HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
THE HERTZ CORPORATION AND SUBSIDIARIES
TABLE OF CONTENTS
HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
THE HERTZ CORPORATION AND SUBSIDIARIES
GLOSSARY OF TERMS
Unless the context otherwise requires in this Annual Report on Form 10-K for the year ended December 31, 20192022, we use the following defined terms:
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(i) | "2019 Annual Report" or "Combined Form 10-K" means this Annual Report on Form 10-K for the year ended December 31, 2019, which combines the annual reports for Hertz Global Holdings, Inc. and The Hertz Corporation into a single filing; |
(i)"2022 Annual Report" or "Combined Form 10-K" means this Annual Report on Form 10-K for the year ended December 31, 2022, which combines the annual reports for Hertz Global Holdings, Inc. and The Hertz Corporation into a single filing;
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(ii) | "All Other Operations" means the reportable segment comprised primarily of the Company's Donlen business and the Company's other business activities which comprise less than 1% of revenues and expenses of the segment; |
(ii)"2021 Rights Offering" means the Company's rights offering providing for the issuance of common stock in reorganized Hertz Global by Hertz Global's former equity holders, holders of the Company Senior Notes and lenders under the Alternative Letter of Credit Facility and certain equity commitment parties pursuant to their obligations under an equity purchase and commitment agreement, as further described in Note 17, "Equity – Hertz Global," to the Notes to our consolidated financial statements under the caption Item 8, "Financial Statements and Supplementary Data" included in this 2022 Annual Report;
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(iii) | "Alternative Letter of Credit Facility" means the standalone $250 million letter of credit facility that the Company entered into in 2019 as further described in Note 5, "Debt," to the Notes to our consolidated financial statements under the caption Item 8, "Financial Statements and Supplementary Data” included in this 2019 Annual Report; |
(iii)"All other operations" means our former All Other Operations reportable segment which was no longer deemed a reportable segment in the second quarter of 2021 resulting from the sale of our Donlen subsidiary on March 30, 2021;
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(iv) | "the Code" means the Internal Revenue Code of 1986, as amended; |
(iv)"Americas RAC" means our rental car reportable segment established in the second quarter of 2021 consisting of the countries and regions of the U.S., Canada, Latin America and Caribbean;
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(v) | "the Company", "we", "our" and "us" mean Hertz Global and Hertz interchangeably; |
(v)"Apollo" means Apollo Capital Management L.P. and its affiliates;
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(vi) | "company-operated" or "company-owned" rental locations are those through which we, or an agent of ours, rent vehicles that we own or lease; |
(vi)"Bankruptcy Code" means Title 11 of the United States Code, 11 U.S.C. §§ 101-1532;
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(vii) | "concessions" mean licensing or permitting agreements or arrangements granting us the right to conduct our vehicle rental business at airports; |
(vii)"Bankruptcy Court" means the U.S. Bankruptcy Court for the District of Delaware;
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(viii) | "Corporate" means corporate operations, which include general corporate assets and expenses and certain interest expense (including net interest on non-vehicle debt); |
(viii)"Board" means the Company's board of directors;
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(ix) | "Dollar Thrifty" means Dollar Thrifty Automotive Group, Inc., a consolidated subsidiary of the Company; |
(ix)"Chapter 11" means chapter 11 of the Bankruptcy Code;
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(x) | "Donlen" means Donlen Corporation, a consolidated subsidiary of the Company. Donlen conducts our vehicle leasing and fleet management services; |
(x)"Chapter 11 Cases" means the Chapter 11 cases jointly administered in the Bankruptcy Court under the caption In re The Hertz Corporation, et al., Case No. 20-11218 (MFW);
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(xi) | "Hertz Gold Plus Rewards" means our customer loyalty program and our global expedited rental program; |
(xi)"the Code" means the Internal Revenue Code of 1986, as amended;
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(xii) | "Hertz" means The Hertz Corporation, its consolidated subsidiaries and variable interest entities, our primary operating company and a direct wholly-owned subsidiary of Rental Car Intermediate Holdings, LLC, which is wholly-owned by Hertz Holdings; |
(xii)"the Company", "we", "our" and "us" mean Hertz Global and Hertz interchangeably;
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(xiii) | "Hertz Global" means Hertz Global Holdings, Inc., our top-level holding company, its consolidated subsidiaries and variable interest entities, including The Hertz Corporation; |
(xiii)"company-operated" rental locations are those through which we, or an agent of ours, rent vehicles that we own or lease;
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(xiv) | "Hertz Ultimate Choice" is an offering at select airport locations in the U.S. that allows customers to choose their vehicle from a range of makes, models and colors available within the zone indicated on their reservation; |
(xiv)"concessions" mean licensing or permitting agreements or arrangements granting us the right to conduct our vehicle rental business at airports;
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(xv) | "Hertz Holdings" refers to Hertz Global Holdings, Inc. excluding its subsidiaries; |
(xv)"COVID-19" means the coronavirus disease declared a global pandemic by the World Health Organization in March 2020;
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(xvi) | "International RAC" means the international rental car reportable segment; |
(xvi)"the Debtors" means Hertz Global, Hertz and their direct and indirect subsidiaries in the U.S. and Canada that filed voluntary petitions for relief under Chapter 11 in the Bankruptcy Court on May 22, 2020;
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(xvii) | "Letter of Credit Facility" means the standalone $400 million letter of credit facility that the Company entered into in 2017 as further described in Note 5, "Debt," to the Notes to our consolidated financial statements |
HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
THE HERTZ CORPORATION AND SUBSIDIARIES
(xvii)"Donlen Sale" means the sale of substantially all assets and certain liabilities of the Company's Donlen subsidiary;
(xviii)"Dollar Thrifty" means Dollar Thrifty Automotive Group, Inc., a consolidated subsidiary of the Company;
(xix)"Effective Date" means June 30, 2021 the date in which the Plan of Reorganization became effective and the Company emerged from Chapter 11;
(xx)"ESG" means environmental, social and governance;
(xxi)"European Vehicle Notes" means the unsecured senior notes entered into by Hertz Holdings Netherlands B.V., which were paid in full and terminated in accordance with the Company's Plan of Reorganization on the Effective Date;
(xxii)"FASB" means the Financial Accounting Standards Board;
(xxiii)"First Lien Credit Agreement" means the credit agreement reorganized Hertz entered into on the Effective Date as further described in Note 6, "Debt," to the Notes to our consolidated financial statements under the caption Item 8, "Financial Statements and Supplementary Data” included in this 20192022 Annual Report;
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(xviii) | “non-program vehicles” means vehicles not purchased under repurchase or guaranteed depreciation programs for which we are exposed to residual risk; |
(xxiv)"First Lien Credit Facilities" means the First Lien RCF and Term Loans, collectively, provided for under the First Lien Credit Agreement as further described in Note 6, "Debt," to the Notes to our consolidated financial statements under the caption Item 8, "Financial Statements and Supplementary Data” included in this 2022 Annual Report;
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(xix) | "Old Hertz Holdings" for periods on or prior to June 30, 2016, and "Herc Holdings" for periods after June 30, 2016, refer to the former Hertz Global Holdings, Inc.; |
(xxv)"First Lien RCF" means the senior secured revolving credit facility in an initial aggregate committed amount of $1.3 billion as further described in Note 6, "Debt," to the Notes to our consolidated financial statements under the caption Item 8, "Financial Statements and Supplementary Data” included in this 2022 Annual Report;
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(xx) | "program vehicles" means vehicles purchased under repurchase or guaranteed depreciation programs with vehicle manufacturers; |
(xxvi)"Hertz Gold Plus Rewards" means our customer loyalty program and our global expedited rental program;
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(xxi) | "replacement renters" means renters who need vehicles while their vehicle is being repaired or is temporarily unavailable for other reasons; |
(xxvii)"Hertz" means The Hertz Corporation, its consolidated subsidiaries and VIEs, our primary operating company and a direct wholly-owned subsidiary of Rental Car Intermediate Holdings, LLC, which is wholly owned by Hertz Holdings;
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(xxii) | "Rights Offering" means the Company's rights offering providing for the issuance of new shares of Hertz Global common stock that closed in July 2019 as further described in Note 16, "Equity and Earnings (Loss) Per Share - Hertz Global," to the Notes to our consolidated financial statements under the caption Item 8, "Financial Statements and Supplementary Data" included in this 2019 Annual Report; |
(xxviii)"Hertz Global" means Hertz Global Holdings, Inc., our top-level holding company, its consolidated subsidiaries and VIEs, including The Hertz Corporation;
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(xxiii) | "SEC" means the United States Securities and Exchange Commission; |
(xxix)"Hertz Ultimate Choice" is an offering at select airport locations in the U.S. that allows customers to choose their vehicle from a range of makes, models and colors available within the zone indicated on their reservation;
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(xxiv) | "Senior Facilities" means the Company's senior secured term facility and senior secured revolving credit facility ("Senior RCF") as further described in Note 5, "Debt," to the Notes to our consolidated financial statements under the caption Item 8, "Financial Statements and Supplementary Data” included in this 2019 Annual Report; |
(xxx)"Hertz Holdings" refers to Hertz Global Holdings, Inc. excluding its subsidiaries and VIEs;
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(xxv) | "Spin-Off" means the spin-off by Old Hertz Holdings of its global vehicle rental business through a dividend to stockholders of record of Old Hertz Holdings as of the close of business on June 22, 2016, the record date for the distribution, of all of the issued and outstanding shares of common stock of Hertz Rental Car Holding Company, Inc., which was re-named Hertz Global Holdings, Inc. in connection with the Spin-Off, on a one-to-five basis. |
(xxxi)"HVF III" refers to Hertz Vehicle Financing III LP, a non-Debtor, special purpose financing subsidiary of Hertz;
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(xxvi) | "Tax Reform" means legislation signed into law on December 22, 2017 which amends the U.S. Internal Revenue Code to reduce tax rates and modify policies, credits, and deductions for individuals and businesses, commonly known as the "Tax Cuts and Jobs Act" ("TCJA"); |
(xxxii)"International RAC" means our international rental car reportable segment, which, effective in the second quarter of 2021, no longer includes Canada, Latin America and the Caribbean;
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(xxvii) | "TNC" means transportation network companies that provide ride-hailing services that pair passengers with drivers via websites and mobile applications; |
HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
THE HERTZ CORPORATION AND SUBSIDIARIES
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(xxviii) | "TNC Partners" means certain transportation network companies where we provide rental vehicles to their drivers under agreements that specify the relevant terms; |
(xxxiii)"Lease Rejection Orders" means the Bankruptcy Court orders entered in the Chapter 11 Cases to reject certain unexpired leases in our Americas RAC segment;
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(xxix) | "U.S." means the United States of America; |
(xxxiv)"Letter of Credit Facility" means the standalone $400 million letter of credit facility that Hertz entered into in 2017, which was paid in full and terminated in accordance with the Company's Plan of Reorganization on the Effective Date;
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(xxx) | "U.S. RAC" means the U.S. rental car reportable segment; |
(xxxv)“non-program vehicles” means vehicles not purchased under repurchase or guaranteed depreciation programs and thus for which we are exposed to residual risk;
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(xxxi) | "Vehicle Utilization" means the portion of our vehicles that are being utilized to generate revenue; and |
(xxxvi)"Old Hertz Holdings" for periods on or prior to June 30, 2016, and "Herc Holdings" for periods after June 30, 2016, refer to the former Hertz Global Holdings, Inc.;
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(xxxii) | "vehicles” means cars, vans, crossovers and light trucks. |
(xxxvii)"Plan of Reorganization" means the solicitation version of the First Modified Third Amended Joint Chapter 11 Plan of Reorganization of the Debtors (as amended, supplemented or otherwise modified in accordance with its terms);
(xxxviii)"Plan Sponsors" means collectively Apollo, Knighthead Capital Management, LLC and its affiliates and Certares Opportunities LLC and its affiliates;
(xxxix)"program vehicles" means vehicles purchased under repurchase or guaranteed depreciation programs with vehicle manufacturers;
(xl)"Public Warrants" means 30-year public warrants as further described in Note 19, "Public Warrants - Hertz Global," to the Notes to our consolidated financial statements under the caption Item 8, "Financial Statements and Supplementary Data” included in this 2022 Annual Report;
(xli)"replacement renters" means renters who need vehicles while their vehicle is being repaired or is temporarily unavailable for other reasons;
(xlii)"SEC" means the United States Securities and Exchange Commission;
(xliii)"Term Loans" means the Term B Loan and Term C Loan, collectively, as further described in Note 6, "Debt," to the Notes to our consolidated financial statements under the caption Item 8, "Financial Statements and Supplementary Data” included in this 2022 Annual Report
(xliv)"Ride Sharing Partners" means certain ride sharing companies with whom we have entered into commercial arrangements to provide rental vehicles to their drivers;
(xlv)"U.S." means the United States of America;
(xlvi)"U.S. GAAP" means accounting principles generally accepted in the U.S.;
(xlvii)"VIE" means variable interest entity;
(xlviii)"vehicles” means cars, vans, crossovers and light trucks.
We have proprietary rights to a number of trademarks used in this 20192022 Annual Report that are important to our business, including, without limitation, Hertz, Dollar, Thrifty, Donlen, Hertz Gold Plus Rewards, Hertz Ultimate Choice, Hertz 24/7 Hertz Fast Lane,and Hertz My Car and ExpressRent.Car. Solely for convenience, we have omitted the ® and ™
HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
THE HERTZ CORPORATION AND SUBSIDIARIES
trademark designations for trademarks named in this 20192022 Annual Report, but references should not be construed as any indicator that their respective owners will not assert, to the fullest extent under applicable law, their rights thereto.
HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
THE HERTZ CORPORATION AND SUBSIDIARIES
EXPLANATORY NOTE
COMBINED FORM 10-K
This 20192022 Annual Report combines the annual reports on Form 10-K for the year ended December 31, 20192022 of Hertz Global and Hertz.
Hertz Global owns all shares of the common stock of Hertz through its wholly-owned subsidiary, Rental Car Intermediate Holdings, LLC.
Management operates Hertz Global and Hertz as one enterprise. The management of Hertz Global consists of the same members as the management of Hertz. These individuals are officers of Hertz Global and Hertz and employees of Hertz. The individuals that comprise Hertz Global'smembers of Hertz's board of directors are alsoall executive officers of Hertz Global.
Between May 22, 2020 and June 30, 2021, the same individuals that make up Hertz's boardDebtors operated as debtors-in-possession under the jurisdiction of directors.the Bankruptcy Court and in accordance with the applicable provisions of the Bankruptcy Code and orders of the Bankruptcy Court. In general, as debtors-in-possession under the Bankruptcy Code, the Debtors were authorized to continue to operate as an ongoing business but could not engage in transactions outside the ordinary course of business without the prior approval of the Bankruptcy Court.
We believe combining the annual reports on Form 10-K of Hertz Global and Hertz into this single report results in the following benefits:
•enhancing investors' understanding of Hertz Global and Hertz by enabling investors to view the business as a whole in the same manner as management views and operates the business;
•eliminating duplicative disclosure and providing a more streamlined and readable presentation since a substantial portion of the disclosures apply to both Hertz Global and Hertz; and
•creating time and cost efficiencies through the preparation of one combined annual report instead of two separate annual reports.
Hertz, generally through its subsidiaries, holds all of the revenue earning vehicles, property, plant and equipment and all other assets, including the ownership interests in consolidated and unconsolidated joint ventures and variable interest entities ("VIEs").VIEs, of the business. Hertz conducts the operations of the business and is structured as a corporation with no publicly traded equity. Except forto the extent that net proceeds from public equitysecurity issuances by Hertz Global whichand cash exercises of Hertz Global Public Warrants, are contributed to Hertz, Hertz generates its required capital through its operations or through itsfinancing activities, including the incurrence of indebtedness.
Hertz Global does not conduct business itself, other than issuing public equity or debt obligations or receiving proceeds from cash exercises of Hertz Global Public Warrants from time to time, and incurring expenses required to operate as a public company. Hertz Global and Hertz have entered into a master loan agreement, wherebywhich expired in May 2022, under which Hertz Global maycould borrow from Hertz up to $425$25 million. Transactions recorded under the master loan agreement arewere eliminated upon consolidation at the Hertz Global level but not upon consolidation at the Hertz level.
Differences between the financial statements of Hertz Global and Hertz are generally limited to the activity described above and the remaining assets, liabilities, revenues and expenses of Hertz Global and Hertz are the same on their respective financial statements.
Although Hertz is generally the entity that enters into contracts, and holds assets and incurs debt, Hertz Global consolidates Hertz for financial statement purposes, and therefore, disclosures that relate to activities of Hertz also generally apply to Hertz Global. In the sections that combine disclosures of Hertz Global and Hertz, this report refers to actions as being actions of the Company, or Hertz Global, which is appropriate because the business is one enterprise and Hertz Global operates the business through Hertz.Global. When appropriate, Hertz Global and Hertz are
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EXPLANATORY NOTE (Continued)
named specifically for their individual disclosures and any significant differences between the operations and results of Hertz Global and Hertz are separately disclosed and explained.
This report also includes separate Exhibit 31 and 32 certifications for each of Hertz Global and Hertz in order to establish that the Chief Executive Officer and the Chief Financial Officer of each entity have made the requisite certifications and that Hertz Global and Hertz are compliant with Rule 13a-15 or Rule 15d-15 of the Securities Exchange Act of 1934 (the "Exchange Act") and 18 U.S.C. §1350.
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EXPLANATORY NOTE (Continued)
This Combined Form 10-K is separately filed by Hertz Global Holdings, Inc. and The Hertz Corporation. Each registrant hereto is filing on its own behalf all of the information contained in this 20192022 Annual Report that relates to such registrant. Each registrant hereto is not filing any information that does not relate to such registrant, and therefore makes no representation as to any such information.
HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
THE HERTZ CORPORATION AND SUBSIDIARIES
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS AND SUMMARY OF RISK FACTORS
Certain statements contained or incorporated by reference in this 20192022 Annual Report 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 includeare identified by words such as "believe," "expect," "project," "potential," "anticipate," "intend," "plan," "estimate," "seek," "will," "may," "would," "should," "could," "forecasts""forecasts," "guidance" or similar expressions.expressions, and include information concerning our liquidity, our results of operations, our business strategies, the business environment and other information. 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.appropriate. We believe these judgments are reasonable, but you should understand that these statements are not guarantees of future 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.
Important factors that could affect our actual results and cause them to differ materially from those expressed in forward-looking statements include, among others,other things, those that may be disclosed from time to time in subsequent reports filed with or furnished to the SEC, those described under “Risk Factors”"Risk Factors" set forth in Item 1A of this 20192022 Annual Report, and the following, which were derivedalso summarizes the principal risks of our business:
•our ability to purchase adequate supplies of competitively priced vehicles at a reasonable cost in part fromorder to efficiently service rental demand, including as a result of disruptions in the risks set forth in Item 1A of this 2019 Annual Report:global supply chain;
•our ability to attract and retain effective frontline employees, senior management and other key employees;
•levels of travel demand, particularly with respect to business and leisure travel in the United StatesU.S. and in global markets;
•significant changes in the competitive environment and the effect of competition in our markets on rental volume and pricing, including on our pricing policies or use of incentives;pricing;
•occurrences that disrupt rental activity during our peak periods;periods including in critical geographies;
•our ability to accurately estimate future levels of rental activity and adjust the number and mix of vehicles used in our rental operations accordingly;
increased vehicle costs due to declining value of our non-program vehicles;
•our ability to maintain sufficient liquidity and the availabilityimplement our business strategy or strategic transactions, including our ability to us of additional or continued sources of financing for our revenue earning vehiclesimplement plans to support a large scale electric vehicle fleet and to refinance our existing indebtedness;play a central role in the modern mobility ecosystem;
•our ability to adequately respond to changes in technology customer demandsimpacting the mobility industry;
•the mix of program and market competition;non-program vehicles in our fleet can lead to increased exposure to residual risk upon disposition;
our ability to purchase adequate supplies of competitively priced vehicles and risks relating to increases in the cost of the vehicles we purchase;
our recognition of previously deferred tax gains on the disposition of revenue earning vehicles;
•financial instability of the manufacturers of our vehicles, which could impact their ability to fulfill obligations under repurchase or guaranteed depreciation programs;
•an increase in our vehicle costs or disruption to our rental activity particularly during our peak periods, due to safety recalls by the manufacturers of our vehicles;
our ability to execute a business continuity plan;
•our access to third-party distribution channels and related prices, commission structures and transaction volumes;
•our ability to offer an excellent customer experience, retain and increase customer loyalty and market share;
risks associated with operating in many different countries, including the risk of a violation or alleged violation of applicable anticorruption or antibribery laws, •our ability to repatriate cash from non-U.S. affiliates without adverse tax consequences,maintain our exposure to fluctuationsnetwork of leases and vehicle rental concessions at airports and other key locations in foreign currency exchange ratesthe U.S. and internationally;
•our ability to effectively manage our international operations after the United Kingdom's withdrawal from the European Union;maintain favorable brand recognition and a coordinated branding and portfolio strategy;
a major disruption in our communication or centralized information networks;
HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
THE HERTZ CORPORATION AND SUBSIDIARIES
CAUTIONARY NOTE REGARDING FORWARD LOOKING STATEMENTS AND SUMMARY OF RISK FACTORS (Continued)
a failure to maintain, upgrade and consolidate our information technology systems;
•our ability to effectively manage our union relations and labor agreement negotiations;
•our ability, and that of our key third-party partners, to prevent the misuse or theft of information we possess, including as a result of cyber security breaches and other security threats;threats, as well as to comply with privacy regulations across the globe;
costs•a major disruption in our communication or centralized information networks or a failure to maintain, upgrade and consolidate our information technology systems;
•risks associated with litigation and investigationsoperating in many different countries, including the risk of a violation or any failurealleged violation of applicable anti-corruption or inability to comply withanti-bribery laws and regulations or any changes in the legal and regulatory environment, including laws and regulations relating to environmental matters and consumer privacy and data security;
our ability to maintain our network of leases and vehicle rental concessions at airports in the U.S. and internationally;repatriate cash from non-U.S. affiliates without adverse tax consequences;
•risks relating to tax laws, including those that affect our ability to maintain favorable brand recognitionrecapture accelerated tax depreciation and a coordinated branding and portfolio strategy;expensing, as well as any adverse determinations or rulings by tax authorities;
•our ability to maintain an effective employee retentionutilize our net operating loss carryforwards;
•our exposure to uninsured liabilities relating to personal injury, death and talent management strategy and resulting property damage, or otherwise;
•changes in personnel and employee relations;
changes in the existing, or the adoption of new laws, regulations, policies or other activities of governments, agencies and similar organizations, where such actions mayincluding those related to accounting principles, that affect our operations, the cost thereofour costs or applicable tax rates;
•the recoverability of our goodwill and indefinite-lived intangible assets when performing impairment analysis;
•costs and risks relating to our deferred tax assets, including the risk of an "ownership change"associated with potential litigation and investigations, compliance with and changes in laws and regulations and potential exposures under the Code;environmental laws and regulations;
our exposure to uninsured claims in excess of historical levels;
risks relating to our participation in multiemployer pension plans;
risks related to our indebtedness, including our substantial amount of debt, •our ability to incur substantially more debt, comply with ESG regulations, meet increasing ESG expectations of stakeholders, and otherwise achieve our ESG goals;
•the fact that substantially allavailability of additional or continued sources of financing at acceptable rates for our revenue earning vehicles and to refinance our existing indebtedness;
•volatility in our stock price and certain provisions of our consolidated assets secure certaincharter documents which could negatively affect the market price of our outstanding indebtedness and increases in interest rates or in our borrowing margins;common stock;
•our ability to meet theeffectively maintain effective internal controls over financial reporting; and other covenants contained in our senior credit facilities and letter of credit facility, our outstanding unsecured senior notes, our outstanding senior second priority secured notes and certain asset-backed and asset-based arrangements;
•our ability to access financial markets, includingimplement an effective business continuity plan to protect the financing of our vehicle fleet through the issuance of asset-backed securities;
fluctuationsbusiness in interest rates and commodity prices;
our ability to sustain operations during adverse economic cycles and unfavorable external events (including war, terrorist acts, natural disasters and epidemic disease);
shortages of fuel and increases or volatility in fuel costs;
changes in accounting principles, or their application or interpretation, and our ability to make accurate estimates and the assumptions underlying the estimates, which could have an effect on operating results; and
other risks and uncertainties described from time to time in periodic and current reports that we file with the SEC.
exigent circumstances.
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 hereof,of this 2022 Annual Report and, except as required by law, we undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise.
HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
THE HERTZ CORPORATION AND SUBSIDIARIES
PART I
ITEM 1. BUSINESS
OUR COMPANY
Hertz Holdings was incorporated in Delaware in 2015 to serve as the top-level holding company for Rental Car Intermediate Holdings, LLC, which wholly owns Hertz, ourHertz Global's primary operating company. Hertz was incorporated in Delaware in 1967 and is a successor to corporations that have been engaged in the vehicle rental and leasing business since 1918.
We operateare engaged principally in the business of renting vehicles primarily through our Hertz, Dollar and Thrifty brands. As of December 31, 2022, we operated our vehicle rental business globally primarily through the Hertz, Dollar and Thrifty brands from approximately 12,400 corporate11,600 company-operated and franchisee locations inacross approximately 160 countries and jurisdictions, including North America, Europe, Latin America, Africa, Asia, Australia, the Caribbean, the Middle East and New Zealand. We are one of the largest worldwide vehicle rental companies and our Hertz brand name is one ofamong the most recognized globally, signifying leadership in quality rental services and products.globally. We have an extensive network of airport and off airport rental locations in the U.S. and in all major European markets. We are also a provider ofIn addition to vehicle rental, we previously provided integrated vehicle leasing and fleet management solutions through our Donlen subsidiary.subsidiary, which sold substantially all of its assets and certain of its liabilities on March 30, 2021, as disclosed in Note 3, "Divestitures," to the Notes to our consolidated financial statements under the caption Item 8, "Financial Statements and Supplementary Data" included in this 2022 Annual Report.
In March 2020, the World Health Organization declared COVID-19 a global pandemic. In an effort to halt the spread of COVID-19, many governments around the world placed significant restrictions on travel, individuals voluntarily reduced their air and other travel in attempts to avoid the outbreak, and many businesses announced closures and imposed their own travel restrictions.
In light of the significant reduction in demand for our services, on May 22, 2020, the Debtors filed voluntary petitions for relief in the Bankruptcy Court under Chapter 11 of the Bankruptcy Code. On June 10, 2021, the Plan of Reorganization was confirmed by the Bankruptcy Court and on June 30, 2021, the Plan of Reorganization became effective and the Debtors emerged from Chapter 11.
Our Strategy
Our strategy is focused on excellence in execution of our rental operations, electrification of the fleet, shared mobility, connected cars and selling vehicles from the fleet directly to consumers. Our core assets, capabilities and partnerships underpin this strategy and are positioning us at the center of the modern mobility ecosystem. We intend to continue building on our brand strength, global network and global fleet management expertise, combining those efforts with new investments in technology, electrification, shared mobility and a digital-first customer experience. We believe our key fleet management capabilities will allow us to diversify and profitably grow in new areas of the mobility sector.
OUR BUSINESS SEGMENTS
We haveThe Company has identified threetwo reportable segments, which are organized based on the products and services provided by ourconsistent with its operating segments, and the geographic areas in which our operating segments conduct business, as follows:
U.S.•Americas RAC - Rental of vehicles, as well as sales of vehicles and value-added services, in the U.S., Canada, Latin America and the Caribbean. We maintain a substantial network of company-operated rental locations in the U.S., enabling us to provide consistent qualitythis segment and service. We alsowe have franchisees and partners that operate rental locations under our brands throughout the U.S;brands; and
•International RAC - Rental and leasing of vehicles, as well as sales of vehicles and value-added services, internationally.in locations other than the U.S., Canada, Latin America and the Caribbean. We maintain a substantial network of company-operated rental locations, internationally, a majority of which are in Europe. OurEurope, and we have franchisees and
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ITEM 1. BUSINESS (Continued)
partners alsothat operate rental locations in approximately 160 countries and jurisdictions, including manyunder our brands. As of the countries in which we also have company-operated rental locations; and
All Other Operations - Primarily comprisedDecember 31, 2022, 65% of our Donlen business, which provides integrated vehicle leasing and fleet management solutionsfranchised locations were in the U.S. and Canada. Donlen is a provider of these services for commercial fleets and Donlen's fleet management programs provide solutions to reduce fleet operating costs and improve driver productivity and safety. These programs include administration of preventive vehicle maintenance, advisory services and fuel and accident management along with other complementary services. Additionally, Donlen provides specialized consulting and technology expertise that allows us andmarkets covered by our customers to model, measure and manage fleet performance more effectively and efficiently. Also included are our other business activities which comprise less than 1% of revenues and expenses of theInternational RAC segment.
In addition to the abovetwo reportable segments, we have Corporatecorporate operations. We assess performance and allocate resources based upon the financial information for our operating segments.
For further financial information on our segments, see (i) Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations—Results of Operations and Selected Operating Data by Segment" and (ii) Note 17,20, "Segment Information," to the Notes to our consolidated financial statements under the caption Item 8, "Financial Statements and Supplementary Data” included in this 20192022 Annual Report.
HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
THE HERTZ CORPORATION AND SUBSIDIARIES
ITEM 1. BUSINESS (Continued)
U.S.Americas RAC and International Rental CarRAC Segments
Brands
Our U.S.Brands
Our Americas RAC and International RAC vehicle rental businesses are primarily operated through our three largest brands — Hertz, Dollar, and Thrifty. We offer multiple brands in order to provide customers a full range of rental services at different price points, levels of service, offerings and products. Each of ourThese brands generally maintainsmaintain separate rental locations (e.g., separate airport counters, reservations,counters), and use distinct reservation, marketing and other customer contact activities. We achieve synergies across our brands by, among other things, utilizing a single fleet and fleet management team and, where applicable, combined vehicle maintenance, vehicle cleaning and back office functions, where applicable.
functions.
Our top tier brand, Hertz, is one of the most recognized brands in the world offeringworld. It offers premium services that definecustomer service, as evidenced by the industry. This is consistent with numerous published best-in-class vehicle rental awards that we havethe brand has won including our current ranking of #1 in Customer Satisfaction by J.D. Power, over time, both in the U.S. and internationally, over many years. We go to market under theinternationally. The Hertz brand's tagline of “Hertz. We’re here"Hertz. Let's Go!” expresses our commitment to get you there” which is true to our promise and reputation for quality, seamless travel and customer service. We have a number ofThe brand provides customers with several innovative offerings, such as Hertz Gold Plus Rewards, Hertz Ultimate Choice and access to unique vehicles offered through our electric vehicle ("EV") fleet and specialty collections. We continueThe Hertz brand seeks to maintain ourits position as a premier provider of vehicle rental services through an intense focus on service, loyalty, quality and product innovation.
Our smart value brand, Dollar, is themarketed as a smart choice for financially-focusedfinancially focused travelers looking for a dependable car at a price they can afford. The Dollar brand’s maincore focus is serving the airport vehicle rental market, comprised of family, leisure and small business travelers.travelers through the airport vehicle rental channel. Dollar’s tagline of “We never forget whose dollar it is” indicatesexpresses the brand’s mission to provideof providing a reliable rental experience at a price that works. Dollar operates primarily through company-ownedcompany-operated locations in the U.S. and Canada. We also globally license to independent franchisees which operate as a part of the Dollar brand system and have company-owned Dollar locations in certain countries.
Our deep value brand, Thrifty, is the brandcompetes as a cost-conscious offering for savvy travelers who enjoy the “thrill of the hunt”seeking to find a good deal. The Thrifty brand’s maincore focus is serving leisure travelers through the airport vehicle rental market, comprised of leisure travelers.channel. Thrifty’s tagline “The Absolute Best Car for theYour Money” indicatesexpresses the brand’s focus on being the rental companybrand that puts youthe customer in control of where youto splurge and where youto save. Thrifty operates primarily through company-ownedcompany-operated locations in the U.S. and Canada. We also globally license to independent franchisees which operate as part of the Thrifty brand system and have company-owned Thrifty locations in certain countries.
Internationally, we also offer our Firefly brand which is a deep value brand for price conscious leisure travelers. We have Firefly locations servicing local area airports in select international leisure markets where other deep value brands have a significant presence.
Operations
Locations
We operate our brands at both airport and off airport locations which utilize common vehicle fleets, are supervised by common country, regional and local area management, use many common systems and rely on common vehicle maintenance and administrative centers. Additionally, our airport and off airport locations utilize common marketing activities and have many of the same customers. We regard both types of locations as aspects of a single, unitary, vehicle rental business. Off airport revenues comprised approximately 35% of our worldwide vehicle rental revenues in 2019 and approximately 34% in 2018.
HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
THE HERTZ CORPORATION AND SUBSIDIARIES
ITEM 1. BUSINESS (Continued)
Airport
Wevehicle rental business. Off airport revenues comprised 32% of our worldwide vehicle rental revenues in 2022 and 2021. Our Americas RAC vehicle rental operations have approximately 1,600 airport rentalcompany-operated locations primarily in the U.S. and approximately 2,000 airport rental locations internationally.Canada. Our internationalInternational RAC vehicle rental operations have company-operated locations in Australia, Belgium, Canada, the Czech Republic, France, Germany, Italy, Luxembourg, the Netherlands, New Zealand, Puerto Rico, Slovakia, Spain and the United KingdomKingdom.
Airport
As of December 31, 2022, we had approximately 1,900 airport rental locations in our Americas RAC segment and the U.S. Virgin Islands.approximately 1,400 airport rental locations in our International RAC segment. We believe that our extensive U.S. and internationalglobal network of company-operated locations contributes to theour success by providing consistency of our service, cost control, Vehicle Utilization, competitive pricing and our ability to offer one-way rentals.
For our airport company-operated rental locations, we are dependent on, and have obtained, concessions or similar leasing agreements or arrangements, grantingthat grant us the right to conduct a vehicle rental business at the respective airport. Our concessions were obtained from the airports' operators, which are typically governmental bodies or authorities, following either negotiation or bidding for the right to operate a vehicle rental business. The terms of an airport concession typically require us to pay the airport's operator concession fees based upon a specified percentage of the revenues we generate at the airport, subject to a minimum annual guarantee. Under most concessions, we must alsoare required to pay fixed rent for terminal counters or other leased properties and facilities. Most concessions are for a fixed length of time, while others create operating rights and payment obligations that are terminable at any time.
The terms of our concessions typically do not forbid us from seeking, and in a fewmost instances actually requireexplicitly permit us to seek, reimbursement from customers for concession fees we pay; however, in certain jurisdictions the law limits or forbids our doingability to do so. Where we are required or permitted to seek such reimbursement, it is our general practice to do so. Certain of our concession agreements may require the consent of the airport's operator in connection with material changes in our ownership. A growing number of larger airports are building, or assessing the feasibility of, consolidated airport vehicle rental facilities to alleviate congestion at the airport. These consolidated rental facilities provide a more common customer experience and may eliminate certain competitive advantages among the brands as competitors operate out of one centralized facility for both customer rental and return operations, share consolidated busing operations and maintain image standards mandated by the airports. The costs associated with the development of these consolidated facilities are typically funded through the collection of customer facility charges which are required to be collected by rental car companies from their customers.
Off Airport
We haveAs of December 31, 2022, we had approximately 2,6003,600 off airport locations in the U.S.our Americas RAC segment and approximately 6,2004,700 off airport rental locations internationally.in our International RAC segment. Our off airport rental customers include people who prefer to rent vehicles closer to their home or place of work for business or leisure purposes, as well as those needing to travel to or from airports. Our off airport customers also include people who have been referred by, or whose rental costs are being wholly or partially reimbursed by, insurance companies following accidents in which their vehicles were damaged, those expecting to lease vehicles that are not yet available from their leasing companies and replacement renters. In addition, our off airport customers include drivers for our TNC partners,Ride Sharing Partners, which is further described in “TNC“Ride Sharing Rentals” below.
When compared to our airport rental locations, an off airport rental location typically uses a smaller rental facilitiesfacility with fewer employees, conducts pick-up and delivery services and serves replacement renters using specialized systems and processes. On average, off airport locations generate fewer transactions per period than airport locations.
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ITEM 1. BUSINESS (Continued)
Our off airport locations offer us the following benefits:
Provide•Providing customers a more convenient and geographically extensive network of rental locations, thereby creating revenue opportunities from replacement renters, non-airline travel renters and airline travelers with local rental needs;
Provide•Providing us a more balanced revenue mix by reducing our reliance on air travel and therefore reducing our exposure to external events that may disrupt airline travel trends;
Contribute•Contributing to higher Vehicle Utilization as a result of the longer average rental periods associated with off airport business, compared to those of airport rentals;
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InsuranceCreating efficiencies in vehicle and labor demand planning, as replacement rental volume is less seasonal than that of other business and leisure rentals, which permits efficiencies in both vehiclerentals; and labor planning; and
Cross-selling•Creating cross-selling opportunities exist for us to promote off airport rentals among frequent airport Hertz Gold Plus Rewards program renters and, conversely, to promote airport rentals to off airport renters.
Customers and Business Mix
We conduct activevarious sales and marketing programs to attract and retain customers. Our sales force calls on companies, government agencies and other organizations whose employees and associates need to rent vehicles for business purposes or for replacement rental needs, includingofficial purposes. Our sales force also calls on organizations such as insurance and leasing companies, automobile repair companies and vehicle dealers.dealers whose customers need replacement rentals. In addition, our sales force works with membership associations, tour operators, travel companies, ride sharing companies and other groups whose members, participants and customers rent vehicles for either business or leisure purposes.
We also market directly to individual renters. We advertise our vehicle rental offerings through a variety of traditional media channels, partner publications (e.g., affinity clubs, and airline and hotel partners), and direct mailmail. We also rely on digital marketing and, digital marketing. for the Hertz brand, we are increasingly seeking to expand access to and use of our Hertz mobile app.
In addition to advertising, we conduct a variety of other forms of marketing and promotion, including travel industry business partnerships and press and public relations activities.
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We categorize our vehicle rental business based on the general purpose (business or leisure) and type of location (airport or off airport) from which customers rent from us. The following charts set forth the percentages of rental revenues and rental transactions in our U.S.Americas RAC and international operationsInternational RAC segments based on these categories.
VEHICLE RENTALS BY CUSTOMER
Year Ended December 31, 20192022
Americas RAC
U.S.
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VEHICLE RENTALS BY CUSTOMER (Continued)
Year Ended December 31, 2019
International RAC
International
Customers who rent from us for “business” purposes include those who require vehicles in connection with commercial activities, including drivers for our TNCRide Sharing Partners, and delivery service providers, the activities of governments and other organizations or for temporary vehicle replacement purposes.purposes (i.e., replacement rentals). Most business customers rent vehicles from us on terms that we have negotiated with their employers or other entities with which they are associated, and those terms can differ from the terms on which we rent vehicles to the general public. We have negotiated arrangements relating to vehicle rental with many businesses, governments and other organizations, including most Fortune 500 companies.
Customers who rent from us for “leisure” purposes include not only individual travelers booking vacation travel rentals with us but alsoand people renting to meet other personal needs.needs (other than replacement rentals). Leisure rentals are generally are longer in duration and generate more revenue per transaction than business rentals. Leisure rentals also include rentals by
HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
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ITEM 1. BUSINESS (Continued)
customers of U.S. and international tour operators, which are usually a part of tour packages that can include air travel and hotel accommodations.
VEHICLE RENTALS BY LOCATION
Year Ended December 31, 20192022
U.S.Americas RAC
| | | | | | | | |
| | Airport |
| | Airport |
| | Off airport |
HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
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VEHICLE RENTALS BY LOCATION (Continued)
Year Ended December 31, 2019
International
| | | | | | | | |
| | Airport |
| | Airport |
| | Off airport |
Demand for airport rentals is generally correlated with airline travel patterns, and transaction volumes generally follow global airline passenger traffic ("enplanement") and Gross Domestic Product ("GDP") trends. Customers often make reservations for airport rentals when they book their flight plans, which make our relationships with travel agents, associations and other partnersparticipants in the broader travel industry (e.g., airlines and hotels) a key competitive strategy in generating consistent and recurring revenue streams.
Off airport rentals include insurance replacements, and we have agreements with the referring insurers establishing the relevant rental terms, including the arrangements made for billing and payment. We have identified 188 insurance companies, ranging from local or regional vehicle carriers to large, national companies, as our target insurance replacement market. As
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Customer Service Offerings
We offer customers a wide range of services to differentiate ourselves from the competition and increase and diversify our revenue.
Hertz Gold Plus Rewards Program
At our major airport rental locations as well as at someand certain smaller airport and off airport locations, customers participating in our Hertz Gold Plus Rewards program are able to rent vehicles in an expedited manner. Participants in our Hertz Gold Plus Rewards program often bypass the rental counter entirely and proceed directly to their vehicle upon arrival at our facility. Participants in our Hertz Gold Plus Rewards programThey are also eligible to earn Hertz Gold Plus Rewards points that may be redeemed for free rental days or converted to awards of other companies' loyalty programs.
Hertz's Gold Plus Rewards program offers three elite membership tiers which provide more frequent renters the opportunity to earn additional reward points and vehicle upgrades. When Hertz Gold Plus Rewards members make a reservation for a midsize car or above, they have access to exclusive vehicles based on their membership tier via our Hertz Ultimate Choice program which allows customers to choose their vehicle from a range of makes, models and colors available within the zone indicated on their reservation. Alternatively, they may upgrade at pick-up for a fee by choosing a vehicle from a premium upgrade zone. As of December 31, 2022, the Hertz Ultimate Choice program was offered at approximately 60 U.S. and Canada airport locations.
For the year ended December 31, 2019,2022, rentals by Hertz Gold Plus Rewards members accounted for approximately 36%32% of our worldwide rental transactions. We believe the Hertz Gold Plus Rewards program provides us with a significant competitive advantage, to us, particularly among frequent travelers, and we have targeted such travelers for participation in the program.
Other Customer Service Offerings
We offer electronic rental agreements and returns for our Hertz, Dollar and Thrifty customers in the U.S. Simplifying the rental transaction saves customers time and provides greater convenience through access to digitally available rental contracts.
Our Hertz Ultimate Choice program allows customers to choose their vehicle from a range of makes, models and colors available within the zone indicated on their reservation, or they may upgrade at pick-up for a fee by choosing a vehicle from the Premium Upgrade zone. Also, when Hertz Gold Plus Rewards members make a reservation for a midsize car or above, they have access to exclusive vehicles based on their membership tier. The Hertz Ultimate Choice program is offered at 60 U.S. airport locations as of December 31, 2019.
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TNC Rentals
We have partnered with certain companies in the TNC market in the U.S. to offer vehicle rentals to their drivers in select U.S. cities. During 2019, we dedicated an average of 43,000 vehicles for use by our TNC Partners. TNC rentals provide for an additional selection of higher mileage, and thus more economical, used vehicles in our retail sales outlets. Drivers for our TNC Partners reserve vehicles online through TNC Partner websites and pick up vehicles from select locations. TNC drivers can extend the vehicle rental on a weekly basis.
Hertz 24/7
We offer a car and van-sharing membership service, referred to as Hertz 24/7, which rents vehicles by the hour and/or by the day, at various locations internationally, primarily in Europe and in Australia under the Flexicar brand. Members reserve vehicles online, then pick up the vehicles at convenient locations using keyless entry, without the need to visit a Hertz rental office. Members are charged an hourly or daily vehicle-rental fee which includes fuel, insurance, 24/7 roadside assistance and in-vehicle customer service. Hertz 24/7 specializes in Business-to-Business-to-Consumer (B2B2C) services working with retail partners to provide vans at their locations, and with corporations providing pool fleets for use by their employees.
Other Customer Service Initiatives
We offer Hertz Fast Lane powered by CLEAR that provides participating Hertz Gold Plus Rewards customers the ability to skip the rental counter and exit the gate by utilizing expedited ID verification using biometrics. We also offer a Mobile Gold Alerts, a service available to participating Hertz Gold Plus Rewards customers, through which an SMSa text message and/or email with the vehicle information and location is sent approximately 30 minutes prior to arrival, providing a renter the option to choose another vehicle. We offer Hertz e-Return, which allows customers to drop off their vehicle and go atwithout the time of rental return. Additionally, in select locations, customers can bypassneed to visit the rental line through our ExpressRent Kiosks.counter. Customers can also use cashless toll lanes with our PlatePass offering where the license plate acts as a transponder, and wetransponder. We also offer a vehicle-subscription service on a monthly or weekend basis in select locations that provides a flexible, cost-effective alternative to vehicle ownership, with no long-term commitment required, referred to as Hertz My Car and My Hertz Weekend.
