined entity had the acquisition date been January 1, 2010, are as follows (in millions):
| Revenue | Earnings (Loss) | |||||
---|---|---|---|---|---|---|---|
2011 supplemental pro forma for the second quarter of 2011 (combined entity) | $ | 2,171.0 | $ | 58.2 | |||
2011 supplemental pro forma for the first half of 2011 (combined entity) | 4,045.0 | (72.1 | ) |
2011 supplemental pro forma revenue for the three months ended June 30, 2011 excludes $1.2 million related to deferred revenue which was eliminated as part of acquisition accounting. 2011 supplemental pro forma earnings for the three months ended June 30, 2011 excludes $0.7 million related to deferred income which was eliminated as part of acquisition accounting. 2011 supplemental pro forma revenue for the six months ended June 30, 2011 excludes $2.6 million related to deferred revenue which was eliminated as part of acquisition accounting. 2011 supplemental pro forma earnings for the six months ended June 30, 2011 excludes $1.6 million related to deferred income which was eliminated as part of acquisition accounting.
This transaction has been accounted for using the acquisition method of accounting in accordance with GAAP and operating results of Donlen from the date of acquisition are included in our consolidated statements of operations. The allocation of the purchase price to the tangible and intangible net assets acquired is preliminary and subjectsubstantially complete, except with regards to finalization.deferred taxes on income, which could change based upon the completion of Donlen's pre-acquisition tax return.
Other Acquisitions
Additionally, during the six months ended June 30, 2012, we added nine domestic equipment rental locations through external acquisitions. These acquisitions are not material to the consolidated amounts presented within our statement of operations for the three-month and six-month periods ended June 30, 2011.2012.
Note 5—Taxes on Income
The effective tax rate for the three and six months ended June 30, 20112012 was 36.5%41.5% and (7.2)%70.0%, respectively. The provision for taxes on income of $65.8 million in the three months ended June 30, 2012 increased from $34.5 million in the three months ended June 30, 2011, increased from $14.2 million in the three months ended June 30, 2010, primarily due to higher income before income taxes, changes in geographic earnings mix and changes in losses in certain non-U.S. jurisdictions for which tax benefits cannot be realized. The provision for taxes on income of $85.3 million in the six months ended June 30, 2012 increased from $4.6 million in the six months ended June 30, 2011, increased from $3.2 million in the six months ended June 30, 2010, primarily due to lower losshigher 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.
HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Unaudited
Note 6—Depreciation of Revenue Earning Equipment and Lease Charges
Depreciation of revenue earning equipment and lease charges includes the following (in millions of dollars):
| | Three Months Ended June 30, | Three Months Ended June 30, | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | 2011 | 2010 | 2012 | 2011 | ||||||||||
Depreciation of revenue earning equipment | Depreciation of revenue earning equipment | $ | 453.3 | $ | 426.1 | $ | 539.5 | $ | 453.3 | ||||||
Adjustment of depreciation upon disposal of revenue earning equipment | Adjustment of depreciation upon disposal of revenue earning equipment | (56.3 | ) | 12.7 | (41.2 | ) | (56.3 | ) | |||||||
Rents paid for vehicles leased | Rents paid for vehicles leased | 22.7 | 17.9 | 21.5 | 22.7 | ||||||||||
Total | $ | 519.8 | $ | 419.7 | |||||||||||
Total | $ | 419.7 | $ | 456.7 | |||||||||||
| | Six Months Ended June 30, | Six Months Ended June 30, | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | 2011 | 2010 | 2012 | 2011 | ||||||||||
Depreciation of revenue earning equipment | Depreciation of revenue earning equipment | $ | 871.8 | $ | 854.0 | $ | 1,069.9 | $ | 871.8 | ||||||
Adjustment of depreciation upon disposal of revenue earning equipment | Adjustment of depreciation upon disposal of revenue earning equipment | (62.4 | ) | 27.5 | (80.6 | ) | (62.4 | ) | |||||||
Rents paid for vehicles leased | Rents paid for vehicles leased | 46.3 | 34.4 | 44.6 | 46.3 | ||||||||||
Total | $ | 1,033.9 | $ | 855.7 | |||||||||||
Total | $ | 855.7 | $ | 915.9 | |||||||||||
The adjustment of depreciation upon disposal of revenue earning equipment for the three months ended June 30, 2012 and 2011, and 2010, included a net gaingains of $53.6$38.3 million and a net loss of $9.4$53.6 million, respectively, on the disposal of vehicles used in our car rental operations and a net gaingains of $2.7$2.9 million and a net loss of $3.3$2.7 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 six months ended June 30, 2012 and 2011, and 2010, included a net gaingains of $59.7$73.2 million and a net loss of $20.6$59.7 million, respectively, on the disposal of vehicles used in our car rental operations and a net gaingains of $2.7$7.4 million and a net loss of $6.9$2.7 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 six months ended June 30, 2011,2012, depreciation rates being used to compute the provision for depreciation of revenue earning equipment were adjusted on certain vehicles in our car rental operations to reflect changes in the estimated residual values to be realized when revenue earning equipment is sold. These depreciation rate changes resulted in net decreases of $8.0$37.1 million and $8.6$37.3 million in depreciation expense for the three and six months ended June 30, 2011,2012, respectively. During the threethree-month and six monthssix-month periods ended June 30, 2011,2012, there was no impact from depreciation rate changes in certain of our equipment rental operations resulted in net decreases of $1.3 million and $2.3 million in depreciation expense.
For the three months ended June 30, 2011 and 2010, our worldwide car rental operations sold approximately 42,800 and 42,000 non-program cars, respectively, a 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 car rental demand.operations.
HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Unaudited
Note 7—Debt
Our debt consists of the following (in millions of dollars):
Facility | Average Interest Rate at June 30, 2012(1) | Fixed or Floating Interest Rate | Maturity | June 30, 2012 | December 31, 2011 | |||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Corporate Debt | ||||||||||||||
Senior Term Facility | 3.75 | % | Floating | 3/2018 | $ | 1,382.5 | $ | 1,389.5 | ||||||
Senior ABL Facility | 2.50 | % | Floating | 3/2016 | 410.0 | — | ||||||||
Senior Notes(2) | 7.09 | % | Fixed | 10/2018–1/2021 | 2,450.0 | 2,638.6 | ||||||||
Promissory Notes | 6.96 | % | Fixed | 6/2012–1/2028 | 48.7 | 224.7 | ||||||||
Convertible Senior Notes | 5.25 | % | Fixed | 6/2014 | 474.7 | 474.7 | ||||||||
Other Corporate Debt | 5.39 | % | Floating | Various | 52.0 | 49.6 | ||||||||
Unamortized Net Discount (Corporate)(3) | (50.0 | ) | (72.3 | ) | ||||||||||
Total Corporate Debt | 4,767.9 | 4,704.8 | ||||||||||||
Fleet Debt | ||||||||||||||
U.S. ABS Program | ||||||||||||||
U.S. Fleet Variable Funding Notes: | ||||||||||||||
Series 2009-1(4) | 1.24 | % | Floating | 3/2013 | 2,025.0 | 1,000.0 | ||||||||
Series 2010-2(4) | 1.38 | % | Floating | 3/2013 | 200.0 | 170.0 | ||||||||
Series 2011-2(4) | N/A | Floating | 4/2012 | — | 175.0 | |||||||||
2,225.0 | 1,345.0 | |||||||||||||
U.S. Fleet Medium Term Notes | ||||||||||||||
Series 2009-2(4) | 4.95 | % | Fixed | 3/2013–3/2015 | 1,384.3 | 1,384.3 | ||||||||
Series 2010-1(4) | 3.77 | % | Fixed | 2/2014–2/2018 | 749.8 | 749.8 | ||||||||
Series 2011-1(4) | 2.86 | % | Fixed | 3/2015–3/2017 | 598.0 | 598.0 | ||||||||
2,732.1 | 2,732.1 | |||||||||||||
Donlen ABS Program | ||||||||||||||
Donlen GN II Variable Funding Notes | 1.17 | % | Floating | 8/2012 | 879.1 | 811.2 | ||||||||
Other Fleet Debt | ||||||||||||||
U.S. Fleet Financing Facility | 3.00 | % | Floating | 9/2015 | 136.0 | 136.0 | ||||||||
European Revolving Credit Facility | 3.13 | % | Floating | 6/2015 | 261.8 | 200.6 | ||||||||
European Fleet Notes | 8.50 | % | Fixed | 7/2015 | 498.7 | 517.7 | ||||||||
European Securitization(4) | 2.78 | % | Floating | 7/2013 | 316.5 | 256.2 | ||||||||
Canadian Securitization | 2.13 | % | Floating | 6/2013 | 131.7 | 68.3 | ||||||||
Australian Securitization(4) | 5.31 | % | Floating | 12/2012 | 154.2 | 169.3 | ||||||||
Brazilian Fleet Financing Facility | 14.22 | % | Floating | 2/2013 | 14.8 | 23.1 | ||||||||
Capitalized Leases | 4.40 | % | Floating | Various | 358.4 | 363.7 | ||||||||
Unamortized Discount (Fleet) | (8.3 | ) | (10.9 | ) | ||||||||||
1,863.8 | 1,724.0 | |||||||||||||
Total Fleet Debt | 7,700.0 | 6,612.3 | ||||||||||||
Total Debt | $ | 12,467.9 | $ | 11,317.1 | ||||||||||
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
| Outstanding Principal (in millions) | | ||||||
---|---|---|---|---|---|---|---|---|
Senior Notes | June 30, 2012 | December 31, 2011 | | |||||
8.875% Senior Notes due January 2014 | $ | — | $ | 162.3 | ||||
7.875% Senior Notes due January 2014 | — | 276.3 | (€213.5) | |||||
7.50% Senior Notes due October 2018 | 700.0 | 700.0 | ||||||
7.375% Senior Notes due January 2021 | 500.0 | 500.0 | ||||||
6.75% Senior Notes due April 2019 | 1,250.0 | 1,000.0 | ||||||
$ | 2,450.0 | $ | 2,638.6 | |||||
Maturities
The aggregate amounts of maturities of debt for each of the twelve-month periods ending June 30 (in millions of dollars) are as follows:
2013 | $ | 5,993.7 | (including $5,390.0 of other short-term borrowings*) | ||
2014 | $ | 280.0 | |||
2015 | $ | 1,211.3 | |||
2016 | $ | 888.4 | |||
2017 | $ | 244.7 | |||
After 2017 | $ | 3,908.1 |
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 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 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. As of June 30, 2011, short-term borrowings had a weighted average interest rate of 3.0%.
Letters of Credit
As of June 30, 2011,2012, there were outstanding standby letters of credit totaling $580.3$608.8 million. Of this amount, $532.8$563.1 million was issued under the Senior Credit Facilities ($288.6291.0 million of which was issued for the benefit of the U.S. ABS Program)Program and $64.6 million was related to other debt obligations) and the remainder is primarily to support self-insurance programs (including insurance policies with respect to which we have agreed to indemnify the policy issuers for
HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Unaudited
which we have agreed to indemnify the policy issuers for any losses) as well as airport concession obligations in the United States, Canada and Europe. As of June 30, 2011,2012, none of these letters of credit have been drawn upon.
20112012 Events
On January 1, 2011,2012, our Convertible Senior Notes became convertible. This conversion right was triggered because our closing common stock price per share exceeded $10.77 for at least 20 trading days during the 30 consecutive trading day period ending on December 31, 2010.2011. Since this same trigger was met in the periods ending March 31, 2011 and June 30, 2011,second quarter of 2012, the Convertible Senior Notes continue to be convertible through September 30, 2011,2012, and may be convertible thereafter, if one or more of the conversion conditions specified in the indenture is satisfied during future measurement periods. Our policy has been and continues to be to settle conversions of Convertible Senior Notes using a combination of cash and our common stock, which calls for settling the fixed dollar amount per $1,000 in principal amount in cash and settling in shares the excess conversion, if any.
In January 2011,February 2012, 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 andcalled the write-off of unamortized debt costs of $8.6 million. In January and February 2011, Hertz redeemed $1,105 million principal amountremainder of its outstanding 8.875% Senior Notes due 2014 and 7.875% Senior Notes due January 2014 for redemption. Hertz redeemed these notes in full during March 2012.
In March 2012, Hertz issued an additional $250 million in aggregate principal amount of the 6.75% Senior Notes due 2019. The proceeds of this March 2012 offering were used to redeem all of the outstanding 8.875% Senior Notes due 2014 and together with cash on hand, all of the outstanding 7.875% Senior Notes due 2014 which resulted in premiums paid of $24.5 million and the write-off of unamortized debt costs of $14.4$3.2 million.
In March 2012, Hertz usedamended the proceedsCanadian Securitization to extend the maturity date from March 2012 to May 2012. In the September 2010 issuance of $700 million aggregate principal amount of 7.50% Senior Notes,second quarter 2012, the December 2010 issuance of $500 million aggregate principal amount of 7.375% Seniormaturity date was extended to June 2013.
In April 2012, Hertz paid off the remaining debt outstanding under the U.S. ABS Program Series 2011-2 U.S. Fleet Variable Funding Notes and terminated 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.facility.
In February 2011, Hertz issued $500 million aggregate principal amountMay 2012, the borrowing capacity of 6.75% Seniorthe Series 2009-1 under our U.S. Fleet Variable Funding Notes due 2019. The 6.75% Senior Notes are guaranteed on a senior unsecured basiswas increased by the domestic subsidiaries of Hertz that guarantee its Senior Credit Facilities.$250 million.
In February 2011,June 2012, Hertz used existing corporate liquidityamended the European Revolving Credit Facility to pay offextend the maturing amount ofmaturity date from June 2013 to June 2015.
In June 2012, Hertz amended the Brazilian Fleet Financing Facility.Facility to extend the maturity date from June 2012 to February 2013.
In March 2011,June 2012, Hertz issued an additional $500amended the European Seasonal Revolving Credit Facility under the European Revolving Credit Facility to create a commitment period running from June 2012 to November 2012 that provides for aggregate maximum borrowings of €85.7 million aggregate principal(the equivalent of the 6.75% Senior Notes due 2019 in a private offering. The proceeds$106.9 million as of which were used in April 2011 to redeem $480 million principal amount of Hertz'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 the write-off of unamortized debt costs of $5.8 million.2012), subject to borrowing base availability.
In March 2011, Hertz refinanced its 2005 Senior Term Facility and 2005 Senior ABL Facility. A description of the new Senior Term Facility and Senior ABL Facility is set forth below. During the three months ended March 31, 2011, we recorded an expensefirst half of $9.32012, Donlen's GN II Variable Funding Notes remained outstanding and lender commitments thereunder were increased to permit aggregate maximum borrowings of $900.0 million in "Interest expense" on our consolidated statement of operations associated with the write-off of unamortized debt costs in connection with the refinancing of our 2005 Senior Term Facility and 2005 Senior ABL Facility. Additionally, a portion of the unamortized debt costs associated with the 2005 Senior Term Facility and 2005 Senior ABL Facility are continuing(subject to be amortized over the terms of the new Senior Term Facility and Senior ABL Facility. The determination of whether these costs were expensed or further deferred was dependent upon whether the terms of the old and new instruments were considered to be substantially different. In regards to theborrowing base availability).
See Note 17—Subsequent Events.
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 Term Facility allows for the addition of incremental term and/or revolving loans. Hertz used approximately $1,345.0 million of borrowings under the Senior Term Facility to refinance indebtedness under the 2005 Senior Term Facility. We reflected this transaction on a gross basis in our Consolidated Statement of Cash Flows in "Proceeds from issuance of long-term debt" and "Payment of long-term debt." During the 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 is available for the issuance of letters of credit subject to certain conditions including issuing lender participation. Subject to the satisfaction of certain conditions and limitations, the Senior ABL Facility allows for the addition of incremental revolving and/or term loan commitments. In addition, the Senior ABL Facility permits Hertz to increase the amount of commitments under the Senior ABL with the consent of each lender providing an additional commitment, subject to satisfaction of certain conditions.
In March 2011, Hertz amended the Canadian Securitization to extend the maturity date from May 2011 to November 2011.
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 aggregate principal amount of 3.5 year and 5.5 year weighted average life Series 2011-1 Rental Car Asset Backed Notes, 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 the "European Seasonal Revolving Credit Facility," under the European Revolving Credit Facility that provides for aggregate maximum borrowings of €100 million (the equivalent of $143.7 million as of June 30, 2011), subject to borrowing base availability.
Registration Rights
Pursuant to the terms of exchange and registration rights agreements entered into in connection with the separate issuancesissuance of the 7.5% Senior Notes due 2018, the 7.375% Senior Notes due 2021 and$250 million in aggregate principal amount of the 6.75% Senior Notes due 2019 in March 2012, Hertz has agreed to file a registration statement under the Securities Act of 1933, as amended, to permit either the exchange of such notes for registered notes or, in the alternative, the registered resale of such notes. Hertz's failure to meet its obligations under the exchange and registration rights agreements,agreement, including by failing to have the respective registration statement become effective by a specified dateMarch 2013 or failing to complete the respective exchange offer by a specified
HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Unaudited
date,April 2013, will result in Hertz incurring special interest on such notes at a per annum rate of 0.25% for the first 90 days of any period where a default has occurred and is continuing, which rate will be increased by an additional 0.25% during each subsequent 90 day period, up to a maximum of 0.50%. On March 23, 2011, Hertz filed a registration statement for such notes 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 June 30, 20112012 has been issued from the terms as disclosed in our Form 10-K.
Financial Covenant Compliance
Under the new terms of our amended Senior Term Facility and Senior ABL Facility, we are not subject to ongoing financial maintenance covenants; however, under the Senior ABL Facility, we arefailure to maintain certain levels of liquidity will subject the Hertz credit group to a springing financial maintenance covenant uponcontractually specified fixed charge coverage ratio of not less than 1:1 for the occurrence of certain triggering events.four quarters most recently ended. As of June 30, 2011, no triggering event had occurred requiring testing of the springing financial maintenance covenant.2012, we were not subject to such contractually specified fixed charge coverage ratio.