Ride Sharing Rentals
We have partnered with certain ride sharing companies to offer vehicle rentals to their drivers in select cities in North America. This program enables us to rent vehicles on a longer-term basis than traditional business rentals and is a component of our strategy to be an active participant in the future of mobility. Using vehicles for ride share rentals also results in an increased supply of higher mileage, and thus more economical, used vehicles for our vehicle disposition programs discussed below.
Drivers for our Ride Sharing Partners reserve vehicles online through Ride Sharing Partner websites and applications and pick up vehicles from select locations. Ride sharing drivers can extend the vehicle rental on a recurring basis. As part of an exclusive partnership with Uber, we make Teslas and other EVs available for their drivers to rent on the Uber network in the U.S. In January 2023, we announced an expansion of our partnership with Uber to make available up to 25,000 EVs for their drivers to rent on the Uber network across Europe by 2025.
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Rates, Fees and Value-Added Services
We rent a wide variety of makes and models of vehicles. We rent vehicles on an hourly (in select international markets), daily, weekend, weekly, monthly or multi-month basis, with rental charges computed on a limited or unlimited mileage rate, or on a time rate plus a mileage charge. Our rates vary by brand and at different locations depending on local market conditions and other competitive and cost factors.factors, such as vehicle supply and overall demand. While vehicles are usually returned to the locations from which they are rented, we also allow one-way rentals from and to certain locations. In addition to vehicle rentals and franchise fees, we
We also generate revenues from reimbursements by customers of airport concession fees, unless the law limits or forbids us from doing so, and of vehicle licensing costs, fueling charges, and charges for value-added services such as supplemental equipment (e.g., child seats and ski racks), loss or collision damage waiver, theft protection, liability and personal accident/effects insurance coverage, premium emergency roadside service and satellite radio.
Reservations
We price and accept reservations for our vehicles on a brand-by-brand basis.through each of our brands. Reservations are generally for a class of vehicles, although Hertz acceptssuch as compact, midsize or sport utility vehicle. Our introduction of EVs to the fleet in certain cities has enabled us to also provide the opportunity for customers in those locations to reserve an EV versus an internal-combustion engine vehicle. Additionally, certain reservations within our EV fleet can be made for specific makes and models of vehicles in our Premium, Prestige and specialty collections.models.
We distribute pricing and content and accept reservations viathrough multiple channels. Direct reservations are accepted at Hertz.com, Dollar.com and Thrifty.com, each of which has global and local versions in multiple languages. Hertz.com offers a range of products, prices and additional services as well as Hertz Gold Plus Rewards benefits, serving both company-operated and franchise locations. In addition to our website,websites, direct reservations are enabled via our Hertz and Dollar smartphone app,apps, which includesinclude additional connected products and services.
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Customers may also seek reservations via travel agents or third-party travel websites. In many of those cases, the travel agent or website will utilizeutilizes an Application Programming Interface (“API”) connection to Hertz or a third-party operated computerized reservation system, also known as a Global Distribution System, (“GDS”) to contact us and make the reservation.
In our major countries,markets, including the U.S. and all other countries with company-operated locations, customers may also reserve vehicles for rental from us and our franchisees worldwide through local, national or toll-free telephone calls to our reservations center, directly through our rental locations or, in the case of insurance replacement rentals, through proprietary automated systems serving the insurance industry.
Franchisees
In certain U.S. and international markets, we have found it efficient to issue licenses under franchise arrangements to independent franchisees who are engaged in the vehicle rental business, tobusiness. Franchisees rent vehicles that they own or lease and may provide related services to customers, primarily under our Hertz, Dollar or Thrifty brand. In certainmany markets, and under certain circumstances, franchisees are given the opportunity to acquireoperate franchises for multiple brands.
Franchisees generally pay an initial license fee, royalties based on a percentage of their revenues as well as other fees, and in return are provided the use of the applicable brand name, certain operational support and training, reservations through our reservation channels, and other services. Additionally, in countries with both corporate and franchised operations, franchisees may utilize our vehicles, and we may utilize their vehicles, to support one-way business within the country. Franchisee arrangements enable us to offer expanded national and international service and a broader one-way rental program. In addition to vehicle rental, certain international franchisees engage in vehicle leasing and the rental of chauffeur-driven vehicles, camper vans and motorcycles.
Franchisees ordinarily are
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The ability to transfer a franchisee license is limited as to transferability withoutand requires our consent andconsent. Franchise licenses are generally terminable by us only for cause or after a fixed term. ManyThe majority of these agreements also include a company right of first refusal on the part of the Company should a franchisee receive a bona fide offer to sell.sell the license or its business. Franchisees in the U.S. typically may terminate without cause only on prior notice, generally between 90 and 180 days. In Europe and certain other international jurisdictions, franchisees typically do not have early termination rights. Initial license fees or the price for the sale to a franchisee of a company-owned location may be payable over a term of several years.rights absent cause. We continue to issue new licenses and, from time to time, purchasere-acquire franchised businesses.businesses or sell company-operated locations to franchisees.
Franchise operations, including the purchase and ownership of vehicles,fleet acquisition, are generally financed independently by the franchisees and we do not have an investment interest in the franchisees. Fees from franchisees, including initial franchise fees, are used to, among other things, generally support the costa portion of our brand awareness programs,program costs, reservations system, sales and marketing efforts and certain other services and arecomprised approximately 2% of our worldwide vehicle rental revenues for the year ended December 31, 2019.2022.
Seasonality
Our vehicle rental operations are historically a seasonal business, excluding the year ended December 31, 2020 which was impacted by the COVID-19 pandemic, with decreased levels of business in the winter months and heightened activity during the spring and summer peakmonths ("our peak season") for the majority of countries where we generate our revenues. To accommodate increased demand, we typically increase our available fleet and staff duringin the second and third quarters of the year. As business demand declines, vehiclesyear to add a significant number of part-time and staffseasonal workers. A number of our other major operating costs, including airport concession fees, commissions and vehicle liability expenses, are decreased accordingly.directly related to revenues or transaction volumes and thus also increase in the second and third quarters. Certain operating expenses, including real estate taxes, rent, insurance, utilities, facility maintenance and other facility-related expenses, the costs of operating our information technology systems and minimum staffing costs, remain fixed and cannot be adjusted fortherefore do not vary based on seasonal demand.
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The following chart sets forth this seasonal effectpresents the proportionate contribution of our vehicle rental operations by presenting quarterly revenueseach quarter to full year revenue for each of the years ended December 31, 2019, 20182022, 2021 and 20172020. As discussed above, our peak season historically has been the second and third quarters of the year. The year ended December 31, 2020 was not representative of this seasonality as a result of COVID-19.
Fleet
During the year ended December 31, 2019,2022, we operated a peak rental fleet in our U.S.Americas RAC and International Rental CarRAC segments of approximately 567,600428,700 vehicles and 204,000118,700 vehicles, respectively. Purchases of vehicles are financed by active and ongoing global borrowing programs and through cash from operations. The vehicles we purchasepurchased are either program vehicles or non-program vehicles. We periodically review the efficiencies of an optimal mix between program and non-program vehicles in our fleet and adjust the ratio of program and non-program vehicles as needed based on contract negotiations,availability, vehicle economics and availability. During the year ended December 31, 2019, our approximate average holding period for a rental vehicle was contract negotiations.
18 months in the U.S. and 12 months in our international operations.
Our fleet composition is as follows:
Fleet Composition by Vehicle Manufacturer*
As of December 31, 2019
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During the year ended December 31, 2022, our approximate average holding period for a rental vehicle was 25 months in our Americas RAC segment and 18 months in our International RAC segment which are consistent with our average holding periods in 2021.
In 2021, we announced our plan to significantly expand our EV rental fleet in North America over time. During 2022, we continued to add EVs to our fleet and to identify additional vehicle manufactures who intend to sell us EVs as they become available in the years ahead.
Our fleet composition is as follows:
Fleet Composition by Vehicle Manufacturer*
As of December 31, 2022
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Americas RAC U.S.International RACInternational**
*Vehicle manufacturers Groupe PSA (Peugeot and Citroen), Volvo, Volkswagen Group (Volkswagen, Skoda, Audi and Seat), Daimler AG (Mercedes Benz)Benz and BMWSmart), Renault, Mitsubishi, Mazda, Volvo and Rover Group together comprise another 28%17% of the internationalInternational RAC fleet and are included as "Other" in the overall and internationalInternational RAC charts above.
We maintain vehicle maintenance centers at or near certain airports and in certain urban and off airport areas, which provide maintenance for our fleet. Manyfleet, many of these facilitieswhich include sophisticated vehicle diagnostic and repair equipment, and are accepted by automobile manufacturers, as eligible, to perform and receive reimbursement for warranty work. Collision damage and major repairs are generally performed by independent contractors.
Repurchase Programs
Program vehicles are purchased under repurchase or guaranteed depreciation programs with vehicle manufacturers wherein the manufacturers agree to repurchase vehicles at a specified price or guarantee the depreciation rate on the vehicles during established repurchase or auction periods, subject to, among other things, certain vehicle condition, mileage and holding period requirements. Repurchase prices under repurchase programs are based on the original cost less a set daily depreciation amount. These repurchase and guaranteed depreciation programs limit our residual risk with respect to vehicles purchased under the programs and allow us to reduce the variability of depreciation expense for each vehicle, however, typically the acquisition cost is higher. Program vehicles generally provide us with flexibility to increase or reduce the size of our fleet based on market demand. When we increase the percentage of program vehicles, the average age of our fleet decreases since the average holding period for program vehicles is shorter than for non-program vehicles. During 2022 and 2021, the number of program vehicles in our fleet decreased primarily due to supply chain constraints and our fleet mix initiatives.
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Program vehicles as a percentage of all vehicles purchased within each ofour Americas RAC and International RAC segments during the last three fiscal years were as follows:
Other Vehicle Disposition Channels
During the year ended December 31, 2022, the vehicles sold in our U.S. and International Rental Car segmentsinternational vehicle rental operations that were as follows:not repurchased by manufacturers were sold through a variety of channels, including auction, dealer direct wholesale channels, direct sales to third parties and retail channels, including sales on the Carvana platform. We use multiple channels to provide greater flexibility and the opportunity for improved returns.
Hertz Car Sales and Rent2Buy
Our company-operated retail sales channel, Hertz Car Sales, consists of a network of 87 company-operated vehicle sales locations throughout the U.S. dedicated to the sale of used vehicles from our rental fleet consisting of non-program vehicles, as well as program vehicles that become ineligible for manufacturer repurchase or guaranteed depreciation programs.fleet. Vehicles disposed of through our retail outlets allow us the opportunityprovide for ancillary vehicle sales revenue, such as warranty, financing and title fees.aftermarket products.
We also offer Rent2Buy at our retail locations in 35 states and several European countries,the U.S., an innovative program designed to sell used rental vehicles. Customers have an opportunityin which customers are able to rent a vehicle from our rental fleet and if the customer purchases the vehicle, the customer is credited with a portion of their rental charges. The purchase transaction is completed through the internet and by mail in those states where permitted.
We also dispose of vehicles through non-retail disposition channels such as auctions, brokered sales, sales to wholesalers and sales to dealers.
During the year ended December 31, 2019, of the vehicles sold in our U.S. vehicle rental operations that were not repurchased by manufacturers, we sold approximately 26% at auction, 38% through dealer direct and 36% at retail locations or through our Rent2Buy program. During the year ended December 31, 2019, of the vehicles sold in our international vehicle rental operations that were not repurchased by manufacturers, we sold approximately 6% at auction, 85% through dealer direct and 9% at retail locations or through our Rent2Buy program.
Markets and Competition
Competition among vehicle rental industry participants is intense and is primarily based on price, vehicle availability and quality, price, service, reliability, rental locations, product innovation and competition from online travel agents and vehicle rental brokers. We believe that the prominence and service reputationstrength of the Hertz, Dollar and Thrifty brands, including our current ranking as #1 in Customer Satisfaction by J.D. Power, our extensive worldwide ownershipnetwork of vehicle rental
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operations and our commitment to innovation, and serviceincluding our EV initiatives, provide us with a strong competitive advantage. Our principal vehicle rental industry competitors are Avis Budget Group, Inc. (“ABG”), which currently operates the Avis, Budget, ZipCar and Payless brands, andbrands; Enterprise Holdings, which operates the Enterprise Rent-A-Car Company, ("Enterprise"), National Car Rental and Alamo Rent A Car brands. There arebrands; and SIXT. We also compete with local and regional vehicle rental companies, ride sharing companies and transportation network companies which provide ride-hailing services that have some overlap in customer use cases, largely with respect to short length trips in urban areas.peer-to-peer car sharing marketplaces.
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Geographic Markets
U.S.
The U.S. representsrepresented approximately $32$36.1 billion in estimated annual industry revenues for 2019.2022. The average number of vehicles in the U.S. vehicle rental industry increased 2% in 2019 to2022 was about 2.3two million vehicles. U.S. industry Revenue Per Unit Per Month in 2022 was approximately $1,174 which was an improvement of 3.8% over 2018. Rentals by airline travelers at or near airports (‘‘airport rentals’’) are influenced by developments in the travel industry and particularly in enplanements as well as the GDP. Off airport rental volume is primarily driven by local business use, such as vehicle repair shops, leisure travel and insurance replacements.$1,424.
Europe
Europe representsrepresented approximately $17 billion in estimated annual industry revenues for 2019.2022. Europe has generally demonstrated a lower historical reliance on air travel. Thetravel because the European off airport vehicle rental market has been significantly more developed than it is in the U.S. Within Europe, the largest markets in which we do business are France, Germany, Italy, Spain and the United Kingdom. Throughout Europe, we do business through company-operated rental locations and through our partnersfranchisees or franchisees to whom we have licensed use of our brands.partners.
Asia Pacific
Asia Pacific which includes Australia and New Zealand, representsrepresented approximately $17 billion in estimated annual industry revenues for 2019.2022. Within this region, the largest markets in which we do business are Australia, China, Japan and South Korea.New Zealand. In each of these marketscountries we havedo business through company-operated rental locations or do businessand through our partnersfranchisees or franchisees to whom we have licensed use of our brands.partners.
Middle East and Africa
The Middle East and Africa representrepresented approximately $4$3 billion in estimated annual industry revenues for 2019.2022. Within these regions, the largest markets in which we do business are Saudi Arabia, South Africa and the United Arab Emirates. In each of these marketscountries we do business through our franchisees to whom we have licensed use of our brands.franchisees.
Latin America
The Latin America markets representrepresented approximately $4 billion in estimated annual industry revenues for 2019.2022. Within Latin America, the largest markets in which we do business are Argentina, Brazil, Colombia, PanamaMexico and Mexico.Panama. In each of these markets our Hertz, Dollar and Thrifty brands are presentcountries, we do business through our partnersfranchisees or franchisees to whom we have licensed use of the respective brand.partners.
In 2017, we completed the sale of Car Rental Systems do Brasil Locação de Veiculos Ltd., our wholly owned subsidiary located in Brazil (the "Brazil Operations"), to Localiza Fleet S.A. (“Localiza”). As part of the sale, both companies entered into referral and brand cooperation agreements to govern their ongoing relationship which have an initial term of twenty years with an option to extend for another twenty years. The alliance also involves the exchange of knowledge in areas of technology, customer service and operational excellence.
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All Other Operations
Primarily consists of our Donlen business which provides integrated vehicle leasing and fleet management solutions for commercial fleets. Our All Other Operations segment generated $672 million in revenues during the year ended December 31, 2019, substantially all of which was attributable to Donlen.
Donlen
Donlen provides an array of vehicle leasing, financing, telematics, and fleet management services to commercial fleets in the U.S. and Canada. Products offered by Donlen include:
Vehicle financing, acquisition and remarketing;
License, title and registration;
Vehicle maintenance consultation;
Fuel management;
Accident management;
Toll management;
Telematics-based location, driver performance and scorecard reporting; and
Lease financing.
Donlen’s leased fleet consists primarily of passenger vehicles, cargo vans and light trucks. Vehicles are acquired directly from domestic and foreign manufacturers, as well as dealers. As of December 31, 2019, approximately half of Donlen’s leased fleet is 2018 model year or newer.
Donlen’s primary product for vehicle and light to medium truck fleets is an open-ended terminal rental adjustment clause ("TRAC") lease. For most customers, the vehicle must be leased for a minimum of twelve months, after which the lease converts to a month-to-month lease allowing the vehicle to be surrendered any time thereafter. Our sale of the vehicle following the termination of the lease may result in a TRAC adjustment, through which the customer is credited or charged with the surplus or loss on the vehicle. Approximately 80% of Donlen’s lease portfolio consists of floating-rate leases which allow lease charges to be adjusted based on benchmark indices.
Donlen offers financing solutions for heavier-duty trucks and equipment. Lease financing is provided through syndication arrangements with lending institutions. Donlen originates the leases, acquires the assets, and services the lease throughout the term.
Donlen provides services to leased and non-leased fleets consisting of fuel purchasing and management, preventive vehicle maintenance, repair consultation, toll management and accident management. Additionally, Donlen manages license and title, vehicle registration, and regulatory compliance. Donlen’s telematics products provide enhanced visibility and reporting over driver and vehicle performance.
The commercial fleet market is one of the largest segments of the U.S. automotive industry, primarily consisting of vehicles utilized in a sales, service or delivery application. The fleet management industry has experienced significant consolidation over the years and today our principal fleet management competitors in the U.S. and Canada are Element Financial Corporation, Enterprise, Automotive Resources International, LeasePlan Corporation N.V. and Wheels, Inc.
EMPLOYEES AND HUMAN CAPITAL MANAGEMENT
As of December 31, 2019,2022, we employed approximately 38,00025,000 persons, consisting of approximately 29,00019,000 persons in ourthe U.S. operations and approximately 9,0006,000 persons in our international operations. Internationalinternationally.
Certain employees outside the U.S. are
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covered by a wide variety of union contracts and governmental regulations affecting, among other things, compensation, job retention rights and pensions. Labor contracts covering the terms of employment of approximately 26%27% of our workforce in the U.S. (including those in the U.S. territories) are presently in effect under active contracts with local unions, affiliated primarily with the International Brotherhood of Teamsters and the International Association of Machinists.other plans. Labor contracts covering almost 55%32% of these employees will expire during 2020.2023. We have had no material work stoppage as a result of labor problems during the last ten years, and we believe our labor relations to be good. Nevertheless, we may be unable to negotiate new labor contracts on terms advantageous to us, or without labor interruption.
In addition to the employees referred to above, we engage outside services, as is customary in the industry, principally for the non-revenue movement of rental vehicles between rental locations. During the first half of 2022, we also engaged outside services personnel for a variety of field operations roles as we rebuilt our labor force following our emergence from Chapter 11 in June 2021.
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Human Capital Management
Our people are our greatest asset. We believe that to continue to evolve as a business, and achieve our strategic goals, we must attract and retain the right talent. We therefore strive to have a constant focus on, and remain attentive to, matters concerning our employees.
Our human capital management strategy begins with our Board of Directors ("Board") and senior management. Our Board and Board committees periodically review our employee programs and initiatives, and provide oversight of our approach to attracting, retaining and developing talent. Our Board reviews key compensation and benefit programs and oversees senior management in the cultivation of an engaged and inclusive culture. Senior management uses various tools to ensure its human capital management strategies are delivering intended results, such as conducting anonymous surveys, seeking feedback from our employees on topics including, but not limited to, effectiveness of company communication, confidence in leadership, competitiveness of our compensation and total rewards packages, career growth and development opportunities. Survey results are reviewed by our senior management and shared with employees, along with action plans, for leveraging employee insights to drive meaningful improvements in our employees' experiences.
Our focus on talent retention requires that we invest in our employees' professional development as well as their physical, emotional and financial well-being. We regularly assess our benefits and program offerings to provide a compelling and comprehensive portfolio, which currently includes the following in the U.S. (specific offerings vary for employees represented by labor unions):
•Competitive salaries and wages;
•Retirement savings with a 401(k) Plan and an employer match, up to a certain percentage;
•Comprehensive health insurance, including medical, dental and vision plans for employees and their dependents;
•Employer provided life insurance;
•No-cost employee assistance program, providing confidential counseling to help employees and their families dealing with hardships;
•Paid parental leave;
•Adoption benefits;
•Free health screenings and programs for tobacco cessation, weight management and wellness coaching;
•Employee referral incentive program;
•Employee and family rental car and Hertz Car Sales discounts;
•Employee training, professional development, education and tuition aid programs;
•Employee relief fund that provides immediate, short-term financial assistance to employees through employee contributions and company match to assist employees dealing with natural disasters;
•Training and development opportunities; and
•Employee resource groups.
Outside of the U.S., we are committed to offering similar comprehensive programs that leverage the best of global benefits tailored by country to reflect local practices and culture. We evaluate our total benefits and programs annually and use feedback from employees to make thoughtful changes to ensure our programs continue to meet the needs of employees.
We are also committed to an inclusive workplace around the globe that champions equality, values different backgrounds and celebrates individuality. We believe the varied perspectives, experiences, skills and talents of our employees represent a significant part of our culture, as well as our success and reputation as a company.
As a global business, we have a firm commitment to equal opportunity, non-discrimination and anti-harassment. In addition, we adhere to all relevant laws and mandatory reporting requirements. We are proud to have a diverse workforce reflective of our customers, suppliers, communities and investors around the world, and are committed to
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a journey that gives growth and opportunities throughout our organization. We embrace and encourage our employees' differences in age, race, religion, disability, ethnicity, sexual orientation and other characteristics that make our employees unique.
At every level, we are committed to developing policies, practices and ways of working that support diversity and inclusion, and aim to create a workplace where everyone feels respected and heard.
CORPORATE RESPONSIBILITY
We believerecognize our influence and are committed to do the right thing, the right way, every time for our employees and customers, as well as our communities and our planet. Delivering on this responsibility is a never-ending journey and one that we're proud to be on. We are committed to managing our businesses ethically and responsibly isas we believe doing so enables us to realize the continuous improvement, sustainable innovation and enhanced business performance that are critical to our success as well as the right thing to do. As such, our board reviews our corporate social responsibility initiatives and we enacted an executive steering council, comprised of members of our senior management group and leaders within our key functional areas, to enhance our long-term strategy and to assess annual performance against key indicators. We are committed to continuous improvement that encourages sustainable innovation and enhances our business performance in three key areas: people, planet and product.success.
Our People and Communities
Our employees help drive our progress, innovation and success. As a global company, we have a responsibility to ensure our people are taken care of and thrive in their environment. We are growing our business in a way that is inclusive and supportive to all. Attracting and retaining top talent is more than a measure of our business success; it’s a measure of who we are and what we value. In addition, we engage with our communities, and through our global charitable giving and volunteer program, we are committed to making a positive difference in the areas where we work, live and serve.
Diversity
We foster a diverse and inclusive work environment. Maintaining this diversity begins with a firm commitment to equal opportunity, non-discrimination and anti-harassment. In addition, we adhere to all relevant laws and mandatory reporting requirements.
Employee Benefits
We offer competitive pay and a comprehensive benefits package to permanent employees, including medical and dental plans, paid leave, retirement plans with company contributions and life insurance coverage. In addition, we provide free health screenings and wellness coaching. Our employees also enjoy discounts on car rentals and used car purchases.
Communities
We believe community involvement is critical to operating as a responsible business and we have a long-standing commitment to our communities. That’s why we are committed to creating stronger, healthier places to live and work, whether through corporate philanthropy, employee giving or volunteerism.
The Environment
We are committed to reducing the impact of our operations have on the environment and theour communities we operate in through sustainable business practices, strategic decision-making, community partnerships and smart investments in future technologies.technologies, and to be a leader in the modern mobility landscape.
Climate Performance
We recognize the importance of reducing our greenhouse gas emissions as both a climate and business imperative. We are committed to being at the center of the modern mobility ecosystem and believe our planned investments in EVs and charging infrastructure will enhance the sustainability of our operations.
Fuel Efficient Fleet
We workhave made a commitment to make sustainableposition ourselves at the center of modern mobility, and are the exclusive rental car member of the Corporate Electric Vehicle Alliance, a viable, global realityconsortium of companies focused on accelerating the transition to EVs. As a critical connector between drivers, vehicles and technology, we have entered into new and expanded relationships around EV and technology. We are assembling a diverse fleet of EVs through large-scale acquisition agreements with Tesla, Polestar and General Motors, starting with an initial order of Teslas made in 2021. We have established a goal for 25% of our fleet to be electric by providing customers and communitiesthe end of 2024. In collaboration with access to fuel-efficient and lower emission vehicles. As car manufacturers offer more electric vehicles ("EVs") and the charging
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infrastructure matures,bp pulse, we are well positionedalso investing in EV infrastructure across our global operations by installing charging stations throughout our network to offerpower our fleet and support customer adoption of EVs. As discussed in "Ride Sharing Rentals" above, we have an exclusive partnership with Uber to provide EVs as influenced by customer demand and other economic factors. Duringto drivers using the year ended December 31, 2019, our approximate average holding period for a rental vehicle is 18 months inUber network that we believe can further accelerate the U.S. and adoption of EVs.
12 months in our international operations, which allows us to respond to changing customer preference on an ongoing basis.
Water
We also partner with our corporate customers to create personalized, green travel programs which are aimed at reducing carbon emissions and fuel costs associated with their vehicle rentals, including a program through a leading third party administrator, for related carbon offsets. Additionally, we offer customization of green fleet goals to help our corporate customers reduce fuel costs and expand their employees’ use of alternative-fuel vehicles.
Waste Reduction and Recycling
We work to integrate environmental sustainability across our operations, fromincluding in our car washes. Car washes are the primary source of our water use, and we are focused on minimizing our demand on municipal water systems. We are committed to the wayreviewing our procedures to prioritize water conservation from system efficiency upgrades in water stressed regions where we build our rental locations. operate.
Waste Reduction and Recycling
Resource conservation and waste reduction is at the forefronta component of that integration. We are committedour commitment to waste reductionenvironmental sustainability across our global footprint. Recycling efforts include, but are not limited to, recycling used oils and solvents, tires, batteries, ITinformation technology equipment and general mixed materials.
Green
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Facilities and Construction
We seek to maximize energy and water efficiency at our facilities and rely on renewable energy at a number of locations. We incorporate sustainable design and construction practices across the company, based on Leadership in Energy and Environmental Design ("LEED") standards. LEED is a green building rating system administered by the U.S. Green Building Council. Following LEED standards ensures our rentalCouncil and corporate locations are built in an environmentally sustainable manner, including ouris the most widely used and respected green building rating system. Our world headquarters in Estero, Florida which is LEED Gold®. Thesecertified, and we have locations in St. Louis, Charlotte, Denver, Dulles and Newark airports that are also LEED certified. In addition to LEED, ISO 14001 sets environmental management standards also aimand certifies facilities to those standards, while ISO 45001 addresses employee safety and workplace risks. Our Hertz European Service Center in Dublin, Ireland has achieved and maintains ISO 14001 and ISO 45001 certifications. Both LEED and ISO standards enhance the health and comfort of building occupants, improve overall building performance and deliver cost savings.
In addition to incorporating leading standards into our buildings, we also strive to include on-site renewables consisting of solar photovoltaic systems at certain locations, which decreases our carbon footprint while lowering utility costs.
Our People and Communities
At the heart of Hertz Global is our people. Our employees help drive our progress, innovation and success. We strive to empower our employees so they can build trust with our customers and the communities we serve around the world. As discussed above, attracting and retaining top talent is more than a measure of our business success; it is a measure of who we are and what we value. We also are committed to making a positive difference in the communities where we work, live and serve through our global charitable giving and volunteer program.
Our Business
Governance
We are committed to ensuring appropriate oversight and accountability of our ESG initiatives and our Board and senior management are directly engaged in this effort. Our Board's Governance Committee provides oversight of this work and receives regular reports from management on our ESG efforts. We maintain a Corporate Responsibility Executive Steering Council (the "Council"), comprised of senior leaders from a cross-functional spectrum, which is responsible for championing the integration of ESG priorities into our business.
Ethics
We are committed to operating in compliance with all applicable laws and maintaining the highest standards of ethical conduct. Our expectations may be high, but they are clear. Integrity is essential to every aspect of our business, both in policy and practice. Our Standards of Business Conduct informs when we should askoutlines specific practices to identify acceptable and unacceptable behavior for further directionemployees, officers and directors and helps promote our culture of acting ethically and doing the right thing in our operations around the world. Our Standards of Business Conduct also outlines our policies and guidelines to supporthelp our employees navigate a policy or procedurevariety of situations in relationships with each other and provides information, guidance and references covering a range of topics.our stakeholders.
Supplier Diversity
Our objective is
We recognize that supporting diversity goes beyond our internal policies and practices, and we seek to build sustainable relationships with suppliers who integrate diversity into their own hiring processes and supply chain. Through our Supplier Diversity Program, we are committed to the equal and fair treatment of all suppliers. We aim to provide certifiedminority-owned, woman-owned and other socially or economically disadvantaged small disadvantaged, minority, and women-owned business enterprises withbusinesses who perform at high levels the opportunity to compete to deliver products and services that support our brands. We are
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As a long-standing member of the National Minority Supplier Development Council and many of its local affiliatethe Women’s Business Enterprise National Council, we actively seek to do business with suppliers who are certified by such councils throughoutthat recognize women and minorities.
Through these efforts, we seek to emphasize and ensure a supplier representation that fully reflects the U.S. In supportcustomers and communities we serve. We believe that leveraging the global diversity of our extensive presence at airports, we are also membersworkforce and supplier relations will enable us to address the local needs of the Airport Minority Advisory Council.communities in which we live and work around the world.
Data Protection
Hertz is committed to operating in compliance with all applicable privacy and data security laws. We have standards and policies in place to ensure the proper handling, use and storage of customer and employee information, including privacy protection, maintenance of data integrity and security. In addition, our employees participate in mandatory training and ongoing engagement that ensures our entire team is on the same pageeducated regarding compliance with our policies and practices.
Our most recent Corporate Responsibility Report is available on our website (www.hertz.com).
INSURANCE AND RISK MANAGEMENT
There are three types ofIn addition to managing risk associated with our business, rental car operations introduce several industry-specific generally insurable risks that arise in our operations:risks:
•legal liability arising from the operation of our vehicles (i.e., vehicle liability);
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legal liability to members of the public and employees from other causes (i.e., general liability/workers' compensation); and
•risk of property damage and/or business interruption and/or increased cost of operating as a consequence of property damage.
In many cases we self-insure for these risks or insure risks through wholly-owned insurance subsidiaries. We mitigate our exposure to large liability losses by maintaining excess insurance coverage, subject to deductibles and caps, through unaffiliated carriers. For certain of our international operations, we maintain some liability insurance coverage with unaffiliated carriers.
In addition, we offer customers optional liability insurance and other products providing insurance coverage, which create additional risk exposures for us. Our risk of property damage is also increased when we waive the provisions in our rental contracts that hold a renter responsible for damage or loss under an optional loss or damage waiver that we offer. We bear these and other risks, except to the extent the risks are transferred through insurance or contractual arrangements.
In many cases we self-insure our risks or insure risks through wholly-owned insurance subsidiaries. We mitigate our exposure to large liability losses by maintaining excess insurance coverage, subject to deductibles and caps, through unaffiliated carriers. For our international operations outside of Europe, and for our long-term vehicle leasing operations, we maintain some liability insurance coverage with unaffiliated carriers.
Third-Party Liability
In our U.S. operations, we are required by applicable financial responsibility laws to maintain insurance against legal liability for bodily injury, (including death)death or property damage to third parties arising from the operation of our vehicles, sometimes called “vehicle liability,” in stipulated amounts. In most jurisdictions, we satisfy those requirements by qualifying as a self-insurer, a process that typically involves governmental filings and demonstration of financial responsibility, which sometimes requires the posting of a bond or other security. In the remaining jurisdictions, we obtain an insurance policy from an unaffiliated insurance carrier and indemnify the carrier for any amounts paid under the policy. The regulatory method for protecting against such vehicle liability should be considered in the context of the Graves Amendment, as we generally bear limited economic responsibility for U.S. vehicle liability attributable to the negligence of our drivers, except to the extent that we successfully transfer such liability to others through insurance or contractual arrangements.
For our vehicle rental operations in Europe, we have established a wholly-owned insurance subsidiary, Probus Insurance Company Europe LimitedDAC (“Probus”), a direct writer of insurance domiciled in Ireland. In certain European countries with company-operated locations, we have purchased from Probus the vehicle liability insurance required
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by law, and Probus reinsures the risks under such insurance with HIRE Bermuda Limited, a wholly-owned reinsurance company domiciled in Bermuda. Thislaw. In other European countries, this coverage is purchased from unaffiliated carriers for Spain and Italy and is arranged for by a leasing company in Luxembourg.carriers. Accordingly, as with our U.S. operations, we bear economic responsibility for vehicle liability in our European vehicle rental operations, except to the extent that we transfer such liability to others through insurance or contractual arrangements. For our international operations outside of Europe, we maintain some form of vehicle liability insurance coverage with unaffiliated carriers. The nature of such coverage and our economic responsibility for covered losses varies considerably. Nonetheless, we believe the amounts and nature of the coverage we obtain is adequate in light of the respective potential hazards.
In our U.S. and international operations, from time to timeperiodically in the course of our business, we become legally responsible to members of the public for bodily injury, (including death)death or property damage arising from causes other than the operation of our vehicles, sometimes known as “general liability.” As with vehicle liability, we bear economic responsibility for general liability losses, except to the extent we transfer such losses to others through insurance or contractual arrangements. In addition, to mitigate these exposures, we maintain excess liability insurance coverage with unaffiliated insurance carriers.
In our U.S. vehicle rental operations, we offer an optional liability insurance product, Liability Insurance Supplement (“LIS”), that provides vehicle liability insurance coverage substantially higher than state minimum levels to the renter and other authorized operators of a rented vehicle. LIS coverage is primarily provided under excess liability insurance policies issued by an unaffiliated insurance carrier, the risks under which are reinsured with a wholly-owned subsidiary, HIRE Bermuda Limited.
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In our U.S. vehicle rental operations and our company-operated international vehicle rental operations in many countries, we offer optional products providing Personal Accident Insurance / Personal Effects Coverage (“PAI/PEC”) and Emergency Sickness Protection ("ESP") insurance coverage to the renter and the renter's immediate family members traveling with the renter for accidental death or accidental medical expenses arising during the rental period or for damage or loss of their property during the rental period. PAI/PEC and ESP coverages are provided under insurance policies issued by unaffiliated carriers or, in Europe, by Probus, and the risks under such policies either are reinsured with HIRE Bermuda Limited or are the subject of indemnification arrangements between us and the carriers.Probus.
Our offering of LIS, PAI/PEC and ESP coverage in our U.S. vehicle rental operations is conducted pursuant to limited licenses or exemptions under state laws governing the licensing of insurance producers.
Provisions on our books for self-insured public liability and property damage vehicle liability losses are made by charges to expense based upon evaluations of estimated ultimate liabilities on reported and unreported claims.
Damage to Our Property
We bear the risk of damage to our property, unless such risk is transferred through insurance or contractual arrangements.
To mitigate our risk of large, single-site property damage losses globally, we maintain property insurance with unaffiliated insurance carriers in such amounts as we deem adequate in light of the respective hazards, where such insurance is available on commercially reasonable terms.
Our rental contracts typically provide that the renter is responsible for damage to or loss (including loss through theft) of rented vehicles. We generally offer an optional rental product, known in various countries as “loss damage waiver,” “collision damage waiver” or “theft protection,” under which we waive or limit our right to make a claim for such damage or loss.
Collision damage costs and the costs of stolen or unaccounted-for vehicles, along with other damage to our property, are charged to expense as incurred, net of reimbursements.
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Other Risks
To manage other risks associated with our businesses, or to comply with applicable law, we purchase other types of insurance carried by business organizations, such as worker'sworkers' compensation and employer's liability, commercial crime and fidelity, performance bonds, directors' and officers' liability insurance, terrorism insurance and cyber security insurance, all from unaffiliated insurance companies in amounts deemed by uswe deem to be adequate in light of the respective hazards, where such coverage is obtainable on commercially reasonable terms.
GOVERNMENT REGULATION AND ENVIRONMENTAL MATTERS
We are subject to numerous types of governmental controls, including those relating to prices and advertising, privacy and data protection, currency controls, labor matters, credit and charge card operations, insurance, environmental protection, used vehicle sales and licensing.
Dealings with RentersCustomers
In the U.S., vehicle rental transactions are generally subject to Article 2A of the Uniform Commercial Code, which governs “leases”leases of tangible personal property. Vehicle rental is also specifically regulated in more than half of the states of the U.S. and many other international jurisdictions. The subjects of these regulations include the methods by which we advertise, the methods used to quote and charge prices, the consequences of failing to honor reservations, the terms on which we deal with vehicle loss or damage (including the protections we provide to renters purchasing loss or damage waivers) and the terms and method of sale of the optional insurance coverage that we offer. Some states (including California, Nevada and New York) regulate the price at which we may sell loss or damage waivers, and many state insurance regulators have authority over the prices and terms of the optional insurance coverage we offer. See “Insurance and
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Risk Management-DamageManagement—Damage to Our Property” above for further discussion regarding the loss or damage waivers and optional insurance coverages that we offer renters. In addition, various consumer protection laws and regulations may generally apply to our business operations. Internationally, regulatory regimes vary greatly by jurisdiction and include increasing scrutiny from consumer law regulators in Europe and a stronger focus on corporate compliance, but the regimes do not generally prevent us from dealing with customers in a manner similar to that employed in the U.S.
Both in the U.S. and internationally, we are subject to increasing regulation relating to customer privacy and data protection. In general, we are limited in the usesrequired to which we may putdisclose our data collection and processing practices as well as our use and sharing of data that we collect from or about renters, including the circumstances in which we may communicate with them.renters. In addition,doing so, we are generally obligated to take reasonable steps to protect customer data while it is in our possession.possession and comply with individual privacy right requests. Our failure to do so could subject us to substantial legal liability, require us to bear significant remediation costs or seriously damage our reputation.
Changes in Regulation
Changes in government regulation of our businesses have the potential to materially alter our business practices or our profitability. Depending on the jurisdiction, those changes may come about through new legislation, the issuance of new laws and regulations or changes in the interpretation of existing laws, regulations and treaties by a court, regulatory body or governmental official. Those changes may have prospective and/or retroactive effect, particularly when a change is made through reinterpretation of laws or regulations that have been in effect for some time. Moreover, changes in regulation that may seem neutral on their face maycould have a more significant effect on us than on our competitors, depending on the circumstances. Several U.S. State Attorneys General have takenstates historically required “bundled pricing” by rental vehicle companies but those same states subsequently enacted statutory exceptions to allow for the position that vehicle rental companies either may not pass through costsseparate pass-through of certain fees (e.g., airport concession fees, customer facility charges and fees to customers, by means of separate charges, expenses such as vehicle licensing fees) with proper disclosure. In addition, the Canadian Competition Bureau has interpreted Canadian consumer law to prohibit “drip pricing” such that base rate advertising is not allowed and concession fees or may do so only in certain limited circumstances.the first price that consumers view on the websites of rental vehicle companies must reflect the bundled price for the proposed rental. Recent or potential changes in
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law or regulation that affect us relate to insurance intermediaries, customer privacy, like-kind exchange programs, data security and rate regulation and our retail vehicle sales operations.
In addition, our operations, as well as those of our competitors, could also be affected by any limitation in the fuel or energy supply or by any imposition of mandatory allocation or rationing regulations. We are not aware of any current proposal to impose such a regime in the U.S. or internationally. Such a regime could, however, be quickly imposed if there was a serious disruption in supply for any reason, including an act of war, terrorist incident or other problem affecting petroleum or energy supply, petroleum refining, or energy distribution or pricing.
Environmental
We are subject to extensive federal, state, local and foreign environmental and safety laws, regulations, directives, rules and ordinances concerning, among other things, the operation and maintenance of vehicles; the ownership and operation of tanks for the storage of petroleum products, including gasoline, diesel fuel and oil; and the generation, storage, transportation and disposal of waste materials, including oil, vehicle wash sludge and waste water.
When applicable, we estimate and accrue for certain environmental costs, among other things,such as to study potential environmental issuesconditions at sites deemed to require investigation or clean-up activities and for costs to implement remediation actions, including ongoing maintenance, as required. Based on information currently available, we believe that the ultimate resolution of existing environmental remediation actions and our compliance in general with environmental laws and regulations will not have a material effect on our operating results or financial condition. However, it is difficult to predict with certainty the potential impact of future compliance efforts and environmental remedial actions and thus future costs associated with such matters may exceed the amount of the estimated accrued amount.
AVAILABLE INFORMATION
You may access, free of charge, Hertz Global and Hertz's reports filed with or furnished to the SEC (including the Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K and any amendments to those forms) directly through the SEC (www.sec.gov) or indirectly through our website (www.hertz.com). Reports filed with or furnished to the SEC will be available as soon as reasonably practicable after they are filed with or furnished to the SEC. The information found on our website is not part of this or any other report filed with or furnished to the SEC.
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THE HERTZ CORPORATION AND SUBSIDIARIES
ITEM 1A. RISK FACTORS
Our business is subject to a number of significant risks and uncertainties, some of which are described below and should be carefully considered along with all of the information in this 20192022 Annual Report. TheseWe believe that the following information identifies the material risks and uncertainties affecting Hertz Global and Hertz; however, these are not the only risks and uncertainties that we encounter in our operations. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial may also materially and adversely affect our business, results of operations, financial condition, liquidity and cash flows. In such a case, you may lose all or part of your investment in Hertz Global's common stock or The Hertz Corporation's debt securities. You should carefully consider each of the following risks and uncertainties. Any of the following risks and uncertainties could materially and adversely affect our business, financial condition, operating results or cash flow and may make an investment in our securities speculative or risky. We believe that the following information identifies the material risks and uncertainties affecting Hertz Global and Hertz; however, the following risks and uncertainties are not the only risks and uncertainties facing us and it is possible that other risks and uncertainties might significantly affect us.flow.
RISKS RELATED TO OUR BUSINESS AND INDUSTRY
Our business, results of operations and financial condition are dependent on the efficient operation of a complex global supply chain. Disruption in that supply chain may adversely affect our ability to service demand, or do so efficiently.
Our supply chain, particularly with respect to access to new vehicles, is complex and reliant on raw goods and finished materials that are obtained from or manufactured by many different market participants, both within and outside the U.S. In addition to lingering impacts from the COVID-19 pandemic, the global automotive supply chain has been negatively impacted by the military conflict between Russia and Ukraine. Governments in the U.S., United Kingdom, and European Union have each imposed export controls on certain products and financial and economic sanctions on certain industry sectors and parties in Russia. Shortages in materials and increased costs for transportation, energy, and raw material, particularly with respect to raw materials extracted from, or components produced in, Russia and/or Ukraine, which are important to the vehicle manufacturing industry including the production of electric vehicle batteries, can impact vehicle production volumes, delivery schedules and costs.In addition, the global supply chain can be impacted by logistics provider capacity issues, inflation, increased freight costs, depleted inventory levels, labor shortages and demand peaks.As a result of the foregoing factors, various automotive manufacturers have been forced to delay or stall new vehicle production in recent years, which caused limitations in supply and delays in us receiving new vehicles. These conditions may continue, or other global and regional supply chain disruptions may in the future cause similar issues.Consequently, there is no guarantee that we will be able to purchase a sufficient number of new vehicles at competitive prices and on competitive terms and conditions to fulfill demand or to do so efficiently.
The ability to attract and retain front-line employees and senior management is critical to the success of our business.
The success of our business depends on the efforts and abilities of our ability to hire and retain enough front-line employees and our senior management and other key personnel with the necessary skills to meet demand. We develop and maintain a talent management strategy that defines current and future talent requirements (e.g., experience, skills, location requirements, timing, etc.) based on our strategic direction, actively conduct talent reviews and succession planning to be prepared if executives, managers or other key personnel resign, retire or their service is otherwise interrupted, and we strive to maintain competitive compensation and benefits, employee development and retention programs and build an inclusive culture. However, the labor market has undergone significant change in the wake of the COVID-19 pandemic. Competition for qualified employees is intense. Changing employee expectations about remote work and workplace flexibility complicate our employee recruiting, retention and talent management strategies. In addition, recent inflationary trends overall have driven market pressure for increased wages. If we do not succeed in building and maintaining our talent pipeline through attracting and retaining qualified personnel, particularly at the management level, our ability to execute our business plan may be adversely affected, which could harm our operating results or financial condition. In addition, we may find it difficult to hire and retain a sufficient number of qualified front-line employees to meet demand at certain locations. Overall, the failure of our talent management strategies could result in inadequate staffing levels, declines in customer satisfaction, an inability to execute our business plan, eroding employee morale and productivity, an
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ITEM 1A. RISK FACTORS (Continued)
increase in operating expenses or an inability to achieve internal control, regulatory or other compliance-related requirements.
Our vehicle rental business is particularly sensitive to reductions in the levels of business and leisure travel, and reductions in business and leisure travel could materially adversely affect our results of operations, financial condition, liquidity and cash flows.travel.