Borrowing Capacity and Availability
As of June 30, 2011,2012, the following facilities were available for the use of Hertz and its subsidiaries (in millions of dollars):
| | Remaining Capacity | Availability Under Borrowing Base Limitation | Remaining Capacity | Availability Under Borrowing Base Limitation | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Corporate Debt | Corporate Debt | ||||||||||||||
Senior ABL Facility | Senior ABL Facility | $ | 1,340.8 | $ | 828.9 | $ | 1,027.6 | $ | 782.4 | ||||||
Total Corporate Debt | 1,340.8 | 828.9 | |||||||||||||
Total Corporate Debt | 1,027.6 | 782.4 | |||||||||||||
Fleet Debt | Fleet Debt | ||||||||||||||
U.S. Fleet Variable Funding Notes | U.S. Fleet Variable Funding Notes | 298.1 | 29.6 | 163.1 | 36.8 | ||||||||||
European Seasonal Revolving Credit Facility | 43.1 | 43.1 | |||||||||||||
Donlen GN II Variable Funding Notes | 26.1 | 2.1 | |||||||||||||
U.S. Fleet Financing Facility | 54.0 | 16.2 | |||||||||||||
European Revolving Credit Facility | 119.3 | 66.7 | |||||||||||||
European Securitization | European Securitization | 174.3 | 34.6 | 157.3 | 16.8 | ||||||||||
Canadian Securitization | Canadian Securitization | 101.4 | 20.3 | 63.4 | 20.6 | ||||||||||
Australian Securitization | Australian Securitization | 121.2 | 2.6 | 97.8 | — | ||||||||||
Brazilian Fleet Financing Facility | 0.9 | — | |||||||||||||
Capitalized Leases | Capitalized Leases | 15.0 | — | 132.2 | 25.6 | ||||||||||
Total Fleet Debt | 754.0 | 130.2 | |||||||||||||
Total Fleet Debt | 813.2 | 184.8 | |||||||||||||
Total | Total | $ | 2,094.8 | $ | 959.1 | $ | 1,840.8 | $ | 967.2 | ||||||
HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Unaudited
Our borrowing capacity and availability primarily comes from our "revolving credit facilities," which are a combination of asset-backed securitization facilities and asset-based revolving credit facilities. Creditors under each of our revolving credit facilities have a claim on a specific pool of assets as collateral. Our ability to borrow under each revolving credit facility is a function of, among other things, the value of the
HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Unaudited
assets in the relevant collateral pool. We refer to the amount of debt we can borrow given a certain pool of assets as the "borrowing base."
We refer to "Remaining Capacity" as the maximum principal amount of debt permitted to be outstanding under the respective facility (i.e., the amount of debt we could borrow assuming we possessed sufficient assets as collateral) less the principal amount of debt then-outstanding under such facility.
We refer to "Availability Under Borrowing Base Limitation" and "borrowing base availability" as the lower of Remaining Capacity or the borrowing base less the principal amount of debt then-outstanding under such facility (i.e., the amount of debt we could borrow given the collateral we possess at such time).
As of June 30, 2011,2012, the Senior Term Facility had approximately $0.5$0.3 million available under the letter of credit facility and the Senior ABL Facility had $1,111.7$1,081.6 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, 20112012 and December 31, 2010,2011, our International Fleet Financing No. 1 B.V., International Fleet Financing No. 2 B.V. and HA Funding Pty, Ltd. variable interest entities had total assets primarily comprised of loans receivable and revenue earning equipment of $651.4$528.1 million and $652.1$456.3 million, respectively, and total liabilities primarily comprised of debt of $650.8$527.6 million and $651.6$455.8 million, respectively.
Note 8—Employee Retirement Benefits
The following table sets forth the net periodic pension and postretirement (including health care, life insurance and auto) expense (in millions of dollars):
| Pension Benefits | | | |||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Postretirement Benefits (U.S.) | |||||||||||||||||||
| U.S. | Non-U.S. | ||||||||||||||||||
| Three Months Ended 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 | |||||||
| Pension Benefits | | | ||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Postretirement Benefits (U.S.) | ||||||||||||||||||
| U.S. | Non-U.S. | |||||||||||||||||
| Three Months Ended June 30, | ||||||||||||||||||
| 2012 | 2011 | 2012 | 2011 | 2012 | 2011 | |||||||||||||
Components of Net Periodic Benefit Cost: | |||||||||||||||||||
Service cost | $ | 7.0 | $ | 6.9 | $ | 0.3 | $ | 1.8 | $ | 0.1 | $ | — | |||||||
Interest cost | 7.4 | 7.5 | 2.3 | 2.8 | 0.2 | 0.3 | |||||||||||||
Expected return on plan assets | (8.0 | ) | (8.1 | ) | (3.0 | ) | (3.1 | ) | — | — | |||||||||
Net amortizations | 3.2 | 2.3 | (0.1 | ) | (0.3 | ) | — | 0.1 | |||||||||||
Settlement loss | — | 0.4 | — | — | — | — | |||||||||||||
Curtailment gain | — | — | — | (13.1 | ) | — | — | ||||||||||||
Net pension/postretirement expense | $ | 9.6 | $ | 9.0 | $ | (0.5 | ) | $ | (11.9 | ) | $ | 0.3 | $ | 0.4 | |||||
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. | ||||||||||||||||||
| 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 | |||||||
| Pension Benefits | | | ||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Postretirement Benefits (U.S.) | ||||||||||||||||||
| U.S. | Non-U.S. | |||||||||||||||||
| Six Months Ended June 30, | ||||||||||||||||||
| 2012 | 2011 | 2012 | 2011 | 2012 | 2011 | |||||||||||||
Components of Net Periodic Benefit Cost: | |||||||||||||||||||
Service cost | $ | 13.3 | $ | 13.1 | $ | 0.6 | $ | 3.5 | $ | 0.2 | $ | 0.1 | |||||||
Interest cost | 13.9 | 14.0 | 4.6 | 5.6 | 0.4 | 0.5 | |||||||||||||
Expected return on plan assets | (15.3 | ) | (15.2 | ) | (6.0 | ) | (6.2 | ) | — | — | |||||||||
Net amortizations | 6.0 | 4.3 | (0.1 | ) | (0.6 | ) | — | 0.1 | |||||||||||
Settlement loss | — | 0.7 | — | — | — | — | |||||||||||||
Curtailment gain | — | — | — | (13.1 | ) | — | — | ||||||||||||
Net pension/postretirement expense | $ | 17.9 | $ | 16.9 | $ | (0.9 | ) | $ | (10.8 | ) | $ | 0.6 | $ | 0.7 | |||||
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 six months ended June 30, 2011,2012, we contributed $12.3$11.8 million and $57.1$32.2 million, respectively, to our worldwide pension plans, including discretionary contributions of $0.8$0.0 million and $13.2$3.2 million, respectively, to our United Kingdom, or "U.K.," defined benefit pension plan and benefit payments made through unfunded plans. For the three and six months ended June 30, 2010,2011, we contributed $10.6$12.3 million and $46.6$57.1 million, respectively, to our worldwide pension plans, including discretionary contributions of $1.4$0.8 million and $3.2$13.2 million, respectively, to our U.K. defined benefit pension plan and benefit payments made through unfunded plans. Based uponThe level of future contributions will vary, and is dependent on a number of factors including investment returns, interest rate fluctuations, plan demographics, funding regulations and the significant decline in asset values in 2008, which were in line withresults of the overall market declines, it is likely we will continue to make cash contributions in 2011 and possibly in future years.final actuarial valuation.
We sponsor a defined benefit pension plan in the U.K. On June 30, 2011, we approved an agreement with the trustees of thatour U.K. defined benefit pension plan to cease all future benefit accruals to existing members and to close the plan to new members. We will introduceEffective July 1, 2011, we introduced a defined contribution plan with company matching contributions to replace the U.K. defined benefit pension plan. The company matching contributions willare generally be 100% of the employee contributions, up to 8% of pay, except that currentformer members of the defined benefit pension plan will receive an enhanced match for five years. On scheme closure this will result in somewhat lower contributions thisIn the year into the defined benefit plan, which will be offset by matching contributions to the new defined contribution plan. We haveended December 31, 2011, we recognized a gain of $13.1 million for the U.K. plan that representsrepresented unamortized prior service cost from a 2010 amendment that eliminated discretionary pension increases related to pre-1997 service primarily relatedfor inactive employees.
We also sponsor postretirement health care and life insurance benefits for a limited number of employees with hire dates prior to inactive employees.January 1, 1990. The postretirement health care plan is contributory with participants' contributions adjusted annually. An unfunded liability is recorded. We also have a key officer postretirement car benefit plan that provides the use of a vehicle from our fleet and insurance for the participants' benefit for retired Senior Vice Presidents and above who have a minimum of 20 years of service and who retire at age 58 or above. The assigned car benefit is available for 15 years post-retirement or until the participant reaches the age of 80, whichever occurs last.
We participate in various "multiemployer" pension plans. In the event that we withdraw from participation in one of these plans, then applicable law could require us to make an additional lump-sum contribution to the plan, and we would have to reflect that as an expense in our consolidated statement of operations and as a liability on our condensed consolidated balance sheet. Our withdrawal liability for any multiemployer plan would depend on the extent of the plan's funding of vested benefits. At least one
HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Unaudited
multiemployer plan in which we participate is reported to have, and other of our multiemployer plans could have, significant underfunded liabilities. Such underfunding may increase in the event other employers become insolvent or withdraw from the applicable plan or upon the inability or failure of withdrawing employers to pay their withdrawal liability. In addition, such underfunding may increase as a result of lower than expected returns on pension fund assets or other funding deficiencies.
Table The occurrence of Contents
HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Unauditedany of these events could have a material adverse effect on our consolidated financial position, results of operations or cash flows.
Note 9—Stock-Based Compensation
In March 2011,2012, we granted 371,505527,360 Restricted Stock Units, or "RSUs," to certain executives and employees at fair values ranging from $14.60$13.65 to $15.02, 499,515$14.47, 747,423 Performance Stock Units, or "PSUs," at a fair value of $14.60,$13.65, and 193,7981,083,962 PSUs (referred to as Price Vesting Units, or "PVUs") at a fair value of $10.19values ranging from $10.13 to $11.26 under the Hertz Global Holdings, Inc. 2008 Omnibus Incentive Plan, or the "Omnibus Plan." For theThe 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 20112012 and 20122013 Corporate EBITDA results. "EBITDA" means consolidated net income before net interest expense, consolidated income taxes and consolidated depreciation (which includes revenue earning equipment lease charges) and amortization and "Corporate EBITDA," represents EBITDA as adjusted for car rental fleet interest, car rental fleet depreciation and certain other items, as provided in the applicable award agreements. Of the PVUs granted, one half will fully vest after three years if the stock price appreciates 15% over the grant date price, and one half will fully vest after four years if the stock price appreciates 25% over the grant date price. Partial attainment of the stock appreciation targets will result in partial vesting. The remaining 193,798 PSUs granted contain aachievement of the market condition wherebyfor the PVUs is determined based on the average closing stock price for the 20 trading day average trailing stock price must equal or exceed a certain price target at any time during the five year performance period.period ending March 6, 2015 and 2016, respectively. In May 2011, we2012, Hertz Holdings granted 130,275146,301 RSUs at a fair value of $16.39.
In March 2011, we granted options to acquire 2,108,944 shares of our common stock to certain executives and employees at exercise prices ranging from $14.60 to $15.02 under the Omnibus Plan.$15.48.
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 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 | ||||||
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2012 | 2011 | 2012 | 2011 | |||||||||
Compensation expense | $ | 7.5 | $ | 7.6 | $ | 15.0 | $ | 16.6 | |||||
Income tax benefit | (2.9 | ) | (3.0 | ) | (5.8 | ) | (6.4 | ) | |||||
Total | $ | 4.6 | $ | 4.6 | $ | 9.2 | $ | 10.2 | |||||
As of June 30, 2011,2012, there was approximately $49.4$51.2 million of total unrecognized compensation cost related to non-vested stock options, RSUs and PSUs granted by Hertz Holdings under the Prior Plans and the Omnibus Plan, including costs related to modifying the exercise prices of certain option grants in order to preserve the intrinsic value of the options, consistent with applicable tax law, to reflect special cash dividends of $4.32 per share paid on June 30, 2006 and $1.12 per share paid on November 21, 2006.Plan. The total unrecognized compensation cost is expected to be recognized over the remaining 1.71.6 years, on a weighted average basis, of the requisite service period that began on the grant dates.
HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Unaudited
Note 10—Segment Information
Our operating segments are aggregated into reportable business segments based primarily upon similar economic characteristics, products, services, customers, and delivery methods. We have identified two reportable segments: rental and leasing of cars, crossovers and light trucks, or "car rental," and rental of industrial, construction, and material handling and other equipment, or "equipment rental." Other reconciling items include general corporate assets and expenses, certain interest expense (including net interest on corporate debt), as well as other business activities, such as our third party claim management services.activities. Donlen is included in the car rental reportable segment.
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 relating to the amortization and write-off of debt financing costs and debt discounts and certain one-time charges and non-operational items. Adjusted pre-tax income is important to management because it allows management to assess operational performance of our business, exclusive of the items mentioned above. It also allows management to assess the performance of the entire business on the same basis as the segment measure of profitability. Management believes that it is important to investors for the same reasons it is important to management and because it allows them to assess our operational performance on the same basis that management uses internally. The contribution of our reportable segments to revenues and adjusted pre-tax income (loss) and the reconciliation to consolidated amounts are summarized below (in millions of dollars).
| | Three Months Ended June 30, | Three Months Ended June 30, | |||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | Revenues | Adjusted Pre-Tax Income (Loss) | Revenues | Adjusted Pre-Tax Income (Loss) | |||||||||||||||||||||||
| | 2011 | 2010 | 2011 | 2010 | 2012 | 2011 | 2012 | 2011 | |||||||||||||||||||
Car rental | Car rental | $ | 1,768.8 | $ | 1,611.4 | $ | 242.2 | $ | 174.9 | $ | 1,889.6 | $ | 1,768.8 | $ | 277.4 | $ | 242.2 | |||||||||||
Equipment rental | Equipment rental | 301.7 | 265.8 | 33.4 | 14.4 | 335.0 | 301.7 | 42.5 | 33.4 | |||||||||||||||||||
Total reportable segments | 2,070.5 | 1,877.2 | 275.6 | 189.3 | ||||||||||||||||||||||||
Total reportable segments | 2,224.6 | 2,070.5 | 319.9 | 275.6 | ||||||||||||||||||||||||
Other | Other | 1.8 | 2.4 | 0.5 | 1.8 | |||||||||||||||||||||||
Total | $ | 2,072.3 | $ | 1,879.6 | ||||||||||||||||||||||||
Total | $ | 2,225.1 | $ | 2,072.3 | ||||||||||||||||||||||||
Adjustments: | Adjustments: | |||||||||||||||||||||||||||
Other reconciling items(1) | (86.0 | ) | (91.2 | ) | ||||||||||||||||||||||||
Purchase accounting(2) | (29.0 | ) | (22.5 | ) | ||||||||||||||||||||||||
Non-cash debt charges(3) | (20.6 | ) | (27.1 | ) | ||||||||||||||||||||||||
Restructuring charges | (16.1 | ) | (33.7 | ) | ||||||||||||||||||||||||
Restructuring related charges(4) | (5.0 | ) | (2.8 | ) | ||||||||||||||||||||||||
Acquisition related costs | (4.5 | ) | (6.1 | ) | ||||||||||||||||||||||||
Pension adjustment(5) | — | 13.1 | ||||||||||||||||||||||||||
Premiums paid on debt(6) | — | (10.7 | ) | |||||||||||||||||||||||||
Other reconciling items(1) | (91.2 | ) | (93.5 | ) | ||||||||||||||||||||||||
Income before income taxes | $ | 158.7 | $ | 94.6 | ||||||||||||||||||||||||
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 | ) | |||||||||||||||||||||||
HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Unaudited
| Six Months Ended June 30, | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Revenues | Adjusted Pre-Tax Income (Loss) | |||||||||||
| 2012 | 2011 | 2012 | 2011 | |||||||||
Car rental | $ | 3,547.9 | $ | 3,279.1 | $ | 369.0 | $ | 303.5 | |||||
Equipment rental | 637.1 | 569.9 | 68.4 | 43.6 | |||||||||
Total reportable segments | 4,185.0 | 3,849.0 | 437.4 | 347.1 | |||||||||
Other | 1.1 | 3.3 | |||||||||||
Total | $ | 4,186.1 | $ | 3,852.3 | |||||||||
Adjustments: | |||||||||||||
Other reconciling items(1) | (174.2 | ) | (178.7 | ) | |||||||||
Purchase accounting(2) | (53.0 | ) | (43.1 | ) | |||||||||
Non-cash debt charges(3) | (45.8 | ) | (87.0 | ) | |||||||||
Restructuring charges | (25.5 | ) | (38.4 | ) | |||||||||
Restructuring related charges(4) | (5.6 | ) | (3.3 | ) | |||||||||
Acquisition related costs | (11.4 | ) | (9.0 | ) | |||||||||
Management transition costs | — | (2.5 | ) | ||||||||||
Pension adjustment(5) | — | 13.1 | |||||||||||
Premiums paid on debt(6) | — | (62.4 | ) | ||||||||||
Income (loss) before income taxes | $ | 121.9 | $ | (64.2 | ) | ||||||||
| Six Months Ended June 30, | ||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Revenues | Adjusted Pre-Tax Income (Loss) | |||||||||||||
| 2011 | 2010 | 2011 | 2010 | |||||||||||
Car rental | $ | 3,279.1 | $ | 3,033.1 | $ | 303.5 | $ | 202.0 | |||||||
Equipment rental | 569.9 | 502.8 | 43.6 | 9.4 | |||||||||||
Total reportable segments | 3,849.0 | 3,535.9 | 347.1 | 211.4 | |||||||||||
Other | 3.3 | 4.6 | |||||||||||||
Total | $ | 3,852.3 | $ | 3,540.5 | |||||||||||
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 | ) | |||||||||
Total assets increased $975.4$1,756.0 million from December 31, 20102011 to June 30, 2011.2012. The increase was primarily related to an increaseincreases in our car rental segment'sand equipment rental segments' revenue earning equipment, partly offset by a decreasedecreases in otherour cash and cash equivalents, primarily relating to the redemption of our 10.5%8.875% Senior Subordinated Notes and a portionour 7.875% Senior Notes, restricted cash and cash equivalents and fleet receivables, due to the timing of our 8.875% Senior Notes.sales of revenue earning equipment.
HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Unaudited
Note 11—Total Equity
| | 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 | ||||||||||
| | Common Stock | | | Accumulated Other Comprehensive Loss | | | ||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Preferred Stock | Additional Paid-In Capital | Accumulated Deficit | Non- Controlling Interest | Total Equity | ||||||||||||||||||||
(In Millions) | Shares | Amount | |||||||||||||||||||||||
December 31, 2011 | $ | — | 417.0 | $ | 4.2 | $ | 3,206.0 | $ | (947.1 | ) | $ | (28.4 | ) | $ | — | $ | 2,234.7 | ||||||||
Net income attributable to Hertz Global Holdings, Inc. and Subsidiaries' common stockholders | 36.6 | 36.6 | |||||||||||||||||||||||
Other comprehensive loss | (9.7 | ) | (9.7 | ) | |||||||||||||||||||||
Employee stock purchase plan | 0.2 | 2.3 | 2.3 | ||||||||||||||||||||||
Net settlement on vesting of restricted stock | 2.1 | (20.0 | ) | (20.0 | ) | ||||||||||||||||||||
Stock-based employee compensation charges, net of tax | 15.0 | 15.0 | |||||||||||||||||||||||
Exercise of stock options, net of tax | 1.0 | 5.7 | 5.7 | ||||||||||||||||||||||
Common shares issued to Directors | 1.3 | 1.3 | |||||||||||||||||||||||
June 30, 2012 | $ | — | 420.3 | $ | 4.2 | $ | 3,210.3 | $ | (910.5 | ) | $ | (38.1 | ) | $ | — | $ | 2,265.9 | ||||||||
| | 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 | $ | (1,123.2 | ) | $ | 37.8 | $ | 16.5 | $ | 2,118.4 | |||||||||
Net loss attributable to Hertz Global Holdings, Inc. and Subsidiaries' common stockholders | (77.6 | ) | (77.6 | ) | |||||||||||||||||||||
Other comprehensive income | 62.1 | 62.1 | |||||||||||||||||||||||
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 | $ | (1,200.8 | ) | $ | 99.9 | $ | 14.7 | $ | 2,121.4 | |||||||||
Accumulated other comprehensive loss as of June 30, 2012 and December 31, 2011 includes accumulated translation gains of $74.8 million and $91.3 million, respectively, pension benefits of $(96.0) million and $(99.6) million, respectively, unrealized losses on our Euro-denominated debt of $(19.4) million and $(19.4) million, respectively, unrealized holding gains of $3.4 million and $0.3 million, respectively, and other of $(0.9) million and $(1.0) million, respectively.
HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Unaudited
| | | | | | 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 as of June 30, 2011 and December 31, 2010 includes accumulated translation gains of $173.6 million and $114.9 million, respectively, pension benefits of $(55.8) million and $(70.2) million, respectively, unrealized losses on our Euro-denominated debt of $(21.7) million and $(6.8) million, respectively, and unrealized holding gains of $1.3 million and $0.1 million respectively.
Note 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 reengineering 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
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.
During 2007 through 2010,2011, 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 the 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 closure of targeted car rental locations and equipment rental branches throughout the world. The largest of these closures occurred in 2008 which resulted in closures of approximately 250 off-airport locations and 22 branches in our U.S. equipment rental business. These initiatives impacted approximately 8,5008,960 employees.
During the first and second quarter of 2011,2012, 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 operations65 employees 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.280 employees, respectively.
From January 1, 2007 through June 30, 2011,2012, we incurred $512.7$556.0 million ($244.2273.3 million for our car rental segment, $214.7$228.2 million for our equipment rental segment and $53.8$54.5 million of other) of restructuring charges.
Additional efficiency and cost saving initiatives are being developed, during 2011. However,however, we presently do not have firm plans or estimates of any related expenses.
Restructuring charges in our consolidated statement of operations can be summarized as follows (in millions of dollars):.
| 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 | |||||||
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2012 | 2011 | 2012 | 2011 | |||||||||
By Type: | |||||||||||||
Termination benefits | $ | 13.5 | $ | 3.4 | $ | 16.2 | $ | 4.4 | |||||
Pension and post retirement expense | — | 0.3 | — | 0.3 | |||||||||
Consultant costs | 0.4 | 0.2 | 0.6 | 0.3 | |||||||||
Asset writedowns | — | 22.6 | 2.7 | 23.3 | |||||||||
Facility closure and lease obligation costs | 2.2 | 6.9 | 6.0 | 10.0 | |||||||||
Other | — | 0.3 | — | 0.1 | |||||||||
Total | $ | 16.1 | $ | 33.7 | $ | 25.5 | $ | 38.4 | |||||
HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Unaudited
| 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 | |||||||
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2012 | 2011 | 2012 | 2011 | |||||||||
By Caption: | |||||||||||||
Direct operating | $ | 7.0 | $ | 30.4 | $ | 14.6 | $ | 34.5 | |||||
Selling, general and administrative | 9.1 | 3.3 | 10.9 | 3.9 | |||||||||
Total | $ | 16.1 | $ | 33.7 | $ | 25.5 | $ | 38.4 | |||||
| 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 | |||||||
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2012 | 2011 | 2012 | 2011 | |||||||||
By Segment: | |||||||||||||
Car rental | $ | 11.8 | $ | 3.5 | $ | 17.0 | $ | 4.5 | |||||
Equipment rental | 2.5 | 29.8 | 6.7 | 33.6 | |||||||||
Other reconciling items | 1.8 | 0.4 | 1.8 | 0.3 | |||||||||
Total | $ | 16.1 | $ | 33.7 | $ | 25.5 | $ | 38.4 | |||||
During the three and six months ended June 30, 2012, the after-tax effect of the restructuring charges decreased the income per share by $0.02 and $0.04, respectively. 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.
The following table sets forth the activity affecting the restructuring accrual during the six months ended June 30, 20112012 (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.
| Termination Benefits | Pension and Post Retirement Expense | Consultant Costs | Other | Total | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Balance as of January 1, 2012 | $ | 9.1 | $ | 0.2 | $ | 0.6 | $ | 11.7 | $ | 21.6 | ||||||
Charges incurred | 16.2 | — | 0.6 | 8.7 | 25.5 | |||||||||||
Cash payments | (8.4 | ) | — | (0.7 | ) | (1.8 | ) | (10.9 | ) | |||||||
Other(1) | 0.2 | — | (0.1 | ) | (8.8 | ) | (8.7 | ) | ||||||||
Balance as of June 30, 2012 | $ | 17.1 | $ | 0.2 | $ | 0.4 | $ | 9.8 | $ | 27.5 | ||||||
| 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 | |||||||
Note 13—Financial Instruments
Cash and Cash Equivalents and Restricted Cash and Cash Equivalents
Fair value approximates the amount indicated on the balance sheet at June 30, 20112012 and December 31, 20102011 because of the short-term maturity of these instruments. Money market accounts, whose fair value at June 30, 2011,2012, is measured using Level 1 inputs, totaling $309.8$273.2 million and $103.4$118.6 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, 2010,2011, is measured using Level 1 inputs, totaling $1,747.9$566.0 million and $24.1$142.9 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.loss." As of June 30, 20112012 and December 31, 2010,2011, the fair value of marketable securities was $34.9$38.3 million and $0.0$33.2 million, respectively. For the three and six months ended June, 30, 2012, unrealized gains of $0.1 million and $5.1 million, respectively, were recorded in "Accumulated other comprehensive loss." 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.loss." Fair values for marketable securities are based on Level 1 inputs consisting of quoted 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 June 30, 20112012 was $12,496.1$13,151.6 million, compared to its aggregate unpaid principal balance of $11,786.1$12,526.2 million. The aggregate fair value of all debt at December 31, 20102011 was $12,063.5$11,832.5 million, compared to its aggregate unpaid principal balance of $11,429.6$11,400.3 million.
Derivative Instruments and Hedging Activities
The following table summarizes our financial assets and liabilities measured at fair value on a recurring basis (in millions of dollars):
| Fair Value of Derivative Instruments(1) | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Asset Derivatives(2) | Liability Derivatives(2) | |||||||||||
| June 30, 2012 | December 31, 2011 | June 30, 2012 | December 31, 2011 | |||||||||
Derivatives not designated as hedging instruments under ASC 815: | |||||||||||||
Gasoline swaps | $ | — | $ | — | $ | 2.7 | $ | 0.4 | |||||
Interest rate caps | — | 0.5 | — | 0.4 | |||||||||
Foreign exchange forward contracts | 6.4 | 4.4 | 1.0 | 1.9 | |||||||||
Interest rate swaps | — | — | 0.1 | 0.2 | |||||||||
Foreign exchange options | 0.1 | 0.1 | — | — | |||||||||
Total derivatives not designated as hedging instruments under ASC 815 | $ | 6.5 | $ | 5.0 | $ | 3.8 | $ | 2.9 | |||||
| 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 (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) |
| Location of Gain or (Loss) Recognized on Derivatives | Amount of Gain or (Loss) Recognized in Income on Derivatives | |||||||
---|---|---|---|---|---|---|---|---|---|
| | Three Months Ended June 30, | |||||||
| | 2012 | 2011 | ||||||
Derivatives Not Designated as Hedging Instruments under ASC 815: | |||||||||
Gasoline swaps | Direct operating | $ | (3.3 | ) | $ | (0.2 | ) | ||
Interest rate caps | Selling, general and administrative | (0.1 | ) | — | |||||
Foreign exchange forward contracts | Selling, general and administrative | (7.7 | ) | (7.3 | ) | ||||
Foreign exchange options | Selling, general and administrative | 0.1 | — | ||||||
Total | $ | (11.0 | ) | $ | (7.5 | ) | |||
| 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 | |||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
| 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 | |||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
| 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 | ) | |||||
| Location of Gain or (Loss) Recognized on Derivatives | Amount of Gain or (Loss) Recognized in Income on Derivatives | |||||||
---|---|---|---|---|---|---|---|---|---|
| | Six Months Ended June 30, | |||||||
| | 2012 | 2011 | ||||||
Derivatives Not Designated as Hedging Instruments under ASC 815: | |||||||||
Gasoline swaps | Direct operating | $ | (1.5 | ) | $ | 2.9 | |||
Interest rate caps | Selling, general and administrative | (0.1 | ) | — | |||||
Foreign exchange forward contracts | Selling, general and administrative | (5.6 | ) | (7.9 | ) | ||||
Foreign exchange options | Selling, general and administrative | 0.1 | — | ||||||
Total | $ | (7.1 | ) | $ | (5.0 | ) | |||
In conjunction with the refinanced Series 2009-1 Notes and the new Series 2010-2, Notes, HVF purchased an interest rate cap for $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, a strike rate of 5% and expected maturity date of March 25, 2013. Additionally, Hertz sold a 5% interest rate cap for $6.2 million, with a matching notional amount and term to the HVF interest rate cap. In March 2012, an additional $250 million of the Series 2009-1 notes was issued, for which HVF and Hertz amended their interest rate cap agreements to increase the maximum notional amounts by $250 million. Also, in December 2010, the Australian Securitization was completed and our Australian operating subsidiary purchased an interest rate cap for $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 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 values of all interest rate caps were 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.
In connection with our acquisition of Donlen, we acquired interest rate swaps with a total notional amount of $23.2 million at June 30, 2012, associated with floating rate debt. These interest rate swaps
HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Unaudited
are used to effectively convert an amount of floating rate debt into fixed rate debt. The fair values of these interest rate swaps were calculated using a discounted cash flow method and applying observable market data (i.e. the 1-month LIBOR yield curve). Gains and losses resulting from changes in the fair value of these interest rate swaps are included in our results of operations in the periods incurred (in Selling, general and administrative).
We purchase unleaded gasoline and diesel fuel at prevailing market rates 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 January 2012.May 2013. 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 June 30, 2011,2012, our outstanding commodity instruments for unleaded gasoline and diesel fuel totaled approximately 6.65.1 million gallons and 1.80.3 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.,(including NYMEX RBOB Gasoline and U.S. Department of Energy surveys, etc.)surveys). 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.locally. 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 June 30,
HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Unaudited
2011, 2012, were approximately $0.2 million. We limit counterparties to the transactions to financial institutions that have strong credit ratings. As of June 30, 20112012 and December 31, 2010,2011, the total notional amount of these foreign exchange options was $7.1$7.5 million and $3.5$9.1 million, respectively. As of June 30, 2011,2012, these foreign exchange options mature through January 2012.April 2013. 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.
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 June 30, 2011 and December 31, 2010,2012, the total notional amount of these forward contracts was $808.8$780.8 million, and $721.8 million, respectively. As of June 30, 2011 these foreign currency forward contracts maturematuring within fourtwo 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 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 June 30, 2011 and December 31, 2010, losses of $21.7 million (net of tax of $14.7 million) and $6.8 million (net of tax of $5.1 million), respectively, attributable to the translation of our 7.875% Senior Notes due 2014 into the U.S. dollar are recorded in our condensed consolidated balance sheet in "Accumulated other comprehensive income."
Note 14—Related Party Transactions
Relationship with Hertz Investors, Inc. and the Sponsors
Other than as disclosed below, in the six months ended June 30, 2011,2012, there were no material changes to our relationship with Hertz Investors, Inc. or the Sponsors.
On March 31, 2011, the Sponsors sold 50 million
HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Unaudited
Financing Arrangements with Related Parties
Affiliates of BAMLCPMLGPE (which is one of the Sponsors), including Merrill Lynch & Co., Inc., Bank of America N.A. and certain of theirits affiliates, (which are stockholders of Hertz Holdings), have provided various investment and commercial banking and financial advisory services to us for which they have received customary fees and commissions. In addition, these parties have acted as agents, lenders, purchasers and/or 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 the U.S. Fleet Variable Funding Notes; purchasers and/or underwriters under the Senior Notes and certain of the U.S. Fleet Medium Term Notes; and structuring advisors and/or agents under the U.S. ABS Program.
HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Unaudited
As of June 30, 20112012 and December 31, 2010,2011, approximately $197$174 million and $255$174 million, respectively, of our outstanding debt was with related parties.
SeeFor information on our total indebtedness, see Note 7—Debt.
Note 15—Contingencies and Off-Balance Sheet Commitments
Off-Balance Sheet Commitments
As of June 30, 20112012 and December 31, 2010,2011, 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 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.
HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Unaudited
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 June 30, 20112012 and December 31, 2010,2011, the aggregate amounts accrued for environmental liabilities including liability for environmental indemnities, reflected in our condensed consolidated balance sheets in "Accrued liabilities" were $1.7$1.4 million and $1.6$1.5 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)
Unaudited
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).
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 June 30, 20112012 and December 31, 20102011 our liability recorded for public liability and property damage matters was $286.0$270.6 million and $278.7$281.5 million, respectively. We believe that our analysis wasis 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 11 of the Notes to our audited annual consolidated financial statements included in our Form 10-K under the caption "Item 8—Financial Statements and Supplementary Data."
The following recent developmentdevelopments pertaining to a legal proceedingproceedings described in our Form 10-K isare furnished on a supplemental basis:
In May 2011,June 2012, inDavis Landscape, Ltd. et al. v. Hertz Equipment Rental Corporation, the judge denied our motion for partial summary judgment on the Loss Damage Waiver claim and, in July 2012, the related casesjudge
HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Unaudited
granted our motion for partial summary judgment on the Environmental Recovery Fee claim. The court also entered an order referring the case to mediation by private consent of the parties.
In May 2012, all briefing was completed inJanet Sobel and Daniel Dugan, PhD., individually and on behalf of all others similarly situated v. The Hertz Corporation on the two outstanding issues—unjust enrichment and damages. The briefing included expert reports as submitted by both sides.
In May 2012, inMichael Shames et al. v. The Hertz Corporation et al., the district court issued an order preliminarily approving the settlement of this action; certifying a settlement class; certifying a class representative and lead counsel; and providing for class notice. The court also scheduled a final approval hearing for October 29, 2012. We have accrued our best estimate of the ultimate cost which is not material to our financial condition.
In June 2012, a mediation was held inFun Services of Kansas City, Inc., individually and as the representative of a class of similarly-situated persons v. Hertz Equipment Rental Corporation. andLydia Lee et al. v. Enterprise Rent-A-Car Company et al. denied the plaintiffs' motion for final approvalAs a result of the proposedmediation, the parties have reached an agreement in principle to settle this class action. A draft settlement agreement that addresses compensation to class members, class counsel fees and denied the plaintiffs' motion for attorneys' fees, expensesclaims process, and incentive awards as moot. Thewhich would be subject to court concluded thatapproval, is being finalized by the absence of evidence as to the actual value to the classparties' counsel. We have accrued our best estimate of the coupons offered in settlement andultimate cost which is not material to our financial condition.
Aside from the value of the claims to be surrendered precluded a finding that the settlement is fair, reasonable and adequate.
Noneabove mentioned, none of the other legal proceedings described in our Form 10-K have experienced any material changes.
As previously disclosed, on June 15, 2011 we received a subpoena from the staff of the Securities and Exchange Commission, or "SEC," seeking production of documents related to our proposed business combination with Dollar Thrifty Automotive Group, Inc. We are cooperating fully with the SEC's investigation. We do not expect this investigation to have any effect on a proposed business combination with Dollar Thrifty.
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)
Unaudited
pending against us, management, based on the advice of legal counsel, 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 aggregate reserve established for claims for public liability and property damage, none of those reserves are material. For matters where we have not established a reserve, the ultimate outcome or resolution cannot be predicted at this time, or the amount of ultimate loss, if any, cannot be reasonably estimated. Litigation is subject to many uncertainties and the outcome of the individual litigated matters is not predictable with assurance. It is possible that certain of the actions, claims, inquiries or proceedings, including those discussed in our Form 10-K or in our other filings with Securities and Exchange Commission, could be decided unfavorably to 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.
HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Unaudited
Note 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)loss per share (in millions of dollars, except per share amounts):
| | Three Months Ended June 30, | Six Months Ended June 30, | Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | 2011 | 2010 | 2011 | 2010 | 2012 | 2011 | 2012 | 2011 | ||||||||||||||||||
Basic and diluted earnings (loss) per share: | Basic and diluted earnings (loss) per share: | ||||||||||||||||||||||||||
Numerator: | Numerator: | ||||||||||||||||||||||||||
Net income (loss) attributable to Hertz Global Holdings, Inc. and Subsidiaries' common stockholders | $ | 55.0 | $ | (25.1 | ) | $ | (77.6 | ) | $ | (175.5 | ) | ||||||||||||||||
Net income (loss) attributable to Hertz Global Holdings, Inc. and Subsidiaries' common stockholders | $ | 92.9 | $ | 55.0 | $ | 36.6 | $ | (77.6 | ) | ||||||||||||||||||
Denominator: | Denominator: | ||||||||||||||||||||||||||
Weighted average shares used in basic computation | 420.0 | 415.9 | 419.1 | 415.0 | |||||||||||||||||||||||
Add: Stock options, RSUs and PSUs | 4.4 | 8.3 | 5.5 | — | |||||||||||||||||||||||
Add: Potential issuance of common stock upon conversion of Convertible Senior Notes | 23.0 | 27.6 | 23.3 | — | |||||||||||||||||||||||
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 | |||||||||||||||||||||||
Weighted average shares used in diluted computation | 447.4 | 451.8 | 447.9 | 415.0 | |||||||||||||||||||||||
Earnings (loss) per share attributable to Hertz Global Holdings, Inc. and Subsidiaries' common stockholders, basic | Earnings (loss) per share attributable to Hertz Global Holdings, Inc. and Subsidiaries' common stockholders, basic | $ | 0.13 | $ | (0.06 | ) | $ | (0.19 | ) | $ | (0.43 | ) | $ | 0.22 | $ | 0.13 | $ | 0.09 | $ | (0.19 | ) | ||||||
Earnings (loss) per share attributable to Hertz Global Holdings, Inc. and Subsidiaries' common stockholders, diluted | Earnings (loss) per share attributable to Hertz Global Holdings, Inc. and Subsidiaries' common stockholders, diluted | $ | 0.12 | $ | (0.06 | ) | $ | (0.19 | ) | $ | (0.43 | ) | $ | 0.21 | $ | 0.12 | $ | 0.08 | $ | (0.19 | ) |
HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Unaudited
the assumed exercise of approximately 4.6 million shares, of stock options, RSUs and PSUs, because such impact would be antidilutive. Diluted earnings (loss) per share computations for the three and six months ended June 30, 2011 excluded the weighted-average impact of the assumed exercise of approximately 5.0 million and 21.2 million shares, respectively, of stock options, RSUs and PSUs, respectively, because such impact would be antidilutive. Additionally, for the six months ended June 30, 2011, there was no impact to the diluted earnings (loss) per share computations associated with the outstanding Convertible Senior Notes, because such impact would be antidilutive. Diluted earnings (loss) per share computations for the three and six months ended June 30, 2010 excluded the weighted-average impact of the assumed exercise of approximately 23.7 million stock options, RSUs and PSUs because such impact would be antidilutive. Additionally, for the three and six months ended June 30, 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.anti-dilutive.
Note 17—Subsequent Events
OnIn July 12, 2011,2012, Hertz entered into a definitive merger agreement under which it will acquire a fleet leasingamended the Donlen GN II Variable Funding Notes to permit aggregate maximum borrowings of $1.0 billion (subject to borrowing base availability) and management services company, Donlen Corporation, or "Donlen," for an aggregate purchase price of $250 million, subject to adjustment either upward or downward based onextend the net assets of Donlen at closing. maturity date from August 2012 to December 2012.
In addition,July 2012, Hertz will assume or refinance approximately $680 million of Donlen's outstanding fleet debt. The transaction is subjectamended the European Securitization to customary closing conditions and regulatory approvals and has been approved byextend the board of directors and stockholders of Donlen.maturity date from July 2013 to July 2014.
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 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" meanmeans 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 and 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'Global Holding, Inc.'s Annual Report on Form 10-K and for the fiscal year ended December 31, 2010,2011, filed with the SEC, on February 25, 2011,27, 2012, or our "Form 10-K," and in Part II, "Item 1A—Risk Factors" included in this Form 10-Q10-K" and the following, which were derived in part from the risks set forth in the Form 10-K:following:
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
Hertz 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, Inc. (formerly Allegis Corporation), which acquired Hertz's outstanding capital stock from RCA Corporation in 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."
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, June 2009 and March 2011, the Sponsors reduced their holdings to approximately 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 former parent company of BAMLCP.MLGPE. Accordingly, Bank of America is now an indirect beneficial owner of our common stock held by BAMLCPthe investment funds associated with MLGPE. We refer to CD&R, Carlyle and certainMLGPE collectively as the "Sponsors." We refer to the acquisition of its affiliates.all of Hertz's common stock by the Sponsors as the "Acquisition."
After giving effect to our initial public offering in November 2006 and subsequent offerings, the Sponsors' holdings represent approximately 38% of the outstanding shares of common stock of Hertz Holdings as of June 30, 2012.
Overview of Our Business
We are engaged principally in the business of renting and leasing of 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:
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations (Continued)
Our expenses primarily consist of:
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 June 30, 2011,2012, the percentage of non-program cars was 68%83% as compared to 61%68% as of June 30, 2010.2011. Internationally, as of June 30, 2011,2012, the percentage of non-program cars was 58% as65%, compared to 48%58% as of June 30, 2010.2011. In the U.S., as of December 31, 2010,2011, the percentage of non-program cars was 72%79% as compared to 67%72% as of December 31, 2009.2010. Internationally, as of
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued)
December 31, 2010,2011, the percentage of non-program cars was 70%75%, compared to 71%70% as of December 31, 2009.2010.
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 beis reduced as the percentage of non-program cars 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, 2011,2012, our monthly per vehicle depreciation costs decreased as compared to the prior year period due to improved residual values in the U.S., a continued move towards a greater proportion of non-program vehicles, mix optimization and improved procurement and remarketing efforts.
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 six months ended June 30, 2012, depreciation rates being used to compute the provision for
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations (Continued)
depreciation of revenue earning equipment were adjusted on certain vehicles in our car rental operations to reflect changes in the estimated residual values to be realized when revenue earning equipment is sold. These depreciation rate changes resulted in net decreases of $37.1 million and $37.3 million in depreciation expense for the three and six months ended June 30, 2012, respectively.
For the three months ended June 30, 2012 and 2011, our worldwide car rental operations sold approximately 41,200 and 42,800 non-program cars, respectively, a 3.8% year over year decrease. The year over year decrease was primarily due to the impact of the events in Japan last year. For the six months ended June 30, 2012 and 2011, our worldwide car rental operations sold approximately 83,600 and 74,900 non-program cars, respectively, an 11.6% year over year increase. The year over year increase was primarily due to an overall increase in the number of cars in the fleet, an increase in the percentage of non-program cars, and a robust used car market. We believe the increase in residual values is partiallyhave remained fairly strong primarily due to the recent events in Japancontinued short supply of vehicle inventory and we are unsure if they will remain this high as these events work their way through theaided by strong new vehicle and equipment supply chain.sales.
For the six months ended June 30, 2011,2012, we experienced a 6.5%9.9% increase in transaction days versus the prior period in the United States while rental rate revenue per transaction day, or "RPD," declined by 3.0%3.7%. During the six months ended June 30, 2011,2012, in our European operations, we experienced a 6.9% improvement2.5% decline in transaction days whileand a 3.2% decline in RPD declined by 2.5%when compared to the six months ended June 30, 2010.2011.
Our U.S. off-airport operations represented $550.3$608.9 million and $496.0$551.2 million of our total car rental revenues in the six months ended June 30, 20112012 and 2010,2011, respectively. As of June 30, 2011,2012, we have approximately 2,0302,350 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, 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.
Equipment Rental
HERC experienced higher rental volumesOn September 1, 2011, Hertz acquired 100% of the equity interest in Donlen, a leading provider of fleet leasing and pricing worldwidemanagement services for corporate fleets. For the three and six months ended June 30, 2011 compared to the prior year period as the industry begins to recover2012, Donlen had an average of approximately 146,100 and 143,800 vehicles, respectively, under lease and management. Donlen provides Hertz an immediate leadership position in long-term car, truck and equipment leasing and fleet levels beginmanagement. Donlen's fleet management programs provide outsourced solutions to alignreduce fleet operating costs and improve driver productivity. These programs include administration of preventive maintenance, advisory services, and fuel and accident management along with demandother complementary services. Additionally, Donlen brings to Hertz a specialized consulting and technology expertise that will enable us to model, measure and manage fleet performance more effectively and efficiently.
As of June 30, 2012, our worldwide car rental operations had a total of approximately 8,760 corporate and licensee locations in approximately 150 countries in North America, Europe, Latin America, Asia, Australia, Africa, the industry. Specifically, we saw increases in HERC specialty services as well as government work.Middle East and New Zealand.
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations (Continued)
While Hertz Holdings withdrew its exchange offer for Dollar Thrifty's common stock in October 2011, we continue to believe that a merger with Dollar Thrifty is in the best interests of both companies. We remain engaged with the Federal Trade Commission to secure antitrust clearance to potentially acquire Dollar Thrifty, which would require (among other things) the divestiture of our Advantage business, which would be sold at a loss. We can offer no assurance that any transaction with Dollar Thrifty will be commenced or consummated.
Equipment Rental
HERC locations:experienced higher rental volumes and pricing for six months ended June 30, 2012 compared to the prior year period as the industry continued its recovery in North America. We continued to see growth in our specialty services such as Pump & Power, Industrial Plant Services and Hertz Entertainment Services. Additionally, there continues to be opportunities for the remainder of 2012 as the uncertain economic outlook makes rental solutions attractive to customers.
On January 19, 2012, HERC acquired Cinelease Holdings, LLC, or "Cinelease," a U.S. market leader in lighting and grip rentals to the television industry.
| 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 | ||||||||||||||||||
As of June 30, 2012, HERC had a total of approximately 330 branches in the U.S., Canada, France, Spain, China and Saudi Arabia.
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 rent, insurance, and administrative overhead, remain fixed and cannot be adjusted for seasonal demand. Revenues related to our fleet leasing and management services are generally not seasonal.
Restructuring
During the first and second quarter of 2011,2012, 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.65 employees and 280 employees, respectively.
DuringFor the second quarterthree and six months ended June 30, 2012, our consolidated statement of 2011, we continued to streamline operations includes restructuring charges of $16.1 million 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.
$25.5 million, respectively. For the three and six months ended June 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 $20.3 million and $31.0 million, respectively.
Additional efficiency and cost saving initiatives are being developed, during 2011. However,however, we presently do not have firm plans or estimates of any related expenses. See Note 12 to the Notes to our condensed consolidated financial statements included in this Report.
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations (Continued)
RESULTS OF OPERATIONS
Three Months Ended June 30, 20112012 Compared with Three Months Ended June 30, 20102011
Summary
The following table sets forth the percentage of total revenues represented by the various line items in our consolidated statements of operations for the three months ended June 30, 20112012 and 20102011 (in millions of dollars):
| | | | Percentage of Revenues | | | Percentage of Revenues | |||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | Three Months Ended June 30, | Three Months Ended June 30, | Three Months Ended June 30, | Three Months Ended June 30, | |||||||||||||||||||||||
| | 2011 | 2010 | 2011 | 2010 | 2012 | 2011 | 2012 | 2011 | |||||||||||||||||||
Revenues: | Revenues: | |||||||||||||||||||||||||||
Car rental | $ | 1,849.3 | $ | 1,731.2 | 83.1 | % | 83.5 | % | ||||||||||||||||||||
Equipment rental | 334.2 | 301.6 | 15.0 | 14.6 | ||||||||||||||||||||||||
Other | 41.6 | 39.5 | 1.9 | 1.9 | ||||||||||||||||||||||||
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 | ||||||||||||||||||||||||
Total revenues | 2,225.1 | 2,072.3 | 100.0 | 100.0 | ||||||||||||||||||||||||
Expenses: | Expenses: | |||||||||||||||||||||||||||
Direct operating | 1,188.9 | 1,187.3 | 53.4 | 57.3 | ||||||||||||||||||||||||
Depreciation of revenue earning equipment and lease charges | 519.8 | 419.7 | 23.4 | 20.3 | ||||||||||||||||||||||||
Selling, general and administrative | 206.6 | 195.6 | 9.3 | 9.4 | ||||||||||||||||||||||||
Interest expense | 152.2 | 165.8 | 6.8 | 8.0 | ||||||||||||||||||||||||
Interest income | (0.5 | ) | (1.5 | ) | — | (0.1 | ) | |||||||||||||||||||||
Other (income) expense, net | (0.6 | ) | 10.8 | — | 0.5 | |||||||||||||||||||||||
Direct operating | 1,187.3 | 1,075.0 | 57.3 | 57.2 | ||||||||||||||||||||||||
Total expenses | 2,066.4 | 1,977.7 | 92.9 | 95.4 | ||||||||||||||||||||||||
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 | ) | ||||||||||||||||||||||
Income before income taxes | 158.7 | 94.6 | 7.1 | 4.6 | ||||||||||||||||||||||||
Provision for taxes on income | Provision for taxes on income | (34.5 | ) | (14.2 | ) | (1.7 | ) | (0.8 | ) | (65.8 | ) | (34.5 | ) | (2.9 | ) | (1.7 | ) | |||||||||||
Net income (loss) | 60.1 | (20.4 | ) | 2.9 | (1.1 | ) | ||||||||||||||||||||||
Net income | 92.9 | 60.1 | 4.2 | 2.9 | ||||||||||||||||||||||||
Less: Net income attributable to noncontrolling interest | Less: Net income attributable to noncontrolling interest | (5.1 | ) | (4.7 | ) | (0.2 | ) | (0.2 | ) | — | (5.1 | ) | — | (0.2 | ) | |||||||||||||
Net income (loss) attributable to Hertz Global Holdings, Inc. and Subsidiaries' common stockholders | $ | 55.0 | $ | (25.1 | ) | 2.7 | % | (1.3 | )% | |||||||||||||||||||
Net income attributable to Hertz Global Holdings, Inc. and Subsidiaries' common stockholders | $ | 92.9 | $ | 55.0 | 4.2 | % | 2.7 | % | ||||||||||||||||||||
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 June 30, 20112012 and 2010:2011:
| Three Months Ended or as of June 30, | ||||||
---|---|---|---|---|---|---|---|
| 2012 | 2011 | |||||
Selected Car Rental Operating Data: | |||||||
Worldwide number of transactions (in thousands) | 7,517 | 7,146 | |||||
Domestic (Hertz) | 5,620 | 5,255 | |||||
International (Hertz) | 1,897 | 1,891 | |||||
Worldwide transaction days (in thousands)(a) | 37,256 | 34,826 | |||||
Domestic (Hertz) | 26,312 | 23,889 | |||||
International (Hertz) | 10,944 | 10,937 | |||||
Worldwide rental rate revenue per transaction day(b) | $ | 39.50 | $ | 40.87 | |||
Domestic (Hertz) | $ | 38.10 | $ | 39.32 | |||
International (Hertz) | $ | 42.85 | $ | 44.25 | |||
Worldwide average number of cars during the period | 656,200 | 487,300 | |||||
Domestic (Hertz company-operated) | 353,100 | 328,200 | |||||
International (Hertz company-operated) | 157,000 | 159,100 | |||||
Donlen (under lease and maintenance) | 146,100 | N/A | |||||
Adjusted pre-tax income (in millions of dollars)(c) | $ | 277.4 | $ | 242.2 | |||
Worldwide revenue earning equipment, net (in millions of dollars) | $ | 10,408.0 | $ | 9,522.7 | |||
Selected Worldwide Equipment Rental Operating Data: | |||||||
Rental and rental related revenue (in millions of dollars)(d) | $ | 303.0 | $ | 266.1 | |||
Same store revenue growth, including growth initiatives(e) | 7.3 | % | 10.4 | % | |||
Average acquisition cost of rental equipment operated during the period (in millions of dollars) | $ | 3,003.6 | $ | 2,778.8 | |||
Adjusted pre-tax income (in millions of dollars)(c) | $ | 42.5 | $ | 33.4 | |||
Revenue earning equipment, net (in millions of dollars) | $ | 2,030.0 | $ | 1,702.7 |
| Three Months Ended or as of June 30, | ||||||||
---|---|---|---|---|---|---|---|---|---|
| 2011 | 2010 | |||||||
Selected Car Rental Operating Data: | |||||||||
Worldwide number of transactions (in thousands) | 7,146 | 6,821 | |||||||
Domestic | 5,255 | 5,021 | |||||||
International | 1,891 | 1,800 | |||||||
Worldwide transaction days (in thousands)(a) | 34,826 | 32,194 | |||||||
Domestic | 23,889 | 22,061 | |||||||
International | 10,937 | 10,133 | |||||||
Worldwide rental rate revenue per transaction day(b) | $ | 41.16 | $ | 42.83 | |||||
Domestic | $ | 39.32 | $ | 41.07 | |||||
International | $ | 45.17 | $ | 46.66 | |||||
Worldwide average number of company-operated cars during the period | 487,600 | 448,400 | |||||||
Domestic | 328,200 | 300,000 | |||||||
International | 159,400 | 148,400 | |||||||
Adjusted pre-tax income (in millions of dollars)(c) | $ | 242.2 | $ | 174.9 | |||||
Worldwide revenue earning equipment, net (in millions of dollars) | $ | 9,522.7 | $ | 8,762.1 | |||||
Selected Worldwide Equipment Rental Operating Data: | |||||||||
Rental and rental related revenue (in millions of dollars)(d) | $ | 267.8 | $ | 239.6 | |||||
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) | $ | 2,778.8 | $ | 2,704.4 | |||||
Adjusted pre-tax income (in millions of dollars)(c) | $ | 33.4 | $ | 14.4 | |||||
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)
car rental segment revenues to our rental rate revenue and rental rate revenue per transaction day (based on December 31, 20102011 foreign exchange rates) for the three months ended June 30, 20112012 and 20102011 (in millions of dollars, except as noted):
| Three Months Ended June 30, | Three Months Ended June 30, | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2011 | 2010 | 2012 | 2011 | ||||||||||
Car rental segment revenues | $ | 1,768.8 | $ | 1,611.4 | $ | 1,889.6 | $ | 1,768.8 | ||||||
Non-rental rate revenue | (292.4 | ) | (261.4 | ) | (419.4 | ) | (290.3 | ) | ||||||
Foreign currency adjustment | (43.1 | ) | 29.0 | 1.3 | (55.3 | ) | ||||||||
Rental rate revenue | $ | 1,433.3 | $ | 1,379.0 | $ | 1,471.5 | $ | 1,423.2 | ||||||
Transaction days (in thousands) | 34,826 | 32,194 | 37,256 | 34,826 | ||||||||||
Rental rate revenue per transaction day (in whole dollars) | $ | 41.16 | $ | 42.83 | $ | 39.50 | $ | 40.87 |
| Three Months Ended June 30, | ||||||
---|---|---|---|---|---|---|---|
| 2012 | 2011 | |||||
Adjusted pre-tax income: | |||||||
Car rental | $ | 277.4 | $ | 242.2 | |||
Equipment rental | 42.5 | 33.4 | |||||
Total reportable segments | 319.9 | 275.6 | |||||
Adjustments: | |||||||
Other reconciling items(1) | (86.0 | ) | (91.2 | ) | |||
Purchase accounting(2) | (29.0 | ) | (22.5 | ) | |||
Non-cash debt charges(3) | (20.6 | ) | (27.1 | ) | |||
Restructuring charges | (16.1 | ) | (33.7 | ) | |||
Restructuring related charges(4) | (5.0 | ) | (2.8 | ) | |||
Acquisition related costs | (4.5 | ) | (6.1 | ) | |||
Pension adjustment(5) | — | 13.1 | |||||
Premiums paid on debt(6) | — | (10.7 | ) | ||||
Income before income taxes | $ | 158.7 | $ | 94.6 | |||
| 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 | ) | |||||
Table of amounts pertaining to the de-designationContents
ITEM 2. Management's Discussion and Analysis of the Hertz Vehicle Financing LLC, or "HVF," interest rate swaps as effective hedging instruments.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 June 30, | Three Months Ended June 30, | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2011 | 2010 | 2012 | 2011 | ||||||||||
Equipment rental segment revenues | $ | 301.7 | $ | 265.8 | $ | 335.0 | $ | 301.7 | ||||||
Equipment sales and other revenue | (29.4 | ) | (28.7 | ) | (31.3 | ) | (29.4 | ) | ||||||
Foreign currency adjustment | (4.5 | ) | 2.5 | (0.7 | ) | (6.2 | ) | |||||||
Rental and rental related revenue | $ | 267.8 | $ | 239.6 | $ | 303.0 | $ | 266.1 | ||||||
REVENUES
| | Three Months Ended June 30, | | | Three Months Ended June 30, | | | |||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(in millions of dollars) | (in millions of dollars) | 2011 | 2010 | $ Change | % Change | 2012 | 2011 | $ Change | % Change | |||||||||||||||||||
Revenues by Segment | Revenues by Segment | |||||||||||||||||||||||||||
Car rental | $ | 1,889.6 | $ | 1,768.8 | $ | 120.8 | 6.8 | % | ||||||||||||||||||||
Equipment rental | 335.0 | 301.7 | 33.3 | 11.0 | % | |||||||||||||||||||||||
Other reconciling items | 0.5 | 1.8 | (1.3 | ) | (68.3 | )% | ||||||||||||||||||||||
Car rental | $ | 1,768.8 | $ | 1,611.4 | $ | 157.4 | 9.8 | % | ||||||||||||||||||||
Total revenues | $ | 2,225.1 | $ | 2,072.3 | $ | 152.8 | 7.4 | % | ||||||||||||||||||||
Equipment rental | 301.7 | 265.8 | 35.9 | 13.5 | % | |||||||||||||||||||||||
Other reconciling items | 1.8 | 2.4 | (0.6 | ) | (25.0 | )% | ||||||||||||||||||||||
Total revenues | $ | 2,072.3 | $ | 1,879.6 | $ | 192.7 | 10.3 | % | ||||||||||||||||||||
Car Rental Segment
Revenues from our car rental segment increased 9.8%6.8%, primarily as a result of increases in car rental transaction days worldwide of 8.2%7.0%, refueling fees of $15.2$5.3 million and airport concession recovery fees of $9.8$4.6 million. The three months ended June 30, 2012 also includes $115.4 million as well asof revenues related to Donlen, which was acquired on September 1, 2011. These increases were partly offset by the effects of foreign currency translation of approximately $74.1$54.7 million partly offset byand a decrease in worldwide RPD.