The vehicle rental industry is particularly affected by reductionschanges in the demand for business and leisure travel, especially with respect to levels of airline passenger traffic. Reductions in levels of air travel, whether caused by general economic conditions including inflation, higher airfare increases (e.g., capacity reductions or increases in fuel costs borne by commercial airlines) or other events (e.g.,such as work stoppages, military conflicts, terrorist incidents, civil unrest, cyber security incidents, natural disasters, epidemic or pandemic diseases, recessions or other economic or labor market downturns, or the response of governments to any of these events)events, could have a material adverse effect on the demand for vehicle rentals overall and for our rental vehicles in particular.
For example, business and leisure travel were significantly adversely affected in all global markets by the COVID-19 pandemic and the unprecedented measures taken by governments and businesses in response resulted in a material adverse effect on our results of operations, financial condition, liquidity and cash flows. Some categories of travel, such as business travel, have not yet returned to pre-pandemic levels. Resurgence of the COVID-19 virus or variants thereof, or other global or regional health crises, could have similar impacts.
Similarly, the COVID-19 pandemic resulted in a significant increase in the use of conferencing and collaboration technology for business, as well as greater shifts to remote work and essential-only travel. A continuation of these trends could result in a prolonged decrease in demand for business-related travel, which could materially and adversely affect us. demand for our rental vehicles for business travel over the long-term.
In particular, weaddition to being impacted by broad-based travel trends, our results of operations and financial condition are impacted by more local trends. We derive a substantial proportion of oursignificant revenues from key leisure destinations, including Florida, California, Texas, Hawaii and New York in the U.S., including Florida, Hawaii, California, New York and Texas, and Europe and the level of travelmajor cities in Europe. Travel to theseleisure destinations is dependent upon the ability and willingness of consumers to travel on vacation, which in turn is impacted by a variety of factors, including weather and climate-related events, geopolitical dynamics in a location and the effect of economic cycles on consumers’ discretionary travel, including shortages of fueltravel. Uncertainty in overall consumer sentiment in the current economic environment, coupled with military conflicts such as between Russia and increases or volatility in fuel costs. To the extent levels of business andUkraine, may adversely affect leisure travel are adversely affected,to certain key markets, and thus have a negative impact on our results of operations, financial condition, liquidity and cash flows could be materially adversely affected.business.
We face intense competition that may lead to downward pricing or an inability to increase prices.
We believe that price is one of the primary competitive factors in the vehicle rental market and various factors beyond our control may prevent us from pricing our offerings at a level that technologywe believe is appropriate for the quality and service we offer, or that is necessary to fund reinvestments in innovative offerings for customers. Technology has enabled cost-conscious customers, including business travelers, to compare rates available from rental companies more easily. If we tryeasily, and for competitors to increasemonitor our pricing ourdecisions in real time. Our competitors, some of whom may have greater resources and better access to capital than us, may seek to compete aggressively on the basis of pricing. In addition, our competitors may reduce prices in order to, among other things, attempt to gain a competitive advantage, capture market share in a particular geography or class of rental, or compensate for declines in rental activity.
Additionally, pricing in the vehicle rental industry is impacted by the supply of vehicles available for rent. Any significant fluctuations in the supply of rental vehicles available in the market due to unexpected changes in demand, supply chain disruptions, or actions taken by our competitors could require us to make changes to our pricing. Our ability to compete effectively depends, in part, on our ability to maintain a competitive and agile cost structure. If we cannot maintain our costs at a competitive level and with the ability to adapt to changing circumstances, then our business could be materially adversely affected.
We also compete with non-traditional companies for vehicle rental market share, including auto manufacturers, ride-hailing and car sharing companies and other competitors in the mobility industry. To the extent we do not react appropriately to our competition or optimize our revenue and pricing strategies to react to the actions of these
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competitors, we may experience sub-optimal pricing, decisions, sub-optimal asset utilization, poor customer satisfaction, lost revenue and other unfavorable consequences which may materially adversely affect our revenues and results of operations, financial condition, liquidity and cash flows. See Item 1, “Business - U.S. and International Rental Car Segments - Markets and Competition” in this 2019 Annual Report.
Our business is highly seasonal and any occurrence that disrupts rental activity during our peak periods could materially adversely affect our results of operations, financial condition, liquidity and cash flows.
Certain significant components of our expenses are fixed in the short-term, including minimum concession fees, real estate taxes, rent, insurance, utilities, facility-related expenses, the costs of operating our information technology systems and minimum staffing costs. Seasonal changes in our revenues do not affect those fixed expenses, typically resulting in higher profitability in periods when our revenues are higher. The second and third quarters of the year have historically been the strongest quarters for our vehicle rental business due to increased levels of leisure travel. We control certaintravel during the summer months in the geographies where we generate most of our costs, including fleet arrangements and availability,revenue. We seek to manage seasonal variationsincreases in demand.
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ITEM 1A. RISK FACTORS (Continued)
demand by increasing our available fleet and staff during peak periods, but we may not always be successful in doing so. Any circumstance, occurrence or situation that disrupts rental activity during these criticalour peak periods, or our inability to effectively meet heightened demand in those periods, could have a material adverse effectsignificant and disproportionate impact on our results of operations, financial condition, liquidity and cash flows due to a significant change in revenue.
If our management isWe may be unable to accurately estimate future levels of rental activity and adjust the number, location and mix of vehicles used in our rental operations accordingly, our results of operations, financial condition, liquidity and cash flows could suffer.accordingly.
Vehicle costs typically represent our largest expense and vehicle purchases are typicallyoften made weeks or months in advance of the expected use of the vehicle. Accordingly, our business is dependent upon the ability of our management to accurately estimate future levels of rental activity and consumer preferences with respect to the mix of vehicles used in our rental operations and the location of those vehicles. If we are unable to purchase a sufficient number of vehicles, or the right types of vehicles, to meet consumer demand, we may lose revenue or market share to our competitors. If we purchase too many vehicles, our Vehicle Utilization could be adversely affected and we may not be able to dispose of excess vehicles in a timely and cost-effective manner. Our failure to utilize a flexible and systematic process forIf our fleet management thatsystems are unable to accurately estimatesestimate future levels of rental activity and determinesdetermine the appropriate mix of vehicles usedto purchase and maintain in our rental operations, the results may result inbe obsolescence and excessive aging of fleet, the inability to sell fleet at adequate prices, inefficientsub-optimal fleet size and utilization, increased fleet costs, lower customer satisfaction, lost or missing fleet assets, reduced margins and cash flows and other unfavorable consequences which may materially adversely affect our results of operations, financial condition, liquidity and cash flows.
IncreasedWe are implementing a strategy that focuses on increasing our use of EVs in our fleet, which may not be as successful as we anticipate.
We are embarking on a strategy that includes significantly expanding our EV rental fleet. There are a number of risks associated with expanding our EV fleet, including but not limited to the following:
•Our ability to secure adequate vehicle supply within the time frame we, and our customers, expect;
•The timeline for the build out of the charging infrastructure that is needed to fully support an increase in EVs generally for the public, our ability to facilitate access to that infrastructure for our customers, and our ability to develop our own charging infrastructure;
•Demand for EVs which may be impacted by customer sentiment regarding EVs overall, including with respect to the reliability and safety of EVs and access to charging infrastructure;
•Costs associated with maintaining or repairing EVs and related infrastructure;
•The ability to attract, retain and train talent that is capable of managing an EV fleet;
•Risks related to the battery cells on which EVs depend, including the safety of such products and the associated need to maintain and significantly grow access to battery cells and raw materials;
•Risks related to the data connectivity and the technology upon which the success of these initiatives will rely, such as risks of unauthorized access to modify or use such technology; and
•Possible competition from other vehicle rental providers or mobility industry participants that may implement similar strategies and the possibility that our EV initiatives are not as well-received by our consumer base as anticipated.
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ITEM 1A. RISK FACTORS (Continued)
Moreover, although we are sourcing EVs from a growing number of manufacturers, in the near term we remain exposed to a number of risks related to the potential concentration of EV makes and models in our fleet, including the risk that a malfunction, recall or lack of availability of replacement parts for a particular EV make and model could have an outsized impact on our ability to offer EVs, or that demand from our customers for the particular EVs we acquire may be lower than we anticipate. We have a partnership with Uber to make Tesla EVs available for their drivers to rent on the Uber network in North America and Europe. The success of this initiative will be dependent in part on the factors described above.
In addition, the success of our strategic initiatives related to EVs depends, in part, on the economics ultimately associated with EVs, including depreciation rates and residual values of EVs and the cost of financing EVs, which will impact the attractiveness of our EVs to our customers. These economics are evolving due to the developing nature of the EV market. Outcomes associated with these economic factors could materially impact the success of such initiatives. If we do not adequately address potential risks related to EVs, our future revenue potential may be impacted and our ability to pursue our EV initiatives could be compromised.
We may fail to adequately respond to changes in technology that are impacting the mobility industry.
The mobility industry has recently been characterized by rapid changes in technology innovation and deployment to address evolving customer demands, improve operational efficiency and disrupt competitive dynamics. Examples include technology solutions designed to: address increasing customer expectations improving vehicle maintenance and utilization and enable traditional and non-traditional competitors to introduce transportation offerings, consumption models and vehicle platforms, including EVs and autonomous vehicles and other potentially disruptive technologies. Our ability to continually improve our technology platforms, processes and products in this environment is essential to maintain a competitive position in customer satisfaction, market share and cost structure.
Due to natural complexity in technology innovation, potentially high costs of certain initiatives, and the competition for talent in the technology space, we may experience technical or other difficulties that could delay or prevent the development, introduction or marketing of new products or enhanced product offerings. These challenges related to emerging technology may result in loss of competitive differentiation, margin erosion, declining values ofmarket share, inability to achieve our non-program vehicles in our operations couldstrategic initiatives, inefficient or outdated service delivery platforms, inability to attract or retain key talent and other unfavorable consequences that may materially adversely affect our results of operations, financial condition, liquidity and cash flows.
ManufacturersThe mix of program and non-program vehicles in our fleet, as well as declining values of our non-program vehicles, can subject us to an increased residual value risk.
We use program and non-program vehicles in our fleet. With program vehicles, vehicle manufacturers agree to repurchase programthe vehicles at a specified price or guarantee the depreciation rate on the vehicles during a specified time period. Using program vehicles in our fleet can often alleviate our residual value risk because of the terms of our agreements with the vehicle manufacturer for repurchases and guaranteed depreciation on those vehicles. Additionally, program vehicles provide flexibility because we may be able to sell certain program vehicles shortly after having acquired them at a higher value than what we could for a similar non-program vehicle at that time, which is useful in managing demand for vehicles. These benefits diminish when there are fewer program vehicles in our fleet.
The significant majority of vehicles in our fleet are non-program vehicles. We sell our non-program vehicles through variousa variety of channels, including auction, dealer direct wholesale, direct sales to third parties and retail. As a result of the factors that can affect the market for used vehicles described below, our retail sales channels may not provide stable or desirable vehicle prices in the used vehicle market, including auctions, dealer direct sales and retail lots through our car sales program, and havefuture compared to the wholesale disposition channels.
For non-program vehicles, there is an increased risk that the net amount realized upon the disposition of the vehicle will be less than its estimated residual value at such time. The residual values of non-program vehicles are affected by the market for used vehicles. Vehicle purchases are typically discretionary for consumers and the retail market
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ITEM 1A. RISK FACTORS (Continued)
for used vehicles is subject to many economic factors, such as demand, consumer interests, inventory levels, pricing of new car models, interest rates, fuel costs, tariffs and other general economic conditions. Any decrease in residual values of our non-program vehicles could result in a substantial loss on the sale of such vehicles or accelerated depreciation while we own the vehicles, which can materially adversely affect our results of operations, financial condition, liquidity and cash flows.
While program vehicles generally cost more than comparable non-program vehicles, the use of program vehicles enables us to forecast our depreciation expense with more precision, which is useful because depreciation is a significant cost in our operations. Using program vehicles is also useful in managing our seasonal peak demand for vehicles because we may be able to sell certain program vehicles shortly after having acquired them at a higher value than what we could for a similar non-program vehicle at that time. If there were fewer program vehicles in our rental operations, these benefits would diminish and we would bear increased risk related to residual value. In addition, the related depreciation on our vehicles and our flexibility to reduce the number of vehicles used in our rental operations by returning vehicles sooner than originally expected without the risk of loss in the event of an economic downturn or to respond to changes in rental demand would be reduced.
The market for used vehicles is subject to economic factors, such as demand, consumer interests, pricing of new car models, fuel costs and other general economic conditions and may not produce stable vehicle prices in the future. A reduction in residual values for vehicles in our rental fleet could cause us to sustain a substantial loss on the sale of vehicles or require us to depreciate those vehicles at a higher rate. Our vehicle costs could increase due to any reduction in the market value of our vehicles, which could materially adversely affect our results of operations, financial condition, liquidity and cash flows.
We may fail to respond adequately to changes in technology, customer demands and market competition.
Our industry has recently been characterized by rapid changes in technology, customer demands and market competition. For example, industry participants have taken advantage of new technologies to improve Vehicle Utilization, decrease customer wait times and improve customer satisfaction. Our industry has also seen the entry of traditional and non-traditional competitors, including TNCs, whose businesses are based on emerging mobile platforms
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ITEM 1A. RISK FACTORS (Continued)
and efforts to introduce various types of autonomous vehicles and other potentially disruptive technologies. Our ability to continually improve our current processes and products in response to changes in technology is essential in maintaining our competitive position and current levels of customer satisfaction. We may experience technical or other difficulties that could delay or prevent the development, introduction or marketing of new products or enhanced product offerings. A failure to have a systematic and comprehensive process related to emerging or disruptive competitors or technology may result in loss of competitive differentiation, margin erosion, departure of key partners, declining market share, inability to achieve growth targets, and other unfavorable consequences which may materially adversely affect our results of operations, financial condition, liquidity and cash flows.
If we arebe unable to purchase adequate supplies of competitively priced vehicles andor the cost of the vehicles we purchase increases, our results of operations, financial condition, liquidity and cash flows may be materially adversely affected.increase significantly without a compensating increase in vehicle rental rates or residual values.
Our vehicle purchase strategies canhave in the past been and may in the future be affected by commercial, economic, market and other conditions. For example, certainconditions, including a reduction of supply from auto manufacturers and any rebates or other incentives offered by them for our purchases. Purchases of vehicles from manufacturers are generally made pursuant to master agreement or framework agreements and are generally subject to potential delay or cancellation by manufacturers. Although we work with manufacturers on a continuous basis to gain a mutual understanding of their supply of, and our demand for, vehicles, the process by which we normally purchase vehicles does not always guarantee the availability of the desired vehicles on a timely basis, or provide us with remedies for any unavailability. Used vehicle manufacturers have occasionally utilized strategies to reduce salessupply and pricing can be impacted by the same factors relevant to the available supply and pricing of new vehicles, or the new vehicle rental industry, which can negatively affect our ability to obtain vehicles on competitive terms and conditions.market itself. Consequently, there is no guarantee that we can purchase a sufficient number of vehicles, whether new or used, at competitive prices and on competitive terms and conditions. Ifconditions, or that we would be able to compensate for increased acquisition costs through vehicle rental rates or residual values. In addition, if we are unable to obtain a sufficient supply ofpurchase new vehicles or if we obtain less favorable pricing and other terms during the acquisition of vehicles and are unableat competitive prices to recover from therefresh our fleet, increased maintenance costs thenin relation to our existing fleet may put further pressure on our results of operations and financial condition, liquidity and cash flows may be materially adversely affected.condition.
The recognition of previously-deferred tax gains on the disposition of revenue earning vehicles may not be fully offset by full expensing of newly-purchased revenue earning vehicles.
A material and extended reduction in vehicle purchases by our U.S. vehicle rental business and Donlen, for any reason, could require us to make material cash payments for U.S. federal and state income tax liabilities. We cannot offer assurance that allowances for the full expensing of purchased revenue earning vehicles in the future will exceed previously deferred tax gains realized upon the disposition of revenue earning vehicles maintained under the like-kind exchange ("LKE") program.
Beginning in 2018, the TCJA eliminated the deferral of tax gains on the disposition of revenue earning vehicles maintained under our LKE program. While we expect that additional deductions provided by the TCJA for 100% expensing of vehicles purchased after September 27, 2017 and placed in service before December 31, 2022 could offset the previously-deferred tax gains realized upon the disposition of revenue earning vehicles maintained under the LKE program, we can offer no assurance that these deductions will fully offset tax gains realized upon the disposition of revenue earning vehicles.
In addition, the TCJA lowers the 100% expensing by 20% per year beginning in 2023, fully eliminating the expensing by 2027. This change could result in the Company being required to make future material cash tax payments on the sales of revenue earning vehicles. We cannot predict if or when legislation would be enacted in the future to allow full or partial expensing of purchased revenue earning vehicles or to allow deferral of tax gains on the dispositions of revenue earning vehicles. If such legislation is not adopted, then our results of operations, financial condition, liquidity and cash flows may be materially adversely affected.
The failure of a manufacturer of our program vehicles to fulfill its obligations under a repurchase or guaranteed depreciation program could expose us to losses on those program vehicles.
If any manufacturer of our program vehicles does not fulfill its obligations under its repurchase or guaranteed depreciation agreement with us, whether due to default, reorganization, bankruptcy or otherwise, then we would have to dispose of those program vehicles without receiving the benefits of the associated repurchase programs. In addition, we could be left with a substantial unpaid claim against the manufacturer with respect to program vehicles that were sold and returnedback to the manufacturer but not paid for, or that were sold for less than their agreed repurchase price or guaranteed value.
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ITEM 1A. RISK FACTORS (Continued)
The failure by a manufacturer to pay such amounts could cause a credit enhancement deficiency under our asset-backed and asset-based financing arrangements, requiring us to either reduce the outstanding principal amount of debt or provide more collateral (in the form of cash, vehicles and/or certain other contractual rights) to the creditors under any such affected arrangement.
If one or more manufacturers were to adversely modify or eliminate repurchase or guaranteed depreciation programs in the future, our access to and the terms of asset-backed and asset-based debt financing could be adversely affected, which could in turn have a material adverse effect on our results of operations, financial condition, liquidity and cash flows.
Manufacturer safety recalls could create risks to our business.
The Raechel and Jacqueline Houck Safe Rental Car Act of 2015 prohibits us from renting or selling vehicles with open federal safety recalls and requires us to repair or address these recalls prior to renting or selling the vehicle. Any federal safety recall would require us to cease renting recalled vehicles until we can react to the recall. We cannot control the number of vehicles that may be subject to manufacturer recalls. If a large number of vehicles are the subject of a recall at one time, or if needed replacement parts are not in adequate supply, we may not be able to rent recalled vehiclesservice all of our available demand for a significant period of time. The potential impact of a recall may be particularly severe if it impacts a model that comprises a significant proportion of our fleet, or parts that are common across numerous model types, such as recalls of airbags in recent years. These types of disruptions could jeopardize our ability to fulfill existing contractual commitments or satisfy demand for our vehicles and could also
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result in the loss of business to our competitors.competitors whose fleets are not similarly impacted. Depending on the severity of any recall, it could materially adversely affect, among other things, our revenues, create customer service problems, present liability claims, reduce the residual value of the recalled vehicles and harm our general reputation.
A business continuity plan is necessary for our global business.
We have a business continuity plan designed to (i) identify key assets, operations and underlying threats, (ii) define and assess relevant threats (e.g., natural disasters, pandemics, terrorism, etc.) on business operations, (iii) develop and categorize action plans to minimize the impact of the identified threats and (iv) test the adequacy of our action plans. If our business continuity plan fails to operate as intended, we may experience significant business disruptions, increased litigation and liabilities, product and service quality failures, irreparable harm to customer relationships and other unfavorable consequences which may materially adversely affect our results of operations, financial condition, liquidity and cash flows.
We rely on third-party distribution channels for a significant amount of our revenues.
Third-party distribution channels account for a significant amount of our vehicle rental reservations. These third-party distribution channels include traditional and online travel agencies, third-party internet sites, airlines and hotel companies, marketing partners such as credit card companies and membership organizations and global distribution systems that allow travel agents, travel service providers and customers to connect directly to our reservations systems. Loss of access to or prominence within any of these channels, changes in pricing or commission structures or other terms within these channels, or a reduction in transaction volume through these channels could have ana material adverse impacteffect on our financial condition or results of operations, liquidity and cash flows, particularly if our customers are unable to access our reservation systems through alternate channels.
If our customers develop loyalty to internet travel intermediaries rather than our brands, our financial results may suffer.
Certain internet travel intermediaries, such as online travel agencies and third-party internet sites, use generic indicators of the type of vehicle (such as “standard” or “compact”) at the expense of brand identification andidentification. In addition, some intermediaries have launched their own loyalty programs to develop loyalties to their reservation system rather than to our brands. If the volume of sales made through internet travel intermediaries increases significantly and consumers develop stronger loyalties to these intermediaries rather than to our brands, our business and revenues could be affected. Additionally,or if our market share suffers due to lower levels of customer loyalty, our business and revenues could be adversely affected.
Our commercial off airport leases and airport concession agreements expose us to risks.
We maintain a substantial network of vehicle rental locations at off airport and airport locations in the U.S. and internationally. If we are unable to continue operating these facilities at their current locations due to the termination of leases or the termination of vehicle rental concessions at airports, which comprise a majority of our revenues, our operating results could be adversely affected. These leases and concession agreements typically include minimum payment obligations that are required even if our volume significantly declines which could increase our costs as a percentage of revenues. In addition, if the costs of these leases and/or concession agreements increase and we are unable to increase our pricing structure to offset the increased costs, our financial results could suffer.
Maintaining favorable brand recognition is essential to our success, and failure to do so could materially adversely affect our business.
Our business is heavily dependent upon the favorable brand recognition that our “Hertz”, “Dollar” and “Thrifty” brand names have in the markets in which they participate. Factors affecting brand recognition are often outside our control, and our efforts to maintain or enhance favorable brand recognition, such as marketing and advertising campaigns, may not have their desired effects. Negative claims or publicity regarding, among other things, our Company or our operations, offerings, practices, or customer service may damage our brands or reputation, even if such claims are untrue. In addition, although our licensing partners are subject to contractual requirements to protect our brands, it may be difficult to monitor or enforce such requirements, particularly in foreign jurisdictions, and various laws may limit our ability to enforce the terms of these agreements or to terminate the agreements. Any decline in perceived favorable recognition of our brands or damage to our reputation could materially adversely affect our results of operations, financial condition, liquidity and cash flows could be materially adversely affected.flows.
We may face issues with our union-represented employees.
Active labor contracts covering the terms of employment for the Company's union-represented employees in the U.S. are presently in effect, many of which cover employees at our larger airport locations, primarily with the International Brotherhood of Teamsters and the International Association of Machinists. These contracts are renegotiated periodically, and we anticipate renegotiating labor contracts with approximately 32% of these
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employees in 2023. Failure to negotiate a new labor agreement when required could result in a work stoppage. Although we believe that our labor relations have generally been good, it is possible that we could become subject to additional work rules imposed by agreements with labor unions, or that contract extensions, work stoppages or other labor disturbances could occur in the future. In addition, our non-union-represented workforce has been subject to unionization efforts in the past, and we could be subject to future unionization, which could lead to increases in our operating costs and/or constraints on our operating flexibility.
RISKS RELATED TO INFORMATION TECHNOLOGY, CYBER SECURITY AND PRIVACY
Cyber security threats continue to increase in frequency and sophistication, and a successful cyber security attack could interrupt or disrupt our information technology systems, or those of our third-party service providers, which could, among other things, disrupt our business, force us to incur costs or cause reputational harm.
We encounter continuous risk of exposure to cyber attacks and other security threats to our information networks and systems and the information stored on those networks and systems. Cyber attacks are increasing in their frequency, sophistication and intensity, have become increasingly difficult to detect, and may be exacerbated at any time by escalation of geopolitical tensions. Cyber attacks vary in their form and can include the deployment of harmful malware or ransomware, denial-of-services attacks, and other attacks, all of which are intended to affect business continuity and threaten the availability, confidentiality and integrity of our information. Cyber attacks can also include phishing attempts or other methods to cause confidential information, payments or other data to be transmitted to an unintended recipient. Cyber threats can have an external or internal origin. Cyber threat actors also attempt to exploit vulnerabilities through software that is commonly used by companies in cloud-based services, programs and bundled software. Like many other companies, we detect attempts by third parties to gain access to our systems and networks on a frequent basis, and the frequency of such attempts could increase in the future. At this time, we do not believe that any such attempts have had a material effect on our business, operations or financial condition. We have invested in the protection of data and information technology, and actively work to enhance our business continuity and disaster recovery capabilities to ensure resilience; however, there can be no assurance that our efforts will be successful.
We monitor our obligations under and compliance with global laws requiring information security safeguards and notification in the event of a security breach. We respond to potential security issues by utilizing procedures that provide for controls on detecting and addressing cyber security threats and communicating information to senior personnel and security representatives that we retain. We have also taken steps to address cyber security threats at third parties that handle, possess, process and store our information to mitigate the potential risk to us, including both service providers and licensee and franchisee. Such measures include contractually requiring the third parties to maintain certain data security controls. However, because of the rapidly changing nature and sophistication of security threats, which can be difficult to detect, there can be no assurance that our controls, policies and procedures have or will detect or prevent all of these threats, and we cannot predict the full impact of any past or future incident.
Any failure by us to effectively address, enforce and maintain our information technology infrastructure and cyber security requirements may result in substantial harm to our business, including major disruptions to business operations, loss of intellectual property, release of confidential information, malicious corruption of data, regulatory intervention and sanctions or fines, investigation and remediation costs and possible prolonged negative publicity. Additionally, although we maintain insurance coverage to address cyber security events that we believe is adequate for our business, there can be no assurance that such insurance will cover substantially all situations and all our potential costs and expenses related to cyber security incidents that may happen in the future.
Our business is heavily reliant upon information technology systems, some of which are managed, hosted, provided or used by third parties, including cloud-based service providers, and any significant failures or disruptions to these systems could adversely impact our business.
Our ability to, among other things, accept reservations, process rental and sales transactions, manage our pricing, manage our revenue earning vehicles, manage our financing arrangements, account for our activities and otherwise
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ITEM 1A. RISK FACTORS (Continued)
conduct our business is dependent on the performance and availability of our networks and systems, as well as those of third-party cloud providers. We have experienced, and from time to time in the future may experience, a failure or interruption that results in the unavailability of certain information systems. Additionally, our major information technology systems, reservations and accounting functions are centralized in a few locations worldwide. Any disruption, termination or substandard provision of services, including by third-party cloud providers, whether as the result of localized conditions (e.g., fire, explosion or hacking), failure of our systems to function as designed, or as the result of events or circumstances of broader geographic impact (e.g., earthquake, storm, flood, epidemic, strike, act of war, civil unrest or terrorist act), could materially adversely affect our business by disrupting normal reservations, customer service, accounting and technology functions; interfering with our ability to manage our vehicles; delaying or disrupting rental and sales processes; adversely affecting our ability to comply with our financing arrangements; and otherwise impacting our ability to manage our business. These events could, individually or in the aggregate, lead to lower revenues, increased costs or other effects on our results of operations, financial condition, liquidity and cash flows, which may be material.
If we fail to maintain, upgrade and consolidate our information technology systems, our business could be adversely affected.
In the ordinary course of our business, we evaluate, upgrade and consolidate our systems, including by making changes to legacy systems, replacing legacy systems with successor systems with new functionality, outsourcing certain systems, and acquiring new systems with new functionality. We deploy significant capital expenditures in connection with these activities. If we fail to maintain comprehensive technology enablement and effective processes, we may be unable to support business growth expectations, and such failure could result in excessive overhead costs, high rates of transaction failures and rework, detrimental impact to customers, excessive write-offs, service quality issues, declining employee morale, loss of key talent and other unfavorable consequences. If we fail to effectively implement system upgrades, system changes or our outsourcing plans, we may negatively impact our ability to manage our business, disrupt our internal control structure, incur additional administration and operating expenses, place undue demands on management time, and experience other negative impacts associated with delays or difficulties in transitioning to new systems. These risks are elevated when legacy systems and infrastructure updates are delayed or otherwise not made on a timely basis, which can result in a heightened security risk. In addition, the implementation of our technology initiatives and systems, including updates to legacy systems, may cause disruptions in our business operations by severely degrading performance or a complete loss of service and have an adverse effect on our business and operations if not anticipated and appropriately mitigated.
The misuse or theft of information we possess, including as a result of cyber security breaches, could harm our brand, reputation or competitive position and give rise to liabilities which may materially adversely affect our results of operations, financial condition, liquidity and cash flows.
In the normal course of business, we regularly collect, process and store non-public information about millions of individuals and businesses, including both credit and debit card information and other sensitive and confidential personal information. In addition, our customers regularly transmit sensitive and confidential information to us via the internet and through other electronic means. Despite the security measures and compliance programs we currently maintain and monitor, our facilities, vehicles and systems and those of our third-party service providers may contain defects in design or manufacture or other problems that could unexpectedly compromise information security. Unauthorized parties may also attempt to gain access to our facilities or systems, or those of third parties with whom we do business, through fraud, misrepresentation, or other forms of deception. We and our service providers may not anticipate or prevent all types of attempts to obtain unauthorized access, and techniques used to obtain unauthorized access to systems change frequently. For example, in recent years, many companies have been subject to high-profile security breaches that involved sophisticated and targeted attacks on the company’s infrastructure and the compromise of non-public sensitive and confidential information. These attacks were often not recognized or detected until after the disclosure of sensitive information notwithstanding the preventive and anticipative measures the companies had maintained. While we work to continuously evaluate our security throughout our business and make appropriate changes to our operating processes, improve our defenses and implement security measures designed to safeguard our systems and data, our efforts may not meet the ever evolving level of sophistication of the attacks or our measures may not be sufficient to maintain the confidentiality,
HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
THE HERTZ CORPORATION AND SUBSIDIARIES
ITEM 1A. RISK FACTORS (Continued)
security, or availability of the data we collect, store, and use to operate our business. Additionally, any failure to manage information privacy in compliance with applicable laws, whether as a result of our own error or the error or malfeasance of others, could result in regulatory fines and sanctions, litigation, prolonged negative publicity, data breaches, declining customer confidence, loss of key customers, employee liability, and other unfavorable consequences.
We may face particular data protection, data security and privacy risks in connection with the European Union's Global Data Protection Regulation, the California Consumer Privacy Act and other privacy laws and regulations.
Our business requires the secure processing and storage of personal information relating to our customers, employees, business partners and others. Strict data privacy laws regulating the collection, transmission, storage and use of employee data and consumers’ personally-identifying information are continuously evolving in the European Union, U.S. and other jurisdictions in which we operate. In particular, the European Union’s General Data Protection Regulation (the “GDPR”) imposes compliance obligations for the collection, use, retention, security, processing, transfer and deletion of personally identifiable information of individuals. In addition, countries such as the United Kingdom have implemented the GDPR through their own legislation, for example, the UK Data Protection Act of 2018. Privacy laws in the U.S. include the California Consumer Privacy Act (the “CCPA”), as amended, which expands the definition of personal information and grants, among other things, individual rights to access and delete personal information, and the right to opt out of the sale of personal information. These laws and regulations can also impose significant forfeitures and penalties for noncompliance and afford private rights of action to individuals under certain circumstances.
We actively monitor compliance with data protection and privacy-related laws and other regulations, including pending legislation, in the jurisdictions we operate; however, these laws are developing rapidly and may create inconsistent or conflicting requirements. Changes in the legal and regulatory environments in the areas of customer and employee privacy, data security, and cross-border data flows could have a material adverse effect on our business, primarily through the regulation of our marketing and transaction processing activities, the limitation on the types of information that we may collect, process and retain, the resulting costs of complying with such legal and regulatory requirements and potential monetary forfeitures and penalties for noncompliance, which could be significant. Such regulations also may increase our compliance and administrative burden significantly and require us to invest resources and management attention in order to update our information technology systems to meet new requirements.
RISKS RELATED TO LEGAL, REGULATORY AND TAX MATTERS
Our foreign operations expose us to risks that may materially adversely affect our results of operations, financial condition, liquidity and cash flows.
A significantWe generate a portion of our annual revenues are generatedrevenue outside the U.S. Operating in many different countries exposes us to varying risks, which include: (i) multiple, and sometimes conflicting, foreign regulatory requirements and laws that are subject to change and are often much different than the domestic laws in the U.S., including laws relating to taxes, automobile-related liability, insurance rates, insurance products, consumer privacy, data security, employment matters, cost and fee recovery, and the protection of our trademarks and other intellectual property; (ii) the effect of foreign currency translation risk, as well as limitations on our ability to repatriate income; (iii) varying tax regimes, including consequences from changes in applicable tax laws and our ability to repatriate cash from non-U.S. affiliates without adverse tax consequences; (iv) local ownership or investment requirements, as well as difficulties in obtaining financing in foreign countries for local operations; and (v) political and economic instability, natural calamities, war, and terrorism.
The effects of these risks may, individually or in the aggregate, materially adversely affect our results of operations, financial condition, liquidity and cash flows.
Our international operations are based in Uxbridge, England and we have significant vehicle rental operations in the United Kingdom and the Eurozone. The United Kingdom held a referendum on June 23, 2016 in which a majority voted for the United Kingdom’s withdrawal from the European Union (the “Brexit”). On October 19, 2019, the European Commission and the United Kingdom government announced a negotiated withdrawal agreement, which provides for a transition period ending on December 31, 2020 (that may be extended for up to 2 years) during which, except as otherwise provided, European Union law will be applicable to and in the United Kingdom. The United Kingdom formally left the European Union on January 31, 2020. While the withdrawal agreement includes a non-binding political declaration of the framework for the future relationship between the European Union and the United Kingdom, there exists significant uncertainty as to the scope, nature and terms of such future relationship. Depending on the terms of Brexit, the United Kingdom could lose access to the single European Union market and to the global trade deals negotiated by the European Union on behalf of its members. Brexit could also lead to potentially divergent national laws and regulations as the United Kingdom determines which European Union laws to replace or replicate. The effects of Brexit and the perceptions as to the impact of the withdrawal of the United Kingdom from the European Union have and for the foreseeable future may continue to adversely affect business activity and economic and market conditions in the United Kingdom, the Eurozone and globally and contribute to instability in global financial and foreign exchange markets. In addition, Brexit could lead to additional political, legal and economic instability in the European Union. Any of the above effects of Brexit, among others, could make it more difficult for us to manage our international operations in the United Kingdom and could adversely affect our financial results.
Our global business requires a compliance program to promote organizational adherence to applicable laws and regulations.
We have a compliance program designed to (i) identify applicable anti-bribery requirements (e.g., laws limiting commercial bribery and corruption), (ii) identify applicable anti-trust requirements (e.g., laws to prevent price fixing, contract rigging, market or customer allocations, etc.), (iii) interpret the application of such requirements, (iv) educate target audiences and (v) provide independent, ongoing compliance monitoring.
Our operations in many different countries increases the risk of a violation, or alleged violation, of the United States Foreign Corrupt Practices Act, the United Kingdom Bribery Act, other applicable anti-corruption laws and regulations, the economic sanction programs administered by the U.S. Treasury Department’s Office of Foreign Assets Control and the anti-boycott regulations administered by the U.S. Department of Commerce's Office of Anti-Boycott Compliance. The failure of our program to operate as designed can result in a failure to comply with applicable laws, which could result in significant penalties or otherwise harm the Company’s reputation and business. There can be no assurance that all of our employees, contractors and agents will comply with the Company’s policies that mandate compliance with these laws. Violations of these laws could result in legal and regulatory sanctions, increased litigation and fines and legal expense, prolonged negative publicity, diminished investor confidence, declining employee morale and other unfavorable consequences, which could have a material adverse effect on our business, results of operations, financial condition, liquidity and cash flows.
HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
THE HERTZ CORPORATION AND SUBSIDIARIES
ITEM 1A. RISK FACTORS (Continued)
Our business is heavily reliant upon communications networks and centralized information technology systems and the concentration of our systems creates risks for us.
We rely heavily on communication networks and information technology systems to, among other things, accept reservations, process rental and sales transactions, manage our pricing, manage our revenue earning vehicles, manage our financing arrangements, account for our activities and otherwise conduct our business. Our reliance on these networks and systems exposes us to various risks that could cause a loss of reservations, interfere with our ability to manage our vehicles, delay or disrupt rental and sales processes, adversely affect our ability to comply with our financing arrangements and otherwise materially adversely affect our ability to manage our business effectively. Our major information technology systems, reservations and accounting functions are centralized in a few locations worldwide. Any disruption, termination or substandard provision of these services, whether as the result of localized conditions (e.g., fire, explosion or hacking), failure of our systems to function as designed, or as the result of events or circumstances of broader geographic impact (e.g., earthquake, storm, flood, epidemic, strike, act of war, civil unrest or terrorist act), could materially adversely affect our business by disrupting normal reservations, customer service, accounting and information technology functions or by eliminating access to financing arrangements. Any disruption or poor performance of our systems could lead to lower revenues, increased costs or other material adverse effects on our results of operations, financial condition, liquidity and cash flows.
Failure to maintain, upgrade and consolidate our information technology systems could adversely affect us.
We are continuously evaluating, upgrading and consolidating our systems, including making changes to legacy systems, replacing legacy systems with successor systems with new functionality and acquiring new systems with new functionality. In addition, we outsource a significant portion of our information technology services. These types of activities subject us to additional costs and inherent risks associated with outsourcing, replacing and changing these systems, including impairment of our ability to manage our business, potential disruption of our internal control structure, substantial capital expenditures, additional administration and operating expenses, retention of sufficiently skilled personnel to implement and operate the new systems, demands on management time, potential delays or disruptions from upgrading and consolidating our systems and other risks and costs of delays or difficulties in transitioning to outsourcing alternatives, new systems or integrating new systems into our current systems. Failure to have a comprehensive technology plan and effective processes may result in an inability to support business growth expectations and successfully execute priorities and strategic information technology business programs and initiatives, cost overruns and excessive write-offs, missed business objectives, program delays and business disruptions, service quality issues, regulatory violations, high rates of transaction failures and rework, detrimental impact to customers, potential litigation, loss of key talent and other unfavorable consequences. In addition, the implementation of our technology initiatives and systems may cause disruptions in our business operations by severely degrading performance or a complete loss of service and have an adverse effect on our business and operations if not anticipated and appropriately mitigated and our competitive position may be adversely affected if we are unable to maintain systems that allow us to manage our business in a competitive manner.
The misuse or theft of information we possess, including as a result of cyber security breaches, could harm our brand, reputation or competitive position and give rise to material liabilities which may materially adversely affect our results of operations, financial condition, liquidity and cash flows.
We regularly possess, process and store non-public information about millions of individuals and businesses, including both credit and debit card information and other sensitive and confidential personal information in the normal course of our business. In addition, our customers regularly transmit sensitive and confidential information to us via the internet and through other electronic means. Despite the security measures and compliance programs we currently maintain and monitor, our facilities and systems and those of our third-party service providers may contain defects in design or manufacture or other problems that could unexpectedly compromise information security. Unauthorized parties may also attempt to gain access to our facilities or systems, or those of third parties with whom we do business, through fraud, misrepresentation, or other forms of deception. Many of the techniques used to obtain unauthorized access, including viruses, worms and other malicious software programs, are difficult to anticipate until launched against a target and we may be unable to implement adequate preventative measures. The failure of our information facilities and systems to perform as designed, or the failure to maintain and protect the security of data, whether as the result of our own error or the malfeasance or errors of others, could result in regulatory fines and sanctions, increased
HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
THE HERTZ CORPORATION AND SUBSIDIARIES
ITEM 1A. RISK FACTORS (Continued)
litigation, prolonged negative publicity, data breaches, declining customer confidence, lossThe disposition of key customers and other unfavorable consequences. For example, in recent years many companies have been subject to high-profile security breaches that involved sophisticated and targeted attacks on the company’s infrastructure and the compromise of non-public sensitive and confidential information. These attacks were often not recognized or detected until after the disclosure of sensitive information notwithstanding the preventive and anticipative measures the companies had maintained. To date, cyber security attacks directed at us have not had a material impact on our operations or financial results.
Cyber security threats in our business environment expose us to risks.
We encounter continuous exposure to cyber-attacks and other security threats to our information networks and systems and the information stored thereon. Although we have implemented policies, procedures and controls designed to protect against, detect and mitigate these threats, at considerable cost, we face evolving and persistent attacks on our information infrastructure. The attempts by others to gain unauthorized access to our information technology assets are becoming more diverse and sophisticated. We monitor our obligations under and compliance with global laws requiring information security safeguards and notification in the event of a security breach, including the European Union's Global Data Protection Regulation (the "GDPR") and United States breach notification laws. We respond to potential security issues by utilizing procedures that provide for controls on detecting and addressing cyber security threats and communicating information to senior personnel and security representatives that we retain. We have also taken steps to address cyber security threats at third-parties that possess, process, store and handle our information to mitigate the potential risk to us. Such measures include contractually requiring the third-parties to maintain certain data security controls. However, because of the rapidly changing nature and sophistication of these security threats, which can be difficult to detect, there can be no assurance that our policies, procedures and controls have or will detect or prevent all of these threats, and we cannot predict the full impact of any such past or future incident. Any failure by us to effectively address, enforce and maintain our information technology infrastructure and cyber security frameworkrevenue earning vehicles may result in substantial harmtaxable income which might not be fully offset by the taxable expense associated with newly purchased revenue earning vehicles.
We are permitted under the Tax Cuts and Jobs Act (the “TCJA”) to our business, including major disruptions to business operations, loss of intellectual property, release of confidential information, malicious corruption of data, regulatory intervention and sanctions or fines, investigation and remediation costs and possible prolonged negative publicity. Although we maintain insurance coverage to address cyber security events that we believe is adequate for our business, there can be no assurance that such insurance will cover substantially all of our potential costs and expenses related to cyber security incidents that may happenexpense, in the future.year of acquisition, 100% of the acquisition costs in the year of acquisition for vehicles purchased during the years 2017 through 2022. The TCJA reduces the expensing percentage ratably by 20% each year 2023 through 2027. This reduction could result in tax depreciation and expensing of newly purchased vehicles that are significantly less than the tax cost associated with the disposition of vehicles. In addition, privacy laws invehicles purchased using certain financing arrangements are not eligible for this accelerated depreciation election. If we choose to purchase vehicles using such financing arrangements, or if our existing financing arrangements are deemed not to qualify under the U.S., including the California Consumer Privacy Act (the "CCPA"), which went into effect on January 1, 2020, increasingly provide for private rights of action, with high statutory damages in the event of certain security breaches, which could increaseCode, our potential liability in the event that our information is impacted by a cyber security incident.ability to claim accelerated expensing would be limited.
We may face particular data protection, data security and privacy risks in connection with the European Union's Global Data Protection Regulation and other privacy regulations.
Strict data privacy laws regulating the collection, transmission, storage and use of employee data and consumers’ personally-identifying information are evolving in the European Union, U.S. and other jurisdictions in which we operate. The GDPR, which became effective on May 25, 2018, imposes new compliance obligations for the collection, use, retention, security, processing, transfer and deletion of personally identifiable information of individuals and creates enhanced rights for individuals. In the CCPA, which grants expanded rights to access and delete personal information, and the right to opt out of the sale of personal information, among other things, became effective on January 1, 2020.
These changes in the legal and regulatory environments in the areas of customer and employee privacy, data security, and cross-border data flows could haveFurther, a material adverse effect onand extended reduction in vehicle purchases by our business, primarily through the impairment of our marketing and transaction processing activities, the limitation on the types of information that we may collect, process and retain, the resulting costs of complying with such legal and regulatory requirements and potential monetary forfeitures and penalties for noncompliance.
We actively monitor compliance with data protection and privacy-related laws, including with the GDPR and CCPA, however, these laws may be interpreted and applied differently from country to country and may create inconsistent or conflicting requirements. Such regulations may increase our compliance and administrative burden significantly and
HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
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ITEM 1A. RISK FACTORS (Continued)
may require us to invest resources and management attention in order to update our IT systems to meet the new requirements. It is possible that we could encounter significant liability for failing to comply with any such requirements.
Our leases andU.S. vehicle rental concessions expose us to risks.
We maintain a substantial networkbusiness, for any reason, would similarly limit the amount of vehicle rental locations at airports in the U.S. and internationally. Many of these locations are leased and subject to vehicle rental concessions where vehicle rental companies are typically required to bid periodically for thetax expense available locations. If we are unable to continue operating these facilities at their current locations due to the termination of leases or vehicle rental concessions at airports, which comprise a majority of our revenues, our operating results could be adversely affected. In addition, if the costs of these leases increase and we are unable to increase our prices to offset the increased costs, our financial resultstax cost associated with the disposition of vehicles.
Any of the foregoing developments could suffer.