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations (Continued)
RPD for worldwide car rental for the three months ended June 30, 20112012 decreased 3.9%3.4% from 2010,2011, due to decreases in U.S. and International RPD of 4.3%3.1% and 3.2%, respectively.respectively, and a mix shift to the U.S. due to uncertain economic conditions in Europe. U.S. off-airport RPD declined by 1.8%4.0% and U.S. airport RPD decreased 5.1%2.2%. U.S. airport RPD decreased duewas negatively impacted by a mix shift to thelonger life, lower RPD that ourrentals (including mix shift towards off-airport and the Advantage brand generates, as well as the competitive pricing environment.brand). International RPD decreased primarily due to a decrease in Europe's airport RPD.RPD which was due to the competitive pricing environment and uncertain economic conditions.
Equipment Rental Segment
Revenues from our equipment rental segment increased 11.0%, primarily due to increases of 12.6% and 3.6% in equipment rental volumes and pricing, respectively, partially offset by the effects of foreign currency translation of approximately $6.3 million. The increase in volume was primarily due to strong industrial and improving construction performance. Our acquisition of Cinelease in January 2012 also contributed to the revenue increase.
Other
Revenues from all other sources decreased $1.3 million, primarily due to a decrease in revenues from our third-party claim management services.
EXPENSES
| Three Months Ended June 30, | | | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(in millions of dollars) | 2012 | 2011 | $ Change | % Change | |||||||||
Expenses: | |||||||||||||
Fleet related expenses | $ | 287.3 | $ | 287.0 | $ | 0.3 | 0.1 | % | |||||
Personnel related expenses | 384.0 | 373.5 | 10.5 | 2.8 | % | ||||||||
Other direct operating expenses | 517.6 | 526.8 | (9.2 | ) | (1.7 | )% | |||||||
Direct operating | 1,188.9 | 1,187.3 | 1.6 | 0.1 | % | ||||||||
Depreciation of revenue earning equipment and lease charges | 519.8 | 419.7 | 100.1 | 23.8 | % | ||||||||
Selling, general and administrative | 206.6 | 195.6 | 11.0 | 5.6 | % | ||||||||
Interest expense | 152.2 | 165.8 | (13.6 | ) | (8.2 | )% | |||||||
Interest income | (0.5 | ) | (1.5 | ) | 1.0 | (69.7 | )% | ||||||
Other (income) expense, net | (0.6 | ) | 10.8 | (11.4 | ) | (105.1 | )% | ||||||
Total expenses | $ | 2,066.4 | $ | 1,977.7 | $ | 88.7 | 4.5 | % | |||||
Total expenses increased 4.5%, but total expenses as a percentage of revenues decreased from 95.4% for the three months ended June 30, 2011 to 92.9% for the three months ended June 30, 2012.
Direct Operating Expenses
Car Rental Segment
Direct operating expenses for our car rental segment of $995.8 million for the three months ended June 30, 2012 increased 1.8% from $977.9 million for the three months ended June 30, 2011 as a result
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations (Continued)
of increases in other direct operating expenses and personnel related expenses, partly offset by a decrease in fleet related expenses.
Other direct operating expenses for our car rental segment of $449.7 million for the three months ended June 30, 2012 increased 3.4% from the three months ended June 30, 2011. The increase was primarily related to increases in facilities expense of $8.0 million, commissions of $4.9 million, field systems expenses of $4.0 million, concession fees of $3.8 million and restructuring and restructuring related charges of $5.5 million, partially offset by the effects of foreign currency translation of approximately $13.1 million. These increases were primarily a result of improved worldwide rental volume demand and additional locations associated with off-airport expansion.
Personnel related expenses for our car rental segment of $314.8 million for the three months ended June 30, 2012 increased 2.7% from the three months ended June 30, 2011. The increase was primarily related to increases in salaries and related expenses of $16.6 million associated with improved volume and additional off-airport locations in 2012. These increases were partially offset by the effects of foreign currency translation of approximately $7.4 million.
Fleet related expenses for our car rental segment of $231.3 million for the three months ended June 30, 2012 decreased 2.2% from the three months ended June 30, 2011. The decrease was primarily related to the effects of foreign currency translation of approximately $9.8 million and a decrease of $3.6 million in vehicle damage costs due to higher collections from customers on damaged or wrecked vehicles. These decreases were partly offset by increases in gasoline costs of $8.9 million.
Equipment Rental Segment
Direct operating expenses for our equipment rental segment of $195.4 million for the three months ended June 30, 2012 decreased 6.4% from $208.7 million for the three months ended June 30, 2011 as a result of decreases in other direct operating expenses partly offset by increases in fleet related expenses and personnel related expenses.
Other direct operating expenses for our equipment rental segment of $79.2 million for the three months ended June 30, 2012 decreased $22.2 million, or 21.9% from the three months ended June 30, 2011. The decrease was primarily related to a decrease in restructuring charges of $27.2 million, partly offset by $2.9 million of other direct operating expenses associated with Cinelease, which was acquired in January 2012, and $1.5 million in cost of sales due to higher equipment sales.
Fleet related expenses for our equipment rental segment of $55.9 million for the three months ended June 30, 2012 increased $5.5 million, or 11.0% from the three months ended June 30, 2011. The increase was primarily related to increased rental volume resulting in increased freight and delivery costs of $2.4 million, increased insurance, license and tax expenses of $1.5 million, and higher maintenance costs of $0.9 million.
Personnel related expenses for our equipment rental segment of $60.2 million for the three months ended June 30, 2012 increased $3.2 million, or 5.7%, from the three months ended June 30, 2011. The increase was related to salaries and related expenses of $4.1 million due to increased volumes and new branch openings, as well as $1.7 million of personnel related expenses associated with Cinelease, which was acquired in January 2012. These increases were partially offset by lower incentives of $1.6 million and the effects of foreign currency translation of approximately $1.2 million.
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 13.5%, primarily due to increases of 11.3% and 2.2% in equipment rental volumes and pricing, respectively, as well as the effects of foreign currency translation of approximately $8.1 million. The increase in volume was primarily due to strong industrial performance.
Other
Revenues from all other sources decreased $0.6 million.
EXPENSES
| Three Months Ended June 30, | | | |||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(in millions of dollars) | 2011 | 2010 | $ Change | % Change | ||||||||||||
Expenses: | ||||||||||||||||
Fleet related expenses | $ | 287.0 | $ | 248.8 | $ | 38.2 | 15.4 | % | ||||||||
Personnel related expenses | 373.5 | 354.7 | 18.8 | 5.3 | % | |||||||||||
Other direct operating expenses | 526.8 | 471.5 | 55.3 | 11.7 | % | |||||||||||
Direct operating | 1,187.3 | 1,075.0 | 112.3 | 10.4 | % | |||||||||||
Depreciation of revenue earning equipment and lease charges | 419.7 | 456.7 | (37.0 | ) | (8.1 | )% | ||||||||||
Selling, general and administrative | 195.6 | 172.0 | 23.6 | 13.7 | % | |||||||||||
Interest expense | 165.8 | 188.9 | (23.1 | ) | (12.2 | )% | ||||||||||
Interest income | (1.5 | ) | (6.8 | ) | 5.3 | (77.2 | )% | |||||||||
Other (income) expense, net | 10.8 | — | 10.8 | 100.0 | % | |||||||||||
Total expenses | $ | 1,977.7 | $ | 1,885.8 | $ | 91.9 | 4.9 | % | ||||||||
Total expenses increased 4.9%, but total expenses as a percentage of revenues decreased from 100.3% for the three months ended June 30, 2010 to 95.4% for the three months ended June 30, 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 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.
Other direct operating expenses for our car rental segment of $434.7 million for the three months ended June 30, 2011 increased $40.7 million, or 10.3%, from the three months ended June 30, 2010. The increase was primarily related to increases in concession fees of $7.8 million, a value added tax reclaim of approximately $4.0 million received in the three months ended June 30, 2010, field administrative expenses of $2.8 million, commissions of $2.1 million and charge card fees of $1.7 million, as well as the effects of foreign currency translation of approximately $18.4 million. These increases were primarily a result of improved worldwide rental volume demand. The increases in other direct operating expenses were partly offset by decreases in field systems of $3.7 million and restructuring and restructuring related charges of $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 $18.2 million, or 21.8% from the three months ended June 30, 2010. The increase was primarily related to increases in restructuring charges of $13.7 million and legal expenses of $2.0 million, as well as the effects of foreign currency 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 $454.1 million for the three months ended June 30, 2012 increased 27.9% from $355.1 million for the three months ended June 30, 2011 decreased 8.9% from $389.72011. The increase was primarily due to the acquisition of Donlen and its related depreciation expense of $94.5 million, as well as an increase in our average fleet size of 4.7% (exclusive of vehicles acquired through the Donlen acquisition), partly offset by lower net depreciation per vehicle, a higher mix of non-program cars and the effects of foreign currency translation of approximately $12.8 million.
Equipment Rental Segment
Depreciation of revenue earning equipment and lease charges in our equipment rental segment of $65.7 million for the three months ended June 30, 2010.2012 increased 1.8% from $64.6 million for the three months ended June 30, 2011. The decreaseincrease was primarily due to an improvement8.1% increase in certain vehiclethe average acquisition cost of rental equipment operated during the period, partly offset by higher residual values on the disposal of used equipment, and the effects of foreign currency translation of approximately $1.2 million.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased by $11.0 million or 5.6% from the prior year period, due to increases in administrative expenses and sales promotion expenses, partially offset by a higher mixdecrease in advertising expenses.
Administrative expenses increased $14.1 million, or 11.8%, primarily due to the acquisition of non-program cars,Donlen, which added $6.8 million in administrative expenses. Additionally, restructuring and restructuring related charges increased by $6.6 million and benefits expenses increased by $5.6 million. These increases were partly offset by the effects of foreign currency translation of approximately $16.8$4.5 million.
Sales promotion expenses increased $1.1 million, or 2.9% primarily related to increases in sales salaries and commissions due to improved results.
Advertising expenses decreased $4.2 million, or 10.5%, primarily due to higher media and production costs in 2011 related to the advertising campaign ("Gas and Brake"), as well as the effects of foreign currency translation of approximately $1.6 million.
Interest Expense
Car Rental Segment
Interest expense for our car rental segment of $77.2 million for the three months ended June 30, 2012 decreased 2.2% from $79.0 million for the three months ended June 30, 2011. The decrease was primarily due to the effects of foreign currency translation, lower fleet levels and interest rates in Europe, and lower interest rates in Brazil, partly offset by an increase in the weighted average debt outstanding as result of an increased fleet size in the U.S., and by Donlen's additional interest expense.
Equipment Rental Segment
Interest expense for our equipment rental segment of $11.5 million for the three months ended June 30, 2012 decreased 6.4% from $12.2 million for the three months ended June 30, 2011. The decrease was
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, partlylower interest rates in Europe, partially offset by a 2.8%an 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 segmentoutstanding as a result of $12.2 million for the three months ended June 30, 2011an 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.fleet size.
Other
Other interest expense relating to interest on corporate debt of $63.5 million for the three months ended June 30, 2012 decreased 14.9% from $74.6 million for the three months ended June 30, 2011 decreased 8.8% from $81.8 million for the three months ended June 30, 2010.2011. The decrease was primarily due to lower interest rates in 2011, partly offset by the prior year's write-off of unamortized debt costs in connection with the redemption of a portion of our 8.875% Senior Notes, as well as a decrease in 2011.
ITEM 2. Management's Discussionthe remainder of our 8.875% Senior Notes and Analysis7.875% Senior Notes in the first quarter of Financial Condition and Results of Operations (Continued)2012.
Interest Income
Interest income decreased $5.3$1.0 million primarily due to a value added tax reclaim received infrom the three months ended June 30, 2010.prior year period.
Other (Income) Expense, Net
Other (income) expense, net increasedfor the three months ended June 30, 2012 and 2011, reflected income of $0.6 million and expense of $10.8 million, respectively. The expense in 2011 was primarily due to $10.7 million in premiums paid in connection with the redemption of portionsa portion of our 8.875% Senior Notes during 2011.Notes.
ADJUSTED PRE-TAX INCOME (LOSS)
Car Rental Segment
Adjusted pre-tax income for our car rental segment of $242.2$277.4 million increased $67.3 million14.5% from $174.9$242.2 million for the three months ended June 30, 2010.2011. The increase was primarily due to stronger volumes, improved residual valueslower net depreciation per vehicle and disciplined cost management, partly offset by decreased pricing. Adjustments to our car rental segment income before income taxes for the three months ended June 30, 2012 totaled $42.6 million (which consists of purchase accounting of $17.2 million, restructuring and restructuring related charges of $14.9 million, and non-cash debt charges of $10.6 million, partly offset by a gain on derivatives of $0.1 million). Adjustments to our car rental segment income before income taxes for the three months ended June 30, 2011 totaled $10.1 million (which consists of non-cash debt charges of $10.6 million, purchase accounting of $8.5 million and restructuring and restructuring related charges of $4.0 million, pension adjustment of $(13.1) million and loss on derivativesderivative losses of $0.1 million). Adjustments to our car rental segment income before income taxes for the three months ended June 30, 2010 totaled $53.5 million, (which consistspartly offset by pension adjustments of non-cash debt charges of $37.7 million, purchase accounting of $9.7 million and restructuring and related charges of $6.1$13.1 million). See footnote (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 $33.4$42.5 million increased $19.0 million27.2% from $14.4$33.4 million for the three months ended June 30, 2010.2011. The increase was primarily due to stronger volumes and pricing, strong cost management performance and higher residual values on the disposal of used equipment. Adjustments to our equipment rental segment lossincome before income taxes for the three months ended June 30, 2012 totaled $14.4 million (which consists of purchase accounting of $10.8 million, restructuring charges of $2.5 million, and non-cash debt charges of $1.1 million). Adjustments to our equipment rental income before income taxes for the three months ended June 30, 2011 totaled $46.7 million (which consists of restructuring and restructuring 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 totaled $30.2 million (which consists of restructuring charges of $16.0 million, purchase accounting of $12.0 million and non-cash debt charges of $2.2 million). See footnote (c) to the table under "Results of Operations" for a summary and description of these adjustments.
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations (Continued)
footnote (c) to the table under "Results of Operations" for a summary and description of these adjustments.
PROVISION FOR TAXES ON INCOME, NET INCOME ATTRIBUTABLE TO NONCONTROLLING INTEREST AND NET (INCOME) LOSSINCOME ATTRIBUTABLE TO HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES' COMMON STOCKHOLDERS
| Three Months Ended June 30, | | | Three Months Ended June 30, | | | ||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(in millions of dollars) | 2011 | 2010 | $ Change | % Change | 2012 | 2011 | $ Change | % Change | ||||||||||||||||||
Income (loss) before income taxes | $ | 94.6 | $ | (6.2 | ) | $ | 100.8 | 1,617.2 | % | |||||||||||||||||
Income before income taxes | $ | 158.7 | $ | 94.6 | $ | 64.1 | 67.7 | % | ||||||||||||||||||
Provision for taxes on income | (34.5 | ) | (14.2 | ) | (20.3 | ) | 143.2 | % | (65.8 | ) | (34.5 | ) | (31.3 | ) | 90.5 | % | ||||||||||
Net income (loss) | 60.1 | (20.4 | ) | 80.5 | 393.8 | % | ||||||||||||||||||||
Net income | 92.9 | 60.1 | 32.8 | 54.6 | % | |||||||||||||||||||||
Less: Net income attributable to noncontrolling interest | (5.1 | ) | (4.7 | ) | (0.4 | ) | 8.9 | % | — | (5.1 | ) | 5.1 | (100.0 | )% | ||||||||||||
Net income (loss) attributable to Hertz Global Holdings, Inc. and Subsidiaries' common stockholders | $ | 55.0 | $ | (25.1 | ) | $ | 80.1 | 318.9 | % | |||||||||||||||||
Net income attributable to Hertz Global Holdings, Inc. and Subsidiaries' common stockholders | $ | 92.9 | $ | 55.0 | $ | 37.9 | 68.9 | % | ||||||||||||||||||
Provision for Taxes on Income
The effective tax rate for the three months ended June 30, 20112012 was 36.5%41.5% as compared to (227.8)%36.5% in the three months ended June 30, 2010.2011. The provision for taxes on income increased $20.3$31.3 million, primarily due to higher income before income taxes, changes in geographic earnings mix and changes in losses in certain non-U.S. jurisdictions for which tax benefits cannot be realized.