Maintaining favorable brand recognition is essentialresult in the requirement for us to our success, and failure to do somake future material cash tax payments on the disposition of revenue earning vehicles, which could materially adversely affect our results of operations, financial condition, liquidity and cash flows.
Our business is heavily dependent upon the favorable brand recognition thatability to utilize our “Hertz”, “Dollar” and “Thrifty” brand names have in the markets in which they participate. Factors affecting brand recognition are often outside our control, and our efforts to maintain or enhance favorable brand recognition, such as marketing and advertising campaigns, may not have their desired effects. In addition, although our licensing partners are subject to contractual requirements to protect our brands, itnet operating loss carryforwards (“NOLs”) may be difficult to monitor or enforce such requirements, particularly in foreign jurisdictions and various laws may limit our ability to enforce the terms of these agreements or to terminate the agreements. Any decline in perceived favorable recognition of our brands could materially adversely affect our results of operations, financial condition, liquidity and cash flows.
Maintaining effective employee retention and talent management is critical to our success.
We develop and maintain a talent management strategy that defines current and future talent requirements (e.g., experience, skills, location requirements, timing, etc.) based on our strategic direction, outlines coordinated recruiting and development plans across businesses and regions and considers employee mobility, centers of excellence and shared service concepts to optimize resource plans and leverage labor arbitrage. The consequences that may result from a failure of our employee retention and talent management can include an inability to sustain growth strategies due to the lack of required talent, inadequate staffing levels, non-competitive cost structures, an inability to encourage innovation and sustain competitive differentiation, declining employee morale, increased attrition and declining product and service quality.
We may face issues with our union employees.
Labor contracts covering the terms of employment for the Company's union employees in the U.S. (including those in the U.S. territories) are presently in effect under active contracts with local unions, affiliated primarily with the International Brotherhood of Teamsters and the International Association of Machinists. These contracts are renegotiated periodically and we anticipate renegotiating labor contracts with approximately 55% of these employees in 2020. Failure to negotiate a new labor agreement when required could result in a work stoppage. Although we believe that our labor relations have generally been good, it is possible that we could become subject to additional work rules imposed by agreements with labor unions, or that work stoppages or other labor disturbances could occur in the future. In addition, our non-union workforce has been subject to unionization efforts in the past, and we could be subject to future unionization, which could lead to increases in our operating costs and/or constraints on our operating flexibility.
HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
THE HERTZ CORPORATION AND SUBSIDIARIES
ITEM 1A. RISK FACTORS (Continued)
If there is a determination that any of the Spin-Off or the internal spin-off transactions completed in connection with the Spin-Off (collectively with the Spin-Off, the “Spin-Offs”) is taxable for U.S. federal income tax purposes because the facts, assumptions, representations or undertakings underlying the Internal Revenue Service ("IRS") private letter ruling or tax opinions are incorrect or for any other reason, then Herc Holdings and its stockholders could incur significant U.S. federal income tax liabilities and Hertz Global could incur significant liabilities.
In connection with the Spin-Offs, Herc Holdings received a private letter ruling from the IRS to the effect that, subject to the accuracy of and compliance with certain representations, assumptions and covenants, (i) the Spin-Off will qualify as a tax-free transaction under Sections 355 and 368(a)(1)(D) of the Code, and (ii) the internal spin-off transactions will qualify as tax free under Section 355 of the Code. A private letter ruling from the IRS generally is binding on the IRS. However, the IRS ruling did not rule that the Spin-Offs satisfied every requirement for a tax-free spin-off, and Herc Holdings and Hertz Global relied solely on opinions of professional advisors to determine that such additional requirements were satisfied. The ruling and the opinions relied on certain facts, assumptions, representations and undertakings from Herc Holdings and Hertz Holdings regarding the past and future conduct of the companies’ respective businesses and other matters. If any of these facts, assumptions, representations or undertakings were incorrect or not otherwise satisfied, Herc Holdings and Hertz Global, and their affiliates may not be able to rely on the ruling or the opinions of tax advisors and could be subject to significant tax liabilities. Notwithstanding the private letter ruling and opinions of tax advisors, the IRS could determine on audit that the Spin-Offs and related transactions are taxable if it determines that any of these facts, assumptions, representations or undertakings are not correct or have been violated or if it disagrees with the conclusions in the opinions that are not covered by the private letter ruling, or for any other reason, includinglimited as a result of certain significant changes in the stock ownership of Herc Holdings or Hertz Global after the Spin-Off. If the Spin-Offs or related transactions are determined to be taxable for U.S. federal income tax purposes, Herc Holdings and Hertz Global and, in certain cases, their stockholders (at the time of the Spin-Off) could incur significant U.S. federal income tax liabilities, including taxation on the value of the Hertz Global stock distributed in the Spin-Off and the value of other companies distributed in the internal Spin-Off transactions, and Hertz Global could incur significant liabilities, either directly to the tax authorities orchange under a Tax Matters Agreement entered into with Herc Holdings.
Some or all of our deferred tax assets could expire if we experience an “ownership change” as defined in Section 382 of the Code.
An “ownership change” could limitIn general, Section 382 of the Code provides an annual limitation with respect to the ability of a corporation to utilize its NOLs and other tax attributes, as well as certain built-in-losses ("BILs"), against future taxable income in the event of a change in ownership.
Limitations imposed on our ability to utilizeuse NOLs, other tax attributes including net operating losses, capital loss carryovers, excess foreign tax carry forwards, and credit carryforwards, to offset future taxable income. Our ability to use such tax attributesBILs to offset future taxable income may cause U.S. federal income taxes to be paid earlier than otherwise would be paid if such limitations were not in effect and could cause such NOLs and other tax liabilitiesattributes to expire unused. Similar rules and limitations may be significantly limited ifapply for state and foreign income tax purposes. If we experience an “ownership change” as defined in Section 382(g) of the Code. In general, an ownership change, will occur when the percentage of Hertz Global's ownership of one or more “five-percent shareholders” (as defined in the Code) has increased by more than 50 percentage points over the lowest percentage of stock owned by such shareholders at any time during the prior three years (calculated on a rolling basis). An entity that experiences an ownership change generally should be subject to an annual limitation on its pre-ownership change tax loss carryforward equal to the equity value of the corporation immediately before the ownership change, multiplied by the long-term, tax-exempt rate posted monthly by the IRS (subject to certain adjustments). The annual limitation accumulates each year to the extent that there is any unused limitation from a prior year. The limitation on our ability to utilize tax losses and credit carryforwards arising from an ownership change under Section 382 depends on the value of our equity at the time of any ownership change. If we were to experience an “ownership change”, it is possible that a significant portion of our tax attributes could expire before we would be able tolimited for use them to offset future taxable income. Many states adopt the federal section 382 rules and therefore have similar limitations with respect to state tax attributes.
We face risks related to liabilities and insurance.
Our businesses expose us to claims for personal injury, death and property damage resulting from the use of the vehicles rented or sold by us, and for employment-related injury claims by our employees. The Company isWe are currently a defendant in numerous actions and hashave received numerous claims for which actions have not yet been commenced for public liability and property damage arising from the operation of motor vehicles rented from the Company.us. We generally self-insure up to $10 million per occurrence globally and the Company has $200 millionwe retain insurance coverage in excess of
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ITEM 1A. RISK FACTORS (Continued)
retentions. We cannot assure you in amounts we deem prudent. There can be no assurance that we will not be exposed to uninsured liability at levels in excess of our historical levels, resulting from multiple payouts or otherwise, that liabilities in respect of existing or future claims will not exceed the level of our insurance or reserves, that we will have sufficient capital available to pay any uninsured claims or that insurance with unaffiliated carriers will continue to be available to us on economically reasonable terms or at all. See Item 1, “Business - Insurance and Risk Management” and Note 14,15, "Contingencies and Off-Balance Sheet Commitments," to the Notes to our consolidated financial statements included in this 20192022 Annual Report under the caption Item 8, ‘‘Financial Statements and Supplementary Data.”
We could face a significant withdrawal liability if we withdraw from participation in multiemployer pension plans or in the event other employers in such plans become insolvent and certain multiemployer plans in which we participate are reported to have underfunded liabilities, any of which could have a material adverse effect on our results of operations, financial condition, liquidity or cash flows.
We could face a significant withdrawal liability if we withdraw from participation in one or more multiemployer pension plans or in the event other employers in such plans become insolvent, any of which could have a material adverse effect on our results of operations, financial condition, liquidity or cash flows.
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 statements of operations and as a liability on our consolidated balance sheets. Our withdrawal liability for any multiemployer plan would depend on the extent of the plan’s funding of vested benefits. 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. The occurrence of any of these events could have a material adverse effect on our consolidated financial condition, results of operations, liquidity and cash flows. See Note 7, "Employee Retirement Benefits," to the Notes to our consolidated financial statements included in this 2019 Annual Report under the caption Item 8, ‘‘Financial Statements and Supplementary Data."
Environmental laws and regulations and the costs of complying with them, or any liability or obligation imposed under them, could materially adversely affect our results of operations, financial condition, liquidity and cash flows.
We are subject to federal, state, local and foreign environmental laws and regulations in connection with our operations, including with respect to the ownership and operation of tanks for the storage of petroleum products, such as gasoline, diesel fuel and motor and wasteused oils. We cannot assure youguarantee that ourthe tanks will at all times remain free from
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ITEM 1A. RISK FACTORS (Continued)
leaks or that the use of these tanks will not result in significant spills or leakage. If leakagea leak or a spill occurs, it is possible that the costs to investigate and remediate resulting costs of cleanup, investigation and remediation,impacts, as well as any resultingassociated fines, could be significant. We cannot assure you that complianceHistorically, we have indemnified property owners for the costs associated with remediating certain hazardous substance storage, recycling or disposal sites and, in some instances, for natural resource damages. Compliance with existing or future environmental laws and regulations will notmay require material expenditures by us or otherwise have a material adverse effect on our consolidated financial condition, results of operations, liquidity or cash flows. See Item 1, ‘‘Business—GovernmentalGovernment Regulation and Environmental Matters’’ in this 20192022 Annual Report.
The U.S. Congress and other legislative and regulatory authorities in the U.S. and internationally have considered, and will likely continue to consider, numerous measures related to climate change and greenhouse gas emissions. Should rules establishing limitations on greenhouse gas emissions or rules imposing fees on entities deemed to be responsible for greenhouse gas emissions become effective, demand for our services could be affected, our vehicle, and/or other, costs could increase, and our business could be adversely affected.
HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
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ITEM 1A. RISK FACTORS (Continued)
Changes in the U.S. legal and regulatory environment that affect our operations including laws and regulations relating to accounting principles, taxes, automobile related liability, insurance rates, insurance products, consumer privacy, data security, employment matters, licensing and franchising, used-car sales (including retail sales), cost and fee recovery and the banking and financing industry could disrupt our business, increase our expenses or otherwise have a material adverse effect on our results of operations, financial condition, liquidity and cash flows.
We are subject to a wide variety of U.S. laws and regulations and changes in the level of government regulation of our business have the potential to materially alter our business practices and materially adversely affect our results of operations, financial condition, liquidity and cash flows. Those changes may occur through new laws and regulations or changes in the interpretation of existing laws and regulations.
AnyFor example, any new, or change in existing, U.S. law and regulation with respect to optional insurance products or policies could increase our costs of compliance or make it uneconomical to offer such products, which would lead to a reduction in revenue and profitability.products. For further discussion regarding how changes in the regulation of insurance intermediaries may affect us, see Item 1, ‘‘Business—Insurance and Risk Management’’ in this 20192022 Annual Report. If customers decline to purchase supplemental liability insurance products from us as a result of any changes in these laws or otherwise, our results of operations, financial condition, liquidity and cash flows could be materially adversely affected.
WeAlso, we derive revenue through rental activities of our brands under franchise and license arrangements. These arrangements are subject to various international, federal and state laws and regulations that impose limitations on our interactions with our counterparties. In addition, the used-vehicle sale industry, including our network of company-operated retail vehicle sales locations, is subject to a wide range of federal, state and local laws and regulations, such as those relating to motor vehicle sales, retail installment sales and related finance and insurance matters, advertising, licensing, consumer protection and consumer privacy. Changes in thesethe laws and regulations that impact our franchising and licensing agreements or our used-vehicle sales operation could adversely affect our results.
In most jurisdictions where we operate, we pass-through various expenses, including the recovery of vehicle licensing costs and airport concession fees, to our rental customers as separate charges. We believe that our expense pass-throughs, where imposed, are properly disclosed and are lawful. However, in the event of incorrect calculations or disclosures with respect to expense pass-throughs, or a successful challenge to the methodology we have used for determining our expense pass-through treatment, we could be subject to fines or other liabilities. In addition, we may in the future be subject to potential legislative, regulatory or administrative changes or actions which could limit, restrict or prohibit our ability to separately state, charge and recover vehicle licensing costs and airport concession fees, which could result in a material adverse effect on our results of operations, financial condition, liquidity and cash flows.fees.
Certain proposed or enacted laws and regulations with respect to the banking and finance industries, including the Dodd-Frank Wall Street Reform and Consumer Protection Act (including risk retention requirements) and amendments to the SEC's rules relating to asset-backed securities, could restrict our access to certain financing arrangements and increase our financing costs, which could have a material adverse effect on our results of operations, financial condition, liquidity and cash flows.
RISKS RELATED TO OUR SUBSTANTIAL INDEBTEDNESS
Our substantial level of indebtedness could materially adversely affect our results of operations, financial condition, liquidity, cash flows and ability to compete in our industry.
Our substantial indebtedness could materially adversely affect our business by, among other situations: (i) making it more difficult for us to satisfy our obligations to the holders of our outstanding debt securities and to the lenders under our various credit facilities, resulting in possible defaults on, and acceleration or early amortization of, such indebtedness; (ii) being difficult to refinance or borrow additional funds in the future; (iii) requiring us to dedicate a substantial portion of our cash flows from operations and investing activities to make payments on our debt, which would reduce our ability to fund working capital, capital expenditures or other general corporate purposes; (iv) increasing our vulnerability to general adverse economic and industry conditions (such as credit-related disruptions), including interest rate fluctuations, because a portion of our borrowings are at floating rates of interest and are not hedged against
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ITEM 1A. RISK FACTORS (Continued)
rising interestWe are subject to many different forms of taxation in various jurisdictions throughout the world, which could lead to disagreements with tax authorities regarding the application of tax laws.
We are subject to many forms of taxation in the jurisdictions throughout the world in which we operate, including, but not limited to, income tax, withholding tax, indirect tax, and payroll-related taxes. Tax law and administration are extremely complex and often require us to make subjective determinations.
For example, in accordance with Section 482 of the Code and the Organization for Economic Cooperation and Development guidelines, we have established transfer pricing policies to govern our intercompany operations. Implementing transfer pricing policies can be extremely complex.
Tax authorities could disagree with our policies, which disagreements could result in lengthy legal disputes and, ultimately, the payment of substantial funds to government authorities, which could have a material adverse effect on our results of operations, financial condition, liquidity and cash flows.
An impairment of our goodwill and other indefinite-lived intangible assets could have a material impact to our results of operations.
On an annual basis as of October 1, and at interim periods when circumstances require as a result of a triggering event, we test the recoverability of our goodwill and indefinite-lived intangible assets by performing an impairment analysis. The reviews of fair value involve judgment and estimates, including projected revenues, projected cash flows, long-term growth rates, royalty rates and the risk that one or morediscount rates. A significant decline in any of the financial institutions providing commitments under our revolving credit facilities failsitems used to fund an extension of credit under any such facility, due to insolvency or otherwise, leaving us with less liquidity than expected; (v) placing us atdetermine fair value, as well as other triggering events, could result in a competitive disadvantage to our competitors that have proportionately less debt or comparable debt at more favorable interest rates or on better terms; and (vi) limiting our ability to react to competitive pressures, or make it difficult for us to carry out capital program spending that is necessary or important to our growth strategy and our efforts to improve operating margins. While the terms of the agreements and instruments governing our outstanding indebtedness contain certain restrictions upon our ability to incur additional indebtedness, they do not fully prohibit us from incurring substantial additional indebtedness and do not prevent us from incurring obligations that do not constitute indebtedness. If new debt or other obligations are added to our current liability levels without a corresponding refinancing or redemptionmaterial impairment charge. For details of our existing indebtedness and obligations, these risks would increase. For a description of the amounts we have available under certain of our debt facilities,annual impairment testing, see Note 5, "Debt,"Goodwill and Intangible Assets, Net," to the Notes to our consolidated financial statements included in this 20192022 Annual Report under the caption Item 8, "Financial Statements and Supplementary Data."
Our abilityglobal business requires a compliance program to manage these risks depends on financialpromote organizational adherence to applicable laws and regulations.
We have a compliance program that promotes a culture of ethical behavior and adherence to applicable laws and regulations. The program is designed to (i) identify applicable anti-bribery requirements (e.g., laws limiting commercial bribery and corruption), (ii) identify applicable antitrust requirements (e.g., laws to prevent price fixing, contract rigging, market conditions as well as our financialor customer allocations, etc.), (iii) interpret the application of such requirements, (iv) educate target audiences and operating performance, which, in turn, is subject to a wide range of risks, including those described under “Risks Related to Our Business and Industry.”(v) provide independent, ongoing compliance monitoring.
Our Senior Facilities, our Letteroperations in many different countries increases the risk of Credit Facilitya violation, or alleged violation, of the United States Foreign Corrupt Practices Act, the United Kingdom Bribery Act, other applicable anti-corruption laws and our Alternative Letterregulations, the economic sanctions programs administered by the U.S. Treasury Department’s Office of Credit Facility contain customary events of default, subject to customary cure periods for certain defaults, that include, among others, non-payment defaults, covenant defaults, material judgment defaults, bankruptcy and insolvency defaults, cross-acceleration of certain other material indebtedness, and inaccuracy of representations and warranties. Upon an event of default thereunder, if not waived by our lenders, our lenders may declare all amounts outstanding as due and payable, which may cause further defaults and/or amortization events under our other debt obligations. The credit agreement governing our Senior FacilitiesForeign Assets Control and the credit agreements governinganti-boycott regulations administered by the U.S. Department of Commerce's Office of Anti-Boycott Compliance. The failure of our Letter of Credit Facility and Alternative Letter of Credit Facility require us uponprogram to operate as designed can result in a change of control, as defined therein, to make an offer to repay in full all amounts outstanding thereunder and terminate the underlying commitments upon such a change of control. Our failure to make such an offer would result in an event of default thereunder. In addition, the indentures governing our Senior Notes and our Senior Second Priority Secured Notes require us upon a change of control, as defined therein, to make an offer to repurchase all of such outstanding Senior Notes and Senior Second Priority Secured Notes at a price equal to 101% of the principal amount, togethercomply with any accrued and unpaid interest. If we failed to repurchase the Senior Notes and Senior Second Priority Secured Notes, we would be in default under the related indenture. Certain of our other indebtedness alsoapplicable laws, which could result in defaults and/significant penalties or amortization events uponotherwise harm the occurrence of certain change of control events, as defined therein. If our current lenders accelerate the maturity of their related indebtedness, we may not have sufficient capital available atCompany’s reputation and business. There can be no assurance that time to pay the amounts due to our lenders on a timely basis, and there is no guarantee that we would be able to repay, refinance, or restructure the payments on such debt.
If our capital resources (including borrowings under our revolving credit facilities and access to other refinancing indebtedness) and operating cash flows are not sufficient to pay our obligations as they mature or to fund our liquidity requirements, we may be forced to do, among other things, one or more of the following: (i) sell certainall of our assets; (ii) reduceemployees, contractors and agents will comply with the number of our revenue earning vehicles; (iii) reduce or delay capital expenditures; (iv) obtain additional equity capital; (v) forgo business opportunities, including acquisitions and joint ventures; or (vi) restructure or refinance all or a portion of our debt on or before maturity.
We cannot assure youCompany’s policies that we would be able to accomplish anymandate compliance with these laws. Violations of these alternativeslaws could result in legal and regulatory sanctions, increased litigation and fines, prolonged negative publicity, diminished investor confidence, declining employee morale and other unfavorable consequences, which could have a material adverse effect on a timely basis or on satisfactory terms, if at all. Furthermore, we cannot assure you that we will maintain financing activities and cash flows sufficient to permit us to pay the principal, premium, if any, and interest on our indebtedness. If we cannot refinance or otherwise pay our obligations as they mature and fund our liquidity requirements, our business, results of operations, financial condition, liquidity and cash flows,flows.
Hertz Holdings is a holding company with no operations of its own and depends on its subsidiaries for cash.
The operations of Hertz Holdings are conducted nearly entirely through its subsidiaries and its ability to obtain financinggenerate cash to meet its debt service obligations or to pay dividends on its common stock is dependent on the earnings and ability to compete in our industry could be materially adversely affected.
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ITEM 1A. RISK FACTORS (Continued)
the receipt of funds from its subsidiaries via return of paid-in capital, dividends or intercompany loans. However, none of the subsidiaries of Hertz Holdings are obligated to make funds available to Hertz Holdings for the payment of dividends or the service of its debt. In addition, certain states' laws and the terms of certain of our debt agreements significantly restrict, or prohibit, the ability of Hertz and its subsidiaries to pay dividends, make loans or otherwise transfer assets to Hertz Holdings, including state laws that require dividends to be paid only from surplus. If Hertz Holdings does not receive cash from its subsidiaries, then Hertz Holdings' financial condition could be materially adversely affected.
Failure to meet ESG expectations or standards or achieve our ESG goals could adversely affect our business, results of operations or financial condition.
There has been an increased focus from stakeholders on the environmental, social and governance performance of companies, including in the areas of greenhouse gas emission levels; diversity, equity, and inclusion initiatives; sourcing and supply chain activities; human rights records; and overall corporate governance profile. This has resulted in expanding and increasingly complex expectations related to reporting, diligence, and disclosure on ESG topics. These developments and other rapidly changing laws, regulations, policies and related interpretations, as well as increased enforcement actions by various governmental and regulatory agencies, may alter the environment in which we do business and may increase the ongoing costs of compliance, which could adversely impact our results of operations and cash flows. Given our commitment to being a responsible corporate citizen, we actively manage ESG issues through various initiatives which we may refine or expand further in the future. Our failure or perceived failure to achieve ESG goals, maintain practices aligned with stakeholder expectations for “best practices,” or comply with new ESG expectations could harm our reputation, adversely impact our ability to attract and retain customers and talent, and expose us to increased scrutiny from a range of stakeholders. Our reputation also may be harmed by the perceptions that our stakeholders have about our action or inaction on ESG-related issues. Damage to our reputation may reduce demand for our products and services and thus have an adverse effect on our future financial results.
RISKS RELATED TO OUR INDEBTEDNESS
Our indebtedness exposes us to various risks, which could impair our financial condition.
As of December 31, 2022, we had total indebtedness of approximately $13.9 billion, including $10.9 billion of vehicle related debt and $3.0 billion of non-vehicle debt. A portion of our indebtedness bears interest at variable rates, which exposes us to risks inherent in interest rate fluctuations and higher interest expenses in the event of increases in interest rates. See Item 7A, “Quantitative and Qualitative Disclosures About Market Risk” in this 2022 Annual Report for additional information related to interest rate risk.
Our ability to satisfy and manage our debt obligations depends on our ability to generate cash flow and on overall financial market conditions. Factors driving the overall condition of the financial markets are beyond our control. Furthermore, if we are unable to generate sufficient cash flow from operations to service our debt obligations and meet our other cash needs, we may experience limited access or be unable to access financial markets for additional capital and may be forced to reduce or delay capital expenditures, sell or curtail assets or operations, or seek to restructure or refinance our indebtedness. If we must reduce or delay investment or sell or curtail our assets or operations, it may negatively affect our ability to generate revenue. Additionally, there can be no assurance that we would be able to borrow additional amounts or refinance our current indebtedness to fund working capital, capital expenditures, debt service requirements, execution of our business strategy or acquisitions and other purposes on favorable terms.
Our reliance on asset-backed and asset-based financing arrangements to purchase vehicles subjects us to a number of risks, many of which are beyond our control.
We rely significantly on asset-backed and asset-based financing to purchase vehicles. If we are unable to refinance or replace our existing asset-backed and asset-based financing or continue to finance new vehicle acquisitions through asset-backed or asset-based financing on favorable terms, on a timely basis, or at all, then our costs of
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ITEM 1A. RISK FACTORS (Continued)
financing could increase significantly and have a material adverse effect on our liquidity, interest costs, financial condition, cash flows and results of operations.
Our asset-backed and asset-based financing capacity could be decreased, our financing costs and interest rates could be increased, or our future access to the financial markets could be limited, as a result of risks and contingencies, many of which are beyond our control, including: (i) the acceptance by credit markets of the structures and structural risks associated with our asset-backed and asset-based financing arrangements; (ii) the credit ratings provided by credit rating agencies for our asset-backed indebtedness; (iii) third parties requiring changes in the terms and structure of our asset-backed or asset-based financing arrangements, including increased credit enhancement or required cash collateral and/or other liquid reserves; (iv) the insolvency or deterioration of the financial condition of one or more of our principal vehicle manufacturers; or (v) changes in laws or regulations including judicial review of issues of first impression, that negatively affect any of our asset-backed or asset-based financing arrangements.
Any reduction Although we continued to maintain access to asset-backed financing during the Chapter 11 Cases, the cost of such facilities was in excess of costs incurred by our competitors. Following our emergence from bankruptcy, the cost of asset-backed financing has returned to competitive levels, however, there can be no assurance that this competitive disadvantage will not reoccur in the future.
Our asset-backed and certain asset-based vehicle financing facilities include credit enhancement provisions that require us to provide cash or additional vehicle collateral in the event the estimated market values for the vehicles used as collateral decrease below net book values. As a result, reductions in the estimated market value of certain revenue earning vehicles used as collateral could effectively increase our vehicle costs, adversely affect our profitability, require us to use cash intended for other purposes as collateral, and potentially lead to decreased borrowing base availability in our asset-backed and certain asset-based vehicle financing facilities due to the credit enhancement requirements for such facilities, which could increaseavailability. Similarly, if market values for vehicles decrease below net book values for those vehicles. In addition, if disposal of vehicles in the used vehicle marketplace were to become severely limited at a time when required collateral levels were rising and as a resultimpaired resulting in sales of vehicles below net book value, we failed to meetmay have difficulty meeting the minimum required collateral levels requiring us to add additional collateral in the form of cash or additional vehicles. In the event that we cannot post additional collateral, the principal under our asset-backed and certain asset-based financing arrangements may be required to be repaid sooner than anticipated with vehicle disposition proceeds and lease payments we make to our special purpose financing subsidiaries. If that event were to occur (or any other liquidation events), the holders of our asset-backed and certain asset-based debt may have the ability to exercise their right to direct the trustee or other secured party to foreclose on and sell vehicles to generate proceeds sufficient to repay such debt.
The occurrence of certain events, including those described above, could result in the occurrence of an amortization event pursuant to which the proceeds of sales of vehicles that collateralize the affected asset-backed financing arrangement would be required to be applied to the payment of principal and interest on the affected facility or series, rather than being reinvested in our revenue earning vehicles. In the case of our asset-backed financing arrangements, certain other events, including defaults by us and our affiliates in the performance of covenants set forth in the agreements governing certain vehicle debt, could result in the occurrence of a liquidation event with the passing of time or immediately pursuant to which the trustee or holders of the affected asset-backed financing arrangement would be permitted to require the sale of the assets collateralizing that series. Failure by us to have proper financing and debt management processes may result in cash shortfalls and liquidity problems, the need to seek emergency financing at high interest rates, violations of debt covenants, and an inability to execute strategic initiatives, which mayinitiatives. These outcomes could negatively affect our liquidity and our ability to maintain sufficient levels of revenue earning vehicles to meet customer demands, and could trigger cross-defaults under certain of our other financing arrangements.
Substantially all of our consolidated assets secure certain of our outstanding indebtedness, which could materially adversely affect our debt and equity holders and our business.
Substantially all of our consolidated assets including our revenue earning vehicles and Donlen’s lease portfolio, are subject to security interests or are otherwise encumbered for the benefit of the lenders under our senior credit facilities, and our revenue earning vehicles and certain related vehicle assets are subject to security interests or are otherwise encumbered for the benefit of our asset-backed and asset-based financing arrangements. As a result the lenders under those facilities would have a prior claim on such assets in the event of our bankruptcy, insolvency, liquidation or reorganization, and we may not have sufficient funds to pay in full, or at all,substantially all of our assets being encumbered for the benefit of certain creditors, or make any amount available to holdersour various secured creditors have liquidation priorities ahead of other stakeholders of our equity. The same is true with respect to structurally senior obligations: in general, all liabilities and other obligations of a subsidiary must be satisfied before the assets of such subsidiary can be made available to the creditors (or equity holders) of the parent entity.business.
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ITEM 1A. RISK FACTORS (Continued)
Because substantially all of our assets are encumbered under financing arrangements, our ability to incur additional secured indebtedness or to sell or dispose of assets to raise capital may be impaired, which could have a material adverse effect on our financial flexibility and force us to attempt to incur additional unsecured indebtedness, which may not be available to us.
Restrictive covenants in certain
HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
Certain of our credit facilities, our indentures and other asset-based and asset-backed financing arrangements contain covenants that, among other things, restrict Hertz and its subsidiaries’ ability to: (i) dispose of assets; (ii) incur additional indebtedness; (iii) incur guarantee obligations; (iv) prepay other indebtedness or amend other financing arrangements; (v) pay dividends; (vi) create liens on assets; (vii) sell assets; (viii) make investments, loans, advances or capital expenditures; (ix) make acquisitions; (x) engage in mergers or consolidations; (xi) change the business conducted by us; and (xii) engage in certain transactions with affiliates.THE HERTZ CORPORATION AND SUBSIDIARIES
Our Senior RCF and our Letter of Credit Facility subject us to a financial maintenance covenant. Our ability to comply with this covenant will depend on our ongoing financial and operating performance, which in turn are subject to, among other things, the risks identified in “Risks Related to Our Business.”ITEM 1A. RISK FACTORS (Continued)
The agreements governing our financing arrangements contain numerous covenants. The breach of any of these covenants or restrictions could result in a default under the relevant agreement, which could, in turn, cause cross-defaults under our other financing arrangements. In such event, we may be unable to borrow under the Senior RCF and certain of our other financing arrangements andWe may not be able to repay the amounts due under such arrangements,deduct certain business interest expenses, which could have a material adverse effect on the Company.
The TCJA, which was temporarily modified by the Coronavirus Aid, Relief, and Economic Security Act, imposed significant limitations on the deductibility of business interest expense under Section 163(j). These limitations could result in additional material cash tax payments that could adversely affect our business, results of operations and liquidity. Furthermore, in the event our debt instruments were to be recharacterized as equity for tax purposes, the Company would not be entitled to deduct the payments as interest and could be assessed withholding taxes on payments to certain lenders, which could adversely affect our results of operations and liquidity.
RISKS RELATED TO OUR OWNERSHIP OF COMMON STOCK
We cannot guarantee that our stock repurchase program will be fully consummated or that it will enhance long-term stockholder value. Stock repurchases could also increase the volatility of our stock and could diminish our liquidity.
Our Board has authorized a stock repurchase program that does not have an expiration date. The program does not obligate us to repurchase any specific dollar amount or to acquire any specific number of shares of our common stock. We cannot guarantee that the program will be fully consummated or that it will enhance long-term stockholder value. Further, stock repurchases could affect the market price of our common stock or increase its volatility and decrease our cash balances and/or our liquidity. The Inflation Reduction Act of 2022 imposes a non-deductible 1% excise tax on the fair market value of stock repurchases commencing in 2023 that exceed $1 million in a taxable year, which will make our share repurchase program more expensive.
The market price of our common stock may be volatile.
Numerous factors, including many over which we have no control, may have a significant impact on the market price of our common stock. These risks include those described or referred to in this “Risk Factors” section and in the other documents incorporated herein by reference as well as, among other things:
•our operating and financial condition, liquidityperformance and cash flows.prospects;
•sales of a substantial number of shares of our common stock in the public market, or the perception in the market that the holders of a large number of shares of common stock intend to sell;
An increase•our ability to repay our debt;
•our access to financial and capital markets to refinance our debt or replace the existing credit facilities;
•investor perceptions of us and the industry and markets in interest rateswhich we operate;
•our dividend policy;
•future sales of equity or equity-related securities;
•announcements by third parties of significant claims or proceedings against us;
•issuances of new or updated research reports by security or industry analysts, or those analysts not publishing or ceasing to publish reports about us, our industry or out market;
•changes in, or results that vary from, earnings estimates or buy/sell recommendations by analysts; and
•general financial, domestic, economic and other market conditions.
In addition, stock markets experience significant price and volume fluctuations from time to time that are not related to the operating performance of particular companies. These market fluctuations may have material adverse effect on the market price of our common stock.
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ITEM 1A. RISK FACTORS (Continued)
Anti-takeover provisions in our borrowing margin would increasecharter documents and under Delaware law, as well as ownership of a significant percentage of our common stock by the costPlan Sponsors, could make an acquisition of servicingus more difficult, limit attempts by our debtstockholders to replace or remove our current management and may negatively affect the market price of our common stock.
Provisions in the Hertz Holdings Certificate of Incorporation and Bylaws may have the effect of delaying or preventing a change of control or changes in our management, including, generally, provisions that:
•do not provide cumulative voting in the election of directors, which limits the ability of minority stockholders to elect director candidates;
•provide for a classified board of directors with three-year staggered terms, which could reducedelay the ability of stockholders to change the membership of a majority of the Board;
•allow for removal of directors only for cause;
•allow only the Board to fill a vacancy created by the expansion of the Board or the resignation, death, retirement, disqualification or removal of a director;
•require advance notice for stockholder proposals to be brought before a meeting of stockholders, including proposed nominations of persons for election to the board of directors;
•only allow stockholder action to be taken at an annual or special meeting;
•limit the ability of stockholders to call a special meeting; and
•authorize blank check preferred stock.
These provisions may make it more difficult for stockholders to replace members of our profitability.
A significant portionboard of directors, which is responsible for appointing the members of our management. In addition, we have elected not to be governed by Section 203 of the General Corporation Law of the State of Delaware (the "DGCL"), which generally prohibits a Delaware corporation from engaging in any of a broad range of business combinations with a stockholder owning 15% or more of our outstanding debt bears interestvoting stock, unless the stockholder has held the stock for a period of at floating rates. As a result,least three years.
The significant ownership interests held by our Plan Sponsors, which we believe as of December 31, 2022, exceeded 50% of our outstanding common stock, means that the Plan Sponsors have the ability to control matters requiring stockholder approval, such as director elections, amendments to the Hertz Holdings Certificate of Incorporation and significant corporate transactions. With respect to such matters, the Plan Sponsors’ interests may not align with those of other stockholders or they may take actions that other stockholders do not view as beneficial.This could delay or prevent a change of control transaction or discourage a potential acquirer from pursuing such a transaction, which transaction might have otherwise been of benefit to the other stockholders.The Plan Sponsors’ ownership may also adversely affect the trading price for our common stock if potential investors perceive disadvantages in investing in a company with controlling stockholders.
The choice of forum provision in our Certificate of Incorporation could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers or agents.
Our Certificate of Incorporation provides that, unless we consent in writing to an alternative forum, to the fullest extent we have not hedgedpermitted by law, the Court of Chancery of the State of Delaware (the “Court of Chancery”) is the sole and exclusive forum for any stockholder to bring any state law claim for (1) any derivative action or proceeding brought on our behalf, (2) any action asserting a claim of a breach of fiduciary duty owed by any director, officer, employee, or agent of the Company to us or to our stockholders, (3) any action asserting a claim against rising interest rates,us arising pursuant to the DGCL, our Certificate of Incorporation or Bylaws, (4) any action or proceeding as to which the DGCL confers jurisdiction on the Court of Chancery, and (5) any action asserting a claim against us that is governed by the internal affairs doctrine. In addition, the choice of forum provision provides that, unless the Company consents in writing to the selection of an increasealternative forum, claims brought under the Securities Act must be brought exclusively in the applicable benchmark interest rates would increasefederal district courts of the United States. The choice of forum provision may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our costdirectors, officers or agents, which may discourage such lawsuits against us and our directors, officers and agents. Alternatively, if a court were to find the
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ITEM 1A. RISK FACTORS (Continued)
choice of forum provision contained in our debtCertificate of Incorporation to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could adversely affect our business and financial condition.
GENERAL RISK FACTORS
We may pursue strategic transactions, including acquisitions and divestitures, which could be difficult to implement, disrupt our business or change our business profile significantly.
Any future strategic acquisition or disposition of assets or a business could involve numerous risks, including: (i) potential disruption of our ongoing business and distraction of management; (ii) difficulty integrating the acquired business or segregating assets and operations to be disposed of; (iii) exposure to unknown, contingent or other liabilities, including litigation arising in connection with the acquisition or disposition or against any business we may acquire; (iv) changing our business profile in ways that could have unintended negative consequences; and (v) the failure to achieve anticipated synergies. If we enter into significant strategic transactions, the related accounting charges may affect our financial condition and results of operations, particularly in the case of an acquisition. The financing of any significant acquisition may result in changes in our capital structure, including the incurrence of additional indebtedness. A material disposition could require the amendment or refinancing of our outstanding indebtedness or a portion thereof.
Our results of operations and stock price could be adversely affected if we are unable to maintain effective internal controls.
The accuracy of our financial reporting is dependent on the effectiveness of our internal controls. We are required to provide a report from management to our shareholders on our internal control over financial reporting that includes an assessment of the effectiveness of these controls. Internal control over financial reporting has inherent limitations, including human error, the possibility that controls could be circumvented or become inadequate because of changed conditions, and fraud. Because of these inherent limitations, internal control over financial reporting might not prevent or detect all misstatements or fraud. If we cannot maintain and execute adequate internal control over financial reporting or implement required new or improved controls that provide reasonable assurance of the reliability of the financial reporting and preparation of our financial statements for external use, we could suffer harm to our reputation, incur incremental compliance costs, fail to meet our public reporting requirements on a timely basis, be unable to properly report on our business and our results of operations, or be required to restate our financial statements, and our results of operations, our stock price and our ability to obtain new business could be materially adversely affected.
A business continuity plan is necessary for our global business.
We have a business continuity management plan designed to (i) identify key assets, operations and underlying threats, (ii) define and assess relevant threats (e.g., natural disasters, pandemics, terrorism, etc.) on business operations, (iii) develop and maintain disaster recovery strategies and business resumption plans to minimize the impact of both known and unknown threats and (iv) test the adequacy of our action plans. If our business continuity management plan fails to operate as intended, we may experience significant business disruptions, release of confidential information, malicious corruption of data, regulatory intervention and sanctions, prolonged negative publicity, litigation and liabilities, product and service quality failures, irreparable harm to customer relationships and other unfavorable consequences which may materially adversely affect our results of operations, financial condition, liquidity and cash flows.
We participate in multiemployer pension plans and could face a significant liability if we withdraw from participation in such plans or in the event other employers in such plans withdraw or are unable to, or fail to, pay their liabilities.
In addition,the event that we regularly refinance our indebtedness. If interest rates or our borrowing margins increase betweenwithdraw from participation in one of the timemultiemployer plans in which we participate, then applicable law could require us to make an existing financing arrangement was consummated and the time such financing arrangement is refinanced, the cost of servicing our debt would increase and our results of operations, financial condition, liquidity and cash flows could be materially adversely affected.
The interest rates of certain of our financing instruments are priced using a spread over LIBOR.
The London interbank offered rate (“LIBOR”), is the basic rate of interest used in lending between banks on the London interbank market and is widely used as a reference for setting the interest rate on loans globally. We typically use LIBOR as a reference rate in various of our financing transactions such that the interest dueadditional lump-sum contribution to the creditors pursuantplan, and we would have to such financing transactions is calculated using LIBOR. Our term loan agreement also contains a stated minimum floor value for LIBOR.
On July 27, 2017, the United Kingdom’s Financial Conduct Authority, which regulates LIBOR, announced that it intends to phase out LIBOR by the end of 2021. It is unclear if at that time whether or not LIBOR will cease to exist, or if new methods of calculating LIBOR will be established such that it continues to exist after 2021 or if replacement conventions will be developed. The U.S. Federal Reserve, in conjunction with the Alternative Reference Rates Committee, a steering committee comprised of large U.S. financial institutions, is considering replacing U.S. dollar LIBOR with a new index calculated by short-term repurchase agreements, backed by Treasury securities (“SOFR”). SOFR is observed and
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THE HERTZ CORPORATION AND SUBSIDIARIES
ITEM 1A. RISK FACTORS (Continued)
backward-looking, which standsreflect that as an expense in contrast with LIBOR under the current methodology, which is an estimated forward-looking rateour consolidated statements of operations and relies, to some degree,as a liability on our consolidated balance sheets. Our withdrawal liability for any multiemployer plan would depend on the expert judgmentextent of submitting panel members. Given that SOFR is a secured rate backed by government securities, it will be a rate that does not take into account bank credit risk (as is the case with LIBOR). Whetherplan’s funding of vested benefits. If our multiemployer plans have underfunded liabilities, such underfunding may increase in the event other employers become insolvent, withdraw from the applicable plan or not SOFR attains market tractionare unable or fail to pay their withdrawal liability. In addition, such underfunding may increase as a LIBOR replacement tool remains in question. As such, the futureresult of LIBOR at this time is uncertain. At this time, due to a lack of consensus as to what ratelower than expected returns on pension fund assets or rates may become accepted alternatives to LIBOR, it is impossible to predict the effectother funding deficiencies. The occurrence of any such alternatives on our liquidity. However, if LIBOR ceases to exist, we may need to renegotiate certain of our financing agreements that utilize LIBOR as a factor in determining the interest rate to replace LIBOR with the new standard that is established. As of December 31, 2019, we had $5.7 billion in outstanding indebtedness tied to LIBOR. Additionally, these changes may have an impact on the value of or interest earned on any LIBOR-based marketable securities, fleet leases, loans and derivatives that are included in our financial assets and liabilities.
RISKS RELATING TO HERTZ GLOBAL HOLDINGS, INC. COMMON STOCK
Hertz Holdings is a holding company with no operations of its own and depends on its subsidiaries for cash.
The operations of Hertz Holdings are conducted nearly entirely through its subsidiaries and its ability to generate cash to meet its debt service obligations or to pay dividends on its common stock is dependent on the earnings and the receipt of funds from its subsidiaries via dividends or intercompany loans. However, none of the subsidiaries of Hertz Holdings are obligated to make funds available to Hertz Holdings for the payment of dividends or the service of its debt. In addition, certain states' laws and the terms of certain of our debt agreements significantly restrict, or prohibit, the ability of Hertz and its subsidiaries to pay dividends, make loans or otherwise transfer assets to Hertz Holdings, including state laws that require dividends to be paid only from surplus. If Hertz Holdings does not receive cash from its subsidiaries, then Hertz Holdings' financial condition could be materially adversely affected.
Hertz Holdings' share price may decline if it issues a large number of new shares or if a holder of a substantial number of shares sells their stock.
Hertz Holdings has a significant number of authorized but unissued shares, including shares available for issuance pursuant to various equity plans. In addition, in recent years, several shareholders, most notably affiliates of Carl Icahn, have accumulated significant amounts of Hertz Holdings common stock and may have the ability to exert substantial influence over actions to be taken or approved by our stockholders, including the election of directors. A sale of a substantial number of shares or other equity-related securities in the public market pursuant to new issuances or by these significant shareholders could depress the market price of Hertz Holdings' stock and impair its ability to raise capital through the sale of additional equity securities. Any such sale or issuance would dilute the ownership interests of the then-existing stockholders andevents could have a material adverse effect on our consolidated financial condition, results of operations, liquidity and cash flows. See Note 7, "Employee Retirement Benefits," to the market price of Hertz Holdings' common stock.Notes to our consolidated financial statements included in this 2022 Annual Report under the caption Item 8, ‘‘Financial Statements and Supplementary Data."
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
We operate vehicle rental locations at or near airports and in central business districts and suburban areas of major cities in the U.S. (including Puerto RicoThe states of California, Florida, Hawaii, New York and the U.S. Virgin Islands),Texas include approximately 30% of our Americas RAC segment rental locations. We also operate vehicle rental operations internationally, where Australia, Belgium, Canada, the Czech Republic, France, Germany, Italy Luxembourg, the Netherlands, New Zealand, Slovakia,and Spain and the United Kingdom, as well as retail used vehicle sales locations primarily in the U.S. We also operate headquarters, sales offices and service facilities in the foregoing countries in supportinclude approximately 30% of our vehicleInternational RAC segment rental operations, as well as small vehicle rental sales offices and service facilities in a select number of other countries in Europe and Asia.locations.
We own less thanapproximately 5% of the locations from which we operate our vehicle rental businesses and in some cases own real property that we lease to franchisees or other third parties. The remaining locations from which we operate our vehicle rental businesses are leased or operated under concessions from governmental authorities and private entities. ThoseOur leases and concession agreements typically require minimum lease payments or minimum concession fees and often require us to pay or reimburse operating expenses, pay additional lease payments above guaranteed
HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
THE HERTZ CORPORATION AND SUBSIDIARIES
ITEM 2. PROPERTIES (Continued)
minimums, which are based on a percentage of revenues or sales at the relevant premises, or to do both. See Note 9, "Leases," to the Notes to our consolidated financial statements included in this 2019 Annual Report under the caption Item 8, "Financial Statements and Supplementary Data."
We own our worldwide headquarters facility in Estero, Florida. We also own two facilitiesone facility in Oklahoma City, Oklahoma at which reservations for our vehicle rental operations are processed, global information technology systems are serviced and certain finance and accounting functions are performed. Additionally, we ownhave a 999-year lease for a reservation and financial center near Dublin, Ireland, at which we have centralized our European vehicle rental reservation, customer relations, accounting and human resource functions and we also lease a European headquarters office in Uxbridge, England. Donlen's headquarters is in a leased facility in Bannockburn, Illinois, and Donlen also has leased sales offices located throughout the U.S. and Canada.
ITEM 3. LEGAL PROCEEDINGS
For information regardinga description of certain pending legal proceedings, see Note 14,15, "Contingencies and Off-Balance Sheet Commitments," to the Notes to our consolidated financial statements included in this 20192022 Annual Report under the caption Item 8, "Financial Statements and Supplementary Data."
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
THE HERTZ CORPORATION AND SUBSIDIARIES
INFORMATION ABOUT OUR EXECUTIVE OFFICERS
SetThe table below sets forth, below areas of January 26, 2023, the names, ages, number of years employed by the Company as of February 13, 2020 and positions of our executive officers:officers.
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| | | | | | |
Name | | Age | | Number of Years Employed | | Position |
Kathryn V. Marinello | | 63 | | 3 | | President and Chief Executive Officer |
Jamere Jackson | | 50 | | 1 | | Executive Vice President and Chief Financial Officer |
Murali Kuppuswamy | | 58 | | 2 | | Executive Vice President and Chief Human Resources Officer |
Jodi J. Allen | | 54 | | 2 | | Executive Vice President and Chief Marketing Officer |
M. David Galainena | | 62 | | — | | Executive Vice President, General Counsel and Secretary |
Opal G. Perry | | 48 | | 1 | | Executive Vice President and Chief Information Officer |
Paul E. Stone | | 49 | | 1 | | Executive Vice President and Chief Retail Operations Officer North America |
Angela I. Brav | | 58 | | — | | President - Hertz International |
R. Eric Esper | | 39 | | 1 | | Senior Vice President and Chief Accounting Officer |
| | | | | | | | | | | | | | | | | | | | |
Name | | Age | | Number of Years Employed | | Position |
Stephen M. Scherr | | 58 | | — | | Chief Executive Officer |
Paul E. Stone | | 52 | | 4 | | President and Chief Operating Officer |
Kenny K. Cheung | | 40 | | 4 | | Executive Vice President and Chief Financial Officer |
Colleen R. Batcheler | | 49 | | — | | Executive Vice President, General Counsel and Secretary |
Eric J. Leef | | 49 | | 2 | | Executive Vice President and Chief Human Resources Officer |
Alexandra D. Brooks | | 52 | | 2 | | Senior Vice President and Chief Accounting Officer |
Ms. Marinello
Mr. Scherr has served as Chief Executive Officer and a member of the Company's Board of Directors since February 2022. Mr. Scherr was appointed Chairperson of the Board of Directors in January 2023. Prior to joining the Company, Mr. Scherr spent nearly three decades at Goldman Sachs, leading a range of strategic and operational functions. He most recently served as Chief Financial Officer of Goldman Sachs from 2018 through 2021, and CEO of Goldman Sachs Bank USA and Head of the Consumer & Commercial Bank Division from 2016 to 2018. Prior to joining Goldman Sachs, Mr. Scherr practiced law. Mr. Scherr holds a J.D. from Harvard Law School and an A.B. from the Woodrow Wilson School of Public and International Affairs at Princeton University.
Mr. Stone has served as President and Chief Operating Officer of the Company since October 2021. Mr. Stone previously served as President and Chief Executive Officer and as a director of the Company since January 2017. Ms. Marinello previously served as a Senior Advisor of Ares Management LLC, a global alternative investment manager, frombetween May 2020 and October 2021. From March 2014 to December 2016, and as Chair, President and Chief Executive Officer of Stream Global Services, Inc., a business process outsourcing service provider, from 2010 to March 2014. Ms. Marinello served as Chair, Chief Executive Officer and President of Ceridian Corporation, a provider of human resources software and services, from 2006 to 2010 (promoted to Chair in 2007). She served in a broad range of senior roles from 1997 to 2006 at General Electric Co. ("GE"), an international industrial and technology company, including leading global, multi-billion dollar financial and services businesses and subsidiaries. During that period, she served as Chief Executive Officer and President of GE Fleet Services at GE Commercial Finance from October 2002 to October 2006 and GE Insurance Solutions from 1999 to 2002. She served as President and Chief Executive Officer of GE Financial Assurance Partnership Marketing Group, a diverse organization that includes GE’s affinity marketing business, Auto & Home Insurance business and Auto Warranty Service business, from December 2000 to October 2002. Prior to GE, Ms. Marinello served as President of the Electronic Payments Group at First Data Corporation, which provides electronic banking and commerce, debit and commercial processing to the financial services industry. She has also served in senior leadership positions at several financial institutions, including US Bank (previously First Bank Systems), Chemical Bank, Citibank and Barclays. Ms. Marinello has served as a director of Volvo Group, a multinational manufacturing company, since April 2014. Ms. Marinello also served as a director at The Nielsen Company B.V., a global information and measurement company, from July 20142018 to May 2017, as a director of General Motors Company, a global automotive company, from July 2007 to December 2016, and as a director of RealPage, Inc., a provider of property management software and solutions, from 2015 to March 2017.
Mr. Jackson has served as Executive Vice President and Chief Financial Officer of the Company since September 2018. From March 2014 to August 2018, Mr. Jackson served as Chief Financial Officer of Nielsen Holdings plc, an information, data and measurement company. From 2004 to February 2014, Mr. Jackson held a variety of leadership roles at General Electric Company, an international industrial and technology company, most recently as Vice President and Chief Financial Officer of a division of GE Oil & Gas, an equipment supplier for the global oil and gas industry. Mr. Jackson has served on the board of directors for Eli Lilly & Co, a global pharmaceutical company, since October 2016 where he serves on the audit and finance committees.
Mr. Kuppuswamy has served as Executive Vice President and Chief Human Resources Officer of the Company since September 2017. Mr. Kuppuswamy previously served as the Chief Human Resources Officer at Baker Hughes, LLC, an industrial service company, from May 2016 to July 2017. He has more than 30 years of human resources management experience, serving in Vice President roles for Baker Hughes, LLC since 2011 in Europe, Africa and Russia. From 1993 to 2011, he worked at General Electric Company, an international industrial and technology company, where he held various human resources leadership positions including at GE Global Research, GE Capital and GE Lighting divisions in the U.S and India.
HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
THE HERTZ CORPORATION AND SUBSIDIARIES
INFORMATION ABOUT OUR EXECUTIVE OFFICERS (Continued)
Ms. Allen has served as Executive Vice President and Chief Marketing Officer of the Company since October 2017. Ms. Allen has more than 30 years of consumer experience in various leadership roles at The Procter & Gamble Company ("Proctor & Gamble"), a consumer products company. She served as Vice President and General Manager of North America Hair Care at Procter & Gamble, where she managed a cross-functional team responsible for developing portfolio strategy across six brands. Prior to that, Ms. Allen spent eight years in Baby Care and General Management and 19 years in various other key positions at Procter & Gamble.
Mr. Galainena has served as Executive Vice President, General Counsel and Secretary of the Company since April 2019. Prior to joining the Company, Mr. Galainena was in private practice as a Partner at Winston & Strawn LLP, an international law firm, which he joined in 1995. Mr. Galainena has more than thirty years of private practice experience concentrating in structured finance, capital markets and general financing matters.
Ms. Perry has served as Executive Vice President and Chief Information Officer of the Company since August 2018. Ms. Perry has over 20 years of expertise in building and growing global technology organizations, leading change initiatives and managing integration activities. Prior to joining the Company, Ms. Perry served in various leadership positions at Allstate Corporation, a major insurance provider, from November 2011 to July 2018, including as Vice President of Technology and Strategic Ventures and Divisional Chief Information Officer, Claims Division, from 2016 to 2018, Interim Managing Director of Allstate Northern Ireland from 2015 to 2016, Chief Operating Officer of Allstate Technology and Strategic Ventures International from 2014 to 2016 and Vice President of Testing and Release Management from 2011 to 2014. Prior to joining Allstate, Ms. Perry served at Wells Fargo and Company, a multinational financial services company, as Vice President and Technology Area Manager of the Internet Services Group from March 2008 to November 2011 and as Technology Manager for the Home and Consumer Finance Group from February 2004 to March 2008.
2020, Mr. Stone has served as Executive Vice President and Chief Retail Operations Officer North America of the Company since March 2018.Company. From November 2015 to December 2017, Mr. Stone most recently served as the Chief Retail Officer at Cabela’sCabela's Inc., an outdoor outfitter retail company, from November 2015 to December 2017.company. Prior to joining Cabela’sCabela's Inc., Mr. Stone spent 28 years growing his career with Sam’sSam's Club, a retail warehouse subsidiary of Walmart Inc., a multinational retail corporation, most-recentlycorporation. His most-recent position with Sam's Club was as Senior Vice President - West Division from 2007 to 2015, where he led operations upwards of 200 locations with more than 30,000 employees.
Ms. BravMr. Cheung has served as President - Hertz International for the Company since November 2019. Prior to joining the Company, Ms. Brav served as Principal and Owner at AB Consulting & Advisors, a hospitality and entrepreneurial consulting firm she founded in January 2018. From August 2011 to December 2017, Ms. Brav served as Chief Executive Officer, Europe and Northern Africa for InterContinental Hotels Group ("IHG"), a multinational hospitality company. From January 2001 to August 2011, Ms. Brav held multiple operational and strategic roles in the United States and Europe for IHG, including Chief Operating Officer, North America and other senior executive positions.
Mr. Esper has served as Senior Vice President and Chief AccountingFinancial Officer of the Company since November 2018.September 2020. He previously served as Executive Vice President, Chief Operational Finance and ControllerRestructuring Officer beginning in August 2020. Prior to that role, he was Senior Vice President of the CompanyGlobal Financial Planning and Analysis and Chief Financial Officer of North America beginning Marchin December 2018. From July 20102007 to March 2018, Mr. EsperCheung held a variety of financial leadership roles with Norwegian Cruise LineNielsen Holdings, Ltd., a worldwide cruise line company,PLC, an information, data and measurement firm, most recently as Global Chief Audit Executive, and prior to that as a regional Chief Operating Officer after holding the position of regional Chief Financial Officer. Prior to Nielsen, Mr. Cheung worked for General Electric Company, a multinational conglomerate, in various roles across Supply Chain, Operations and Financial Planning & Analysis.
Ms. Batcheler has served as Executive Vice President, Brand Finance & Strategy,General Counsel and Secretary of the Company since May 2022. Ms. Batcheler has more than 15 years of experience as a general counsel and senior leader of publicly-traded companies, and more than 20 years of experience practicing law. Prior to joining the Company, Ms. Batcheler served as Executive Vice President, General Counsel and Corporate Secretary at Conagra Brands, Inc., one of North America's leading branded food companies, from September 2009 to April 2022. Prior to that, she served in other senior management roles at Conagra since June 2006. Prior to joining Conagra, Ms. Batcheler served as Vice President and Controller. Mr. Esper is alsoCorporate Secretary at Albertson's, Inc., Associate Counsel with The Cleveland Clinic Foundation and as an Associate with the law firm of Jones Day. She earned her J.D. from Case Western Reserve School of Law, and a Certified Public Accountant.Bachelor of Arts degree in political science from the State University of New York College at Fredonia.
Mr. Leef has served as Executive Vice President and Chief Human Resources Officer of the Company since February 2021 and previously served as Senior Vice President and Chief Human Resources Officer beginning
HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
THE HERTZ CORPORATION AND SUBSIDIARIES
INFORMATION ABOUT OUR EXECUTIVE OFFICERS (Continued)
September 2020. Prior to joining the Company, Mr. Leef served as Senior Vice President, Chief Human Resources Officer at Atria Senior Living, from October 2019 to July 2020. Prior to that, Mr. Leef served as Executive Director, HR Client Support for GE and GE Appliances, a Haier Company, from 2013 to September 2019 and held various other HR roles for GE Appliances since 2003.
Ms. Brooks has served as Senior Vice President, Chief Accounting Officer of the Company since October 2020. She previously served as Senior Vice President, Internal Audit from June 2020 to October 2020. Prior to joining the Company, Ms. Brooks was the Vice President, Internal Audit at Aptiv PLC (“Aptiv”), a global technology company, beginning May 2015. Before joining Aptiv, Ms. Brooks was the Chief Financial Officer for Champion Windows and Home Exteriors, a home improvement company, from 2013 to 2015. Prior to that, Ms. Brooks was in a variety of leadership roles at the General Electric Company, a multinational conglomerate, including Global Controller for the Aviation segment, Executive Technical Advisor to the Corporate Audit Staff, and Global Controller for the Plastics division. Ms. Brooks also worked at the General Motors Company in a variety of finance and accounting roles. She began her career with Pricewaterhouse Coopers, a professional services firm, and is a Certified Public Accountant.
HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
THE HERTZ CORPORATION AND SUBSIDIARIES
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
HERTZ GLOBAL
Hertz Holdings' common stock trades on the New York Stock Exchange ("NYSE") under the symbol "HTZ". As of February 13, 2020,January 26, 2023, there were 1,340 registered875 holders of record of Hertz Holdings common stock.
Hertz Holdings paid no cash dividends on its common stock in 20192022 or 2018,2021, and it does not expect to pay dividends on its common stock for the foreseeable future.
Hertz Holdings has a Board-approved share repurchase program that authorizes it to repurchase shares of its common stock through a variety of methods, including in the open market or through privately negotiated transactions, in accordance with applicable securities laws. It does not obligate Hertz Holdings to make any repurchases at any specific time or situation. There were no shares repurchased under this program in 2019 or 2018. As of December 31, 2019, there was $295 million available for use for repurchases under this program.
Since Hertz Holdings does not conduct business itself, it primarily fundsany dividends on, and repurchases of, its common stock must be funded using dividends from Hertz, or amounts borrowed under thea master loan agreement.agreement with Hertz or independent borrowings. The credit agreements governing Hertz's SeniorFirst Lien Credit Facilities Letter of Credit Facility and Alternative Letter of Credit Facility restrict Hertz's ability to make dividends and certain payments, including payments to Hertz Holdings forto fund dividends on Hertz Holdings' common stock or for share repurchases.
Recent PerformanceNasdaq Listing
On November 8, 2021, reorganized Hertz Global successfully completed the registration of its new common stock and Public Warrants with the SEC for a public offering by certain selling stockholders pursuant to a Registration Statement on Form S-1. On November 9, 2021, reorganized Hertz Global's common stock and Public Warrants began trading on The Nasdaq Global Select Market ("Nasdaq") under the trading symbols "HTZ" and "HTZWW," respectively.
In conjunction with the Nasdaq listing, certain selling stockholders of Hertz Global offered and sold 44,520,000 shares of Hertz Global's common stock to the public. Of these shares, Hertz Global repurchased from the underwriters 10,344,828 shares for an aggregate purchase price of approximately $300 million. This amount is included in treasury stock in the accompanying Hertz Global consolidated balance sheets as of December 31, 2022 and 2021 under the caption Item 8, "Financial Statements and Supplementary Data” included in this 2022 Annual Report.
Repurchases of Equity Securities
Share Repurchase Programs for Common Stock
In November 2021, Hertz Global's Board of Directors approved a share repurchase program that authorized the repurchase of up to $2.0 billion worth of shares of Hertz Global's outstanding common stock (the "2021 Share Repurchase Program"). During the second quarter of 2022, the Company completed the 2021 Share Repurchase Program by repurchasing 80,677,021 shares of Hertz Global's common stock during the first and second quarters of 2022 at an average share price of $19.74 for an aggregate purchase price of $1.6 billion. Under the completed 2021 Share Repurchase Program, a total of 97,783,047 shares of Hertz Global common stock were repurchased for an aggregate purchase price of $2.0 billion.
In June 2022, Hertz Global's Board of Directors approved a new share repurchase program (the "2022 Share Repurchase Program") that authorized additional repurchases of up to an incremental $2.0 billion worth of shares of Hertz Global's outstanding common stock. Between inception and December 31, 2022, a total of 47,303,009 shares of Hertz Global's common stock were repurchased under the 2022 Share Repurchase Program at an average share price of $17.64 for an aggregate purchase price of $835 million.
Between January 1, 2023 and January 26, 2023, a total of 1,079,647 shares of Hertz Global's common stock were repurchased under the 2022 Share Repurchase Program at an average share price of $16.51 resulting in an aggregate purchase price of $18 million.
HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
THE HERTZ CORPORATION AND SUBSIDIARIES
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES (Continued)
Any repurchases are made at the discretion of management and may be executed through a variety of methods, such as open-market transactions (including pre-set trading plans pursuant to Rule 10b5-1 of the Exchange Act), privately negotiated transactions, accelerated share repurchases, and other transactions in accordance with applicable securities laws. The 2022 Share Repurchase Program has no initial time limit, does not obligate us to acquire any particular amount of common stock and can be discontinued at any time. There can be no assurance as to the timing or number of shares of any future repurchases.
The following table provides a breakdown of our equity security repurchases during the fourth quarter of fiscal year 2022.
| | | | | | | | | | | | | | | | | | | | | | | |
| (a) Total number of shares purchased | | (b) Average price paid per share | | (c) Total number of shares purchased as part of the publicly announced plan or program | | (d) Maximum number (or approximate dollar value) of shares that may yet be purchased under the publicly announced plan or program (In thousands, except share data) |
Common Stock |
October 1 – October 31, 2022 | 9,353,998 | | | $ | 17.26 | | | 9,353,998 | | | $ | 1,318,688 | |
November 1 – November 30, 2022 | 2,464,041 | | | $ | 17.69 | | | 2,464,041 | | | $ | 1,275,088 | |
December 1 – December 31, 2022 | 7,044,124 | | | $ | 15.57 | | | 7,044,124 | | | $ | 1,165,376 | |
Total | 18,862,163 | | | $ | 16.69 | | | 18,862,163 | | | $ | 1,165,376 | |
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Performance Graph
The graph that follows compares the cumulative total stockholder return on Hertz Holdings common stock with the Russell 1000 Index and the Morningstar Rental & Leasing Services Industry Group. The periods depicted in the chart below prior to the Spin-Off reflect the performance of Old Hertz Holdings common stock and the periods subsequent to the Spin-Off reflect the performance of Hertz Holdings common stock. The Russell 1000 Index is included because it is comprised of the 1,000 largest publicly traded issuers.issues. The Morningstar Rental & Leasing Services Industry Group is a published, market capitalization-weighted index representing stocks of companies, including Hertz Holdings, that rent or lease various durable goods to the commercial and consumer market including vehicles and trucks, medical and industrial equipment, appliances, tools and other miscellaneous goods. The results are based on an assumed $100 invested on December 31, 2014, at the market close, through December 31, 2019.
November 9, 2021 (the first day of trading on Nasdaq following Hertz
HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
THE HERTZ CORPORATION AND SUBSIDIARIES
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES (Continued)
Global's emergence from bankruptcy and its Nasdaq listing), at the market close, through December 31, 2022. Share price performance presented below is not necessarily indicative of future results.
COMPARISON OF CUMULATIVE TOTAL RETURN AMONG HERTZ GLOBAL HOLDINGS, INC.,
RUSSELL 1000 INDEX AND MORNINGSTAR RENTAL & LEASING SERVICES
INDUSTRY GROUP
ASSUMES DIVIDEND REINVESTMENT
HERTZ
There is no established public trading market for the common stock of Hertz. Rental Car Intermediate Holdings, LLC, which is wholly-owned by Hertz Holdings, owns all of the outstanding common stock of Hertz.
Hertz did not pay dividends to Hertz Holdings in 2019 or 2018. The credit agreements governing Hertz's SeniorFirst Lien Credit Facilities Letter of Credit Facility and Alternative Letter of Credit Facility restrict Hertz's ability to make dividends and certain payments, including payments to Hertz Holdings.
HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
ITEM 6. SELECTED FINANCIAL DATA
HERTZ GLOBAL
The selected statementsHoldings for dividends on Hertz Holdings' common stock or for share repurchases. Following receipt of operations data for the years ended December 31, 2019, 2018 and 2017 and the selected balance sheet data as of December 31, 2019 and 2018 were derivedconsent obtained from the auditedlenders of Hertz's First Lien Credit Facilities to permit the retirement of preferred stock, Hertz paid dividends to Hertz Holdings of $2.5 billion in 2022 and 2021 to help fund common stock and preferred stock repurchases as further disclosed in Note 17, "Equity – Hertz Global" to the Notes to its consolidated financial statements of Hertz Global included in this 20192022 Annual Report under the caption Item 8, "Financial Statements and Supplementary Data.” The selected statement of operations data for the year ended December 31, 2016 and the selected balance sheet data as of December 31, 2017 and 2016 were derived from audited consolidated financial statements of" Hertz Global,did not includedpay dividends in this 2019 Annual Report. The selected statement of operations data for the year ended December 31, 2015 and the selected balance sheet data as of December 31, 2015 were derived from audited consolidated financial statements of Old2020 to Hertz Holdings, not included in this 2019 Annual Report.Holdings.
The information set forth below is not necessarily indicative of results of future operations, and should be read in conjunction with Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the audited consolidated financial statements and related notes thereto of Hertz Global included in this 2019 Annual Report under the caption Item 8, "Financial Statements and Supplementary Data,” to fully understand factors that may affect the comparability of the information presented below. The selected consolidated financial data in this section is not intended to replace the audited consolidated financial statements of Hertz Global.
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(In millions, except per share data) | Years Ended December 31, |
Statements of Operations Data | 2019 | | 2018 | | 2017 | | 2016 | | 2015 |
Revenues: | | | | | | | | | |
Worldwide vehicle rental(a) | $ | 9,107 |
| | $ | 8,756 |
| | $ | 8,163 |
| | $ | 8,211 |
| | $ | 8,434 |
|
All other operations | 672 |
| | 748 |
| | 640 |
| | 592 |
| | 583 |
|
Total revenues | 9,779 |
| | 9,504 |
| | 8,803 |
| | 8,803 |
| | 9,017 |
|
Expenses: | | | | | | | | | |
Direct vehicle and operating | 5,486 |
| | 5,355 |
| | 4,958 |
| | 4,932 |
| | 5,055 |
|
Depreciation of revenue earning vehicles and lease charges | 2,565 |
| | 2,690 |
| | 2,798 |
| | 2,601 |
| | 2,433 |
|
Selling, general and administrative | 969 |
| | 1,017 |
| | 880 |
| | 899 |
| | 873 |
|
Interest expense, net: | | | | | | | | | |
Vehicle | 494 |
| | 448 |
| | 331 |
| | 280 |
| | 253 |
|
Non-vehicle | 311 |
| | 291 |
| | 306 |
| | 344 |
| | 346 |
|
Total interest expense, net | 805 |
| | 739 |
| | 637 |
| | 624 |
| | 599 |
|
Goodwill and intangible asset impairments | — |
| | — |
| | 86 |
| | 292 |
| | 40 |
|
Other (income) expense, net | (59 | ) | | (40 | ) | | 19 |
| | (75 | ) | | (115 | ) |
Total expenses | 9,766 |
| | 9,761 |
| | 9,378 |
| | 9,273 |
| | 8,885 |
|
Income (loss) from continuing operations before income taxes | 13 |
| | (257 | ) | | (575 | ) | | (470 | ) | | 132 |
|
Income tax (provision) benefit(b) | (63 | ) | | 30 |
| | 902 |
| | (4 | ) | | (17 | ) |
Net income (loss) from continuing operations | (50 | ) | | (227 | ) | | 327 |
| | (474 | ) | | 115 |
|
Net income (loss) from discontinued operations | — |
| | — |
| | — |
| | (17 | ) | | 158 |
|
Net income (loss) | (50 | ) | | (227 | ) | | 327 |
| | (491 | ) | | 273 |
|
Net (income) loss attributable to noncontrolling interests | (8 | ) | | 2 |
| | — |
| | — |
| | — |
|
Net income (loss) attributable to Hertz Global | $ | (58 | ) | | $ | (225 | ) | | $ | 327 |
| | $ | (491 | ) | | $ | 273 |
|
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Weighted-average shares outstanding:(c) | | | | | | | | | |
Basic | 117 |
| | 96 |
| | 95 |
| | 96 |
| | 103 |
|
Diluted | 117 |
| | 96 |
| | 95 |
| | 96 |
| | 104 |
|
| | | | | | | | | |
Earnings (loss) per share: | | | | | | | | | |
Basic earnings (loss) per share | $ | (0.49 | ) | | $ | (2.35 | ) | | $ | 3.44 |
| | $ | (5.11 | ) | | $ | 2.64 |
|
Diluted earnings (loss) per share | $ | (0.49 | ) | | $ | (2.35 | ) | | $ | 3.44 |
| | $ | (5.11 | ) | | $ | 2.62 |
|
HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
ITEM 6. SELECTED FINANCIAL DATA (Continued)[RESERVED]
Not applicable.
|
| | | | | | | | | | | | | | | | | | | |
(In millions) | As of December 31, |
Balance Sheet Data | 2019 | | 2018 | | 2017 | | 2016 | | 2015 |
Cash and cash equivalents | $ | 865 |
| | $ | 1,127 |
| | $ | 1,072 |
| | $ | 816 |
| | $ | 474 |
|
Revenue earning vehicles, net | 13,789 |
| | 12,419 |
| | 11,336 |
| | 10,818 |
| | 10,746 |
|
Total assets(d) | 24,627 |
| | 21,382 |
| | 20,058 |
| | 19,155 |
| | 23,514 |
|
Total debt | 17,089 |
| | 16,324 |
| | 14,865 |
| | 13,541 |
| | 15,770 |
|
Total equity attributable to Hertz Global(e) | 1,769 |
| | 1,061 |
| | 1,520 |
| | 1,075 |
| | 2,019 |
|
| |
(a) | Includes U.S. Rental Car and International Rental Car segments. |
| |
(b) | Income tax (provision) benefit for 2018 and 2017 includes the effects of the TCJA, which contained wide-ranging changes to the U.S. tax structure. |
| |
(c) | Basic weighted-average shares outstanding and weighted-average shares used to calculate diluted earnings (loss) per share have been adjusted retrospectively to give effect to the Rights Offering for the years ended December 31, 2018, 2017, 2016 and 2015. See Note 16, "Equity and Earnings (Loss) Per Share - Hertz Global," to the Notes to our consolidated financial statements included in this 2019 Annual Report under the caption Item 8, "Financial Statements and Supplementary Data" for additional information. |
| |
(d) | The balance of total assets as of December 31, 2019 includes the impact upon adoption of guidance impacting leases, as further disclosed in Note 2, "Significant Accounting Policies" to the Notes to our consolidated financial statements included in this 2019 Annual Report under the caption Item 8, "Financial Statements and Supplementary Data". The balance of total assets as of December 31, 2015 includes the assets of certain entities that were spun-off on June 30, 2016. |
| |
(e) | Total equity as of December 31, 2018 includes the net adjustment recorded to accumulated deficit of $178 million upon adoption of guidance impacting revenue recognition and reporting comprehensive income. |
THE HERTZ CORPORATION AND SUBSIDIARIES
ITEM 6. SELECTED FINANCIAL DATA (Continued)
HERTZ
The selected statements of operations data for the years ended December 31, 2019, 2018 and 2017 and the selected balance sheet data as of December 31, 2019 and 2018 were derived from the audited consolidated financial statements of Hertz included in this 2019 Annual Report under the caption Item 8, "Financial Statements and Supplementary Data.” The selected statement of operations data for the year ended December 31, 2016 and the selected balance sheet data as of December 31, 2017 and 2016 were derived from audited consolidated financial statements of Hertz, not included in this 2019 Annual Report. The selected statement of operations data for the year ended December 31, 2015 and the selected balance sheet data as of December 31, 2015 were derived from audited consolidated financial statements of Old Hertz Holdings, not included in this 2019 Annual Report.
The information set forth below is not necessarily indicative of results of future operations, and should be read in conjunction with Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the audited consolidated financial statements and related notes thereto of Hertz included in this 2019 Annual Report under the caption Item 8, "Financial Statements and Supplementary Data,” to fully understand factors that may affect the comparability of the information presented below. The selected consolidated financial data in this section is not intended to replace the audited consolidated financial statements of Hertz.
|
| | | | | | | | | | | | | | | | | | | |
(In millions) | Years Ended December 31, |
Statements of Operations Data | 2019 | | 2018 | | 2017 | | 2016 | | 2015 |
Revenues: | | | | | | | | | |
Worldwide vehicle rental(a) | $ | 9,107 |
| | $ | 8,756 |
| | $ | 8,163 |
| | $ | 8,211 |
| | $ | 8,434 |
|
All other operations | 672 |
| | 748 |
| | 640 |
| | 592 |
| | 583 |
|
Total revenues | 9,779 |
| | 9,504 |
| | 8,803 |
| | 8,803 |
| | 9,017 |
|
Expenses: | | | | | | | | | |
Direct vehicle and operating | 5,486 |
| | 5,355 |
| | 4,958 |
| | 4,932 |
| | 5,055 |
|
Depreciation of revenue earning vehicles and lease charges | 2,565 |
| | 2,690 |
| | 2,798 |
| | 2,601 |
| | 2,433 |
|
Selling, general and administrative | 969 |
| | 1,017 |
| | 880 |
| | 899 |
| | 873 |
|
Interest expense, net: | | | | | | | | | |
Vehicle | 494 |
| | 448 |
| | 331 |
| | 280 |
| | 253 |
|
Non-vehicle | 304 |
| | 284 |
| | 301 |
| | 343 |
| | 346 |
|
Total interest expense, net | 798 |
| | 732 |
| | 632 |
| | 623 |
| | 599 |
|
Goodwill and intangible asset impairments | — |
| | — |
| | 86 |
| | 292 |
| | 40 |
|
Other (income) expense, net | (59 | ) | | (40 | ) | | 19 |
| | (75 | ) | | (115 | ) |
Total expenses | 9,759 |
| | 9,754 |
| | 9,373 |
| | 9,272 |
| | 8,885 |
|
Income (loss) from continuing operations before income taxes | 20 |
| | (250 | ) | | (570 | ) | | (469 | ) | | 132 |
|
Income tax (provision) benefit(b) | (65 | ) | | 28 |
| | 902 |
| | (4 | ) | | (17 | ) |
Net income (loss) from continuing operations | (45 | ) | | (222 | ) | | 332 |
| | (473 | ) | | 115 |
|
Net income (loss) from discontinued operations | — |
| | — |
| | — |
| | (15 | ) | | 161 |
|
Net income (loss) | (45 | ) | | (222 | ) | | 332 |
| | (488 | ) | | 276 |
|
Net (income) loss attributable to noncontrolling interests | (8 | ) | | 2 |
| | — |
| | — |
| | — |
|
Net income (loss) attributable to Hertz | $ | (53 | ) | | $ | (220 | ) | | $ | 332 |
| | $ | (488 | ) | | $ | 276 |
|
THE HERTZ CORPORATION AND SUBSIDIARIES
ITEM 6. SELECTED FINANCIAL DATA (Continued)
|
| | | | | | | | | | | | | | | | | | | |
(In millions) | As of December 31, |
Balance Sheet Data | 2019 | | 2018 | | 2017 | | 2016 | | 2015 |
Cash and cash equivalents | $ | 865 |
| | $ | 1,127 |
| | $ | 1,072 |
| | $ | 816 |
| | $ | 474 |
|
Revenue earning vehicles, net | 13,789 |
| | 12,419 |
| | 11,336 |
| | 10,818 |
| | 10,746 |
|
Total assets(c) | 24,627 |
| | 21,382 |
| | 20,058 |
| | 19,155 |
| | 23,509 |
|
Total debt | 17,089 |
| | 16,324 |
| | 14,865 |
| | 13,541 |
| | 15,770 |
|
Total equity attributable to Hertz(d) | 1,765 |
| | 1,059 |
| | 1,520 |
| | 1,075 |
| | 1,948 |
|
| |
(a) | Includes U.S. Rental Car and International Rental Car segments. |
| |
(b) | Income tax (provision) benefit for 2018 and 2017 includes the effects of the TCJA, which contained wide-ranging changes to the U.S. tax structure. |
| |
(c) | The balance of total assets as of December 31, 2019 includes the impact upon adoption of guidance impacting leases, as further disclosed in Note 2, "Significant Accounting Policies" to the Notes to our consolidated financial statements included in this 2019 Annual Report under the caption Item 8, "Financial Statements and Supplementary Data". The balance of total assets as of December 31, 2015 includes the assets of certain entities that were spun-off on June 30, 2016. |
| |
(d) | Total equity as of December 31, 2018 includes the net adjustment recorded to accumulated deficit of $178 million upon adoption of guidance impacting revenue recognition and reporting comprehensive income. |
HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
THE HERTZ CORPORATION AND SUBSIDIARIES
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
| |
ITEM 7. | MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
Hertz Global Holdings, Inc. (together with its consolidated subsidiaries and variable interest entities, “Hertz Global”) is a holding company and its principal, wholly-owned subsidiary is The Hertz Corporation (together with its consolidated subsidiaries and variable interest entities, "Hertz").Corporation. Hertz Global consolidates Hertz for financial statement purposes, and Hertz comprises approximately the entire balance of Hertz Global’s assets, liabilities and operating cash flows. In addition, Hertz’s operating revenues and operating expenses comprise nearly 100% of Hertz Global’s revenues and operating expenses. As such, Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") that follows herein is for Hertz and also applies to Hertz Global in all material respects, unless otherwise noted. Differences between the operations and results of Hertz and Hertz Global are separately disclosed and explained. We sometimes use the words “we,” “our,” “us,” and the “Company” in this MD&A for disclosures that relate to all of Hertz and Hertz Global.
The statements in this MD&A regarding industry outlook, our expectations regarding the performance of our business and the other non-historical statements are forward-looking statements. These forward-looking statements are subject to numerous risks and uncertainties, including, but not limited to, the risks and uncertainties described in Item 1A, "Risk Factors.” The following MD&A provides information that we believe to be relevant to an understanding of our consolidated financial condition and results of operations. Our actual results may differ materially from those contained in or implied by any forward-looking statements. You should read the following MD&A together with the sections entitled “Cautionary Note Regarding Forward-Looking Statements and Summary of Risk Factors,” Item 1A, "Risk Factors,” Item 6, "Selected Financial Data” and our consolidated financial statements and related notes included in this 20192022 Annual Report under the caption Item 8, "Financial Statements and Supplementary Data.”
In this MD&A we refer to the following non-GAAP measure and key metrics:
•Adjusted Corporate EBITDA -– important non-GAAP measure to management because it allows management to assess the operational performance of our business, exclusive of certain items, and 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 theminvestors to assess our operational performance on the same basis that management uses internally. Adjusted EBITDA, the segment measure of profitability and accordingly a GAAP measure, is calculated exclusive of certain items which are largely consistent with those used in the calculation of Adjusted Corporate EBITDA.
•Vehicle Utilization – Effective in the first quarter of 2022, in connection with the appointment of the new CEO (who serves as our Chief Operating Decision Maker) and arising from significantly increased activity in vehicle dispositions, we began using Average Rentable Vehicles in the denominator in our calculation of Vehicle Utilization. Vehicle Utilization is calculated by dividing total Transaction Days by Available Car Days. Available Car Days represents Average Rentable Vehicles multiplied by the number of days in a given period. Average Rentable Vehicles excludes vehicles for sale on our retail lots or actively in the process of being sold through other disposition channels. We believe this is a better measure of the productivity of our rental fleet as it is unaffected by fluctuations in disposition activity. Accordingly, prior periods have been restated to conform with the revised definition.
•Depreciation Per Unit Per Month -– important key metric to management and investors as depreciation of revenue earning vehicles and lease charges is one of our largest expenses for the vehicle rental business and is driven by the number of vehicles, expected residual values at the expected time of disposal and expected hold period of the vehicles. Depreciation Per Unit Per Month is reflective of how we are managing the costs of our vehicles and facilitates a comparison with other participants in the vehicle rental industry.
•Total Revenue Per Transaction Day ("Total RPD," also referred to as "pricing") -– important key metric to management and investors as it represents a measurement of the changes in underlying pricing in the vehicle rental business and encompasses the elements in vehicle rental pricing that management has the ability to control. Effective in the third quarter of 2021, we revised our calculation of Total RPD to include ancillary retail vehicle sales revenues to better align with current industry practice, and accordingly, prior periods have been restated to conform with the revised definition.
HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
THE HERTZ CORPORATION AND SUBSIDIARIES
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
•Total Revenue Per Unit Per Month ("Total RPU") -– important key metric to management and investors as it provides a measure of revenue productivity relative to the total number of vehicles in our rental fleet whether owned or leased ("Average Rentable Vehicles"). Effective in the third quarter of 2021, we revised our calculation of Total RPU to include ancillary retail vehicle sales revenues to better align with current industry practice and effective in the first quarter of 2022, we revised to use Average Rentable Vehicles as the denominator in our calculation of Total RPU. Average Rentable Vehicles excludes vehicles for sale on the Company’s retail lots or "fleet capacity").actively in the process of being sold through other disposition channels. We believe this is a better measure of the productivity of our rental fleet as it is unaffected by fluctuations in disposition activity. There has been no change to revenue as used in the numerator of the calculation which includes vehicle rental and rental related revenues, licensee revenue and ancillary retail vehicle sales revenue. Prior periods have been restated to conform with the revised definition.
•Transaction Days -– important key metric to management and investors as it represents the number of revenue generating days ("volume"). It is used as a component to measure Total RPD and Vehicle Utilization. Transaction Days represent the total number of 24-hour periods, with any partial period counted as one Transaction Day, that vehicles were on rent (the period between when a rental contract is opened and closed) in a given period. Thus, it is possible for a vehicle to attain more than one Transaction Day in a 24-hour period.
HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
THE HERTZ CORPORATION AND SUBSIDIARIES
| |
ITEM 7. | MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) |
Vehicle Utilization - important key metric to management and investors because it is the measurement of the proportion of our vehicles that are being used to generate revenues relative to fleet capacity. Higher Vehicle Utilization means more vehicles are being utilized to generate revenues.
Our non-GAAP measure and key metrics should not be considered in isolation and should not be considered superior to, or a substitute for, financial measures calculated in accordance with U.S. GAAP. The above non-GAAP measure and key metrics are defined, and the non-GAAP measure is reconciled to its most comparable U.S. GAAP measure, in the "Footnotes to the Results of Operations and Selected Operating Data by Segment Tables" section of this MD&A.
OVERVIEW OF OUR BUSINESS AND OPERATING ENVIRONMENT
Our Business
We are engaged principally in the business of renting vehicles primarily through our Hertz, Dollar and Thrifty brands. In addition to vehicle rental, we provide integrated vehicle leasing and fleet management solutions through our Donlen subsidiary. We have a diversified revenue base and a highly variable cost structure and are generally able to adjust fleet capacity, the most significant determinant of our costs, to meet expectations of market demand. Our profitability is primarily a function of the volume, mix and pricing of rental transactions and the utilization of vehicles, the related ownership cost of vehicles and other operating costs. Significant changes in the purchase price or residual values of vehicles 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, including residual values. Our business requires significant expenditures for vehicles, and as such, we require substantial liquidity to finance such expenditures. See the "Liquidity and Capital Resources" section of this MD&A.
Our strategy includes optimizationis focused on excellence in execution of our vehicle rental operations, disciplined performance managementelectrification of the fleet, shared mobility, connected cars and evaluation of all locations andselling vehicles from the pursuit of same-store sales growth.fleet directly to consumers.
Our total revenues are primarily derived from rental and related charges and consist of:
Worldwideof worldwide vehicle rental revenues - revenues from all company-operated vehicle rental operations includingand charges to customers for the reimbursement of costs incurred relating to airport concession fees and vehicle license fees, the fueling of vehicles and revenues associated with value-added services, including the sale of loss or collision damage waivers, theft protection, liability and personal accident/effects insurance coverage, premium emergency roadside service and other products and fees. Also included are ancillary revenues associated with retail vehicle sales and certain royalty fees from our franchisees (such fees are less thanapproximately 2% of total revenues each period); and.
All other operations revenues -We previously had revenues from vehicle leasing and fleet management services by our Donlen business, which was sold on March 30, 2021, as further disclosed in Note 3, "Divestitures," to the Notes to our consolidated financial statements under the caption Item 8, "Financial Statements and other business activities.Supplementary Data” included in this 2022 Annual Report.
HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
THE HERTZ CORPORATION AND SUBSIDIARIES
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Our expenses primarily consist of:
•Direct vehicle and operating expense ("DOE"), primarily wages and related benefits; commissions and concession fees paid to airport authorities, travel agents and others; facility, self-insurance and reservation costs; and other costs relating to the operation and rental of revenue earning vehicles, such as damage, maintenance and fuel costs;
•Depreciation expense and lease charges, net relating to revenue earning vehicles, including gains and losses and related costs associated with the disposal of vehicles;
•Depreciation and amortization expense relating to non-vehicle assets;
•Selling, general and administrative expense ("SG&A"), which includes advertising costs and administrative personnel costs, along with costs for advertising and personnel, along with information technology and finance transformation programs; and
•Interest expense, net.
Generally, between 70% and 75% of our annual operating costs represent variable costs, while the remaining costs are fixed or semi-fixed. To accommodate increased demand, we increase our available fleet and staff. As demand
HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
THE HERTZ CORPORATION AND SUBSIDIARIES
| |
ITEM 7. | MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) |
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 to help manage our variable costs. We also maintain a flexible workforce, with a significant number of part-time and seasonal workers. Certain operating expenses, including real estate taxes, rent, insurance, utilities, maintenance and other facility-related expenses, and minimum staffing costs, remain fixed and cannot be adjusted for demand.
Chapter 11 and Emergence
In additionMarch 2020, the World Health Organization declared COVID-19 a pandemic, affecting multiple global regions. In an effort to our typical expenses, we have been incurringhalt the spread of COVID-19, many governments around the world placed significant costs associatedrestrictions on travel, individuals voluntarily reduced their air and other travel in attempts to avoid the outbreak and many businesses announced closures and imposed travel restrictions. On May 22, 2020, the Debtors filed voluntary petitions under Chapter 11 of the Bankruptcy Code in the Bankruptcy Court. On June 10, 2021, the Plan of Reorganization was confirmed by the Bankruptcy Court and on June 30, 2021, the Plan of Reorganization became effective in accordance with our multi-year initiatives to upgradeits terms and modernize our information technology and finance systems and processes. The information technology transformation is intended to increase the customer experience and ultimately drive efficiencies, service offerings and future productivity. The technology transformation initiative is complex and will require continued investment and as is the case for most large scale technology transformations, there can be no assurance that all the benefits we anticipate can be achieved.Debtors emerged from Chapter 11.
Our BusinessReportable Segments
We have identified threetwo reportable segments, which are consistent with our operating segments and organized based on the products and services provided by our operating segments and the geographic areas in which our operating segments conduct business is conducted, as follows:
U.S.•Americas RAC - Rental of vehicles, as well as sales of value-added services, in the U.S.;, Canada, Latin America and the Caribbean; and
•International RAC - Rental and leasing of vehicles, as well as sales of value-added services, internationally;in locations other than the U.S., Canada, Latin America and the Caribbean.
In the second quarter of 2021, as a result of the Donlen Sale, as further disclosed in Note 3, "Divestitures," to the Notes to our consolidated financial statements under the caption Item 8, "Financial Statements and Supplementary Data” included in this 2022 Annual Report, the All Other Operations - Comprisedreportable segment, which was primarily comprised of ourthe Donlen business, which provides vehicle leasing and fleet management services, and other business activities.was no longer deemed to be a reportable segment.
In addition to the above reportable segments, we have Corporatecorporate operations. We assess performance and allocate resources based upon the financial information for our operating segments.
Revenue Earning Vehicles
Revenue earning vehicles used in our rental and leasing operations are recorded at cost, net of related discounts and incentives from manufacturers. Holding periods typically range from six to thirty-six months. Also included in
HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
THE HERTZ CORPORATION AND SUBSIDIARIES
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
revenue earning vehicles are vehicles placed on our retail lots for sale or actively in the process of being sold through other disposition channels.