Net Income Attributable to Noncontrolling Interest
Net income attributable to noncontrolling interest increased $0.4decreased $5.1 million due to an increase in our majority-owned subsidiaryHertz's purchase of the noncontrolling interest of Navigation Solutions, L.L.C.'s net income for the three months ended June 30, on December 31, 2011, as comparedthereby increasing its ownership interest from 65% to the three months ended June 30, 2010.100%.
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 $80.1 million68.9% primarily due to higher rental volumes in our worldwide car and equipment rental operations, disciplined cost management, lower net depreciation per vehicle in our car rental operations, increased pricing in our equipment rental operations and improved residual values on the disposal of certain vehicles and used equipment, and disciplined cost management, partly offset by lower pricing in our worldwide car rental operations. The impact of changes in exchange rates on net lossincome 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)
Six Months Ended June 30, 20112012 Compared with Six Months Ended June 30, 20102011
Summary
The following table sets forth the percentage of total revenues represented by the various line items in our consolidated statements of operations for the six months ended June 30, 20112012 and 20102011 (in millions of dollars):
| | | | Percentage of Revenues | | | Percentage of Revenues | |||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | Six Months Ended June 30, | Six Months Ended June 30, | Six Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||
| | 2011 | 2010 | 2011 | 2010 | 2012 | 2011 | 2012 | 2011 | |||||||||||||||||||
Revenues: | Revenues: | |||||||||||||||||||||||||||
Car rental | $ | 3,472.6 | $ | 3,210.1 | 83.0 | % | 83.3 | % | ||||||||||||||||||||
Equipment rental | 635.5 | 569.7 | 15.2 | 14.8 | ||||||||||||||||||||||||
Other | 78.0 | 72.5 | 1.8 | 1.9 | ||||||||||||||||||||||||
Car rental | $ | 3,210.1 | $ | 2,979.6 | 83.3 | % | 84.2 | % | ||||||||||||||||||||
Equipment rental | 569.7 | 502.7 | 14.8 | 14.2 | ||||||||||||||||||||||||
Other | 72.5 | 58.2 | 1.9 | 1.6 | ||||||||||||||||||||||||
Total revenues | 3,852.3 | 3,540.5 | 100.0 | 100.0 | ||||||||||||||||||||||||
Total revenues | 4,186.1 | 3,852.3 | 100.0 | 100.0 | ||||||||||||||||||||||||
Expenses: | Expenses: | |||||||||||||||||||||||||||
Direct operating | 2,304.1 | 2,261.0 | 55.0 | 58.7 | ||||||||||||||||||||||||
Depreciation of revenue earning equipment and lease charges | 1,033.9 | 855.7 | 24.7 | 22.2 | ||||||||||||||||||||||||
Selling, general and administrative | 414.3 | 377.8 | 9.9 | 9.8 | ||||||||||||||||||||||||
Interest expense | 314.5 | 362.7 | 7.5 | 9.4 | ||||||||||||||||||||||||
Interest income | (1.6 | ) | (3.4 | ) | — | — | ||||||||||||||||||||||
Other (income) expense, net | (1.0 | ) | 62.7 | — | 1.6 | |||||||||||||||||||||||
Direct operating | 2,261.0 | 2,088.0 | 58.7 | 59.0 | ||||||||||||||||||||||||
Total expenses | 4,064.2 | 3,916.5 | 97.1 | 101.7 | ||||||||||||||||||||||||
Depreciation of revenue earning equipment and lease charges | 855.7 | 915.9 | 22.2 | 25.9 | ||||||||||||||||||||||||
Selling, general and administrative | 377.8 | 339.8 | 9.8 | 9.6 | ||||||||||||||||||||||||
Interest expense | 362.7 | 370.0 | 9.4 | 10.4 | ||||||||||||||||||||||||
Interest income | (3.4 | ) | (9.1 | ) | — | (0.3 | ) | |||||||||||||||||||||
Other (income) expense, net | 62.7 | — | 1.6 | — | ||||||||||||||||||||||||
Total expenses | 3,916.5 | 3,704.6 | 101.7 | 104.6 | ||||||||||||||||||||||||
Loss before income taxes | (64.2 | ) | (164.1 | ) | (1.7 | ) | (4.6 | ) | ||||||||||||||||||||
Income (loss) before income taxes | 121.9 | (64.2 | ) | 2.9 | (1.7 | ) | ||||||||||||||||||||||
Provision for taxes on income | Provision for taxes on income | (4.6 | ) | (3.2 | ) | (0.1 | ) | (0.1 | ) | (85.3 | ) | (4.6 | ) | (2.0 | ) | (0.1 | ) | |||||||||||
Net loss | (68.8 | ) | (167.3 | ) | (1.8 | ) | (4.7 | ) | ||||||||||||||||||||
Net income (loss) | 36.6 | (68.8 | ) | 0.9 | (1.8 | ) | ||||||||||||||||||||||
Less: Net income attributable to noncontrolling interest | Less: Net income attributable to noncontrolling interest | (8.8 | ) | (8.2 | ) | (0.2 | ) | (0.3 | ) | — | (8.8 | ) | — | (0.2 | ) | |||||||||||||
Net loss attributable to Hertz Global Holdings, Inc. and Subsidiaries' common stockholders | $ | (77.6 | ) | $ | (175.5 | ) | (2.0 | )% | (5.0 | )% | ||||||||||||||||||
Net income (loss) attributable to Hertz Global Holdings, Inc. and Subsidiaries' common stockholders | $ | 36.6 | $ | (77.6 | ) | 0.9 | % | (2.0 | )% | |||||||||||||||||||
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 six months ended or as of June 30, 20112012 and 2010:2011:
| Six Months Ended or as of June 30, | ||||||
---|---|---|---|---|---|---|---|
| 2012 | 2011 | |||||
Selected Car Rental Operating Data: | |||||||
Worldwide number of transactions (in thousands) | 13,905 | 13,174 | |||||
Domestic (Hertz) | 10,457 | 9,733 | |||||
International (Hertz) | 3,448 | 3,441 | |||||
Worldwide transaction days (in thousands)(a) | 68,925 | 64,476 | |||||
Domestic (Hertz) | 49,137 | 44,710 | |||||
International (Hertz) | 19,788 | 19,766 | |||||
Worldwide rental rate revenue per transaction day(a)(b) | $ | 39.89 | $ | 41.38 | |||
Domestic (Hertz) | $ | 38.77 | $ | 40.26 | |||
International (Hertz) | $ | 42.69 | $ | 43.92 | |||
Worldwide average number of cars during the period | 625,500 | 457,300 | |||||
Domestic (Hertz company-operated) | 336,800 | 311,900 | |||||
International (Hertz company-operated) | 144,900 | 145,400 | |||||
Donlen (under lease and maintenance) | 143,800 | N/A | |||||
Adjusted pre-tax income (in millions of dollars)(a)(c) | $ | 369.0 | $ | 303.5 | |||
Worldwide revenue earning equipment, net (in millions of dollars) | $ | 10,408.0 | $ | 9,522.7 | |||
Selected Worldwide Equipment Rental Operating Data: | |||||||
Rental and rental related revenue (in millions of dollars)(a)(d) | $ | 577.3 | $ | 507.5 | |||
Same store revenue growth, including growth initiatives(a) | 8.1 | % | 9.9 | % | |||
Average acquisition cost of rental equipment operated during the period (in millions of dollars) | $ | 2,951.6 | $ | 2,769.2 | |||
Adjusted pre-tax income (in millions of dollars)(a)(c) | $ | 68.4 | $ | 43.6 | |||
Revenue earning equipment, net (in millions of dollars) | $ | 2,030.0 | $ | 1,702.7 |
| Six Months Ended or as of June 30, | ||||||||
---|---|---|---|---|---|---|---|---|---|
| 2011 | 2010 | |||||||
Selected Car Rental Operating Data: | |||||||||
Worldwide number of transactions (in thousands) | 13,174 | 12,678 | |||||||
Domestic | 9,733 | 9,418 | |||||||
International | 3,441 | 3,260 | |||||||
Worldwide transaction days (in thousands)(a) | 64,476 | 60,310 | |||||||
Domestic | 44,710 | 42,001 | |||||||
International | 19,766 | 18,309 | |||||||
Worldwide rental rate revenue per transaction day(a)(b) | $ | 41.66 | $ | 42.77 | |||||
Domestic | $ | 40.26 | $ | 41.49 | |||||
International | $ | 44.83 | $ | 45.69 | |||||
Worldwide average number of company-operated cars during the period | 457,500 | 433,100 | |||||||
Domestic | 311,900 | 296,900 | |||||||
International | 145,600 | 136,200 | |||||||
Adjusted pre-tax income (in millions of dollars)(a)(c) | $ | 303.5 | $ | 202.0 | |||||
Worldwide revenue earning equipment, net (in millions of dollars) | $ | 9,522.7 | $ | 8,762.1 | |||||
Selected Worldwide Equipment Rental Operating Data: | |||||||||
Rental and rental related revenue (in millions of dollars)(a)(d) | $ | 511.0 | $ | 455.2 | |||||
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) | $ | 2,769.2 | $ | 2,741.7 | |||||
Adjusted pre-tax income (in millions of dollars)(a)(c) | $ | 43.6 | $ | 9.4 | |||||
Revenue earning equipment, net (in millions of dollars) | $ | 1,702.7 | $ | 1,649.1 |
| Six Months Ended June 30, | Six Months Ended June 30, | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2011 | 2010 | 2012 | 2011 | ||||||||||
Car rental segment revenues | $ | 3,279.1 | $ | 3,033.1 | $ | 3,547.9 | $ | 3,279.1 | ||||||
Non-rental rate revenue | (540.4 | ) | (484.3 | ) | (788.7 | ) | (535.9 | ) | ||||||
Foreign currency adjustment | (52.6 | ) | 30.5 | (9.6 | ) | (75.0 | ) | |||||||
Rental rate revenue | $ | 2,686.1 | $ | 2,579.3 | $ | 2,749.6 | $ | 2,668.2 | ||||||
Transaction days (in thousands) | 64,476 | 60,310 | 68,925 | 64,476 | ||||||||||
Rental rate revenue per transaction day (in whole dollars) | $ | 41.66 | $ | 42.77 | $ | 39.89 | $ | 41.38 |
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations (Continued)
| | Six Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | 2011 | 2010 | 2012 | 2011 | ||||||||||||
Adjusted pre-tax income: | Adjusted pre-tax income: | ||||||||||||||||
Car rental | $ | 369.0 | $ | 303.5 | |||||||||||||
Equipment rental | 68.4 | 43.6 | |||||||||||||||
Car rental | $ | 303.5 | $ | 202.0 | |||||||||||||
Total reportable segments | 437.4 | 347.1 | |||||||||||||||
Adjustments: | |||||||||||||||||
Other reconciling items(1) | (174.2 | ) | (178.7 | ) | |||||||||||||
Purchase accounting(2) | (53.0 | ) | (43.1 | ) | |||||||||||||
Non-cash debt charges(3) | (45.8 | ) | (87.0 | ) | |||||||||||||
Restructuring charges | (25.5 | ) | (38.4 | ) | |||||||||||||
Restructuring related charges(4) | (5.6 | ) | (3.3 | ) | |||||||||||||
Acquisition related costs | (11.4 | ) | (9.0 | ) | |||||||||||||
Management transition costs | — | (2.5 | ) | ||||||||||||||
Pension adjustment(5) | — | 13.1 | |||||||||||||||
Premiums paid on debt(6) | — | (62.4 | ) | ||||||||||||||
Equipment rental | 43.6 | 9.4 | |||||||||||||||
Income before income taxes | $ | 121.9 | $ | (64.2 | ) | ||||||||||||
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 | ) | |||||||||||
| Six Months Ended June 30, | ||||||
---|---|---|---|---|---|---|---|
| 2012 | 2011 | |||||
Equipment rental segment revenues | $ | 637.1 | $ | 569.9 | |||
Equipment sales and other revenue | (57.6 | ) | (52.8 | ) | |||
Foreign currency adjustment | (2.2 | ) | (9.6 | ) | |||
Rental and rental related revenue | $ | 577.3 | $ | 507.5 | |||
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations (Continued)
| 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
| | Six Months Ended June 30, | | | Six Months Ended June 30, | | | |||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(in millions of dollars) | (in millions of dollars) | 2011 | 2010 | $ Change | % Change | 2012 | 2011 | $ Change | % Change | |||||||||||||||||||
Revenues by Segment | Revenues by Segment | |||||||||||||||||||||||||||
Car rental | $ | 3,547.9 | $ | 3,279.1 | $ | 268.8 | 8.2 | % | ||||||||||||||||||||
Equipment rental | 637.1 | 569.9 | 67.2 | 11.8 | % | |||||||||||||||||||||||
Other reconciling items | 1.1 | 3.3 | (2.2 | ) | (65.2 | )% | ||||||||||||||||||||||
Car rental | $ | 3,279.1 | $ | 3,033.1 | $ | 246.0 | 8.1 | % | ||||||||||||||||||||
Total revenues | $ | 4,186.1 | $ | 3,852.3 | $ | 333.8 | 8.7 | % | ||||||||||||||||||||
Equipment rental | 569.9 | 502.8 | 67.1 | 13.3 | % | |||||||||||||||||||||||
Other reconciling items | 3.3 | 4.6 | (1.3 | ) | (28.3 | )% | ||||||||||||||||||||||
Total revenues | $ | 3,852.3 | $ | 3,540.5 | $ | 311.8 | 8.8 | % | ||||||||||||||||||||
Car Rental Segment
Revenues from our car rental segment increased 8.1%8.2%, primarily as a result of increases in car rental transaction days worldwide of 6.9%, refueling fees of $23.5$13.6 million and airport concession recovery fees of $18.0$9.5 million. The six months ended June 30, 2012 also includes $225.8 million as well asof revenues related to Donlen. These increases were partly offset by the effects of foreign currency translation of approximately $88.6$62.3 million partly offset byand a decrease in worldwide RPD.
RPD for worldwide car rental for the six months ended June 30, 20112012 decreased 2.6%3.6% from 2010,2011, due to decreases in U.S. and International RPD of 3.0%3.7% and 1.9%2.8%, respectively.respectively, and a mix shift to the U.S. due to uncertain economic conditions in Europe. U.S. off-airport RPD declined by 0.7%3.6% and U.S. airport RPD decreased 3.4%3.3%. U.S. airport RPD decreased duewas negatively impacted by a mix shift to thelonger life, lower RPD that ourrentals (including mix shift towards off-airport and the Advantage brand generates, as well as the competitive pricing environment.brand). International RPD decreased primarily due to a decrease in Europe's airport RPD.RPD which was due to the competitive pricing environment and uncertain economic conditions.
Equipment Rental Segment
Revenues from our equipment rental segment increased 13.3%11.8%, primarily due to increases of 12.7%11.0% and 1.1%3.6% in equipment rental volumes and pricing, respectively, as well aspartially offset by the effects of foreign currency translation of approximately $11.0$8.4 million. The increase in volume was primarily due to strong industrial and improving construction performance. Our acquisition of Cinelease in January 2012 also contributed to the revenue increase.
Other
Revenues from all other sources decreased $1.3$2.2 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
| | Six Months Ended June 30, | | | Six Months Ended June 30, | | | ||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(in millions of dollars) | (in millions of dollars) | 2011 | 2010 | $ Change | % Change | 2012 | 2011 | $ Change | % Change | ||||||||||||||||||||
Expenses: | Expenses: | ||||||||||||||||||||||||||||
Fleet related expenses | $ | 538.3 | $ | 536.9 | $ | 1.4 | 0.3 | % | |||||||||||||||||||||
Personnel related expenses | 765.5 | 739.5 | 26.0 | 3.5 | % | ||||||||||||||||||||||||
Other direct operating expenses | 1,000.3 | 984.6 | 15.7 | 1.6 | % | ||||||||||||||||||||||||
Fleet related expenses | $ | 536.9 | $ | 477.8 | $ | 59.1 | 12.4 | % | |||||||||||||||||||||
Direct operating | 2,304.1 | 2,261.0 | 43.1 | 1.9 | % | ||||||||||||||||||||||||
Depreciation of revenue earning equipment and lease charges | 1,033.9 | 855.7 | 178.2 | 20.8 | % | ||||||||||||||||||||||||
Selling, general and administrative | 414.3 | 377.8 | 36.5 | 9.7 | % | ||||||||||||||||||||||||
Interest expense | 314.5 | 362.7 | (48.2 | ) | (13.3 | )% | |||||||||||||||||||||||
Interest income | (1.6 | ) | (3.4 | ) | 1.8 | (54.1 | )% | ||||||||||||||||||||||
Other (income) expense, net | (1.0 | ) | 62.7 | (63.7 | ) | (101.6 | )% | ||||||||||||||||||||||
Personnel related expenses | 739.5 | 701.1 | 38.4 | 5.5 | % | ||||||||||||||||||||||||
Total expenses | $ | 4,064.2 | $ | 3,916.5 | $ | 147.7 | 3.8 | % | |||||||||||||||||||||
Other direct operating expenses | 984.6 | 909.1 | 75.5 | 8.3 | % | ||||||||||||||||||||||||
Direct operating | 2,261.0 | 2,088.0 | 173.0 | 8.3 | % | ||||||||||||||||||||||||
Depreciation of revenue earning equipment and lease charges | 855.7 | 915.9 | (60.2 | ) | (6.6 | )% | |||||||||||||||||||||||
Selling, general and administrative | 377.8 | 339.8 | 38.0 | 11.2 | % | ||||||||||||||||||||||||
Interest expense | 362.7 | 370.0 | (7.3 | ) | (2.0 | )% | |||||||||||||||||||||||
Interest income | (3.4 | ) | (9.1 | ) | 5.7 | (62.5 | )% | ||||||||||||||||||||||
Other (income) expense, net | 62.7 | — | 62.7 | 100.0 | % | ||||||||||||||||||||||||
Total expenses | $ | 3,916.5 | $ | 3,704.6 | $ | 211.9 | 5.7 | % | |||||||||||||||||||||
Total expenses increased 5.7%3.8%, but total expenses as a percentage of revenues decreased from 104.6% for the six months ended June 30, 2010 to 101.7% for the six months ended June 30, 2011.2011 to 97.1% for the six months ended June 30, 2012.