Program vehicles are purchased under repurchase or guaranteed depreciation programs with vehicle manufacturers wherein the manufacturers agree to repurchase vehicles at a specified price or guarantee the depreciation rate on the vehicles during established repurchase or auction periods, subject to, among other things, certain vehicle condition, mileage and holding period requirements. Guaranteed depreciation programs guarantee the residual value of the program vehicle upon sale, subject to, among other things, certain vehicle condition, mileage and holding period requirement.requirements. Program vehicles generally provide us with flexibility to increase or reduce the size of our fleet based on economicmarket demand. When we increase the percentage of program vehicles, the average age of our fleet decreases since the average holding period for program vehicles is shorter than that for non-program vehicles.
When a revenue earning vehicle is acquired outside of a vehicle repurchase program, we estimate the period that we will hold the asset, primarily based on historical measures of the amount of rental activity (e.g., automobile mileage). We also estimate the residual value of the applicable revenue earning vehicles at the expected time of disposal, considering factors such as make, model and options, age, physical condition, mileage, sale location, time of the year, and channel of disposition (e.g., auction, retail, dealer direct) and market conditions. The vehicle is depreciated using a rate based on these estimates. Depreciation rates are reviewed on a quarterly basis based on management's ongoing assessment of present and estimated future market conditions, their effect on residual values at the expected time of disposal and the estimated holding period of the vehicle. Differences between actual residual values and those estimated
HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
THE HERTZ CORPORATION AND SUBSIDIARIES
| |
ITEM 7. | MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) |
result in an adjustment to depreciation upon disposition of the vehicle. Our depreciation of revenue earning vehicles and lease charges also includes costs associated with the disposal of vehicles and rents paid for vehicles leased.
We dispose of our non-program vehicles via auction, dealer-directdealer direct wholesale channels, direct sales to third parties and our retail locations.channels. Non-program vehicles disposed of through our retail locations allow us the opportunity for value-added revenue, such as warranty, financing and title fees. We periodically review and adjust the mix between program and non-program vehicles in our fleet based on contract negotiations and the economic environment pertaining to our industry in an effort to optimize the mix of vehicles. Additionally, the use of program vehicles reduces the volatility associated with residual value estimation.
20192022 Operating Overview
Effective in the first quarter of 2022, we began using Average Rentable Vehicles in the denominator in our calculation of Vehicle Utilization and Total RPU. Average Rentable Vehicles excludes vehicles for sale on our retail lots or actively in the process of being sold through other disposition channels. We believe this is a better measure of the productivity of our rental fleet as it is unaffected by fluctuations in disposition activity. Accordingly, prior periods have been restated to reflect this change.
HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
THE HERTZ CORPORATION AND SUBSIDIARIES
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
The following provides an overview of our business and financial performance andcharts provide the period-over-period change for several key factors influencing our results:results for the years ended December 31, 2022, 2021 and 2020.
U.S. RAC(1) Includes impact of foreign currency exchange at average rates ("fx").
(2) Results shown are in constant currency as of December 31, 2021.
(3) The percentages shown in this chart reflect Vehicle Utilization versus period-over-period change.
◦
Total revenues increased $459 million, or 7%
| |
◦ | Total RPD increased 2%, and Total RPU increased 1% |
| |
◦ | Transaction Days increased 4%
|
| |
◦ | Depreciation of revenue earning vehicles and lease charges decreased 1% to $1.7 billion
|
| |
◦ | Depreciation Per Unit Per Month decreased 7% to $258
|
| |
◦ | Vehicle Utilization decreased to 80% from 81% |
| |
◦ | DOE as a percentage of total revenues decreased to 60% from 62%
|
| |
◦ | SG&A as a percentage of total revenues remained flat at 7% |
International RAC
| |
◦ | Total revenues decreased $107 million, or 5%, and were flat, excluding the impact of foreign currency exchange at average rates ("fx") |
| |
◦ | Total RPD increased 1%, and Total RPU was flat |
| |
◦ | Transaction Days decreased 1% |
| |
◦ | Depreciation of revenue earning vehicles and lease charges decreased 2% to $440 million, and increased $14 million, or 3%, excluding fx |
| |
◦ | Depreciation Per Unit Per Month increased 3% to $205
|
| |
◦ | Vehicle Utilization decreased to 76% from 77%
|
| |
◦ | DOE as a percentage of total revenues increased to 61% from 57%
|
| |
◦ | SG&A as a percentage of total revenues decreased to 10% from 11%
|
For more information on the above, see the discussion of our results on a consolidated basis and by segment that follows herein. In this MD&A, certain amounts in the following tables are denoted as in millions. Amounts such as percentages are calculated from the underlying numbers in thousands, and as a result, may not agree to the amount when calculated from the tables in millions.
AdoptionImpact of COVID-19 on our Business Environment
Beginning in 2021, individuals across the globe increasingly gained access to COVID-19 vaccinations, particularly in the U.S. During 2021 and continuing through 2022, many of the New Lease Standard
government-imposed restrictions have been lifted or eased, and travel, particularly leisure travel, has experienced a strong rebound. However, there remains continued uncertainty about the impact on supply chain constraints resulting from the pandemic and other macroeconomic conditions.
Effective January 1, 2019, we adopted the new lease standard, Topic 842, which did not have a significant impact to our results of operations for the year ended December 31, 2019. See "Note 2, "Significant Accounting Policies" to the Notes to our consolidated financial statements included in this 2019 Annual Report under the caption Item 8, "Financial Statements and Supplementary Data." for further information.
HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
THE HERTZ CORPORATION AND SUBSIDIARIES
| |
ITEM 7. | MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) |
Change in Segment Measure of Profitability
Effective during the three months ended June 30, 2019, we changed our segment measure of profitability to Adjusted EBITDA.Prior to the three months ended June 30, 2019, our segment measure of profitability was Adjusted Pre-tax Income (Loss), which included non-vehicle depreciation and amortization, non-vehicle debt interest, net and certain other items. For comparability purposes, we have adjusted retrospectively our 2018 and 2017 segment result tables in this MD&A to reflect the new segment measure of profitability.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
CONSOLIDATED RESULTS OF OPERATIONS - HERTZ
| | | Years Ended December 31, | | Percent Increase/(Decrease) | | Years Ended December 31, | | Percent Increase/(Decrease) |
($ In millions) | 2019 | | 2018 | | 2017 | | 2019 vs. 2018 | | 2018 vs. 2017 | ($ In millions) | 2022 | | 2021 | | 2020 | | 2022 vs. 2021 | | 2021 vs. 2020 |
Total revenues | $ | 9,779 |
| | $ | 9,504 |
| | $ | 8,803 |
| | 3 | % | | 8 | % | Total revenues | $ | 8,685 | | | $ | 7,336 | | | $ | 5,258 | | | 18% | | 40% |
Direct vehicle and operating expenses | 5,486 |
| | 5,355 |
| | 4,958 |
| | 2 |
| | 8 |
| Direct vehicle and operating expenses | 4,808 | | | 3,920 | | | 3,423 | | | 23 | | 15 |
Depreciation of revenue earning vehicles and lease charges | 2,565 |
| | 2,690 |
| | 2,798 |
| | (5 | ) | | (4 | ) | |
Depreciation of revenue earning vehicles and lease charges, net | | Depreciation of revenue earning vehicles and lease charges, net | 701 | | | 497 | | | 2,030 | | | 41 | | (76) |
Non-vehicle depreciation and amortization | | Non-vehicle depreciation and amortization | 142 | | | 196 | | | 225 | | | (27) | | (13) |
Selling, general and administrative expenses | 969 |
| | 1,017 |
| | 880 |
| | (5 | ) | | 16 |
| Selling, general and administrative expenses | 959 | | | 688 | | | 645 | | | 39 | | 7 |
Interest expense, net: | | | | | | | | | | Interest expense, net: | |
Vehicle | 494 |
| | 448 |
| | 331 |
| | 10 |
| | 35 |
| Vehicle | 159 | | | 284 | | | 455 | | | (44) | | (38) |
Non-vehicle | 304 |
| | 284 |
| | 301 |
| | 7 |
| | (6 | ) | Non-vehicle | 169 | | | 185 | | | 151 | | | (9) | | 23 |
Interest expense, net | 798 |
| | 732 |
| | 632 |
| | 9 |
| | 16 |
| Interest expense, net | 328 | | | 469 | | | 606 | | | (30) | | (23) |
Goodwill and intangible asset impairments | — |
| | — |
| | 86 |
| | — |
| | (100 | ) | |
Technology-related intangible and other asset impairments | | Technology-related intangible and other asset impairments | — | | | — | | | 213 | | | — | | (100) |
Write-off of intercompany loan | | Write-off of intercompany loan | — | | | — | | | 133 | | | — | | (100) |
Other (income) expense, net | (59 | ) | | (40 | ) | | 19 |
| | 48 |
| | NM |
| Other (income) expense, net | 2 | | | (21) | | | (9) | | | NM | | NM |
Reorganization items, net | | Reorganization items, net | — | | | 513 | | | 175 | | | (100) | | NM |
(Gain) from the sale of a business | | (Gain) from the sale of a business | — | | | (400) | | | — | | | (100) | | NM |
Income (loss) before income taxes | 20 |
| | (250 | ) | | (570 | ) | | NM |
| | (56 | ) | Income (loss) before income taxes | 1,745 | | | 1,474 | | | (2,183) | | | 18 | | NM |
Income tax (provision) benefit | (65 | ) | | 28 |
| | 902 |
| | NM |
| | (97 | ) | Income tax (provision) benefit | (390) | | | (318) | | | 328 | | | 23 | | NM |
| Net income (loss) | (45 | ) | | (222 | ) | | 332 |
| | (80 | ) | | NM |
| Net income (loss) | 1,355 | | | 1,156 | | | (1,855) | | | 17 | | NM |
Net (income) loss attributable to noncontrolling interests | (8 | ) | | 2 |
| | — |
| | NM |
| | NM |
| Net (income) loss attributable to noncontrolling interests | — | | | 1 | | | 9 | | | (100) | | (90) |
Net income (loss) attributable to Hertz | $ | (53 | ) | | $ | (220 | ) | | $ | 332 |
| | (76 | ) | | NM |
| Net income (loss) attributable to Hertz | $ | 1,355 | | | $ | 1,157 | | | $ | (1,846) | | | 17 | | NM |
Adjusted Corporate EBITDA(a) | $ | 649 |
| | $ | 433 |
| | $ | 267 |
| | 50 |
| | 62 |
| Adjusted Corporate EBITDA(a) | $ | 2,305 | | | $ | 2,130 | | | $ | (995) | | | 8 | | NM |
Footnotes to the table above are shown at the end of the Results of Operations and Selected Operating Data by Segment section of this MD&A.
NM - Not meaningful
Year Ended December 31, 20192022 Compared with Year Ended December 31, 20182021
Total revenues increased $276 million$1.3 billion in 20192022 compared to 20182021 due primarily to an increase of $459$1.1 billion and $420 million in our U.S. RAC segment, partially offset by a decrease of $107 million and $76 million in our International RAC and All Other Operations segments, respectively. U.S. RAC revenues increased due to a 4% increase in volume and a 2% increase in Total RPD. Excluding the impact of fx, revenues for our International RAC segment were flat. The decrease in All Other Operations is due to the impact of a change in presentation for certain leased vehicles beginning in the first quarter of 2019.
DOE increased $131 million in 2019 compared to 2018 primarily due to an increase of $132 million and $7 million in our U.S.Americas RAC and International RAC segments, respectively, partially offset by a $9decrease of $136 million in all other operations. Americas RAC revenues increased due primarily to higher volume and pricing driven by growth in travel demand and higher pricing resulting from industry-wide supply chain constraints on vehicles. Excluding an unfavorable $162 million impact of fx, revenues for our International RAC segment increased $582 million due primarily to higher pricing in most leisure categories and across the industry resulting from industry-wide supply chain constraints on vehicles and increased travel demand resulting from the easing of government-imposed travel restrictions. The decrease in all other operations was the result of the Donlen Sale in 2021.
DOE increased $888 million in 2022 compared to 2021 due primarily to increases of $777 million and $123 million in our All Other Operations segment.Americas RAC and International RAC segments, respectively. The increase in U.S.DOE for our Americas RAC DOEsegment was due primarily to higher fleet-related costs driven by increased volume.volume and fleet age, higher personnel costs and litigation settlements in 2022. Excluding the $69an unfavorable $86 million impact of fx, DOE for International RAC increased $76$209 million due primarily to higher volume driven primarily by an increase in vehicle-related expenses.increased travel demand.
HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
THE HERTZ CORPORATION AND SUBSIDIARIES
| |
ITEM 7. | MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) |
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Depreciation of revenue earning vehicles and lease charges, net increased $203 million in 2022 compared to 2021 largely driven by our Americas RAC segment. The increase of $210 million in our Americas RAC was due primarily to higher vehicle acquisition costs, partially offset by gains recognized on increased vehicle dispositions.
Non-vehicle depreciation and amortization decreased $53 million in 2022 compared to 2021 resulting primarily from fully depreciated intangible assets related to concession rights in our Americas RAC segment.
SG&A increased $271 million in 2022 compared to 2021 due primarily to increases of $168 million, $69 million and $45 million in our corporate operations, Americas RAC segment and International RAC segment, respectively. The increase in our corporate operations was due primarily to non-cash stock-based compensation costs and bankruptcy claims. SG&A in our Americas RAC segment increased as a result of increased advertising spend and personnel costs. Excluding an unfavorable $20 million fx impact, SG&A in our International RAC segment increased $65 million due primarily to increased advertising spend and facility costs.
Vehicle interest expense, net decreased $125 million in 20192022 compared to 20182021 due primarily due to a decrease$111 million of $95 million and $22 millionunrealized gains on interest rate caps primarily in our All Other Operations and U.S. RAC segments, respectively. The decrease in All Other Operations is due to the impact of a change in presentation for certain leased vehicles beginning in the first quarter of 2019. The decrease in our U.S. RAC segment is primarily due to our vehicle acquisition strategy and continued strength in residual values.
SG&A decreased $47 million in 2019 compared to 2018 primarily due to a decrease in personnel-related expenses in our Corporate operations and InternationalAmericas RAC segment and the impact from fxwrite-off in 2021 of capitalized fees with no comparable in 2022 primarily in our International RAC segment, partially offset by increased marketing chargeshigher debt levels in our U.S.Americas RAC segment and increased information technology and finance transformation charges in our Corporate operations.segment.
Vehicle interest expense, net increased $45 million in 2019 compared to 2018 primarily due to an increase in debt levels resulting from higher average fleet primarily in our U.S. RAC segment and higher market interest rates. Additionally, there was a $20 million loss on extinguishment of debt recorded in our International RAC segment in 2018 with no comparable charge in 2019.
Non-vehicle interest expense, net increased $20decreased $16 million in 20192022 compared to 20182021 due primarily due to a $43lower average interest rates, partially offset by higher benchmark rates.
We had other expense of $2 million in 2022 compared to other income of $21 million in 2021. Other income of $21 million in 2021 was comprised of gains relating to derivative instruments in our corporate operations, the gain on the sales of certain franchises in our Americas RAC segment and income from an equity investment in our corporate operations.
We incurred $513 million of net reorganization charges in 2021 in our corporate operations for professional fees and other costs associated with the Chapter 11 Cases, mainly in our corporate operations, which was comprised primarily of professional fees associated with the Chapter 11 Cases, the loss on extinguishment of certain debt primarily associated withresulting from the partial redemptionimplementation of the Senior Second Priority Secured Notes in 2019 with no comparablePlan of Reorganization, a prior plan sponsor breakup fee and other miscellaneous charges in 2018, partially offset by lower levelsrelated to the implementation of non-vehicle debt in 2019 due to net proceedsthe Plan of Reorganization.
Gain from the Rights Offering which were used to redeem the 2020 and 2021 Notes.
Other incomeDonlen Sale of $59$400 million in 2019 was primarily comprised2021 resulting from the completion of a $30 million gain on marketable securities and a $39 million gain on non-vehicle capital assets. Other income of $40 million in 2018 was primarily comprised of a $20 million gain on marketable securities, $10 million of net pension benefit income and a $6 million legal settlement related to an oil spillthe Donlen Sale in the Gulffirst quarter of Mexico2021 which was recorded in 2010.our corporate operations.
The effective tax rate in 20192022 and 2021 was 326% compared to 11% in 2018.22%. We recorded a tax provision of $65$390 million in 2019 compared to a tax benefit of $28 and $318 million in 2018.for 2022 and 2021, respectively. The effective income tax rate and related tax provision in 2019 are greater than 2018 due to an increase in the tax provision in 2022 compared to 2021 was driven by improvements in our financial performance in 2022, as well as tax benefits associated with the restructuring in Europe recognized in 2021, the impact of changes to state and foreign valuation allowance relating to lossesallowances, and non-deductible bankruptcy costs incurred in certain U.S. and non-U.S. jurisdictions and an increase in pretax operating results.2021.
Year Ended December 31, 20182021 Compared with Year Ended December 31, 2017
2020
Total revenues increased $701 million, or 8%,$2.1 billion in 2021 compared to 2020 due primarily to an increase of $486 million, $108 million$2.5 billion and $107$113 million in our U.S.Americas RAC All Other Operations and International RAC segments, respectively. U.S.respectively, partially offset by a decrease of $494 million in all other operations. Americas RAC revenues increased due primarily to increased pricing resulting from growth in travel demand and industry-wide supply chain constraints on vehicles. Excluding a 6% increase$42 million impact of fx, revenues for our International RAC segment increased $71 million also due primarily to increased pricing resulting primarily from industry-wide supply chain constraints on vehicles, partially offset by lower volume. The decrease in volume and a 1% increase in Total RPD. Total revenues in our All Other Operations segmentall other operations was largely driven by an increasethe result of the Donlen Sale in the numberfirst quarter of vehicles leased under sales-type leases. International RAC revenues increased due to a 3% increase in Total RPD and a $49 million fx impact.2021.
DOE increased $397$497 million or 8%,in 2021 compared to 2020 due primarily due to increasesan increase of $363 million and $33$540 million in our U.S. andAmericas RAC segment, partially offset by a decrease of $42 million in our International RAC segments, respectively.segment. The increase in DOE
HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
THE HERTZ CORPORATION AND SUBSIDIARIES
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
for our U.S.Americas RAC segment was due primarily to higher volume, partially offset by lower fleet costs due to increased core rental volumes (those excluding TNC rentals)reduced fleet size and TNC rental volumes and investments in additional personnel related to our transformationlower fixed costs resulting from cost-reduction initiatives. Excluding the $30 million impact of fx, DOE for International RAC increaseddecreased $72 million due primarily to a $31 million fx impact.
lower volume and lower fixed costs resulting from cost-reduction initiatives.
Depreciation of revenue earning vehicles and lease charges, net decreased $108$1.5 billion in 2021 compared to 2020 due primarily to decreases of $1.0 billion, $435 million, or 4%, primarily due to a $226and $89 million in our Americas RAC segment, all other operations, and International RAC segment, respectively. The decrease in our U.S.Americas RAC segment resulting from strongerwas due primarily to increasing residual values and longer vehicle holding periods resulting in an increase in vehicles that were fully depreciated and an increase in dispositions through higher-yielding dealer direct and retail sales channels.gains recognized on the disposition of vehicles. The decrease in all other operations was partially offset by an increasedue to the sale of $86 million and $32 million in our All Other Operations and International RAC segments, respectively. The increase in All Other Operations was largely driven by an increaseDonlen business in the numberfirst quarter of vehicles leased under sales-type leases.2021. Excluding a $12$6 million impact of fx, impact, depreciation of revenue earning vehicles and lease charges for our International RAC segment increased $20decreased $95 million driven by decliningdue primarily to right sizing of the fleet, supply chain constraints on vehicles and strength in residual values on diesel vehiclesvalues.
Non-vehicle depreciation and amortization decreased $29 million in Europe2021 compared to 2020 due primarily to lower depreciation expense resulting in part from the Lease Rejection Orders in our Americas RAC segment in 2020 and an increase in average vehicles.fully depreciated intangible assets related to concession rights.
SG&A increased $137$43 million or 16%, in 20182021 compared to 2017,2020 due primarily to increasesan increase of $74 million and $36$81 million in our U.S.corporate operations due primarily to increased personnel costs, partially offset by decreases of $28 million and $9 million in our International RAC segment and our Corporateall other operations, respectively. The increaseExcluding a $6 million fx impact, SG&A in our U.S.International RAC segment wasdecreased $34 million due primarily to lower professional fees and lower personnel costs, partially offset by higher marketing spend.
Vehicle interest expense, net decreased $171 million in 2021 compared to 2020 due primarily to lower average balances and lower average rates primarily in our Americas RAC segment.
Non-vehicle interest expense, net increased $34 million in 2021 compared to 2020 due primarily to higher amortization of capitalized deferred financing costs, higher letter of credit fees and higher average interest rates due primarily to the issuance of new unsecured senior notes in the fourth quarter of 2021, the issuance of the Term Loans in the second quarter of 2021 and the DIP Credit Agreement which was entered into in the third quarter of 2020, partially offset by interest on certain non-vehicle debt being suspended as a result of filing the Chapter 11 Cases.
We incurred charges of $213 million for impairment of intangible and other assets in 2020 due primarily to $124 million impairment of technology-related intangible assets and $69 million impairment of capitalized cloud computing implementation costs in our corporate operations due to uncertainty surrounding our financial ability to complete certain information technology projects as a result of COVID-19 and the filing of the Chapter 11 Cases. Additionally, we incurred a charge of $20 million for impairment of the Hertz tradename in our historical International RAC segment as a result of our annual testing of the recoverability of our indefinite-lived intangible assets.
We incurred a charge of $133 million in 2020 in our corporate operations resulting from the full write-off of the 2019 Master Loan with Hertz Holdings due to the filing of the Chapter 11 Cases.
We had other income of $21 million in 2021 compared to other income of $9 million in 2020. Other income in 2021 was comprised of gains relating to derivative instruments in our corporate operations, the gain on the sales of certain franchises in our Americas RAC segment and income from an equity investment in our corporate operations.
Other income of $9 million in 2020 was primarily comprised of a $20 million gain due to additional cash received from the sale of non-vehicle capital assets, primarily offset by $11 million in pension-related settlement charges.
We incurred $513 million of net reorganization charges in 2021, primarily in our corporate operations, which was comprised primarily of professional fees associated with the Chapter 11 Cases, the loss on extinguishment of certain debt resulting from the implementation of the Plan of Reorganization, a prior plan sponsor breakup fee and other miscellaneous charges related to the implementation of the Plan of Reorganization. We incurred $175 million
HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
THE HERTZ CORPORATION AND SUBSIDIARIES
| |
ITEM 7. | MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) |
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
primarily due to incremental marketing investments, additional advertisingof net reorganization charges and increased marketing personnel, partially offset by decreased charges for labor-related matters. The increasein 2020 in our Corporatecorporate operations was primarily due to information technologyfor professional fees and finance transformation programother costs litigation charges and incentive compensation, partially offset by decreased legal fees.associated with the Chapter 11 Cases.
Vehicle interest expense, net increased $117 million, or 35%, in 2018 compared to 2017 primarily due to higher market interest rates, an increase in margins on bank funded facilities, an increase in debt levels due to higher average fleet and an increase in loss on extinguishment of debt.
Non-vehicle interest expense, net decreased $17 million, or 6%, in 2018 compared to 2017, primarily due to decreased outstanding non-vehicle debt balances during 2018 and a decrease in loss on extinguishment of debt, partially offset by the impact of higher interest rates largely attributable to a higher LIBOR and the issuance of our Senior Second Priority Secured Notes in June 2017.
We recorded goodwill and intangible asset impairment chargesrecognized a gain from the Donlen Sale of $86$400 million related toin 2021 resulting from the Dollar Thrifty tradenamecompletion of the Donlen Sale in 2017 with no comparable chargesthe first quarter of 2021 which was recorded in 2018.our corporate operations.
Other income of $40 million in 2018 was primarily comprised of a $20 million gain on marketable securities, $10 million of net pension benefit income and a $6 million legal settlement related to an oil spill in the Gulf of Mexico in 2010. Other expense of $19 million in 2017 was primarily comprised of a $30 million impairment of an equity method investment, partially offset by a $6 million gain on the sale of our Brazil Operations.
The effective tax rate in 20182021 was 11%22% compared to 158%15% in 2017.2020. We recorded a tax provision of $318 million in 2021 compared to a tax benefit of $28$328 million in 20182020. The increase in the tax provision in 2021 compared to $902 million2020 was driven by improvements in 2017. The effective income tax rateour financial performance in 2021, change in the mix of earnings and relatedlosses in jurisdictions in which no tax benefit in 2018 are less than 2017 due to deferredcan be recognized, non-deductible bankruptcy expenses, and reduced by the tax liabilities being remeasured from a federal rate of 35% to 21% in 2017, and the impact in 2018benefits of the lower federal tax rate.European reorganization.
CONSOLIDATED RESULTS OF OPERATIONS - HERTZ GLOBAL
The above discussion for Hertz also applies to Hertz Global.
Hertz Global had $7$704 million $7of income and $627 million of expense from the change in fair value of Public Warrants that was incremental to Hertz for the years ended December 31, 2022 and $52021, respectively. Hertz Global also had $164 million of reorganization items, net for the year ended December 31, 2021 that was incremental to the amounts shown for Hertz, which represents certain effects from the implementation of the Plan of Reorganization.
Hertz Global had $2 million of interest expense, net, during 2019, 2018 and 2017, respectively,2020 that was incremental to the amounts shown for Hertz. These amounts represent interest associated with amounts outstanding under a master loan agreement between the companies. Hertz includes this amount as interest income in its statements of operations, but this amount is eliminated in consolidation for purposes of Hertz Global.
In 2019, Hertz had $2 million of tax provision that was incremental to the amounts shown for Hertz Global. In 2018,2020, Hertz Global had $2$1 million of income tax benefit that was incremental to the amounts shown for Hertz.Hertz due primarily to the $133 million master loan write-off included in Hertz's consolidated statements of operations.
RESULTS OF OPERATIONS AND SELECTED OPERATING DATA BY SEGMENT
U.S. Rental CarAmericas RAC
As of December 31, 2019,2022, our U.S. Rental CarAmericas RAC operations had a total of approximately 4,200 corporate5,500 company-operated and franchisee locations, comprised of 1,6001,900 airport and 2,6003,600 off airport locations.
U.S. Rental Car operations sold approximately 290,000, 263,000 and 280,000 non-program vehicles during the years ended December 31, 2019, 2018 and 2017, respectively. In 2018, the decrease in units sold was due to fewer non-program vehicle acquisitions during the year.
HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
THE HERTZ CORPORATION AND SUBSIDIARIES
| |
ITEM 7. | MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) |
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Results of operations and our discussion and analysis for our U.S.Americas RAC segment arewere as follows:
| | | Years Ended December 31, | | Percent Increase/(Decrease) | | Years Ended December 31, | | Percent Increase/(Decrease) |
($ In millions, except as noted) | 2019 | | 2018 | | 2017 | | 2019 vs. 2018 | | 2018 vs. 2017 | ($ In millions, except as noted) | 2022 | | 2021 | | 2020 | | 2022 vs. 2021 | | 2021 vs. 2020 |
Total revenues | $ | 6,938 |
| | $ | 6,480 |
| | $ | 5,994 |
| | 7 | % | | 8 | % | Total revenues | $ | 7,280 | | | $ | 6,215 | | | $ | 3,756 | | | 17% | | 65% |
Depreciation of revenue earning vehicles and lease charges | $ | 1,656 |
| | $ | 1,678 |
| | $ | 1,904 |
| | (1 | ) | | (12 | ) | |
Depreciation of revenue earning vehicles and lease charges, net | | Depreciation of revenue earning vehicles and lease charges, net | $ | 553 | | | $ | 343 | | | $ | 1,352 | | | 61 | | (75) |
Direct vehicle and operating expenses | $ | 4,146 |
| | $ | 4,014 |
| | $ | 3,651 |
| | 3 |
| | 10 |
| Direct vehicle and operating expenses | $ | 4,080 | | | $ | 3,302 | | | $ | 2,763 | | | 24 | | 20 |
Direct vehicle and operating expenses as a percentage of total revenues | 60 | % | | 62 | % | | 61 | % | | | | | Direct vehicle and operating expenses as a percentage of total revenues | 56 | % | | 53 | % | | 74 | % | |
Non-vehicle depreciation and amortization | | Non-vehicle depreciation and amortization | $ | 114 | | | $ | 166 | | | $ | 182 | | | (31) | | (9) |
Selling, general and administrative expenses | $ | 490 |
| | $ | 466 |
| | $ | 392 |
| | 5 |
| | 19 |
| Selling, general and administrative expenses | $ | 351 | | | $ | 282 | | | $ | 283 | | | 25 | | — |
Selling, general and administrative expenses as a percentage of total revenues | 7 | % | | 7 | % | | 7 | % | | | | | Selling, general and administrative expenses as a percentage of total revenues | 5 | % | | 5 | % | | 8 | % | |
Vehicle interest expense | $ | 345 |
| | $ | 291 |
| | $ | 226 |
| | 19 |
| | 29 |
| Vehicle interest expense | $ | 140 | | | $ | 213 | | | $ | 329 | | | (34) | | (35) |
Reorganization items, net | | Reorganization items, net | $ | — | | | $ | 80 | | | $ | 8 | | | (100) | | NM |
Adjusted EBITDA | $ | 480 |
| | $ | 226 |
| | $ | 50 |
| | 113 |
| | NM |
| Adjusted EBITDA | $ | 2,292 | | | $ | 2,173 | | | $ | (810) | | | 5 | | NM |
Transaction Days (in thousands)(b) | 155,859 |
| | 149,463 |
| | 140,382 |
| | 4 |
| | 6 |
| Transaction Days (in thousands)(b) | 111,759 | | 100,085 | | 85,016 | | 12 | | 18 |
Average Vehicles (in whole units)(c) | 534,879 |
| | 506,900 |
| | 484,700 |
| | 6 |
| | 5 |
| Average Vehicles (in whole units)(c) | 411,047 | | 355,647 | | 437,547 | | 16 | | (19) |
Average Rentable Vehicles (in whole units)(c) | | Average Rentable Vehicles (in whole units)(c) | 385,234 | | 345,306 | | 406,239 | | 12 | | (15) |
Vehicle Utilization(c) | 80 | % | | 81 | % | | 79 | % | | | | | Vehicle Utilization(c) | 79 | % | | 79 | % | | 57 | % | |
Total RPD (in whole dollars)(d) | $ | 43.73 |
| | $ | 42.67 |
| | $ | 42.06 |
| | 2 |
| | 1 |
| Total RPD (in whole dollars)(d) | $ | 65.18 | | | $ | 62.07 | | | $ | 44.22 | | | 5 | | 40 |
Total RPU Per Month (in whole dollars)(e) | $ | 1,062 |
| | $ | 1,049 |
| | $ | 1,015 |
| | 1 |
| | 3 |
| Total RPU Per Month (in whole dollars)(e) | $ | 1,576 | | | $ | 1,499 | | | $ | 771 | | | 5 | | 94 |
Net Depreciation Per Unit Per Month (in whole dollars)(f) | $ | 258 |
| | $ | 276 |
| | $ | 327 |
| | (7 | ) | | (16 | ) | |
Depreciation Per Unit Per Month (in whole dollars)(f) | | Depreciation Per Unit Per Month (in whole dollars)(f) | $ | 112 | | | $ | 81 | | | $ | 258 | | | 39 | | (69) |
Percentage of program vehicles as of period end | 11 | % | | 9 | % | | 7 | % | | | | | Percentage of program vehicles as of period end | 1 | % | | 0.4 | % | | 3 | % | |
Footnotes to the table above are shown at the end of the Results of Operations and Selected Operating Data by Segment section of this MD&A.
NM - Not meaningful
Year Ended December 31, 20192022 Compared with Year Ended December 31, 20182021
Total U.S.revenues for Americas RAC revenues increased $459 million$1.1 billion in 20192022 compared to 20182021 due primarily to higher volume and pricing. The 4% increase in Transaction Days was driven primarily by growthvolume increases in retailmost leisure and TNC rentals.business categories as travel demand increased. Volume increased in both our off airport and airport locations by 8% and 2%, respectively.16% compared to 2021. The increase in Total RPD increasedwas driven primarily by 2%. Off airporthigher pricing across the industry due to growth in travel demand and industry-wide supply chain constraints on vehicles. Airport revenues comprised 32%70% of total revenues for the segment in 2019 as compared to 31% for 2018.2022 consistent with 2021.
Depreciation of revenue earning vehicles and lease charges, net for U.S.Americas RAC decreased by $22increased $210 million in 20192022 compared to 2018. Net2021. Depreciation Per Unit Per Month decreasedincreased to $258 in 2019$112 compared to $276$81 in 20182021 due primarily due to ourhigher vehicle acquisition strategy and continued strength in residual values.costs, partially offset by gains recognized on increased vehicle dispositions. Average Vehicles increased due primarily to travel demand.
DOE for U.S.Americas RAC increased $132$777 million in 20192022 compared to 20182021. Excluding an unfavorable $6 million fx impact, DOE increased $783 million due primarily to higher fleet-related costs driven by increased volume partially offset by a decreasediscussed above and fleet age, higher personnel costs and litigation settlements in other non-vehicle related charges.the fourth quarter of 2022.
SG&ANon-vehicle depreciation and amortization for U.S.Americas RAC increased $23decreased $52 million in 20192022 compared to 20182021 resulting primarily duefrom fully depreciated intangible assets related to increased marketing charges; SG&A as a percentage of revenues was flat year over year.
Vehicle interest expense for U.S. RAC increased $54 million in 2019 compared to 2018 primarily due to higher average fleet and higher market interest rates.
concession rights.
HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
THE HERTZ CORPORATION AND SUBSIDIARIES
| |
ITEM 7. | MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) |
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
SG&A for Americas RAC increased $69 million in 2022 compared to 2021 due primarily to increased advertising spend and personnel costs.
Vehicle interest expense for Americas RAC decreased $73 million in 2022 compared to 2021 due primarily to $97 million of unrealized gains on interest rate caps, partially offset by higher debt levels due to the issuance of the HVF III 2022 Series Notes.
Year Ended December 31, 20182021 Compared with Year Ended December 31, 20172020
Total U.S.revenues for Americas RAC revenues increased $486 million, or 8%, from 2017$2.5 billion in 2021 compared to 2020 due primarily to higher pricing and volume. The 40% increase in Total RPD was driven primarily by higher pricing across the industry due to highergrowth in travel demand and industry-wide supply chain constraints on vehicles. The 18% increase in Transaction Days was driven primarily by volume increases in leisure and pricing. Offmost business categories as government-imposed travel restrictions began to lift in 2021 due to increased access to COVID-19 vaccines. Volume increased in our airport locations by 44%. Airport revenues comprised 31%70% of total revenues for the segment in 2018 as2021 compared to 29% for 2017. Off airport volume increased 14% largely driven by demand56% in TNC and insurance replacement rentals and airport volume was 2% higher on increased corporate demand and volume growth in our most profitable leisure rental categories. TNC and retail rentals led the 1% increase in Total RPD.2020.
Depreciation of revenue earning vehicles and lease charges, net for U.S.Americas RAC decreased by $226 million, or 12%,$1.0 billion in 20182021 compared to 2017. The decrease year over year was primarily the result of improved residual values2020. Average Vehicles decreased 19% and an increase in dispositions through higher-yielding dealer direct and retail sales channels. Net Depreciation Per Unit Per Month decreased to $276 in 2018$80 compared to $327$258 in 2017.2020, due primarily to increasing residual values and longer vehicle holding periods resulting in an increase in vehicles that were fully depreciated and an increase in gains recognized on the disposition of vehicles.
DOE for U.S.Americas RAC increased $363$540 million or 10%, of which $118in 2021 compared to 2020. Excluding a $5 million wasfx impact, DOE increased $534 million due primarily to higher volume driven by core rental volume, $65 million was driven by growth in TNC rentals and $63 million was driven by incremental investments in additional personnel related to our transformation initiatives. Also contributing to the increase were the following:
Increased transportation expense of $31 million driven by higher rates from third-party transportation providers, increased usage and additional trucking for fleet optimization.
Increased facility expenses of $20 million primarily driven by increased rent and facility services.
Increased other vehicle expense of $16 million primarily driven by increased licensing fees in certain states.
Increased fuel expense of $16 million due to higher market fuel prices compared to 2017.
SG&A increased $74 million primarily due to incremental marketing investments, additional advertising chargestravel demand discussed above and increased marketing personnel,vehicle maintenance costs due primarily to longer vehicle holding periods resulting from industry-wide supply chain constraints on vehicles, partially offset by lower fleet-related costs due to a reduced fleet size and lower facility costs resulting from cost-reduction initiatives.
Non-vehicle depreciation and amortization for Americas RAC decreased charges for labor-related matters.$16 million in 2021 compared to 2020 resulting in part from the Lease Rejection Orders in 2020 and fully depreciated intangible assets related to concession rights.
Vehicle interest expense for Americas RAC decreased $116 million in 2021 compared to 2020 due primarily to lower average balances and lower average rates resulting from the issuance of the HVF III ABS Notes and the full repayment and termination of the HVF II ABS Notes in accordance with the Plan of Reorganization.
Reorganization items, net for Americas RAC increased $65$73 million in 2021 compared to 2020 due primarily to higher market interest ratesthe loss on extinguishment of certain vehicle debt resulting from the implementation of the Plan of Reorganization and an increasecertain contract-related charges in debt levels due to higher average fleet.the first half of 2021.
International Rental CarRAC
As of December 31, 2019,2022, our international vehicle rentalInternational RAC operations had approximately 8,200 corporate6,100 company-operated and franchisee locations, comprised of 2,0001,400 airport and 6,2004,700 off airport locations in approximately 160110 countries and regions including the countries of Australia, Canada, New Zealand, and in the regions of Africa, Asia, the Caribbean, Europe Latin America, and the Middle East.
HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
THE HERTZ CORPORATION AND SUBSIDIARIES
| |
ITEM 7. | MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) |
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Results of operations and our discussion and analysis for our International RAC segment arewere as follows:
|
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, | | Percent Increase/(Decrease) |
($ In millions, except as noted) | 2019 | | 2018 | | 2017 | | 2019 vs. 2018 | | 2018 vs. 2017 |
Total revenues | $ | 2,169 |
| | $ | 2,276 |
| | $ | 2,169 |
| | (5 | )% | | 5 | % |
Depreciation of revenue earning vehicles and lease charges | $ | 440 |
| | $ | 448 |
| | $ | 416 |
| | (2 | ) | | 8 |
|
Direct vehicle and operating expenses | $ | 1,312 |
| | $ | 1,306 |
| | $ | 1,273 |
| | — |
| | 3 |
|
Direct vehicle and operating expenses as a percentage of total revenues | 61 | % | | 57 | % | | 59 | % | | | | |
Selling, general and administrative expenses | $ | 221 |
| | $ | 248 |
| | $ | 223 |
| | (11 | ) | | 11 |
|
Selling, general and administrative expenses as a percentage of total revenues | 10 | % | | 11 | % | | 10 | % | | | | |
Vehicle interest expense | $ | 97 |
| | $ | 114 |
| | $ | 75 |
| | (15 | ) | | 52 |
|
Adjusted EBITDA | $ | 147 |
| | $ | 231 |
| | $ | 235 |
| | (36 | ) | | (2 | ) |
Transaction Days (in thousands)(b) | 50,139 |
| | 50,417 |
| | 50,301 |
| | (1 | ) | | — |
|
Average Vehicles (in whole units)(c) | 180,723 |
| | 180,400 |
| | 178,100 |
| | — |
| | 1 |
|
Vehicle Utilization(c) | 76 | % | | 77 | % | | 77 | % | | | | |
Total RPD (in whole dollars)(d) | $ | 43.73 |
| | $ | 43.49 |
| | $ | 42.35 |
| | 1 |
| | 3 |
|
Total RPU Per Month (in whole dollars)(e) | $ | 1,011 |
| | $ | 1,013 |
| | $ | 997 |
| | — |
| | 2 |
|
Net Depreciation Per Unit Per Month (in whole dollars)(f) | $ | 205 |
| | $ | 199 |
| | $ | 192 |
| | 3 |
| | 4 |
|
Percentage of program vehicles as of period end | 38 | % | | 37 | % | | 34 | % | | | | |
Footnotes to the table above are shown at the end of the Results of Operations and Selected Operating Data by Segment section of this MD&A.
Year Ended December 31, 2019 Compared with Year Ended December 31, 2018
Total revenues for International RAC decreased $107 million in 2019 compared to 2018. Excluding a $108 million fx impact, revenues were flat.
Depreciation of revenue earning vehicles and lease charges for International RAC decreased $8 million in 2019 compared to 2018. Excluding a $22 million fx impact, depreciation increased $14 million, or 3%. Depreciation Per Unit Per Month for International RAC increased to $205 from $199 for 2019 versus 2018 due in part to a richer fleet mix in Europe in 2019 versus 2018 and declining residual values year over year.
DOE for International RAC increased $7 million in 2019 compared to 2018. Excluding a $69 million fx impact, DOE increased $76 million, or 6%, primarily driven by vehicle-related expenses.
SG&A for International RAC decreased $27 million in 2019 compared to 2018 due in part to a $12 million fx impact and a decrease in personnel-related expenses.
Vehicle interest expense for International RAC decreased $17 million in 2019 compared to 2018 primarily due to a $20 million loss on extinguishment of debt associated with the redemption of the 4.375% European Vehicle Senior Notes in 2018.
Year Ended December 31, 2018 Compared with Year Ended December 31, 2017
Total revenues for International RAC increased $107 million, or 5%, in 2018 compared to 2017. Excluding a $49 million fx impact, revenues increased $58 million, or 3%, driven by an increase in pricing. Total RPD for International RAC increased 3% due to improved pricing in our leisure markets and the sale of our lower RPD operations in Brazil in the third quarter of 2017. Transaction Days were flat mostly due to the sale of our Brazil Operations. Excluding the impact
HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
THE HERTZ CORPORATION AND SUBSIDIARIES
| |
ITEM 7. | MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) |
of the sale of our Brazil Operations, total revenues for International RAC increased $140 million, or 7%, Total RPD increased 1%, and Transaction Days increased 4%.
Depreciation of revenue earning vehicles and lease charges for International RAC increased $32 million, or 8%, in 2018 compared to 2017. Excluding a $12 million fx impact, depreciation of revenue earning vehicles and lease charges increased $20 million or 5% primarily due to declining residual values on diesel vehicles in Europe and an increase in average vehicles. Net Depreciation Per Unit Per Month for International RAC increased 3% to $209 from $202 for 2018 versus 2017.
DOE for International RAC increased $33 million in 2018 compared to 2017. Excluding a $31 million fx impact, DOE was nearly flat driven by a $35 million decrease in public liability and property damage expense due to favorable case development and fewer large claims. The decrease was partially offset by an increase of $15 million in vehicle damage charges and $13 million in field compensation, due in part to higher average vehicles in 2018 compared to 2017.
SG&A for International RAC increased $25 million primarily due to an increase in litigation charges in 2018 and the $7 million impact of fx.
Vehicle interest expense for International RAC increased $39 million primarily due to a $20 million loss on extinguishment of debt associated with the redemption of the 4.375% European Vehicle Notes.
All Other Operations
The All Other Operations segment is primarily comprised of our Donlen business, as such, our discussion is limited to Donlen.