Direct Operating Expenses
Car Rental Segment
Direct operating expenses for our car rental segment of $1,881.7$1,925.5 million for the six months ended June 30, 20112012 increased $135.5$43.8 million, or 7.8%2.3%, from the six months ended June 30, 20102011 as a result of increases in other direct operating expenses fleetand personnel related expenses, and personnelpartially offset by lower fleet related expenses.
Other direct operating expenses for our car rental segment of $833.5$867.3 million for the six months ended June 30, 20112012 increased $59.3$33.8 million, or 7.7%4.1% from the six months ended June 30, 2010.2011. The increase was primarily related to increases in facilities expenses of $11.7 million, restructuring and restructuring related charges of $8.5 million, commissions of $8.0 million, concession fees of $7.5 million, computer expenses of $4.9 million and field administrative expenses of $16.8$4.5 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 aspartially offset by the effects of foreign currency translation of approximately $21.1$15.4 million. The increases were primarily a result of improved worldwide rental volume demand. The increase in field administrativedemand, additional locations associated with off-airport expansion, and increased litigation expenses.
Personnel related expenses also related to a reimbursement received from a manufacturer infor our car rental segment of $625.8 million for the six months ended June 30, 2010.2012 increased $19.1 million, or 3.1%, from the six months ended June 30, 2011. The increase was related to increases in other direct operatingsalaries and related expenses were partly offset by a decreaseassociated with improved volume and compensation for employees at additional off-airport locations in restructuring and restructuring related charges of $8.5 million.2012.
Fleet related expenses for our car rental segment of $441.5$432.5 million for the six months ended June 30, 2011 increased $48.62012 decreased $9.1 million, or 12.4%2.1% from the six months ended June 30, 2010.2011. The increasedecrease was primarily related to worldwide rental volume demand which resulted in increases in gasoline costs of $22.8 million, vehicle license taxes of $4.8 million, vehicle registration fees of $3.6 million and self insurance expenses of $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$11.4 million, lower vehicle damage costs of $5.3$9.3 million due to higher collections from customers on damaged or wrecked vehicles, lower self insurance expenses of $3.4 million and lower vehicle license taxes of $1.9 million. These decreases were partially offset by increases in gasoline costs of $17.0 million.
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations (Continued)
Personnel related expenses for our car rental segment of $606.7 million for the six months ended June 30, 2011 increased $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 $382.7 million for the six months ended June 30, 2012 increased 0.9% from $379.5 million for the six months ended June 30, 2011 increased 12.4% from $337.7as a result of increases in fleet related expenses and personnel related expenses, partially offset by lower other direct operating expenses.
Fleet related expenses for our equipment rental segment of $105.9 million for the six months ended June 30, 2010 as a result2012 increased $10.5 million, or 11.0% from the six months ended June 30, 2011. The increase was primarily related to increased rental volume resulting in increased freight and delivery costs of $3.6 million, higher maintenance costs of $2.4 million, and increased insurance, license and tax expenses of $1.8 million. Additionally, Cinelease added $1.7 million of fleet related expenses.
Personnel related expenses for our equipment rental segment of $121.4 million for the six months ended June 30, 2012 increased $8.4 million, or 7.4% from the six months ended June 30, 2011. The increase was primarily related to increases in other direct operating expenses, fleetsalaries and related expenses of $6.2 million, due to increased volumes and new branch openings. Additionally, Cinelease added $3.2 million of personnel related expenses.
Other direct operating expenses for our equipment rental segment of $171.2$155.5 million for the six months ended June 30, 2011 increased $22.62012 decreased $15.6 million, or 15.2%9.1% from the six months ended June 30, 2010.2011. The increasedecrease was primarily related to increasesa decrease in restructuring charges of $12.6$26.6 million, legalpartly offset by $6.0 million of other direct operating expenses of $2.3 million and re-rent expense of $1.9 million,associated with Cinelease, which was acquired in January 2012, as well as the effectsincreased re-rent expenses of foreign currency translation of approximately $2.8 million. The increase in re-rent expense primarily related to improved worldwide rental volume demand.
Fleet related expenses for our equipment rental segment of $95.3 million for the six months ended June 30, 2011 increased $10.7 million, or 12.6% from the six months ended June 30, 2010. The increase was primarily related to continued aging of the fleet which resulted in an increase in maintenance costs of $7.7$2.7 million and increased worldwide rental volume resulting in increased freight and delivery costshigher cost of $5.0sales of $2.1 million as well as the effects of foreign currency translation of approximately $1.7 million.
Personnel related expenses for ourdue to higher equipment rental segment of $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.sales.
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 $905.8 million for the six months ended June 30, 2012 increased 25.1% from $723.9 million for the six months ended June 30, 2011 decreased 7.0% from $778.0 million for the six months ended June 30, 2010.2011. The decreaseincrease was primarily due to the acquisition of Donlen and its related depreciation expense of $184.5 million, as well as an improvementincrease in certainour average fleet size of 5.3% (exclusive of vehicles acquired through the Donlen acquisition), partly offset by lower net depreciation per vehicle, higher vehicle residual values, and a higher mix of non-program cars partly offset byand the effects of foreign currency translation of approximately $20.3$14.7 million.
Equipment Rental Segment
Depreciation of revenue earning equipment and lease charges in our equipment rental segment of $128.1 million for the six months ended June 30, 2012 decreased 2.8% from $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, 2010.2011. The decrease was primarily due to higher residual values on the disposal of used equipment, partly offset by a 1.0%6.6% 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.period.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased by $36.5 million, or 9.7%, due to increases in administrative expenses, advertising expenses, and sales promotion expenses.
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$31.6 million, or 11.9%13.6%, primarily due to increasesthe acquisition of Donlen, which added $12.9 million in administrative expenses. Additionally, salaries and related expenses of $14.0increased $11.4 million, restructuring and restructuring related charges increased by $7.8 million, consulting expenses increased $5.4 million and consultinglegal expenses of $4.7 million, as well asincreased $4.9 million. These increases were partly offset by the effects of foreign currency translation of approximately $5.6$7.6 million.
Advertising expenses increased $4.0 million, or 5.5%, primarily due to increased media advertising, higher airline miles expense associated with increased volume, and costs related to our new customer loyalty program, partially offset by the effects of foreign currency translation of approximately $1.9 million.
Sales promotion expenses increased $9.4$0.9 million, or 14.7%1.3%, 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 toresults, partially offset by the new campaign ("Gas and Brake").effects of foreign currency translation.
Interest Expense
Car Rental Segment
Interest expense for our car rental segment of $157.7 million for the six months ended June 30, 2012 increased 2.1% from $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, 2010.2011. The decreaseincrease was primarily due to lower interest rates in 2011, as well as a decreasethe acquisition of Donlen and an increase in the weighted averageweighted-average debt outstanding.outstanding, partially offset by the effects of foreign currency translation.
Equipment Rental Segment
Interest expense for our equipment rental segment of $24.3 million for the six months ended June 30, 2012 increased 4.2% from $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, 2010.2011. The increase was primarily due to increases in the weighted-average debt outstanding as a portionresult of an increase in average fleet size and in the write-off of the unamortized debt costs in connection with the refinancing of ourSenior Term Facility and Senior ABL Facility which was allocated to our equipment rental segment in 2011.interest rates.
Other
Other interest expense relating to interest on corporate debt of $132.5 million for the six months ended June 30, 2012 decreased 28.3% from $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, 2010.2011. The increasedecrease was primarily due to the write-offlarger write-off's last year of unamortized debt costs in connection with refinancing activity, lower rates achieved with the refinancing of our Senior Term FacilityNotes 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 Notesdecrease in 2011.the weighted-average debt outstanding and interest rates.
Interest Income
Interest income decreased $5.7increased $1.8 million primarily due to a value added tax reclaim received infrom the six months ended June 30, 2010.prior year period.
Other (Income) Expense, Net
Other (income) expense, net increasedfor the six months ended June 30, 2012 and 2011, reflected income of $1.0 million and expense of $62.7 million, respectively. The expense in 2011 was primarily due to $62.4 million in 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.Notes.
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 $303.5$369.0 million increased $101.5$65.5 million from $202.0$303.5 million for the six months ended June 30, 2010.2011. The increase was primarily due to stronger volumes, lower net depreciation per vehicle, improved residual values and disciplined cost management, partly offset by decreased pricing. Adjustments to our car rental segment income before income taxes for the six months ended June 30, 2012 totaled $72.6 million (which consists of purchase accounting of $30.2 million, non-cash debt charges of $21.7 million, and restructuring and restructuring related charges of $20.7 million). Adjustments to our car rental segment income before income taxes for the six months ended June 30, 2011 totaled $30.4 million (which consists of non-cash debt charges of $20.8 million, purchase accounting of $16.6 million and restructuring and restructuring related charges of $5.5 million pension adjustment of $(13.1) million and loss on derivativesderivative losses of $0.6 million). Adjustments to our car rental segment income before income taxes for the six months ended June 30, 2010 totaled $110.7 million, (which consistspartly offset by pension adjustments of non-cash debt charges of $74.7 million, purchase accounting of $19.5 million and restructuring and restructuring related charges of $16.5$13.1 million). See footnote (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 $43.6$68.4 million increased $34.2$24.8 million from $9.4$43.6 million for the six months ended June 30, 2010.2011. The increase was primarily due to stronger volumes and pricing, strong cost management performance and higher residual values on the disposal of used equipment. Adjustments to our equipment rental segment income before income taxes for the six months ended June 30, 2012 totaled $30.2 million (which consists of purchase accounting of $20.8 million, restructuring and restructuring related charges of $6.7 million, and non-cash debt charges of $2.7 million). Adjustments to our equipment rental loss before income taxes for the six months ended June 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 restructuring related charges of $21.0 million and non-cash debt charges of $4.1 million). See footnote (c) to the table under "Results of Operations" for a summary and description of these adjustments.
PROVISION FOR TAXES ON INCOME, NET INCOME ATTRIBUTABLE TO NONCONTROLLING INTEREST AND NET LOSSINCOME (LOSS) ATTRIBUTABLE TO HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES' COMMON STOCKHOLDERS
| Six Months Ended June 30, | | | Six Months Ended June 30, | | | ||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(in millions of dollars) | 2011 | 2010 | $ Change | % Change | 2012 | 2011 | $ Change | % Change | ||||||||||||||||||
Loss before income taxes | $ | (64.2 | ) | $ | (164.1 | ) | $ | 99.9 | (60.9 | )% | ||||||||||||||||
Income (loss) before income taxes | $ | 121.9 | $ | (64.2 | ) | $ | 186.1 | N/M | ||||||||||||||||||
Provision for taxes on income | (4.6 | ) | (3.2 | ) | (1.4 | ) | 44.9 | % | (85.3 | ) | (4.6 | ) | (80.7 | ) | N/M | |||||||||||
Net loss | (68.8 | ) | (167.3 | ) | 98.5 | (58.8 | )% | |||||||||||||||||||
Net income (loss) | 36.6 | (68.8 | ) | 105.4 | (153.1 | )% | ||||||||||||||||||||
Less: Net income attributable to noncontrolling interest | (8.8 | ) | (8.2 | ) | (0.6 | ) | 6.2 | % | — | (8.8 | ) | 8.8 | (100.0 | )% | ||||||||||||
Net loss attributable to Hertz Global Holdings, Inc. and Subsidiaries' common stockholders | $ | (77.6 | ) | $ | (175.5 | ) | $ | 97.9 | (55.8 | )% | ||||||||||||||||
Net income (loss) attributable to Hertz Global Holdings, Inc. and Subsidiaries' common stockholders | $ | 36.6 | $ | (77.6 | ) | $ | 114.2 | (147.1 | )% | |||||||||||||||||
Provision for Taxes on Income
The effective tax rate for the six months ended June 30, 20112012 was (7.2)%70.0% as compared to (1.9)(7.2)% in the six months ended June 30, 2010.2011. The provision for taxes on income increased $1.4$80.7 million, primarily due to
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations (Continued)
lower lossto 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 Interest
Net income attributable to noncontrolling interest increased $0.6decreased $8.8 million due to an increase in our majority-owned subsidiaryHertz's purchase of the noncontrolling interest of Navigation Solutions, L.L.C.'s net income for the six months ended June 30, on December 31, 2011, as comparedthereby increasing its ownership interest from 65% to the six months ended June 30, 2010.100%.
Net LossIncome (Loss) Attributable to Hertz Global Holdings, Inc. and Subsidiaries' Common Stockholders
The net lossincome attributable to Hertz Global Holdings, Inc. and Subsidiaries' common stockholders decreased 55.8%increased $114.2 million primarily due to higher rental volumes in our worldwide car and equipment rental operations, improved residual values on the disposal of certain vehicles and used equipment, andlower net depreciation per vehicle in our car rental operations, disciplined cost management and increased pricing in our equipment rental operations, partly offset by lower pricing in our worldwide car rental 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.operations. The impact of changes in exchange rates on net lossincome 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 and internationally.
Cash Flows
As of June 30, 2011,2012, we had cash and cash equivalents of $747.6$586.2 million, a decrease of $1,626.6$345.6 million from $2,374.2$931.8 million as of December 31, 2010.2011. The following table summarizes such decrease:
| | Six Months Ended June 30, | | Six Months Ended June 30, | | ||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(in millions of dollars) | (in millions of dollars) | 2011 | 2010 | $ Change | 2012 | 2011 | $ Change | ||||||||||||||
Cash provided by (used in): | Cash provided by (used in): | ||||||||||||||||||||
Operating activities | $ | 686.9 | $ | 1,016.2 | $ | (329.3 | ) | ||||||||||||||
Investing activities | (2,177.7 | ) | (2,336.0 | ) | 158.3 | ||||||||||||||||
Financing activities | (167.4 | ) | 1,306.8 | (1,474.2 | ) | ||||||||||||||||
Operating activities | $ | 1,158.4 | $ | 686.9 | $ | 471.5 | |||||||||||||||
Investing activities | (2,203.7 | ) | (2,177.7 | ) | (26.0 | ) | |||||||||||||||
Financing activities | 704.5 | (167.4 | ) | 871.9 | |||||||||||||||||
Effect of exchange rate changes | Effect of exchange rate changes | 31.6 | (75.8 | ) | 107.4 | (4.8 | ) | 31.6 | (36.4 | ) | |||||||||||
Net change in cash and cash equivalents | Net change in cash and cash equivalents | $ | (1,626.6 | ) | $ | (88.8 | ) | $ | (1,537.8 | ) | $ | (345.6 | ) | $ | (1,626.6 | ) | $ | 1,281.0 | |||
During the six months ended June 30, 2011,2012, we generated $329.3$471.5 million lessmore cash from operating activities compared with the same period in 2010.2011. The decreaseincrease was primarily due to the timing of our equipment rental customer receivables, VAT receivables and vendor payments as a result of improvements in the operating performance of our business. The decrease was alsobusiness as well as due to premiums paid to redeem debt in 2011 andthe timing of interestour payments.
Our primary use of cash in investing activities is for the acquisition of revenue earning equipment, which consists of cars and equipment. During the six months ended June 30, 2011,2012, we used $158.3$26.0 million lessmore cash for investing activities compared with the same period in 2010.2011. The decreaseincrease in the use of funds was primarily due to increases in revenue earning equipment expenditures and acquisitions during the period, partly offset by a decrease in the year-over-year change in restricted cash and cash equivalents and an increase in the proceeds from disposal of revenue earning equipment in our car rental operations. The increase in revenue earning equipment expenditures was primarily due to higher car
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 andequipment rental volumes. The increase in proceeds from disposal of revenue earning equipment, partly offset by increases in revenue earning equipment and property and equipment expenditures. The increase inthe proceeds from the disposal of revenue earning equipment was primarily related to opportunistically selling our fleet while residuals are at peak levels as well as refreshing the age of our fleet. The increase in revenue earning equipment expenditures was primarily due to higher equipment rental volumes.improved residual values. As of June 30, 20112012 and December 31, 2010,2011, we had $274.3$175.4 million and $207.6$308.0 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 Like Kind Exchange Program, or "LKE Program," and to satisfy certain of our self-insurance regulatory reserve requirements. The increasedecrease in restricted cash and cash equivalents of $66.7$132.6 million from December 31, 20102011 to June 30, 2011,2012, primarily related to the timing of purchases and sales of revenue earning vehicles.
During the six months ended June 30, 2011, we generated $1,474.2 million less2012, cash flows from financing activities increased by $871.9 million compared with the same period in 2010.2011. The decreaseincrease was primarily due to payment of long-term debt (includes redemption of $518.5 million principala greater amount of 10.5%pre-funded debt associated with our Senior Subordinated Notes, redemption of $1,585 million principal amount of our outstanding 8.875% Senior Notes and a payment of $1.3 billion forNote redemptions in 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 (includes $1.4 billion Senior Term Facility issued March 2011 and $1 billion of 6.75% Senior Notes issued in February and March 2011).prior year.
Capital Expenditures
The tables below set forth the revenue earning equipment and property and equipment capital expenditures and related disposal proceeds on a cash basis consistent with our consolidated statements of cash flows, by quarter for the first2012 and second quarters of 2011 and 2010 (in millions of dollars).
| Revenue Earning Equipment | Property and Equipment | |||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Capital Expenditures | Disposal Proceeds | Net Capital Expenditures | Capital Expenditures | Disposal Proceeds | Net Capital Expenditures | |||||||||||||||||||||||||||||||||
2012 | |||||||||||||||||||||||||||||||||||||||
First Quarter | $ | 2,648.7 | $ | (2,009.3 | ) | $ | 639.4 | $ | 74.2 | $ | (47.6 | ) | $ | 26.6 | |||||||||||||||||||||||||
Second Quarter | 3,050.2 | (1,599.0 | ) | 1,451.2 | 63.0 | (8.8 | ) | 54.2 | |||||||||||||||||||||||||||||||
| | Revenue Earning Equipment | Property and Equipment | $ | 5,698.9 | $ | (3,608.3 | ) | $ | 2,090.6 | $ | 137.2 | $ | (56.4 | ) | $ | 80.8 | ||||||||||||||||||||||
| | Capital Expenditures | Disposal Proceeds | Net Capital Expenditures (Disposal Proceeds) | Capital Expenditures | Disposal Proceeds | Net Capital Expenditures | ||||||||||||||||||||||||||||||||
2011 | 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 | |||||||||||||||||||||||||||||||
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 | |||||||||||||||||
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 | ||||||||||||||||||||||||||
| Six Months Ended June 30, | | | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2012 | 2011 | $ Change | % Change | |||||||||
Revenue earning equipment expenditures | |||||||||||||
Car rental | $ | 5,369.5 | $ | 5,211.3 | $ | 158.2 | 3.0 | % | |||||
Equipment rental | 329.4 | 255.5 | 73.9 | 28.9 | % | ||||||||
Total | $ | 5,698.9 | $ | 5,466.8 | $ | 232.1 | 4.2 | % | |||||
The increase in our car rental operations revenue earning equipment expenditures was primarily due to higher rental volumes during the six months ended June 30, 2012 as compared to the six months ended June 30, 2011 which required us to increase our fleet levels. The increase in our equipment rental operations revenue earning equipment expenditures was primarily due to the timing of purchases and payments, partly offset by better utilization of our existing equipment during the six months ended June 30, 2012 as compared to the six months ended June 30, 2011.
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations (Continued)
| 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 | % | |||||||
| Six Months Ended June 30, | | | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2012 | 2011 | $ Change | % Change | |||||||||
Property and equipment expenditures | |||||||||||||
Car rental | $ | 109.8 | $ | 98.5 | $ | 11.3 | 11.4 | % | |||||
Equipment rental | 15.8 | 12.7 | 3.1 | 23.8 | % | ||||||||
Other | 11.6 | 14.2 | (2.6 | ) | (18.5 | )% | |||||||
Total | $ | 137.2 | $ | 125.4 | $ | 11.8 | 9.3 | % | |||||
The decrease in our car rental operations revenue earning equipment expenditures was primarily due to continued efforts tonet increase utilization of existing fleet during the six months ended June 30, 2011 as compared to the six months ended June 30, 2010. The increase in our equipment rental operations revenue earning equipment expenditures was primarily due to a continued improvement in economic conditions as well as efforts to reduce the age of our fleet during the six months ended June 30, 2011 as compared to the six months ended June 30, 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 increases in property and equipment expenditures were primarily due to aincreased locations in our car rental operations, continued improvement in economic conditions.conditions and business performance during the first half of the year.
Financing
Our primary liquidity needs include servicing of corporate and fleet related debt, the payment of operating expenses and purchases of rental vehicles and equipment to be used in our operations. Our primary sources of funding are operating cash flows, cash received on the disposal of vehicles and equipment, borrowings under our asset-backed securitizations and our asset-based revolving credit facilities and access to the credit markets generally.
As of June 30, 2011,2012, we had $11,693.6$12,467.9 million of total indebtedness outstanding. Cash paid for interest during the six months ended June 30, 2011,2012, was $343.4$281.9 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 June 30, 20112012 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)Maturities
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:
2013 | $ | 5,993.7 | (including $5,390.0 of other short-term borrowings*) | ||
2014 | $ | 280.0 | |||
2015 | $ | 1,211.3 | |||
2016 | $ | 888.4 | |||
2017 | $ | 244.7 | |||
After 2017 | $ | 3,908.1 |
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 |
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 event2012. As 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 our successful refinancing efforts in 2009, 2010 and the six months ended June 30, 20112012, short-term borrowings had a weighted average interest rate of 2.3%.
ITEM 2. Management's Discussion and the strategic cost reduction actions taken in the past, weAnalysis of Financial Condition and Results of
Operations (Continued)
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 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 formaturities over the next twelve months.
In February 2012, Hertz called the remainder of its outstanding 8.875% Senior Notes due 2014 and 7.875% Senior Notes due January 2014 for redemption. Hertz redeemed these notes in full during March 2012.
In March 2012, Hertz issued an additional $250 million in aggregate principal amount of the 6.75% Senior Notes due 2019. The proceeds of this March 2012 offering were used to redeem all of the outstanding 8.875% Senior Notes due 2014 and together with cash on hand, all of the outstanding 7.875% Senior Notes due 2014 which resulted in the write-off of unamortized debt costs of $3.2 million.
In March 2012, Hertz amended the Canadian Securitization to extend the maturity date from March 2012 to May 2012. In the second quarter 2012, the maturity date was extended to June 2013.
In April 2012, Hertz paid off the remaining debt outstanding under the U.S. ABS Program Series 2011-2 U.S. Fleet Variable Funding Notes and terminated the facility.
In May 2012, the borrowing capacity of the Series 2009-1 under our U.S. Fleet Variable Funding Notes was increased by $250 million.
In June 2012, Hertz amended the European Revolving Credit Facility to extend the maturity date from June 2013 to June 2015.
In June 2012, Hertz amended the Brazilian Fleet Financing Facility to extend the maturity date from June 2012 to February 2013.
In June 2012, Hertz amended the European Seasonal Revolving Credit Facility under the European Revolving Credit Facility to create a commitment period running from June 2012 to November 2012 that provides for aggregate maximum borrowings of €85.7 million (the equivalent of $106.9 million as of June 30, 2012), subject to borrowing base availability.
During the first half of 2012, Donlen's GN II Variable Funding Notes remained outstanding and lender commitments thereunder were increased to permit aggregate maximum borrowings of $900.0 million (subject to borrowing base availability).
For subsequent events relating to our indebtedness, see Note 17 to the Notes to our condensed consolidated financial statements included in this Report.
Registration Rights and Indentures for the Senior Notes
Pursuant to the terms of exchange and registration rights agreements entered into in connection with the issuance of $250 million in aggregate principal amount of the 6.75% Senior Notes due 2019 in March 2012, Hertz has agreed to file a registration statement under the Securities Act of 1933, as amended, to permit either the exchange of such notes for registered notes or, in the alternative, the registered resale of such notes. Hertz's failure to meet its obligations under the exchange and registration rights agreement, including by failing to have the registration statement become effective by March 2013 or failing to complete the exchange offer by April 2013, will result in Hertz incurring special interest on such notes at a per annum rate of 0.25% for the first 90 days of any period where a default has occurred and is continuing, which rate will be increased by an additional 0.25% during each subsequent 90 day period, up to a maximum of 0.50%. We do not believe the special interest obligation is probable, and as such, we have not recorded any amounts with respect to this registration payment arrangement.
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations (Continued)
Hertz's obligations under the indentures for the Senior Notes are guaranteed by each of its direct and indirect domestic subsidiaries that is a guarantor under the Senior Term Facility. The guarantees of all of the subsidiary guarantors may be released to the extent such subsidiaries no longer guarantee our Senior Credit Facilities in the United States.
The indentures for the Senior Notes contain covenants that, among other things, limit or restrict the ability of the Hertz credit group to incur additional indebtedness, incur guarantee obligations, prepay certain indebtedness, make certain restricted payments (including paying dividends, redeeming stock or making other distributions to parent entities of Hertz and other persons outside of the Hertz credit group), make investments, create liens, transfer or sell assets, merge or consolidate, and enter into certain transactions with Hertz's affiliates that are not members of the Hertz credit group.
Other Financing Risks
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 fleetfinancing facilities 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 issuedTable of Contents
ITEM 2. Management's Discussion and outstanding shareAnalysis of common stockFinancial Condition and Results 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.
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 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 arefailure to maintain certain levels of liquidity will subject the Hertz credit group to a
Table contractually specified fixed charge coverage ratio of Contents
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued)
springing financial maintenance covenant uponnot less than 1:1 for the occurrence of certain triggering events.four quarters most recently ended. As of June 30, 2011, no triggering event had occurred requiring testing of the springing financial maintenance covenant.2012, we were not subject to such contractually specified fixed charge coverage ratio.
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, 2011,2012, the following facilities were available for the use of Hertz and its subsidiaries (in millions of dollars):
| Remaining Capacity | Availability Under Borrowing Base Limitation | |||||||
---|---|---|---|---|---|---|---|---|---|
Corporate Debt | |||||||||
Senior ABL Facility | $ | 1,340.8 | $ | 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 | |||||
| Remaining Capacity | Availability Under Borrowing Base Limitation | |||||
---|---|---|---|---|---|---|---|
Corporate Debt | |||||||
Senior ABL Facility | $ | 1,027.6 | $ | 782.4 | |||
Total Corporate Debt | 1,027.6 | 782.4 | |||||
Fleet Debt | |||||||
U.S. Fleet Variable Funding Notes | 163.1 | 36.8 | |||||
Donlen GN II Variable Funding Notes | 26.1 | 2.1 | |||||
U.S. Fleet Financing Facility | 54.0 | 16.2 | |||||
European Revolving Credit Facility | 119.3 | 66.7 | |||||
European Securitization | 157.3 | 16.8 | |||||
Canadian Securitization | 63.4 | 20.6 | |||||
Australian Securitization | 97.8 | — | |||||
Capitalized Leases | 132.2 | 25.6 | |||||
Total Fleet Debt | 813.2 | 184.8 | |||||
Total | $ | 1,840.8 | $ | 967.2 | |||
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
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations (Continued)
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, 2011,2012, the Senior Term Facility had approximately $0.5$0.3 million available under the letter of credit facility and the Senior ABL Facility had $1,111.7$1,081.6 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, 20112012 and December 31, 2010,2011, our International Fleet Financing No. 1 B.V., International Fleet Financing No. 2 B.V. and HA Funding Pty, Ltd. variable interest entities had total assets primarily comprised of loans receivable and revenue earning equipment of $651.4$528.1 million and $652.1$456.3 million, respectively, and total liabilities primarily comprised of debt of $650.8$527.6 million and $651.6$455.8 million, respectively.
Off-Balance Sheet Commitments and Arrangements
As of June 30, 20112012 and December 31, 2010,2011, 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 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,
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations (Continued)
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 June 30, 20112012 and December 31, 2010,2011, the aggregate amounts accrued for environmental liabilities including liability for environmental indemnities, reflected in our condensed consolidated balance sheets in "Accrued liabilities" were $1.7$1.4 million and $1.6$1.5 million, respectively. The accrual generally represents the estimated cost to study potential environmental issues at sites deemed to require investigation or clean-up activities, and the estimated cost to implement remediation actions, including on-going maintenance, as required. Cost estimates are developed by site. Initial cost estimates are based on historical experience at similar sites and are refined over time on the basis of in-depth studies of the sites. For many sites, the remediation costs and other damages for which we ultimately may be responsible cannot be reasonably estimated because of uncertainties with respect to factors such as our connection to the site, the materials there, the involvement of other potentially responsible parties, the application of laws and other standards or regulations, site conditions, and the nature and scope of investigations, studies, and remediation to be undertaken (including the technologies to be required and the extent, duration, and success of remediation).
Risk Management
For a discussion of additional risks arising from our operations, including vehicle liability, general liability and property damage insurable risks, see "Item 1—Business—Risk Management" in our Form 10-K and "Part II, Item 1A—Risk Factors" in our subsequent quarterly reports on Form 10-Q.10-K.
Market Risks
We are exposed to a variety of market risks, including the effects of changes in interest rates (including credit spreads), foreign currency exchange rates and fluctuations in 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 13 to the Notes to our condensed consolidated financial statements included in 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 7 and 13 to the Notes to our condensed consolidated financial
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations (Continued)
statements included in this Report and Notes 4 and 13 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."
We have a significant amount of debt 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)
commercial paper rates plus an applicable margin. Increases in interest rates could therefore significantly increase the associated interest payments that we are required to make on this debt.
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 June 30, 2011,2012, our net lossincome would increasedecrease by an estimated $26.4$37.9 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 various 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.locally. 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 Notes due 2014 as an effective net investment hedge of our Euro-denominated net investment in our international operations.
For the three-monththree and six-month periodssix months ended June 30, 2011,2012, our consolidated statement of operations contained realized and unrealized losses relating to the effects of foreign currency of $5.1$1.0 million and $7.7$5.4 million, respectively.
See Note 13 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 beganrates and maintain 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, 2011,2012, we recognized a losslosses of $0.2$3.3 million and a gain of $2.9$1.5 million, respectively, in "Direct operating" on our consolidated statement of operations relating to our gasoline swaps. See Note 13 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.
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 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. Over the last few years, for strategic purposes, such as cash management and fleet reduction, we have recognized some taxable gains in the program. In 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. 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, including paying down existing debt obligations, future growth initiatives and for general operating purposes. Purchases of vehicles will continue to be funded with a combination of asset-backed securitizations, asset-based revolving credit facilities and corporate liquidity. We expect that recent tax legislation, effective SeptemberFrom August 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 mainlywere more than offset by 100% tax depreciation on newly acquired vehicles. Our federal net operating loss position for U.S. tax purposes should remain relatively unchanged whenDuring 2012 50% bonus depreciation is allowed, which will continue to support suspension of the LKE programProgram through 2012 without adverse tax implications. The timing of reinstating the LKE Program is re-instated.under continued analysis.
On January 1, 2009, Bank of America acquired Merrill Lynch & Co., Inc., the parent company of BAMLCP.MLGPE. Accordingly, Bank of America is now an indirect beneficial owner of ourHertz Holdings' common stock held by BAMLCPMLGPE 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 5 of the Notes to our audited annual consolidated financial statements included in our Form 10-K under the caption "Item 8—Financial
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations (Continued)
Statements and Supplementary Data." Our 20112012 worldwide pre-tax pension expense is expected to be approximately $38.3$34.5 million, which would represent an increase of $6.1$13.2 million from 2010.2011. The anticipated increase in expense compared to 20102011 is primarily due to lower expected rates of return on assets as well as adverse exchange rate movements.in 2012, lower discount rates at the end of 2011 compared to 2010 and a curtailment gain in the U.K. recorded in 2011.
We participate in various "multiemployer" pension plans. In the event that we withdraw from participation in one of these plans, then applicable law could require us to make an additional lump-sum contribution to the plan, and we would have to reflect that as an expense in our consolidated statement of operations and as a liability on our condensed consolidated balance sheet. Our withdrawal liability for any multiemployer plan would depend on the extent of the plan's funding of vested benefits. At least one multiemployer plan in which we participate is reported to have, and other of our multiemployer plans could have, significant underfunded liabilities. Such underfunding may increase in the event other employers become insolvent or withdraw from the applicable plan or upon the inability or failure of withdrawing employers to pay their withdrawal liability. In addition, such underfunding may increase as a result of lower than expected returns on pension fund assets or other funding deficiencies.
RecentRecently Issued Accounting Pronouncements
In June 2011, the Financial Accounting Standards Board, or "FASB," issued Accounting Standards Update No. 2011-05, "Presentation of Comprehensive Income," requiring companies to present items of net income and other comprehensive income either in one continuous statement, referred to as the statement of comprehensive income, or in two separate, but consecutive statements of net income and other comprehensive income. The amendments in this update do not change the items that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income. These provisions will becomebecame effective for us beginning with ourthe quarterly report for the period ended March 31, 2012. In December 2011, the FASB issued Accounting Standards Update No. 2011-12, "Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05," which defers the timing of implementing only those changes in Update 2011-05 that relate to the presentation of reclassification adjustments.
Other Financial Information
With respect to the unaudited interim financial information of Hertz Global Holdings, Inc. as of June 30, 20112012 and for the three-month and six-month periods ended June 30, 20112012 and 20102011 included in this Form 10-Q, PricewaterhouseCoopers LLP reported 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, 20112, 2012 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 report should be restricted 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 their report on such unaudited interim financial information because that report is not a "report" or "part" of a registration statement prepared or certified by PricewaterhouseCoopers 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 Form 10-K for the fiscal year ended December 31, 2010.2011. 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, or the "Exchange Act," 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 onupon 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 June 30, 20112012 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 11 to the Notes to our annual audited consolidated financial statements included in our Form 10-K.
The following recent developmentdevelopments pertaining to a legal proceedingproceedings described in our Form 10-K isare furnished on a supplemental basis:
In May 2011,June 2012, inDavis Landscape, Ltd. et al. v. Hertz Equipment Rental Corporation, the judge denied our motion for partial summary judgment on the Loss Damage Waiver claim and, in July 2012, the related casesjudge granted our motion for partial summary judgment on the Environmental Recovery Fee claim. The court also entered an order referring the case to mediation by private consent of the parties.
In May 2012, all briefing was completed inJanet Sobel and Daniel Dugan, PhD., individually and on behalf of all others similarly situated v. The Hertz Corporation on the two outstanding issues—unjust enrichment and damages. The briefing included expert reports as submitted by both sides.
In May 2012, inMichael Shames et al. v. The Hertz Corporation et al., the district court issued an order preliminarily approving the settlement of this action; certifying a settlement class; certifying a class representative and lead counsel; and providing for class notice. The court also scheduled a final approval hearing for October 29, 2012. We have accrued our best estimate of the ultimate cost which is not material to our financial condition.
In June 2012, a mediation was held inFun Services of Kansas City, Inc., individually and as the representative of a class of similarly-situated persons v. Hertz Equipment Rental Corporation. andLydia Lee et al. v. Enterprise Rent-A-Car Company et al. denied the plaintiffs' motion for final approvalAs a result of the proposedmediation, the parties have reached an agreement in principle to settle this class action. A draft settlement agreement that addresses compensation to class members, class counsel fees and denied the plaintiffs' motion for attorneys' fees, expensesclaims process, and incentive awards as moot. Thewhich would be subject to court concluded thatapproval, is being finalized by the absence of evidence as to the actual value to the classparties' counsel. We have accrued our best estimate of the coupons offered in settlement and the value of the claimsultimate cost which is not material to be surrendered precluded a finding that the settlement is fair, reasonable and adequate.our financial condition.
Aside from the above mentioned, none of the other legal proceedings described in our Form 10-K have experienced material changes.
OnAs previously disclosed, on June 15, 2011 we received a subpoena from the staff of the Securities and Exchange Commission, or "SEC," seeking production of documents related to our proposed business combination with Dollar Thrifty Automotive Group, Inc. We intend to cooperateare cooperating fully with the SEC's investigation. We do not expect this investigation to have any effect on oura 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, 2010 and "Part 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 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.
Even 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.
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.
Date: August | 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 INDEX
Exhibit Number | Description | |
---|---|---|
Form of | ||
Form of | ||
Form of | ||
15 | Letter from PricewaterhouseCoopers LLP, Independent Registered Public Accounting Firm, dated August | |
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* |