Results of operations for this segment are as follows:
| | | | | | | | | | | | | | Years Ended December 31, | | Percent Increase/(Decrease) |
| Years Ended December 31, | | Percent Increase/(Decrease) | |
($ In millions) | 2019 | | 2018 | | 2017 | | 2019 vs. 2018 | | 2018 vs. 2017 | |
($ In millions, except as noted) | | ($ In millions, except as noted) | 2022 | | 2021 | | 2020 | | 2022 vs. 2021 | | 2021 vs. 2020 |
Total revenues | $ | 672 |
| | $ | 748 |
| | $ | 640 |
| | (10 | )% | | 17 | % | Total revenues | $ | 1,405 | | | $ | 985 | | | $ | 872 | | | 43% | | 13% |
Depreciation of revenue earning vehicles and lease charges | $ | 469 |
| | $ | 564 |
| | $ | 478 |
| | (17 | ) | | 18 |
| |
Depreciation of revenue earning vehicles and lease charges, net | | Depreciation of revenue earning vehicles and lease charges, net | $ | 148 | | | $ | 154 | | | $ | 243 | | | (4) | | (37) |
Direct vehicle and operating expenses | $ | 28 |
| | $ | 37 |
| | $ | 40 |
| | (24 | ) | | (8 | ) | Direct vehicle and operating expenses | $ | 728 | | | $ | 606 | | | $ | 647 | | | 20 | | (6) |
Direct vehicle and operating expenses as a percentage of total revenues | | Direct vehicle and operating expenses as a percentage of total revenues | 52 | % | | 61 | % | | 74 | % | |
Non-vehicle depreciation and amortization | | Non-vehicle depreciation and amortization | $ | 13 | | | $ | 16 | | | $ | 19 | | | (19) | | (17) |
Selling, general and administrative expenses | $ | 35 |
| | $ | 37 |
| | $ | 35 |
| | (6 | ) | | 6 |
| Selling, general and administrative expenses | $ | 180 | | | $ | 136 | | | $ | 164 | | | 33 | | (17) |
Selling, general and administrative expenses as a percentage of total revenues | | Selling, general and administrative expenses as a percentage of total revenues | 13 | % | | 14 | % | | 19 | % | |
Vehicle interest expense | $ | 52 |
| | $ | 43 |
| | $ | 30 |
| | 19 |
| | 43 |
| Vehicle interest expense | $ | 19 | | | $ | 59 | | | $ | 80 | | | (69) | | (26) |
Reorganization items, net | | Reorganization items, net | $ | — | | | $ | 12 | | | $ | — | | | (100) | | NM |
Adjusted EBITDA | $ | 100 |
| | $ | 82 |
| | $ | 74 |
| | 22 |
| | 11 |
| Adjusted EBITDA | $ | 350 | | | $ | 90 | | | $ | (229) | | | NM | | NM |
Average Vehicles - Donlen | 210,000 |
| | 188,100 |
| | 204,300 |
| | 12 |
| | (8 | ) | |
Transaction Days (in thousands)(b) | | Transaction Days (in thousands)(b) | 25,101 | | 20,488 | | 22,283 | | 23 | | (8) |
Average Vehicles (in whole units)(c) | | Average Vehicles (in whole units)(c) | 94,999 | | 77,643 | | 102,793 | | 22 | | (24) |
Average Rentable Vehicles (in whole units)(c) | | Average Rentable Vehicles (in whole units)(c) | 93,564 | | 76,190 | | 98,261 | | 23 | | (22) |
Vehicle Utilization(c) | | Vehicle Utilization(c) | 73 | % | | 74 | % | | 62 | % | |
Total RPD (in whole dollars)(d) | | Total RPD (in whole dollars)(d) | $ | 60.23 | | | $ | 46.43 | | | $ | 39.70 | | | 30 | | 17 |
Total RPU Per Month (in whole dollars)(e) | | Total RPU Per Month (in whole dollars)(e) | $ | 1,346 | | | $ | 1,040 | | | $ | 750 | | | 29 | | 39 |
Depreciation Per Unit Per Month (in whole dollars)(f) | | Depreciation Per Unit Per Month (in whole dollars)(f) | $ | 139 | | | $ | 160 | | | $ | 201 | | | (13) | | (21) |
Percentage of program vehicles as of period end | | Percentage of program vehicles as of period end | 29 | % | | 32 | % | | 31 | % | |
Footnotes to the table above are shown at the end of the Results of Operations and Selected Operating Data by Segment section of this MD&A.
NM - Not meaningful
Donlen had favorable re
Year Ended December 31, 2022 Compared with Year Ended December 31, 2021
sults
Total revenues for International RAC increased $420 million in 2019 as2022 compared 2018. Lower year-over-year revenueto 2021 due to higher pricing and depreciationvolume. Total RPD increased 30% driven primarily by higher pricing in most leisure categories and across the industry due to industry-wide constraints on vehicle supply. Transaction Days increased 23% driven primarily by higher volume in most leisure categories due to easing of government-imposed travel restrictions. Excluding an unfavorable $162 million fx impact, revenues increased $582 million.
Depreciation of revenue earning vehicles and lease charges, werenet for International RAC decreased $7 million in 2022 compared to 2021. Excluding an unfavorable $18 million fx impact, depreciation increased $11 million. Average Vehicles for International RAC increased 22% in 2022 due primarily to increased travel demand. Depreciation Per Unit Per Month for International RAC decreased to $139 from $160 for 2022 versus 2021 due primarily to strength in residual values resulting in higher vehicle sales gains.
DOE for International RAC increased $123 million in 2022 compared to 2021. Excluding an unfavorable $86 million fx impact, DOE increased $209 million due primarily to higher volume driven by the impact of a changeincreased travel demand.
SG&A for International RAC increased $45 million in presentation for certain leased vehicles in 2019 versus 2018. Excluding the $79 million reduction in revenues from the change in presentation in 2019 and the $53 million benefit in 2018 of vehicles leased under sales-type leases, revenue grew 8%. The increase in overall average vehicles in 2019 as2022 compared to 2018 is2021. Excluding an unfavorable $20 million fx impact, SG&A increased $65 million due primarily to new customer acquisitionsincreased advertising spend and growth in the existing customer portfolio.facility costs.
In 2018, total revenues and depreciation of revenue earning vehicles and lease charges include a $53 million impact of vehicles leased under sales-type leases, which are presented on a gross basis. Excluding the impact of sales-type leases, revenue increased 9% and depreciation of revenue earning vehicles increased 7% in 2018 as compared to 2017 driven by a 4% growth in units and a richer mix of vehicles under operating leases. The decrease in overall
HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
THE HERTZ CORPORATION AND SUBSIDIARIES
| |
ITEM 7. | MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) |
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Vehicle interest expense for International RAC decreased $41 million in 2022 compared to 2021 due primarily to $14 million of unrealized gains on interest rate caps and lower average rates in 2022 and the write-off in 2021 of capitalized fees with no comparable write-off in 2022.
Year Ended December 31, 2021 Compared with Year Ended December 31, 2020
Total revenues for International RAC increased $113 million in 2021 compared to 2020 due to higher pricing, partially offset by lower volume. Excluding a $42 million fx impact, revenues increased $71 million due to higher pricing and higher leisure mix in Europe. Total RPD increased 17% driven primarily by higher pricing across the industry due to industry-wide supply chain constraints on vehicles and higher leisure mix in Europe beginning in the second half of 2021. Transaction Days decreased 8% driven primarily by lower volume in most leisure and business categories due to continued government-imposed travel restrictions.
Depreciation of revenue earning vehicles and lease charges, net for International RAC decreased $89 million in 2021 compared to 2020. Excluding a $6 million fx impact, depreciation decreased $95 million. Average Vehicles for International RAC decreased 24% due to fleet reductions in 20182020 in response to lower demand during the pandemic and vehicle supply shortages limiting fleet expansion as demand began to return in 2021. Depreciation Per Unit Per Month for International RAC decreased to $171 from $214 for 2021 versus 2020 due to strength in residual values resulting in lower gross depreciation, offset by higher vehicle sales gains.
DOE for International RAC decreased $42 million in 2021 compared to 2017 was2020. Excluding a $30 million fx impact, DOE decreased $72 million due primarily to a reductionlower volume driven by the impact of travel restrictions resulting from COVID-19 and lower facility costs resulting from cost-reduction initiatives, partially offset by increases related to restructuring initiatives.
Non-vehicle depreciation and amortization for International RAC decreased $3 million in non-lease units in our maintenance management programs which drive a lower Revenue Per Unit when2021 compared to lease units under these programs.2020 due primarily to in-service placement of internally developed software assets.
SG&A for International RAC decreased $28 million in 2021 compared to 2020. Excluding a $6 million fx impact, SG&A decreased $34 million due primarily to lower professional fees resulting from debt restructuring initiatives during 2020 and lower personnel costs, partially offset by higher marketing spend.
Vehicle interest expense for International RAC decreased $21 million in 2021 compared to 2020 due primarily to lower debt levels, partially offset by higher average rates.
Reorganization items, net for International RAC increased $12 million in 2021 compared to 2020 due primarily to advisory fees related to debt refinancings and the loss on extinguishment of the European Vehicle Notes resulting from the implementation of the Plan of Reorganization during the first half of 2021.
HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
THE HERTZ CORPORATION AND SUBSIDIARIES
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Footnotes to the Results of Operations and Selected Operating Data by Segment Tables
| |
(a) | Adjusted Corporate EBITDA is calculated as net income (loss) attributable to Hertz or Hertz Global, adjusted for income taxes, non-vehicle depreciation and amortization, non-vehicle debt interest, net, vehicle debt-related charges, loss on extinguishment of vehicle debt, restructuring and restructuring related charges, goodwill, intangible and tangible asset impairments and write-downs, information technology and finance transformation costs and certain other miscellaneous items. When evaluating our operating performance, investors should not consider Adjusted Corporate EBITDA in isolation of, or as a substitute for, measures of our financial performance determined in accordance with U.S. GAAP. The reconciliations to the most comparable consolidated U.S. GAAP measure are presented below: |
(a)Adjusted Corporate EBITDA is calculated as net income (loss) attributable to Hertz or Hertz Global, adjusted for income taxes; non-vehicle depreciation and amortization; non-vehicle debt interest, net; vehicle debt-related charges; restructuring and restructuring related charges; reorganization items, net; pre-reorganization items and non-debtor financing charges; gain from the sale of a business, unrealized (gains) losses from financial instruments, and certain other miscellaneous items. When evaluating our operating performance, investors should not consider Adjusted Corporate EBITDA in isolation of, or as a substitute for, measures of our financial performance determined in accordance with U.S. GAAP. The reconciliations to the most comparable consolidated U.S. GAAP measure are presented below:
HERTZ
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
(In millions) | 2022 | | 2021 | | 2020 |
Net income (loss) attributable to Hertz | $ | 1,355 | | | $ | 1,157 | | | $ | (1,846) | |
Adjustments: | | | | | |
Income tax provision (benefit) | 390 | | | 318 | | | (328) | |
Non-vehicle depreciation and amortization | 142 | | | 196 | | | 225 | |
Non-vehicle debt interest, net(1) | 169 | | | 185 | | | 151 | |
Vehicle debt-related charges(2) | 35 | | | 72 | | | 55 | |
| | | | | |
Restructuring and restructuring related charges(3) | 45 | | | 76 | | | 64 | |
Intangible and other asset impairment(4) | — | | | — | | | 213 | |
Write-off of intercompany loan(5) | — | | | — | | | 133 | |
| | | | | |
Reorganization items, net(6) | — | | | 513 | | | 175 | |
Pre-reorganization and non-debtor financing charges(7) | — | | | 42 | | | 109 | |
Gain from the Donlen Sale(8) | — | | | (400) | | | — | |
Unrealized (gains) losses on financial instruments(9) | (111) | | | (4) | | | (3) | |
Litigation settlements(10) | 168 | | | — | | | — | |
Other items(11) | 112 | | | (25) | | | 57 | |
Adjusted Corporate EBITDA | $ | 2,305 | | | $ | 2,130 | | | $ | (995) | |
|
| | | | | | | | | | | |
| Years Ended December 31, |
(In millions) | 2019 | | 2018 | | 2017 |
Net income (loss) attributable to Hertz | $ | (53 | ) | | $ | (220 | ) | | $ | 332 |
|
Adjustments: | | | | | |
Income tax provision (benefit) | 65 |
| | (28 | ) | | (902 | ) |
Non-vehicle depreciation and amortization | 203 |
| | 218 |
| | 240 |
|
Non-vehicle debt interest, net | 304 |
| | 284 |
| | 301 |
|
Vehicle debt-related charges(1) | 38 |
| | 36 |
| | 32 |
|
Loss on extinguishment of vehicle debt(2) | — |
| | 22 |
| | — |
|
Restructuring and restructuring related charges(3) | 14 |
| | 32 |
| | 20 |
|
Impairment charges and asset write-downs(4) | — |
| | — |
| | 118 |
|
Information technology and finance transformation costs(5) | 114 |
| | 98 |
| | 68 |
|
Other items(6) | (36 | ) | | (9 | ) | | 58 |
|
Adjusted Corporate EBITDA | $ | 649 |
| | $ | 433 |
| | $ | 267 |
|
HERTZ GLOBAL
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
(In millions) | 2022 | | 2021 | | 2020 |
Net income (loss) attributable to Hertz Global | $ | 2,059 | | | $ | 366 | | | $ | (1,714) | |
Adjustments: | | | | | |
Income tax provision (benefit) | 390 | | | 318 | | | (329) | |
Non-vehicle depreciation and amortization | 142 | | | 196 | | | 225 | |
Non-vehicle debt interest, net(1) | 169 | | | 185 | | | 153 | |
Vehicle debt-related charges(2) | 35 | | | 72 | | | 55 | |
| | | | | |
Restructuring and restructuring related charges(3) | 45 | | | 76 | | | 64 | |
Intangible and other asset impairment(4) | — | | | — | | | 213 | |
| | | | | |
Reorganization items, net(6) | — | | | 677 | | | 175 | |
Pre-reorganization and non-debtor financing charges(7) | — | | | 42 | | | 109 | |
Gain from the Donlen Sale(8) | — | | | (400) | | | — | |
Unrealized (gains) losses on financial instruments(9) | (111) | | | (4) | | | (3) | |
Litigation settlements(10) | 168 | | | — | | | — | |
Change in fair value of Public Warrants(12) | (704) | | | 627 | | | — | |
Other items(11) | 112 | | | (25) | | | 57 | |
Adjusted Corporate EBITDA | $ | 2,305 | | | $ | 2,130 | | | $ | (995) | |
|
| | | | | | | | | | | |
| Years Ended December 31, |
(In millions) | 2019 | | 2018 | | 2017 |
Net income (loss) attributable to Hertz Global | $ | (58 | ) | | $ | (225 | ) | | $ | 327 |
|
Adjustments: | | | | | |
Income tax provision (benefit) | 63 |
| | (30 | ) | | (902 | ) |
Non-vehicle depreciation and amortization | 203 |
| | 218 |
| | 240 |
|
Non-vehicle debt interest, net | 311 |
| | 291 |
| | 306 |
|
Vehicle debt-related charges(1) | 38 |
| | 36 |
| | 32 |
|
Loss on extinguishment of vehicle debt(2) | — |
| | 22 |
| | — |
|
Restructuring and restructuring related charges(3) | 14 |
| | 32 |
| | 20 |
|
Impairment charges and asset write-downs(4) | — |
| | — |
| | 118 |
|
Information technology and finance transformation costs(5) | 114 |
| | 98 |
| | 68 |
|
Other items(6) | (36 | ) | | (9 | ) | | 58 |
|
Adjusted Corporate EBITDA | $ | 649 |
| | $ | 433 |
| | $ | 267 |
|
(1)In 2021, includes $8 million of loss on extinguishment of debt associated with the payoff and termination of the HIL Credit Agreement recorded in the second quarter.
| |
(1) | Represents vehicle debt-related charges relating to the amortization of deferred financing costs and debt discounts and premiums. |
| |
(2) | In 2018, primarily represents $20 million of early redemption premium and write-off of deferred financing costs associated with the full redemption of the 4.375% European Vehicle Senior Notes due January 2019. |
| |
(3) | Represents charges incurred under restructuring actions as defined in U.S. GAAP, excluding impairments and asset write-downs. Also includes restructuring related charges such as incremental costs incurred directly supporting business transformation initiatives. In 2018 and 2017, also includes consulting costs, legal fees and other expenses related to the previously disclosed accounting review and investigation. |
(2)Represents vehicle debt-related charges relating to the amortization of deferred financing costs and debt discounts and premiums.
HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
THE HERTZ CORPORATION AND SUBSIDIARIES
| |
ITEM 7. |
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) |
| |
(4) | In 2017, primarily represents an $86 million impairment of the Dollar Thrifty tradename and an impairment of $30 million related to an equity method investment. |
| |
(5) | Represents costs associated with our information technology and finance transformation programs, both of which are multi-year initiatives to upgrade and modernize our systems and processes. |
| |
(6) | Represents miscellaneous items, including non-cash stock-based compensation charges. In 2019, includes a $30 million gain on marketable securities and a $39 million gain on the sale of non-vehicle capital assets. In 2018, includes a $20 million gain on marketable securities and a $6 million legal settlement received related to an oil spill in the Gulf of Mexico in 2010. In 2017, includes net expenses of $16 million resulting from hurricanes, charges of $8 million associated with strategic financings and charges of $5 million relating to PLPD as a result of a terrorist event, partially offset by a $6 million gain on the sale of our Brazil Operations and a $4 million return of capital from an equity method investment. |
| |
(b) | Transaction Days represent the total number of 24-hour periods, with any partial period counted as one Transaction Day, that vehicles were on rent (the period between when a rental contract is opened and closed) in a given period. Thus, it is possible for a vehicle to attain more than one Transaction Day in a 24-hour period. |
| |
(c) | Average Vehicles are determined using a simple average of the number of vehicles at the beginning and end of a given period. Among other things, Average Vehicles is used to calculate our Vehicle Utilization which represents the portion of our vehicles that are being utilized to generate revenue. Vehicle Utilization is calculated by dividing total Transaction Days by Available Car Days. The calculation of Vehicle Utilization is shown in the table below: |
|
| | | | | | | | | | | | | | | | | |
| U.S. Rental Car | | International Rental Car |
| Years Ended December 31, |
| 2019 | | 2018 | | 2017 | | 2019 | | 2018 | | 2017 |
Transaction Days (in thousands) | 155,859 |
| | 149,463 |
| | 140,382 |
| | 50,139 |
| | 50,417 |
| | 50,301 |
|
Average Vehicles (in whole units) | 534,879 |
| | 506,900 |
| | 484,700 |
| | 180,723 |
| | 180,400 |
| | 178,100 |
|
Number of days in period (in whole units) | 365 |
| | 365 |
| | 365 |
| | 365 |
| | 365 |
| | 365 |
|
Available Car Days (in thousands) | 195,231 |
| | 185,019 |
| | 176,916 |
| | 65,964 |
| | 65,846 |
| | 65,007 |
|
Vehicle Utilization | 80 | % | | 81 | % | | 79 | % | | 76 | % | | 77 | % | | 77 | % |
(3)Represents charges incurred under restructuring actions as defined in U.S. GAAP, excluding impairments and asset write-downs. See Note 10, "Restructuring," in Part II, Item 8 of this 2022 Annual Report for further information. Also included restructuring related charges such as incremental costs incurred directly supporting business transformation initiatives.
| |
(d) | Total RPD is calculated as total revenues less ancillary retail vehicle sales revenues, with all periods adjusted to eliminate the effect of fluctuations in foreign currency exchange rates ("Total Rental Revenues"), divided by the total number of Transaction Days. Our management believes eliminating the effect of fluctuations in foreign currency exchange rates is useful in analyzing underlying trends. The calculation of Total RPD is shown below: |
(4)Represents the impairment of technology-related intangible assets and capitalized cloud computing cost.In 2020, also represented impairment of other assets and the Hertz tradename. See Note 5, "Goodwill and Intangible Assets, Net," in Part II, Item 8 of this 2022 Annual Report. |
| | | | | | | | | | | | | | | | | | | | | | | |
| U.S. Rental Car | | International Rental Car |
| Years Ended December 31, |
($ in millions, except as noted) | 2019 | | 2018 | | 2017 | | 2019 | | 2018 | | 2017 |
Total Revenues | $ | 6,938 |
| | $ | 6,480 |
| | $ | 5,994 |
| | $ | 2,169 |
| | $ | 2,276 |
| | $ | 2,169 |
|
Ancillary retail vehicle sales revenues | (122 | ) | | (102 | ) | | (90 | ) | | — |
| | (1 | ) | | — |
|
Foreign currency adjustment(1) | — |
| | — |
| | — |
| | 24 |
| | (82 | ) | | (39 | ) |
Total Rental Revenues | $ | 6,816 |
| | $ | 6,378 |
| | $ | 5,904 |
| | $ | 2,193 |
| | $ | 2,193 |
| | $ | 2,130 |
|
Transaction Days (in thousands) | 155,859 |
| | 149,463 |
| | 140,382 |
| | 50,139 |
| | 50,417 |
| | 50,301 |
|
Total RPD (in whole dollars) | $ | 43.73 |
| | $ | 42.67 |
| | $ | 42.06 |
| | $ | 43.73 |
| | $ | 43.49 |
| | $ | 42.35 |
|
(5)Represented the write-off of the 2019 Master Loan between Hertz and Hertz Holdings, as disclosed in Note 16, "Related Party Transactions," in Part II, Item 8 of this 2022 Annual Report.(6)Represents charges associated with the filing of and the emergence from the Chapter 11 Cases, as described in Note 21, "Reorganization Items, Net," in Part II, Item 8 of this 2022 Annual Report.
(7)Represents charges incurred prior to the filing of the Chapter 11 Cases comprised of preparation charges for the reorganization, such as professional fees. Also included certain non-debtor financing and professional fee charges.
(8)Represents the net gain from the sale of our Donlen business on March 30, 2021 recorded in Corporate as disclosed in Note 3, "Divestitures," in Part II, Item 8 of this 2022 Annual Report.
(9)Represents unrealized (gains) losses on derivative financial instruments. See Note 12, "Financial Instruments," in Part II, Item 8 of this 2022 Annual Report.
(10)Represents payments made for the settlement of certain claims related to alleged false arrests. See Note 15, "Contingencies and Off-Balance Sheet Commitments," in Part II, Item 8 of this 2022 Annual Report.
(11)Represents miscellaneous items. For 2022, primarily includes certain bankruptcy claims, certain professional fees and charges related to the settlement of bankruptcy claims and certain non-cash stock-based compensation charges. For 2021, primarily includes $100 million associated with the suspension of depreciation during the first quarter for the Donlen business while classified as held for sale, partially offset by $17 million for certain professional fees, $14 million of charges related to the settlement of bankruptcy claims, charges for a multiemployer pension plan withdrawal liability and letter of credit fees. For 2020, primarily includes $16 million associated with the Donlen Sale, partially offset by charges of $18 million for losses associated with certain vehicle damages which were recorded in the second quarter, costs associated with our information technology and finance transformation programs, partially offset by a $20 million gain on the sale of non-vehicle capital assets, which was recorded in the first quarter.
(12)Represents the change in fair value during the reporting period for Hertz Global's outstanding Public Warrants, as disclosed in Note 13, "Fair Value Measurements," in Part II, Item 8 of this 2022 Annual Report.
| |
(1) | Based on December 31, 2018 foreign currency exchange rates for all periods presented. |
(b) Transaction Days represents the total number of 24-hour periods, with any partial period counted as one Transaction Day, that vehicles were on rent (the period between when a rental contract is opened and closed) in a given period. Thus, it is possible for a vehicle to attain more than one Transaction Day in a 24-hour period.
(c) Average Rentable Vehicles excludes vehicles for sale on our retail lots or actively in the process of being sold through other disposition channels and determined using a simple average of such vehicles at the beginning and end of a given period. Effective in the first quarter of 2022, as discussed above, we revised our calculation of Vehicle Utilization to use Average Rentable Vehicles in the denominator. Accordingly, prior periods have been restated to conform with the revised definition. Vehicle Utilization is calculated by dividing total Transaction Days by Available Car Days. The calculation of Vehicle Utilization is shown below:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Americas RAC | | International RAC |
| Years Ended December 31, |
| 2022 | | 2021 | | 2020 | | 2022 | | 2021 | | 2020 |
Transaction Days (in thousands) | 111,759 | | | 100,085 | | | 85,016 | | | 25,101 | | | 20,488 | | | 22,283 | |
Average Rentable Vehicles (in whole units) | 385,234 | | | 345,306 | | | 406,239 | | | 93,564 | | | 76,190 | | | 98,261 | |
Number of days in period (in whole units) | 365 | | | 365 | | | 366 | | | 365 | | | 365 | | | 366 | |
Available Car Days (in thousands) | 140,647 | | | 126,159 | | | 148,545 | | | 34,179 | | | 27,837 | | | 35,932 | |
Vehicle Utilization | 79 | % | | 79 | % | | 57 | % | | 73 | % | | 74 | % | | 62 | % |
HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
THE HERTZ CORPORATION AND SUBSIDIARIES
| |
ITEM 7. |
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) |
| |
(e) | Total RPU Per Month is calculated as Total Rental Revenues divided by the Average Vehicles in each period and then divided by the number of months in the period reported. The calculation of Total RPU Per Month is shown below: |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| U.S. Rental Car | | International Rental Car |
| Years Ended December 31, |
($ in millions, except as noted) | 2019 | | 2018 | | 2017 | | 2019 | | 2018 | | 2017 |
Total Rental Revenues | $ | 6,816 |
| | $ | 6,378 |
| | $ | 5,904 |
| | $ | 2,193 |
| | $ | 2,193 |
| | $ | 2,130 |
|
Average Vehicles (in whole units) | 534,879 |
| | 506,900 |
| | 484,700 |
| | 180,723 |
| | 180,400 |
| | 178,100 |
|
Total revenue per unit (in whole dollars) | $ | 12,743 |
| | $ | 12,582 |
| | $ | 12,181 |
| | $ | 12,135 |
| | $ | 12,156 |
| | $ | 11,960 |
|
Number of months in period (in whole units) | 12 |
| | 12 |
| | 12 |
| | 12 |
| | 12 |
| | 12 |
|
Total RPU Per Month (in whole dollars) | $ | 1,062 |
| | $ | 1,049 |
| | $ | 1,015 |
| | $ | 1,011 |
| | $ | 1,013 |
| | $ | 997 |
|
(d) Total RPD is calculated as revenues with all periods adjusted to eliminate the effect of fluctuations in foreign currency exchange rates ("Total Revenues - adjusted for foreign currency"), divided by the total number of Transaction Days. Our management believes eliminating the effect of fluctuations in foreign currency exchange rates is useful in analyzing underlying trends. The calculation of Total RPD is shown below: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Americas RAC | | International RAC |
| Years Ended December 31, |
($ in millions, except as noted) | 2022 | | 2021 | | 2020 | | 2022 | | 2021 | | 2020 |
Revenues | $ | 7,280 | | | $ | 6,215 | | | $ | 3,756 | | | $ | 1,405 | | | $ | 985 | | | $ | 872 | |
| | | | | | | | | | | |
Foreign currency adjustment(1) | 4 | | | (3) | | | 3 | | | 107 | | | (34) | | | 13 | |
Total Revenues-adjusted for foreign currency | $ | 7,284 | | | $ | 6,212 | | | $ | 3,759 | | | $ | 1,512 | | | $ | 951 | | | $ | 885 | |
Transaction Days (in thousands) | 111,759 | | | 100,085 | | | 85,016 | | | 25,101 | | | 20,488 | | | 22,283 | |
Total RPD (in dollars) | $ | 65.18 | | | $ | 62.07 | | | $ | 44.22 | | | $ | 60.23 | | | $ | 46.43 | | | $ | 39.70 | |
(1)Based on December 31, 2021 foreign currency exchange rates for all periods presented.
| |
(f) | Depreciation Per Unit Per Month represents the amount of average depreciation expense and lease charges, per vehicle per month and is calculated as depreciation of revenue earning vehicles and lease charges, with all periods adjusted to eliminate the effect of fluctuations in foreign currency exchange rates, divided by the Average Vehicles in each period and then dividing by the number of months in the period reported. Our management believes eliminating the effect of fluctuations in foreign currency exchange rates is useful in analyzing underlying trends. The calculation of Depreciation Per Unit Per Month is shown below: |
(e) Total RPU Per Month is calculated as Total Revenues - adjusted for foreign currency divided by the Average Rentable Vehicles in each period and then divided by the number of months in the period reported. As discussed above, effective in the first quarter of 2022, we revised our calculation of Total RPU to use Average Rentable Vehicles as the denominator. Accordingly, prior periods have been restated to conform with the revised definition. The calculation of Total RPU Per Month is shown below:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Americas RAC | | International RAC |
| Years Ended December 31, |
($ in millions, except as noted) | 2022 | | 2021 | | 2020 | | 2022 | | 2021 | | 2020 |
Total Revenues-adjusted for foreign currency | $ | 7,284 | | | $ | 6,212 | | | $ | 3,759 | | | $ | 1,512 | | | $ | 951 | | | $ | 885 | |
Average Rentable Vehicles (in whole units) | 385,234 | | | 345,306 | | | 406,239 | | | 93,564 | | | 76,190 | | | 98,261 | |
Total revenue per unit (in whole dollars) | $ | 18,909 | | | $ | 17,991 | | | $ | 9,254 | | | $ | 16,158 | | | $ | 12,485 | | | $ | 9,003 | |
Number of months in period (in whole units) | 12 | | | 12 | | | 12 | | | 12 | | | 12 | | | 12 | |
Total RPU Per Month (in whole dollars) | $ | 1,576 | | | $ | 1,499 | | | $ | 771 | | | $ | 1,346 | | | $ | 1,040 | | | $ | 750 | |
(f) Depreciation Per Unit Per Month represents the amount of average depreciation expense and lease charges, per vehicle per month and is calculated as depreciation of revenue earning vehicles and lease charges, net, with all periods adjusted to eliminate the effect of fluctuations in foreign currency exchange rates, divided by the Average Vehicles in each period, which is determined using a simple average of the number of vehicles at the beginning and end of a period, and then dividing by the number of months in the period reported. Our management believes eliminating the effect of fluctuations in foreign currency exchange rates is useful in analyzing underlying trends. The calculation of Depreciation Per Unit Per Month is shown below:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Americas RAC | | International RAC |
| Years Ended December 31, |
($ in millions, except as noted) | 2022 | | 2021 | | 2020 | | 2022 | | 2021 | | 2020 |
Depreciation of revenue earning vehicles and lease charges, net | $ | 553 | | | $ | 343 | | | $ | 1,352 | | | $ | 148 | | | $ | 154 | | | $ | 243 | |
Foreign currency adjustment(1) | 1 | | | — | | | 1 | | | 11 | | | (5) | | | 5 | |
Adjusted depreciation of revenue earning vehicles and lease charges | $ | 554 | | | $ | 343 | | | $ | 1,353 | | | $ | 159 | | | $ | 149 | | | $ | 248 | |
Average Vehicles (in whole units) | 411,047 | | | 355,647 | | | 437,547 | | | 94,999 | | | 77,643 | | | 102,793 | |
Adjusted depreciation of revenue earning vehicles and lease charges divided by Average Vehicles (in whole dollars) | $ | 1,348 | | | $ | 964 | | | $ | 3,093 | | | $ | 1,673 | | | $ | 1,915 | | | $ | 2,410 | |
Number of months in period (in whole units) | 12 | | 12 | | 12 | | 12 | | 12 | | 12 |
Depreciation Per Unit Per Month (in whole dollars) | $ | 112 | | | $ | 81 | | | $ | 258 | | | $ | 139 | | | $ | 160 | | | $ | 201 | |
(1)Based on December 31, 2021 foreign currency exchange rates for all periods presented.
|
| | | | | | | | | | | | | | | | | | | | | | | |
| U.S. Rental Car | | International Rental Car |
| Years Ended December 31, |
($ in millions, except as noted) | 2019 | | 2018 | | 2017 | | 2019 | | 2018 | | 2017 |
Depreciation of revenue earning vehicles and lease charges | $ | 1,656 |
| | $ | 1,678 |
| | $ | 1,904 |
| | $ | 440 |
| | $ | 448 |
| | $ | 416 |
|
Foreign currency adjustment(1) | — |
| | — |
| | — |
| | 5 |
| | (17 | ) | | (7 | ) |
Adjusted depreciation of revenue earning vehicles and lease charges | $ | 1,656 |
| | $ | 1,678 |
| | $ | 1,904 |
| | $ | 445 |
| | $ | 431 |
| | $ | 409 |
|
Average Vehicles (in whole units) | 534,879 |
| | 506,900 |
| | 484,700 |
| | 180,723 |
| | 180,400 |
| | 178,100 |
|
Adjusted depreciation of revenue earning vehicles and lease charges divided by Average Vehicles (in whole dollars) | $ | 3,096 |
| | $ | 3,310 |
| | $ | 3,928 |
| | $ | 2,462 |
| | $ | 2,389 |
| | $ | 2,299 |
|
Number of months in period (in whole units) | 12 | | 12 | | 12 | | 12 | | 12 | | 12 |
Depreciation Per Unit Per Month (in whole dollars) | $ | 258 |
| | $ | 276 |
| | $ | 327 |
| | $ | 205 |
| | $ | 199 |
| | $ | 192 |
|
| |
(1) | Based on December 31, 2018 foreign currency exchange rates for all periods presented. |
HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
THE HERTZ CORPORATION AND SUBSIDIARIES
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
LIQUIDITY AND CAPITAL RESOURCES
Our U.S. and international operations are funded by cash provided by operating activities and by extensive financing arrangements maintained by us in the U.S. and internationally.
Cash and Cash Equivalents
As of December 31, 2019,2022, we had $865$943 million of cash and cash equivalents and $495$475 million of restricted cash and cash equivalents. As of December 31, 2019, $2862022, $512 million of cash and cash equivalents and $147$90 million of restricted cash and cash equivalents were held by our subsidiaries outside of the U.S. IfWe do not assert permanent reinvestment with respect to our non-U.S. earnings, and if not in the form of loan repayments or an amount subject to our indefinite reinvestment assertion,favorable tax treaties, repatriation of some of these funds under current regulatory and tax law for use in domestic operations could expose us to additional cash taxes.
Cash Flows - Hertz
As of December 31, 2022and 2021, Hertz had cash and cash equivalents of $943 million and $2.3 billion, respectively, and restricted cash and cash equivalents of $475 million and $393 million, respectively. The following table summarizes the net change in cash and cash equivalents and restricted cash and cash equivalents for the periods shown:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Years Ended December 31, | | 2022 vs. 2021 | | 2021 vs. 2020 |
(In millions) | 2022 | | 2021 | | 2020 | | $ Change | | $ Change |
Cash provided by (used in): | | | | | | | | | |
Operating activities | $ | 2,538 | | | $ | 1,806 | | | $ | 956 | | | $ | 732 | | | $ | 850 | |
Investing activities | (4,233) | | | (3,544) | | | 4,591 | | | (689) | | | (8,135) | |
Financing activities | 488 | | | 2,872 | | | (5,403) | | | (2,384) | | | 8,275 | |
Effect of exchange rate changes | (25) | | | (34) | | | 46 | | | 9 | | | (80) | |
Net change in cash and cash equivalents and restricted cash and cash equivalents | $ | (1,232) | | | $ | 1,100 | | | $ | 190 | | | $ | (2,332) | | | $ | 910 | |
Year ended December 31, 2022 compared with year ended December 31, 2021
In 2022, cash flows from operating activities increased by $732 million year over year due primarily to the $518 million change in net income, as adjusted for non-cash and non-operating items, and the associated decrease of $214 million in working capital requirements. Cash flows from working capital accounts increased due primarily to cash paid for reorganization items in 2021 and the payment of claims in the second half of 2021 that had been previously deferred and subject to compromise while in Chapter 11.
Our primary investing activities relate to the acquisition and disposal of revenue earning vehicles. During 2022, there was a $689 million increase in cash used in investing activities compared to 2021 due primarily to a $3.4 billion increase in purchased vehicles due to increasing travel demand, primarily in our Americas RAC segment, $871 million net proceeds received from the Donlen Sale in 2021 with no comparable amount in 2022, partially offset by $3.7 billion increase in disposal proceeds in 2022 due to gains recognized on increased vehicle dispositions.
Net financing cash inflows were $488 million in 2022 compared to $2.9 billion in 2021. The $2.4 billion decrease in cash inflows was due to $5.6 billion of net proceeds received from the issuance of reorganized Hertz Global equity in 2021 with no comparable in 2022, partially offset by net proceeds of $3 billion primarily related to the issuance of vehicle debt in 2022.
HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
THE HERTZ CORPORATION AND SUBSIDIARIES
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Year ended December 31, 2021 compared with year ended December 31, 2020
In 2021, cash flows from operating activities increased by $850 million year over year due primarily to the $1.5 billion change in net income, as adjusted for non-cash and non-operating items, partially offset by the associated reduction of $607 million in working capital requirements. Cash flows from working capital accounts decreased due primarily to $485 million cash paid for reorganization items in 2021 compared to $102 million paid in 2020, and the payment of claims in the second half of 2021 that had been previously deferred and subject to compromise while in Chapter 11.
Our primary investing activities relate to the acquisition and disposal of revenue earning vehicles. During 2021, there was an $8.1 billion decrease in the cash provided by investing activities compared to 2020 due primarily to a $7.3 billion decrease in disposal proceeds in 2021 where disposals in 2020 increased due to the Interim Lease Order and the impact of COVID-19 on travel demand and a $1.6 billion increase in purchased vehicles due to increasing travel demand, primarily in our Americas RAC segment. The net decrease in cash provided was partially offset by $871 million net proceeds from the Donlen Sale.
Net financing cash inflows were $2.9 billion in 2021 compared to cash outflows of $5.4 billion in 2020. In 2021, cash inflows of $5.6 billion were due to contributions from Hertz Holdings from net proceeds received from the issuance of reorganized Hertz Global equity which were partially offset by $2.5 billion of cash dividends paid to Hertz Global to fund share repurchases. In 2020, cash outflows of $10.8 billion were due to the repayment of vehicle debt which were partially offset by reduced borrowings of $4.5 billion primarily resulting from the Chapter 11 Cases.
Cash Flows - Hertz Global
As of December 31, 2022 and 2021, Hertz Global had cash and cash equivalents of $943 million and $2.3 billion, respectively, and restricted cash and cash equivalents of $475 million and $393 million, respectively. The following table summarizes the net change in cash and cash equivalents and restricted cash and cash equivalents for Hertz Global for the periods shown:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Years Ended December 31, | | 2022 vs. 2021 | | 2021 vs. 2020 |
(In millions) | 2022 | | 2021 | | 2020 | | $ Change | | $ Change |
Cash provided by (used in): | | | | | | | | | |
Operating activities | $ | 2,538 | | | $ | 1,806 | | | $ | 953 | | | $ | 732 | | | $ | 853 | |
Investing activities | (4,233) | | | (3,544) | | | 4,591 | | | (689) | | | (8,135) | |
Financing activities | 487 | | | 2,845 | | | (5,372) | | | (2,358) | | | 8,217 | |
Effect of exchange rate changes | (25) | | | (34) | | | 46 | | | 9 | | | (80) | |
Net change in cash and cash equivalents and restricted cash and cash equivalents | $ | (1,233) | | | $ | 1,073 | | | $ | 218 | | | $ | (2,306) | | | $ | 855 | |
Fluctuations in operating, investing and financing cash flows from period to period were due to the same factors as those disclosed for Hertz above, with the exception of any cash inflows or outflows related to proceeds or disbursements from the issuance or repurchase of stock as disclosed in Note 17, "Equity – Hertz Global," to the Notes to our consolidated financial statements under the caption Item 8, "Financial Statements and Supplementary Data” included in this 2022 Annual Report, the issuance or exercise of Public Warrants as disclosed in Note 19, "Public Warrants - Hertz Global," to the Notes to our consolidated financial statements under the caption Item 8, "Financial Statements and Supplementary Data” included in this 2022 Annual Report.
Share Repurchase Programs for Common Stock
In November 2021, Hertz Global's Board of Directors approved a share repurchase program that authorizes the repurchase of up to $2.0 billion worth of shares of Hertz Global's outstanding common stock (the "2021 Share Repurchase Program"). Between the inception of the share repurchase program and December 31, 2021, a total of
HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
THE HERTZ CORPORATION AND SUBSIDIARIES
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
17,106,026 shares of Hertz Global's common stock were repurchased at an average share price of $23.83, resulting in an aggregate purchase price of $408 million. During the second quarter of 2022, we completed the 2021 Share Repurchase Program by repurchasing 80,677,021 shares of Hertz Global's common stock during the first and second quarters of 2022 at an average share price of $19.74 for an aggregate purchase price of $1.6 billion. Under the completed 2021 Share Repurchase Program, a total of 97,783,047 shares of Hertz Global common stock were repurchased for an aggregate purchase price of $2.0 billion.
In June 2022, Hertz Global's Board of Directors approved a new share repurchase program (the "2022 Share Repurchase Program") that authorized additional repurchases of up to an incremental $2.0 billion worth of shares of Hertz Global's outstanding common stock. Between inception and December 31, 2022, a total of 47,303,009 shares of Hertz Global's common stock were repurchased under the 2022 Share Repurchase Program at an average share price of $17.64 for an aggregate purchase price of $835 million.
Between January 1, 2023 and January 26, 2023, a total of 1,079,647 shares of Hertz Global's common stock were repurchased under the 2022 Share Repurchase Program at an average share price of $16.51 resulting in an aggregate purchase price of $18 million.
Common shares repurchased are included in treasury stock in the accompanying Hertz Global consolidated balance sheets as of December 31, 2022 and 2021 under the caption Item 8, "Financial Statements and Supplementary Data” included in this 2022 Annual Report.
Any repurchases will be made at the discretion of management through a variety of methods, such as open-market transactions (including pre-set trading plans pursuant to Rule 10b5-1 of the Exchange Act), privately negotiated transactions, accelerated share repurchases, and other transactions in accordance with applicable securities laws. The share repurchase authorization has no initial time limit, does not obligate us to acquire any particular amount of common stock and can be discontinued at any time. There can be no assurance as to the timing or number of shares of any repurchases.
Public Warrants
On the Effective Date, in accordance with the Plan of Reorganization, Hertz Global issued 89,049,029 Public Warrants. Between the Effective Date and December 31, 2021, 6,040,280 Public Warrants were exercised, of which 428,102 were cashless exercises and 5,612,178 were exercised for $13.80 per share, resulting in cash proceeds to us of $77 million. During the year ended December 31, 2022, 245,959 Public Warrants were exercised, of which 60,661 were cashless exercises and 185,298 were exercised for $13.80 per share. The outstanding warrants are exercisable through June 30, 2051. As of December 31, 2022, the exercise price remains $13.80.
Debt Financing
Refer to Note 6, "Debt," to the Notes to our consolidated financial statements included in this 2022 Annual Report under the caption Item 8, "Financial Statements and Supplementary Data" for information on our outstanding debt obligations and our borrowing capacity and availability under our revolving credit facilities as of December 31, 2022.
Cash paid for interest on non-vehicle debt during 2022 and 2021 was $168 million and $198 million, respectively. The $30 million decrease in non-vehicle debt interest is primarily due to the payoff and termination of non-vehicle debt in accordance with the Plan of Reorganization in 2021. Cash paid for interest on vehicle debt during 2022 and 2021 was $204 million and $257 million, respectively. The $53 million decrease in vehicle debt interest is primarily due to the payoff and termination of vehicle debt in accordance with the Plan of Reorganization in 2021, partially offset by new vehicle debt issued in 2022.
A substantial portion of our liquidity requirements arise from servicing our indebtedness, funding our operations, including purchases of revenue earning vehicles, and funding non-vehicle capital expenditures. For a discussion of the risks associated with our high leverage, see Item 1A, "Risk Factors" in this 2022 Annual Report.
HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
THE HERTZ CORPORATION AND SUBSIDIARIES
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Our available corporate liquidity, which excludes unused commitments under our vehicle debt, was as follows:
| | | | | | | | | | | |
(In millions) | As of December 31, 2022 | | As of December 31, 2021 |
Cash and cash equivalents | $ | 943 | | | $ | 2,257 | |
Availability under the First Lien RCF | 1,514 | | | 925 | |
Corporate liquidity | $ | 2,457 | | | $ | 3,182 | |
We believe that cash and cash equivalents generated by our operations and cash received on the disposal of vehicles, together with amounts available under various liquidity facilities and refinancing options available to us in the capital markets, will be sufficient to fund operating requirements for the next twelve months.
HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
THE HERTZ CORPORATION AND SUBSIDIARIES
| |
ITEM 7. | MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) |
Cash Flows - Hertz
Hertz had cash, cash equivalents, restricted cash and restricted cash equivalents of $1.4 billion as of December 31, 2019and 2018. The following table summarizes the net change in cash, cash equivalents, restricted cash and restricted cash equivalents for the periods shown:
|
| | | | | | | | | | | | | | | | | | | |
| Years Ended December 31, | | 2019 vs. 2018 | | 2018 vs. 2017 |
(In millions) | 2019 | | 2018 | | 2017 | | $ Change | | $ Change |
Cash provided by (used in): | | | | | | | | | |
Operating activities | $ | 2,907 |
| | $ | 2,563 |
| | $ | 2,399 |
| | $ | 344 |
| | $ | 164 |
|
Investing activities | (4,425 | ) | | (4,197 | ) | | (3,000 | ) | | (228 | ) | | (1,197 | ) |
Financing activities | 1,467 |
| | 1,554 |
| | 983 |
| | (87 | ) | | 571 |
|
Effect of exchange rate changes | 1 |
| | (14 | ) | | 28 |
| | 15 |
| | (42 | ) |
Net change in cash, cash equivalents, restricted cash and restricted cash equivalents | $ | (50 | ) | | $ | (94 | ) | | $ | 410 |
| | $ | 44 |
| | $ | (504 | ) |
Year ended December 31, 2019 compared with year ended December 31, 2018
In 2019, cash flows fromour operating activities adjusted for non-cash, non-operating items and the net impact from operating leases, decreased by $111 million year over year due to a decrease in accrued liabilities for operational expenses, partially offset by an increase in cash primarily due to the timing of value added tax receivables in our International RAC segment.
Our primary investing activities relate to the acquisition and disposal of revenue earning vehicles. There was a $228 million increaseobligations contained in the use of cash for investing activities year over year. Net cash outflows for revenue earning vehicles increased $187 million primarily due to a higher volume of vehicles acquired, net of disposals in our International RAC segment. Additionally, there was a $71 million increase in net cash outflows for the purchase of non-vehicle capital assets primarily in our Corporate operations for our information technology and finance transformation programs.
Net financing cash inflows were $1.5 billion in 2019 compared to $1.6 billion in 2018 driven by a reduction in net vehicle debt borrowings. Net proceeds from the Rights Offering in 2019 were used to redeem non-vehicle debt resulting in a $702 million increase in net non-vehicle debt repayments.
Year ended December 31, 2018 compared with year ended December 31, 2017
In 2018, there was a $169 million decrease in cash outflows from working capital accounts period over period and an increase of cash inflows of $5 million from net income (loss), excluding non-cash and non-operating items. The change from working capital accounts was due to a $231 million increase in cash primarily driven by additional accruals for operational expenses and an increase in accounts payable due to timing of payments, partially offset by a $62 million decrease in cash from additional customer receivables, resulting from increased rental volume during 2018.
Our primary investing activities relate to the acquisition and disposal of revenue earning vehicles. We expended an additional $1.9 billion on revenue earning vehicles in 2018, primarily in our U.S. RAC operations, to increase the average fleet size and enrich the fleet mix. The additional use of cash in 2018 was partially offset by a $799 million increase in proceeds from the sale of revenue earnings vehicles due primarily to an increase in U.S. RAC dispositions through higher-yielding dealer direct and retail sales channels.
Net financing cash inflows were $1.6 billion in 2018 compared to $983 million in 2017. The variance was primarily driven by an increase of $1.1 billion in net cash inflows in 2018 for vehicle debt related to our richer fleet mix and larger fleet size. Comparatively, in 2017, excluding draws and repaymentssubsequent table under the Senior RCF, we issued non-vehicle debt of $1.25 billion and repaid $700 million of Senior Notes.
HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
THE HERTZ CORPORATION AND SUBSIDIARIES
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ITEM 7. | MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) |
Cash Flows - Hertz Global
The following table summarizes the net change in cash, cash equivalents, restricted cash and restricted cash equivalents for Hertz Global for the periods shown:
|
| | | | | | | | | | | | | | | | | | | |
| Years Ended December 31, | | 2019 vs. 2018 | | 2018 vs. 2017 |
(In millions) | 2019 | | 2018 | | 2017 | | $ Change | | $ Change |
Cash provided by (used in): | | | | | |
| | | | |
Operating activities | $ | 2,900 |
| | $ | 2,556 |
| | $ | 2,394 |
| | $ | 344 |
| | $ | 162 |
|
Investing activities | (4,425 | ) | | (4,197 | ) | | (3,000 | ) | | (228 | ) | | (1,197 | ) |
Financing activities | 1,474 |
| | 1,561 |
| | 988 |
| | (87 | ) | | 573 |
|
Effect of exchange rate changes | 1 |
| | (14 | ) | | 28 |
| | 15 |
| | (42 | ) |
Net change in cash, cash equivalents, restricted cash and restricted cash equivalents | $ | (50 | ) | | $ | (94 | ) | | $ | 410 |
| | $ | 44 |
| | $ | (504 | ) |
Fluctuations in operating, investing and financing cash flows from period to period are due to the same factors as those disclosed for Hertz above, with the exception of any cash inflows or outflows related to the master loan agreement between Hertz and Hertz Global.
Financing
For complete disclosures and definitions related to our debt obligations, see Note 5, "Debt," to the Notes to our consolidated financial statements includedheading Contractual Obligations in this 2019 Annual Report under the caption Item 8, "Financial Statements and Supplementary Data." Cash paid for interest during 2019 was $272 million for interest on non-vehicle debt and $431 million for interest on vehicle debt.7.
We are highly leveraged, and a substantial portion of our liquidity requirements arise from servicing our indebtedness, funding our operations, including purchases of revenue earning vehicles, and funding non-vehicle capital expenditures. For a discussion of the risks associated with our high leverage, see Item 1A, "Risk Factors" in this 2019 Annual Report.
Our practice is to maintain sufficient liquidity through cash from operations, credit facilities and other financing arrangements to mitigate any adverse effect on operations resulting from adverse financial market conditions.
Our corporate liquidity, which excludes unused commitments under our vehicle debt, was as follows:
|
| | | | | | | |
(In millions) | As of December 31, 2019 | | As of December 31, 2018 |
Cash and cash equivalents | $ | 865 |
| | $ | 1,127 |
|
Availability under the Senior RCF | 526 |
| | 496 |
|
Corporate liquidity | $ | 1,391 |
| | $ | 1,623 |
|
Significant financing activities during the year ended December 31, 2019 for our non-vehicle and vehicle debt, including the issuance of equity, were as follows:
Rights Offering
In June 2019, Hertz Global filed a prospectus supplement to its Registration Statement on Form S-3 declared effective by the SEC on June 12, 2019 for a Rights Offering to raise gross proceeds of approximately $750 million and providing for the issuance of up to an aggregate of 57,915,055 new shares of Hertz Global common stock. Under the terms of the Rights Offering, each stockholder of Hertz Global was eligible to receive one transferable subscription right for each share of common stock held as of 5:00 p.m., Eastern Time, on June 24, 2019. Each Right entitled the holder to purchase 0.688285 shares of common stock at a price of $12.95 per whole share of common stock. The Rights Offering
HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
THE HERTZ CORPORATION AND SUBSIDIARIES
| |
ITEM 7. | MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) |
also entitled rights holders who fully exercised their Basic Subscription Rights to subscribe for additional shares of Hertz Global's common stock that remain unsubscribed as a result of any unexercised Basic Subscription Rights. The Rights Offering expired at 5:00 p.m., Eastern Time, on July 12, 2019.
Upon closing in July 2019, the Rights Offering was fully subscribed resulting in Hertz Global selling 57,915,055 shares of its common stock at the Subscription Price for gross proceeds of $750 million. Pursuant to the terms of the Rights Offering, 55,816,783 shares of common stock were purchased under the Basic Subscription Right and 2,098,272 shares of common stock were purchased under the Over-Subscription Right.
Non-vehicle Debt
Significant financing activities during the year ended December 31, 2022 for our non-vehicle debt were as follows:
During 2019, Hertz issued $500 million in2022, the aggregate principalcommitted amount under the First Lien RCF was increased from $1.3 billion to $1.9 billion and the sublimit for letters of 2026 Notes. Hertz utilized the proceedscredit was increased from the 2026 Notes, together with net proceeds from the Rights Offering described above,$1.1 billion to redeem all $700 million of the outstanding 5.875% Senior Notes due 2020 and all $500 million of the 7.375% Senior Notes due 2021. Additionally, Hertz issued $900 million in aggregate principal amount of 2028 Notes and utilized the proceeds, together with available cash, to redeem $900 million aggregate principal amount of its outstanding $1.25 billion of Senior Second Priority Secured Notes.$1.8 billion.
Letters of Credit
Hertz also entered into an unsecured $250 million letterAs of credit facility, the Alternative Letter of Credit Facility, that will mature on December 20, 2023.
In January 2020, under the terms of the Alternative Letter of Credit Facility, Hertz increased the commitments thereunder by $100 million, such that after giving effect to such increase,31, 2022, there are $200 million ofwere outstanding standby letters of credit totaling $691 million comprised primarily of $431 million were issued under the facility.First Lien RCF and $245 million issued under the Term C Loan. As of December 31, 2022, there is no remaining capacity to issue letters of credit under the Term C Loan. Such letters of credit have been issued primarily to support our insurance programs and to provide credit enhancement for our asset-backed securitization facilities, as well as to support our vehicle rental concessions and leaseholds. As of December 31, 2022, none of the issued letters of credit have been drawn upon.
Vehicle Debt
Significant financing activities during the year ended December 31, 2022 for our vehicle debt were as follows:
We organize our discussion of significant vehicle debt financing facilities below by reportable segment.
U.S.Americas RAC
TheIn 2022, the following HVF III Series 2022 Fixed Rate Rental Car Asset Backed Notes (the "Series 2022 Notes") were issued as follows:
•HVF III Series 2022-1 Notes were issued in January 2022 in an aggregate principal amount of medium term notes outstanding increased from $5.3 billion to $6.6 billion;$750 million. Hertz, an affiliate of HVF III, purchased the Class D Notes, and
The remaining capacity under various U.S. RAC revolving vehicle debt financing facilities increased from $725 million to $1.5 billion.
During 2019, we extended the maturities of $3.4 billion of existing commitments under the HVF II Series 2013-A Notes from March 2020 to March 2021 and added $400 million in new commitments. Additionally, we issued $700 as a result approximately $98 million of HVF IIthe aggregate principal amount eliminated in consolidation. In July and August 2022, all of the Series 2019-12022-1 Class D Notes $750 million of HVF II Series 2019-2 Notes and $800 million of HVF II Series 2019-3 Noteswere sold to third parties.
In• February 2020, HVF II extended the maturity of the HVF IIIII Series 2013-A2022-2 Notes from March 2021 to Marchwere issued in January 2022 and increased the commitments thereunder by $750 million. After giving effect to the transactions, the aggregate maximum principal amount of the HVF II Series 2013-A Notes was $4.9 billion, where $0.2 billion of commitments have a maturity of March 2021.
All Other Operations - Donlen
The in an aggregate principal amount of HFLF medium term notes outstanding increased from $1.2 billion$750 million. Hertz purchased the Class D Notes, and as a result approximately $98 million of the aggregate principal amount is eliminated in consolidation.
•HVF III Series 2022-3 Notes were issued in March 2022 in an aggregate principal amount of $383 million. Hertz purchased the Class D Notes, and as a result approximately $50 million of the aggregate principal amount eliminated in consolidation. In July 2022, all of the Series 2022-3 Class D Notes were sold to $1.4 billion; and
Remaining capacity under revolving vehicle debt facilities associated with the Donlen business increased from $180 million to $228 million.
third parties.
HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
THE HERTZ CORPORATION AND SUBSIDIARIES
| |
ITEM 7. | MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) |
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
During 2019, we•HVF III Series 2022-4 Notes were issued $650in March 2022 in an aggregate principal amount of $667 million. Hertz purchased the Class D Notes, and as a result $87 million of HFLFthe aggregate principal amount eliminated in consolidation. In August 2022, all of the Class D Notes were sold to a third party.
•HVF III Series 2019-1 Asset Backed2022-5 Notes were issued in March 2022 in an aggregate principal amount of $364 million. Hertz purchased the Class D Notes, and as a result approximately $47 million of the aggregate principal amount is eliminated in consolidation.
There is subordination within each of the Series 2022 Notes based on class. Proceeds from the issuance of the Series 2022 Notes were used to repay amounts outstanding on the Series 2021-A Notes and for the purchase or refinancing of vehicles.
In June 2022, we entered into a repurchase agreement related to the outstanding HVF III Series 2022 Class D Notes (the "Repurchase Facility"), whereby Hertz may sell the HVF III Series 2022 Class D Notes to the Repurchase Facility counterparty and repurchase such notes from time to time. Transactions occurring under the Repurchase Facility are based on mutually agreeable terms and prevailing rates. As of December 31, 2022, transactions totaling $86 million were outstanding under the Repurchase Facility and such transactions bear interest at a rate of SOFR plus 150 basis points and have a 30-day tenor.
The Hertz Canadian Securitization was amended the HFLF Series 2013-2 Notesin June 2022 to extend the endmaturity of the revolving period from March 2020 to March 2021.
In February 2020, HFLF amended the HFLF Series 2013-2 Notes to extend the end of the revolving period from March 2021 to March 2022 and increased the commitments thereunder by $100 million, such that the aggregate maximum borrowings of CAD$350 million to June 2024. In December 2022, the HFLF Series 2013-2 Notes increasedHertz Canadian Securitization was amended to $600provide for aggregate maximum borrowings of CAD$390 million, for a temporary commitment period through April 2023. Following the expiration of the temporary commitment period, aggregate maximum borrowings will revert to CAD$350 million.
Substantially all of our revenue earning vehicles and certain related assets are owned by special purpose entities or are encumbered in favor of our lenders under our various credit facilities, other secured financings and asset-backed securities programs. None of such assets are available to satisfy the claims of our general creditors.
Approximately $20$532 million of non-vehicle debt and $2.3 billion ofthe outstanding vehicle debt willin our Americas RAC segment is scheduled to mature during the twelve months following the issuance of this 20192022 Annual Report ("Report.
International RAC
In 2022, the next twelve months"),following activities occurred to debt facilities within our International RAC segment:
•The Australian Securitization was amended in January 2022 to increase the aggregate maximum borrowings to AUD$250 million and we will need to refinance a portion of these obligations. We have reviewedextend the maturing debt obligations and determined that it is probable that we will be able, and havematurity to April 2024.
•Hertz U.K. Limited amended the intent,U.K. Financing Facility in April 2022 to repay or refinance these facilities at such times as we deem appropriate prior to their maturities.
Covenants
Hertz and certain of its subsidiaries are referred to asextend the Hertz credit group. The indentures for the Senior Notes and the Senior Second Priority Secured Notes contain covenants that, among other things, limit or restrict the abilitymaturity of the aggregate maximum borrowings of £100 million to October 2023.
•Hertz U.K. Limited amended the U.K. Toyota Financing Facility in July 2022 to increase aggregate maximum borrowings to £42 million and extended the maturity to June 2023.
•Hertz New Zealand Holdings Limited amended its credit groupagreement in April 2022 to incur additional indebtedness, incur guarantee obligations, prepay certain indebtedness, make certain restricted payments (including paying dividends, redeeming stock or making other distributionsextend the maturity to parent entities of Hertz and other persons outsideJune 2024. In October 2022, the credit agreement was amended to provide for aggregate maximum borrowings up to NZD$85 million, for a seasonal commitment period through March 2023. Following the expiration of the Hertz credit group), make investments, create liens, transfer or sell assets, merge or consolidate,seasonal commitment period, aggregate maximum borrowings will revert to NZD$60 million.
•The European ABS was amended in December 2022 to (i) increase the aggregate maximum borrowings to €1.1 billion, (ii) extend the maturity to November 2024, and enter into certain transactions with Hertz's affiliates that are not members(iii) incorporate the Italian fleet within the European ABS financing structure.
Approximately $119 million of the Hertz credit group.outstanding vehicle debt in our International RAC segment is scheduled to mature during the twelve months following the issuance of this 2022 Annual Report.
Certain of our other debt instruments and credit facilities (including the Senior Facilities, the Letter of Credit Facility and the Alternative Letter of Credit Facility) 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, share repurchases 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.
The Senior RCF, the Letter of Credit Facility and the Alternative Letter of Credit Facility contain a financial maintenance covenant applicable to such facilities. Such covenant provides that Hertz’s consolidated first lien net leverage ratio, as defined in the credit agreements governing such facilities (together, the "Senior Credit Agreement"), as of the last day of any fiscal quarter may not exceed a ratio of 3.00 to 1.00 ("the Covenant Leverage Ratio").
As of December 31, 2019, Hertz was in compliance with the Covenant Leverage Ratio. Consolidated EBITDA, as defined in the Senior Credit Agreement, is a component of the calculation of the Covenant Leverage Ratio and is a non-GAAP financial measure that is not a measure of operating results, but instead is a measure used to determine compliance with the Covenant Leverage Ratio under the Senior Credit Agreement. Consolidated EBITDA is generally defined in the Senior Credit Agreement as consolidated net income plus the sum of income taxes, non-vehicle interest expense, non-vehicle depreciation and amortization expense, and non-cash charges or losses, as further adjusted for certain other items permitted in calculating covenant compliance under the Senior RCF, the Letter of Credit Facility, and the Alternative Letter of Credit Facility including add-backs for non-recurring, unusual or extraordinary charges, business optimization expenses or other restructuring charges or reserves.
Based on available liquidity from our expected operating results, the Senior RCF and other financing arrangements, Hertz expects to continue to be in compliance with the Covenant Leverage Ratio for at least the next twelve months.
HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
THE HERTZ CORPORATION AND SUBSIDIARIES
| |
ITEM 7. | MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) |
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
GuaranteesCovenants
Hertz's obligations underThe First Lien Credit Agreement requires us to comply with the indenturesfollowing financial covenant: a First Lien Ratio of less than or equal to 3.00 to 1.00 in the first and last quarters of the calendar year and 3.50 to 1.00 in the second and third quarters of the calendar year. The financial covenant was effective beginning in the third quarter of 2021. As of December 31, 2022, we were in compliance with the First Lien Ratio.
In addition to the financial covenant, the First Lien Credit Agreement contains customary affirmative covenants including, among other things, the delivery of quarterly and annual financial statements and compliance certificates, and covenants related to conduct of business, maintenance of property and insurance, compliance with environmental laws and the granting of security interest for the Senior Notes and the Senior Second Priority Secured Notes are guaranteed by each of its direct and indirect U.S. subsidiaries that is a guarantor under the Senior Facilities. The guarantees of allbenefit of the subsidiary guarantors may be released tosecured parties under that agreement on after-acquired real property, fixtures and future subsidiaries. The First Lien Credit Agreement also contains customary negative covenants, including, among other things, the extent such subsidiaries no longer guarantee our Senior Facilitiesincurrence of liens, indebtedness, asset dispositions and restricted payments. As of December 31, 2022, we were in compliance with all covenants in the United States.First Lien Credit Agreement.
Vehicle Financing Risks
Our program vehicles are subject to repurchase by vehicle manufacturers under contractual repurchase or guaranteed depreciation programs. Under these programs, vehicle manufacturers agree to repurchase vehicles at a specified price or guarantee the depreciation rate on the vehicles during a specified time period, typically subject to certain vehicle condition and mileage requirements. We use 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 vehicle manufacturer, our liquidity could 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 vehicles manufactured by any such company would need to be removed from our financing 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 this 2019 Annual Report.
We rely significantly on asset-backed and asset-based financing arrangements to purchase vehicles for our U.S. and international vehicle 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 proposed and adopted SEC (and other federal agency) rules and regulations, other legislative and administrative developments, as well as rating agencies' methodologies. In this regard, there continues to be uncertainty regarding the potential impact of various SEC rules and regulations governing asset-backed securities and additional requirements contained in the Dodd-Frank Wall Street Reform and Consumer Protection Act (including risk retention requirements) and the Basel III regulatory capital rules, a global regulatory standard on bank capital adequacy, stress testing and market liquidity risk. While we will continue to monitor these developments and their impact on our ABS program, such rules and regulations may impact our ability and/or desire to engage in asset-backed financings in the future.fleets. For further information concerning our asset-backed financing programs and our indebtedness, see Note 5,6, "Debt," to the Notes to our consolidated financial statements included in this 20192022 Annual Report 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 this 20192022 Annual Report.
Capital Expenditures
Revenue Earning Vehicles Expenditures and Disposals
The table below sets forth our revenue earning vehicles expenditures and related disposal proceeds for the annual periods shown:
| | | | | | | | | | | | | | | | | |
Cash inflow (cash outflow) | Revenue Earning Vehicles |
(In millions) | Capital Expenditures | | Disposal Proceeds | | Net Capital Proceeds (Expenditures) |
2022 | $ | (10,596) | | | $ | 6,498 | | | $ | (4,098) | |
2021 | (7,154) | | | 2,818 | | | (4,336) | |
2020 | (5,542) | | | 10,098 | | | 4,556 | |
|
| | | | | | | | | | | |
Cash inflow (cash outflow) | Revenue Earning Vehicles |
(In millions) | Capital Expenditures | | Disposal Proceeds | | Net Capital Expenditures |
2019 | $ | (13,714 | ) | | $ | 9,486 |
| | $ | (4,228 | ) |
2018 | (12,493 | ) | | 8,452 |
| | (4,041 | ) |
2017 | (10,596 | ) | | 7,653 |
| | (2,943 | ) |
HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
THE HERTZ CORPORATION AND SUBSIDIARIES
| |
ITEM 7. | MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) |
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
The table below sets forth expenditures for revenue earning vehicles, net of disposal proceeds, from disposal, by segment:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Cash inflow (cash outflow) | Years Ended December 31, | | 2022 vs. 2021 | | 2021 vs. 2020 |
($ in millions) | 2022 | | 2021 | | 2020 | | $ Change | | % Change | | $ Change | | % Change |
Americas RAC | $ | (3,470) | | | $ | (3,763) | | | $ | 3,903 | | | $ | 293 | | | (8) | | | $ | (7,666) | | | NM |
International RAC | (628) | | | (489) | | | 929 | | | (139) | | | 28 | | | (1,418) | | | NM |
All other operations | — | | | (84) | | | (276) | | | 84 | | | (100) | | | 192 | | | (70) | |
Total | $ | (4,098) | | | $ | (4,336) | | | $ | 4,556 | | | $ | 238 | | | (5) | | | $ | (8,892) | | | NM |
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
Cash inflow (cash outflow) | Years Ended December 31, | | 2019 vs. 2018 | | 2018 vs. 2017 |
($ in millions) | 2019 | | 2018 | | 2017 | | $ Change | | % Change | | $ Change | | % Change |
U.S. Rental Car | $ | (3,013 | ) | | $ | (2,992 | ) | | $ | (1,877 | ) | | $ | (21 | ) | | 1 | % | | $ | (1,115 | ) | | 59 | % |
International Rental Car | (528 | ) | | (422 | ) | | (518 | ) | | (106 | ) | | 25 |
| | 96 |
| | (19 | ) |
All Other Operations | (687 | ) | | (627 | ) | | (548 | ) | | (60 | ) | | 10 |
| | (79 | ) | | 14 |
|
Total | $ | (4,228 | ) | | $ | (4,041 | ) | | $ | (2,943 | ) | | $ | (187 | ) | | 5 |
| | $ | (1,098 | ) | | 37 |
|
NM - Not meaningful
Year ended December 31, 20182022 compared with year ended December 31, 20172021
In 2018, net expenditures on2022, revenue earning vehiclesvehicle expenditures increased approximately $3.4 billion, or 48%, compared to 2021, primarily in our Americas RAC segment, due primarily to increased vehicle acquisitions resulting from increased travel demand. Revenue earning vehicle disposal proceeds increased approximately $3.7 billion in 2022 compared to 2021, primarily in our Americas RAC segment, resulting from increased vehicle dispositions.
Year ended December 31, 2021 compared with year ended December 31, 2020
In 2021, revenue earning vehicle cash flows decreased by $1.1$8.9 billion, primarily in our U.S.Americas RAC segment, as a result of reduced disposal proceeds in 2021 compared to increaseincreased disposals in 2020 resulting from the average fleet sizeInterim Lease Order and enrich the fleet mix,impact of COVID-19 on travel demand, partially offset by improved vehicle dispositions as we benefited from ana slight increase in higher-yielding dealer direct and retail sales channels.vehicle purchases due to increasing demand resulting from government-imposed travel restrictions that began to lift in 2021 due to increased access to COVID-19 vaccines.
Non-Vehicle Capital Asset Expenditures and Disposals
The table below sets forth our non-vehicle capital asset expenditures, and related disposal proceeds from non-vehicle capital assets disposed of or to be disposed of for the annual periods shown:
| | | | | | | | | | | | | | | | | |
Cash inflow (cash outflow) | Non-Vehicle Capital Assets |
(In millions) | Capital Expenditures | | Disposal Proceeds | | Net Capital Expenditures |
2022 | $ | (150) | | | $ | 12 | | | $ | (138) | |
2021 | (71) | | | 16 | | | (55) | |
2020 | (98) | | | 60 | | | (38) | |
|
| | | | | | | | | | | |
Cash inflow (cash outflow) | Non-Vehicle Capital Assets |
(In millions) | Capital Expenditures | | Disposal Proceeds | | Net Capital Expenditures |
2019 | $ | (224 | ) | | $ | 27 |
| | $ | (197 | ) |
2018 | (177 | ) | | 51 |
| | (126 | ) |
2017 | (173 | ) | | 21 |
| | (152 | ) |
The table below sets forth non-vehicle capital asset expenditures, net of disposal proceeds, by segment:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Cash inflow (cash outflow) | Years Ended December 31, | | 2022 vs. 2021 | | 2021 vs. 2020 |
($ in millions) | 2022 | | 2021 | | 2020 | | $ Change | | % Change | | $ Change | | % Change |
Americas RAC | $ | (114) | | | $ | (35) | | | $ | 3 | | | $ | (79) | | | NM | | $ | (38) | | | NM |
International RAC | (10) | | | (8) | | | (4) | | | (2) | | | 25 | | | (4) | | | 100 | |
All other operations | — | | | (1) | | | (4) | | | 1 | | | (100) | | | 3 | | | (75) | |
Corporate | (14) | | | (11) | | | (33) | | | (3) | | | 27 | | | 22 | | | (67) | |
Total | $ | (138) | | | $ | (55) | | | $ | (38) | | | $ | (83) | | | NM | | $ | (17) | | | 45 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
Cash inflow (cash outflow) | Years Ended December 31, | | 2019 vs. 2018 | | 2018 vs. 2017 |
($ in millions) | 2019 | | 2018 | | 2017 | | $ Change | | % Change | | $ Change | | % Change |
U.S. Rental Car | $ | (65 | ) | | $ | (35 | ) | | $ | (78 | ) | | $ | (30 | ) | | 86 | % | | $ | 43 |
| | (55 | )% |
International Rental Car | (19 | ) | | (14 | ) | | (20 | ) | | (5 | ) | | 36 |
| | 6 |
| | (30 | ) |
All Other Operations | (4 | ) | | (4 | ) | | (5 | ) | | — |
| | — |
| | 1 |
| | (20 | ) |
Corporate | (109 | ) | | (73 | ) | | (49 | ) | | (36 | ) | | 49 |
| | (24 | ) | | 49 |
|
Total | $ | (197 | ) | | $ | (126 | ) | | $ | (152 | ) | | $ | (71 | ) | | 56 |
| | $ | 26 |
| | (17 | ) |
Year ended December 31, 2019 compared with year ended December 31, 2018
In 2019, net expenditures for non-vehicle capital assets increased by $36 million in our Corporate operations due to our information technology and finance transformation programs and increased by $30 million in our U.S. RAC segment due to greater proceeds received from the sale of non-vehicle capital assets in 2018 versus 2019.
Share Repurchase ProgramNM - Hertz Global
Not meaningful
As of December 31, 2019, approximately $295 million of shares remain available for purchase under its share repurchase program. No shares were repurchased by Hertz Holdings under the program during 2019, 2018 or 2017. Hertz Holdings primarily funds repurchases of its common stock through dividends from Hertz or amounts borrowed under the master loan agreement. Credit agreements governing Hertz's Senior Facilities, Letter of Credit Facility and Alternative Letter of Credit Facility restrict Hertz's ability to make dividends and certain payments, including payments to Hertz Holdings for share repurchases.
HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
THE HERTZ CORPORATION AND SUBSIDIARIES
| |
ITEM 7. | MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) |
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Year ended December 31, 2022 compared with year ended December 31, 2021
In 2022, net expenditures for non-vehicle capital assets increased by $83 million, driven primarily by our Americas RAC segment, resulting from the restart of location refurbishment projects put on hold during the Chapter 11 Cases and electric vehicle charging infrastructure spend in 2022.
Year ended December 31, 2021 compared with year ended December 31, 2020
In 2021, net expenditures for non-vehicle capital assets increased by $17 million, driven primarily by our Americas RAC segment, resulting from the restart of location refurbishment projects put on hold during the Chapter 11 Cases, partially offset by a reduction in information technology and finance transformation program costs in our corporate operations.
CONTRACTUAL OBLIGATIONS
The following table details our contractual cash obligations as of December 31, 2019 except2022:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Payments Due by Period |
(In millions) | Total | | 2023 | | 2024 to 2025 | | 2026 to 2027 | | After 2027 |
Vehicles: | | | | | | | | | |
Debt obligation | $ | 10,948 | | | $ | 657 | | | $ | 7,305 | | | $ | 2,986 | | | $ | — | |
Interest on debt(1) | 837 | | | 406 | | | 361 | | | 70 | | | — | |
Non-Vehicle: | | | | | | | | | |
Debt obligation | 3,035 | | | 20 | | | 28 | | | 526 | | | 2,461 | |
Interest on debt(1) | 1,051 | | | 216 | | | 381 | | | 312 | | | 142 | |
Minimum fixed obligations for operating leases | 2,943 | | | 471 | | | 693 | | | 466 | | | 1,313 | |
Commitments to purchase vehicles(2) | 6,625 | | | 5,412 | | | 318 | | | 418 | | | 477 | |
Purchase obligations and other(3) | 269 | | | 143 | | | 91 | | | 33 | | | 2 | |
Total | $ | 25,708 | | | $ | 7,325 | | | $ | 9,177 | | | $ | 4,811 | | | $ | 4,395 | |
(1) Amounts represent the estimated commitment fees and interest payments based on the principal amounts, minimum non-cancelable maturity dates and interest rates on the debt as of December 31, 2022. See Note 6, "Debt," to the Notes to our consolidated financial statements included in this 2022 Annual Report under the caption Item 8, "Financial Statements and Supplementary Data" for further details.
(2) Represents fleet purchases where noted:contracts have been signed or are pending with committed orders under the terms of such agreements. We expect purchases under these agreements will be financed primarily through the issuance of vehicle debt. These purchases are subject to vehicle manufacturers satisfying their performance commitments under such agreements.
(3) Represents agreements to purchase goods or services that are legally binding on us and that specify all significant terms, including fixed or minimum quantities; fixed, minimum or variable price provisions; and the approximate timing of the transaction, as well as liabilities for uncertain tax positions and other liabilities, and excludes any obligations to employees. Only the minimum non-cancelable portion of purchase agreements and related cancellation penalties are included as obligations. In the case of contracts that state minimum quantities of goods or services, amounts reflect only the stipulated minimums; all other contracts reflect estimated amounts. Purchase obligations include $28 million representing our tax liability for uncertain tax positions and related net accrued interest and penalties. |
| | | | | | | | | | | | | | | | | | | |
| | | Payments Due by Period |
(In millions) | Total | | 2020 | | 2021 to 2022 | | 2023 to 2024 | | After 2024 |
Vehicles: | | | | | | | | | |
Debt obligation | $ | 13,415 |
| | $ | 2,418 |
| | $ | 7,688 |
| | $ | 3,309 |
| | $ | — |
|
Interest on debt(a) | 904 |
| | 402 |
| | 399 |
| | 103 |
| | — |
|
Non-Vehicle: | | | | | | | | | |
Debt obligation | 3,755 |
| | 20 |
| | 887 |
| | 1,421 |
| | 1,427 |
|
Interest on debt(a) | 1,145 |
| | 225 |
| | 419 |
| | 274 |
| | 227 |
|
Minimum fixed obligations for operating leases(b) | 2,915 |
| | 494 |
| | 774 |
| | 480 |
| | 1,167 |
|
Commitments to purchase vehicles(c) | 8,185 |
| | 8,185 |
| | — |
| | — |
| | — |
|
Purchase obligations and other(d) | 428 |
| | 206 |
| | 142 |
| | 60 |
| | 20 |
|
Total | $ | 30,747 |
| | $ | 11,950 |
| | $ | 10,309 |
| | $ | 5,647 |
| | $ | 2,841 |
|
| |
(a) | Amounts represent the estimated commitment fees and interest payments based on the principal amounts, minimum non-cancelable maturity dates and interest rates on the debt as of December 31, 2019. |
| |
(b) | Reflects the impact upon adoption of the lease standard as further disclosed in Note 2, "Significant Accounting Policies" to the Notes to our consolidated financial statements in this 2019 Annual Report under the caption Item 8, "Financial Statements and Supplementary Data". |
| |
(c) | Represents fleet purchases where contracts have been signed or are pending with committed orders under the terms of such arrangements. |
| |
(d) | Represents agreements to purchase goods or services that are legally binding on us and that specify all significant terms, including fixed or minimum quantities; fixed, minimum or variable price provisions; and the approximate timing of the transaction, as well as liabilities for uncertain tax positions and other liabilities, and excludes any obligations to employees. Only the minimum non-cancelable portion of purchase agreements and related cancellation penalties are included as obligations. In the case of contracts that state minimum quantities of goods or services, amounts reflect only the stipulated minimums; all other contracts reflect estimated amounts. Purchase obligations include $20 million representing our tax liability for uncertain tax positions and related net accrued interest and penalties. |
The table excludes our pension and other postretirement benefit obligations as disclosed in Note 7, "Employee Retirement Benefits," to the Notes to our consolidated financial statements included in this 20192022 Annual Report under the caption Item 8, "Financial Statements and Supplementary Data."
OFF BALANCE SHEET COMMITMENTS AND ARRANGEMENTS
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
HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
THE HERTZ CORPORATION AND SUBSIDIARIES
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
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:
Certain former Stockholders; Directors
We have entered into indemnification agreements with each of our directors and certain of our executive officers. Hertz entered into customary indemnification agreements with Hertz Holdings pursuant to which Hertz Holdings and Hertz
HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
THE HERTZ CORPORATION AND SUBSIDIARIES
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ITEM 7. | MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) |
will indemnify those entities and certain of our former stockholders and their affiliates 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 such entities and certain other claims and liabilities, including liabilities arising out of financing arrangements or securities offerings. We do not believe that these indemnifications are reasonably likely to have a material impact on us.
Environmental
We have indemnified various parties for the costs associated with remediating numerous hazardous substance storage, recycling or disposal sites in many states and, in some instances, for natural resource damages. The amount of any such expenses or related natural resource damages for which we may be held responsible could be substantial. The probable expenses that we expect to incur for such matters have been accrued, and those expenses are reflected in our consolidated financial statements within accrued liabilities. Amounts accrued represent 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. 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).
EMPLOYEE RETIREMENT BENEFITS
Pension
We sponsor defined benefit pension plans worldwide. Pension obligations give rise to expenses that are dependent on assumptions discussed in Note 7, "Employee Retirement Benefits," to the Notes to our consolidated financial statements included in this 20192022 Annual Report under the caption Item 8, "Financial Statements and Supplementary Data." Previously we sponsored the Hertz Corporation Benefit Equalization Plan and the Hertz Corporation Supplemental Executive Retirement Plans which were rejected by the Bankruptcy Court and terminated in connection with the Plan of Reorganization.
Our 20192022 worldwide net periodic pension expense included in the accompanying consolidated statement of operations for the year ended December 31, 20192022 is $9$7 million, which represents an increase in charges of $15 million from 2018. The net periodic pension charges increased in 2019 comparedwas comparable to 2018 primarily due to a decrease in expected return on plan assets year over year.2021.
The funded status (i.e., the dollar amount by which the projected benefit obligations exceeded the market value of pension plan assets) of the Hertz Retirement Plan, as defined in which most domestic employees participate, improvedNote 7, "Employee Retirement Benefits," to the Notes to our consolidated financial statements included in this 2022 Annual Report under the caption Item 8, "Financial Statements and Supplementary Data," decreased in December 31, 2019,2022 compared with December 31, 20182021 primarily due to an increase indecreased returns on plan assets year over year.assets. We did not contribute to the Hertz Retirement Plan during 2019,2022, and we do not anticipate contributing to the Hertz Retirement Plan during 2020.2023. For the international plans, we anticipate contributing approximately $3 million during 2020.2023. The level of 20202023 and future contributions will vary, and is dependent on a number of factors including investment returns, interest rate fluctuations, plan demographics, funding regulations and the results of the final actuarial valuation.
We participate in several "multiemployer"multiemployer pension plans. We have accrued $20 million for benefit payments under our multiemployer pension plans which represents the net present value of projected liabilities as of December 31, 2022. 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, payable in installments over a minimum of twenty years, which would be reflected as a liability on a discounted basis on our consolidated balance sheet. Our withdrawal liability for any multiemployer plan would depend on the extent of the plan's funding of vested benefits. 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
HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
THE HERTZ CORPORATION AND SUBSIDIARIES
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
expected returns on pension fund assets or other funding deficiencies. The occurrence of any of these events could have a material adverse effect on our consolidated financial position, results of operations or cash flows. For a discussion of the risks associated with our pension plans, see Item 1A, "Risk Factors” in this 20192022 Annual Report.
HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
THE HERTZ CORPORATION AND SUBSIDIARIES
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ITEM 7. | MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) |
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Our discussion and analysis of financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America.U.S. The preparation of the consolidated financial statements requires management to make estimates and judgments that affect the reported amounts in our consolidated financial statements and accompanying notes.
The following accounting policies involve a higher degree of judgment and complexity in their application, and therefore, represent the critical accounting policies used in the preparation of our consolidated financial statements. If different assumptions or conditions were to prevail, the results could be materially different from our reported results. For additional discussion of our critical accounting policies, as well as our significant accounting policies, see Note 2, "Significant Accounting Policies," to the Notes to our consolidated financial statements included in this 20192022 Annual Report under the caption Item 8, "Financial Statements and Supplementary Data."
Revenue Earning Vehicles
Our principal assets are revenue earning vehicles, which represented approximately 56% of our total assets as of December 31, 2019.2022. Revenue earning vehicles consistsconsist of vehicles utilized in our vehicle rental operations and our Donlen business.operations. For the year ended December 31, 2019, 39%2022, 9% of the vehicles purchased for our combined U.S. and International vehicle rental fleets were vehicles purchased under repurchase or guaranteed depreciation programs with vehicle manufacturers, or program vehicles.
Under our vehicle repurchase programs,For program vehicles, the manufacturers agree to repurchase vehicles at a specified price or guarantee the depreciation rate on the vehicles during established repurchase or auction periods, subject to, among other things, certain vehicle condition, mileage and holding period requirements. Guaranteed depreciationVehicle repurchase programs guarantee on an aggregate basis the residual value of the vehicles covered by the programsprogram vehicle upon sale according to certain parameters which include the holding period, mileage and condition of the vehicles. We record a provision for excess mileage and vehicle condition, as necessary, during the holding period. These repurchase and guaranteed depreciation programs limit our residual risk with respect to vehicles purchased under the programs and allow us to reduce the variability of depreciation expense for such vehicles, however, typically the acquisition cost is higher. Incentives received from the manufacturers for purchases of vehicles reduce the cost.
For all other vehicles, we use historical experience, industrydepreciation is recorded over the forecasted holding period based on estimated residual value guidebooks andvalues at the monitoringtime of market conditions to set depreciation rates.disposal. Generally, when revenue earning vehicles are acquired outside of a vehicle repurchase program (i.e., non-program vehicles), we estimate the period that we will hold the asset, primarily based on historical measures of the amount of rental activity (e.g., automobile mileage) and the targeted age of vehicles at the time of disposal. We also estimate the residual value of the applicable revenue earning vehicles at the expected time of disposal. The residual values for rental vehicles aredisposal, which is affected by many factors including make, model and options, age, physical condition, mileage, sale location and time of the yearyear. Market conditions for used vehicle sales can also be affected by external factors such as the economy, natural disasters, fuel prices, new and channelused vehicle supply levels, and incentives offered by manufacturers of disposition (e.g., auction, retail, dealer direct). Depreciation is recorded over the estimated holding period.new vehicles. Depreciation rates are reviewed on a quarterly basis based on management's ongoing assessment of present and estimated future market conditions, their effect on residual values at the expected time of disposal and the estimated holding periods. Market conditions for used vehicle sales can also be affected by external factors such as the economy, natural disasters, fuel prices, used vehicle supply levels, and incentives offered by manufacturers of new vehicles. These key factors are considered when estimating future residual values. Depreciation rates are adjusted prospectively through the remaining expected life. As aperiods, which may result of this ongoing assessment, we makein periodic adjustments to the depreciation rates of revenue earning vehicles in response to changing market conditions.applied prospectively. Upon disposal of revenue earning vehicles, any difference between the net proceeds received and the net book value results in a gain or loss and is recorded as an adjustment to depreciation of revenue earning vehicles and lease charges in the accompanying statements of operations is adjusted for any difference between the net proceeds received and the remaining net book value andoperations.
Changes in estimated residual values or holding periods could cause a corresponding gain or loss is recorded.material change in our estimates of non-program depreciation expense.
Within Donlen, revenue earning vehicles are leased under longer term agreements with our customers. These leases contain provisions whereby we have a contracted residual value guaranteed to us by the lessee, such that we rarely experience any economic gains or losses on the disposal of these vehicles. Donlen accounts for its lease contracts using the appropriate lease classifications.
HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
THE HERTZ CORPORATION AND SUBSIDIARIES
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ITEM 7. | MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) |
Self-insured Liabilities
Self-insured liabilities on our consolidated balance sheets include public liability, property damage, general liability, liability insurance supplement, personal accident insurance, and workersworkers' compensation. These represent an
HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
THE HERTZ CORPORATION AND SUBSIDIARIES
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
estimate for both reported accident claims not yet paid, and claims incurred but not yet reported and are recorded on an undiscounted basis. Reserve requirements are based on rental volume and actuarial evaluations of historical accident claim experience and trends, as well as future projections of ultimate losses, expenses and administrative costs. The adequacy of the liability is regularly monitored quarterly 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.
Recoverability of Goodwill and Indefinite-lived Intangible Assets
On an annual basis as of October 1, and at interim periods when circumstances require as a result of a triggering event as defined by Accounting Standards Codification 350 – Intangibles, Goodwill and Other ("ASC 350"), we test the recoverability of our goodwill and indefinite-lived intangible assets by performing an impairment analysis. An impairment is deemed to exist if the carrying value of goodwill or indefinite-lived intangible assets exceed their fair value as determined using level 3 inputs under the GAAP fair value hierarchy. The reviews of fair value involve judgment and estimates, including projected revenues, projected cash flows, long-term growth rates, royalty rates and discount rates. We believe our valuation techniques and assumptions are reasonable for this purpose.
For goodwill, we determine the fair value using an income approach based on the discounted cash flows of each reporting unit. A reporting unit is an operating segment or a business one level below that operating segment (the component level) if discrete financial information is prepared and regularly reviewed by segment management. Components are aggregated into a single reporting unit when they have similar economic characteristics. The Company has fourWe have two reporting units: U.S. Rental Car, Europe Rental Car, Other Internationalunits (operating segments): Americas Rental Car and Donlen.International Rental Car. Key assumptions used in the discounted cash flow valuation model include discount rates, growth rates, cash flow projections, tax rates and terminal value rates. Discount rates are set by usingdetermined based on the Weighted-Average Costreporting unit's weighted average cost of Capitalcapital (“WACC”) methodology.. The WACC used in the discounted cash flow model methodology considers marketis calculated based upon the fair value of our debt and stock price with a debt-to-equity ratio comparable to the vehicle rental car industry data as well as Company specific risk factors for each reporting unit in determining the appropriate discount rates to be used.unit. The discount rate utilized for each reporting unit is indicative of the return an investor would expect to receive for investing in such a business. Our cash flow projections represent management's most recent planning assumptions, which are based on a combination of industry outlooks, views on general economic conditions, our expected pricing plans and expected future savings. Terminal value rates are determined using a common methodology of capturing the present value of perpetual cash flow estimates beyond the last projected period assuming a constant WACC and long-term growth rates.
Our indefinite-lived intangible assets primarily consist of the Hertz and Dollar Thrifty tradenames. For tradenames, we determine the fair value using a relief from royaltyrelief-from-royalty income approach, which utilizes our revenue projections for each asset along with assumptions for royalty rates, tax rates and the WACC.
A significant decline in either projected revenues, projected cash flows or increased discount rates (the WACC) used to determine fair value could result in an impairment charge.
In 2017, Further deterioration in the global economic conditions in the travel industry and the supply chain constraints affecting new vehicle production, our cash flows and our ability to obtain future financing to maintain our fleet or the weighted average cost of capital assumptions may result in an impairment charge to earnings in future periods. We will continue to closely monitor actual results versus our expectations as a resultwell as any significant changes in market events or conditions and the resulting impact to our assumptions about future estimated cash flows, projected revenues and the weighted average cost of declines in revenue and profitabilitycapital. If our expectations of the Company and a declineoperating results, both in the share pricemagnitude or timing, do not materialize, or if our weighted average cost of Hertz Global's common stock, the Company tested the recoverability of itscapital increases, we may be required to record goodwill and indefinite-lived intangible assets as of June 30, and concluded that there was anasset impairment of the Dollar Thrifty tradename in its U.S. Rental Car segment and recorded a charge of $86 million. The impairment was largely due to a decrease in long-term revenue projections coupled with an increase in the weighted-average cost of capital. Subsequent to recording the impairment charge, the carrying value of the Dollar Thrifty tradename was approximately $934 million, representing its estimated fair value. A change of one percentage point to the weighted-average cost of capital assumption used in the impairment analysis would have impacted the impairment charge by approximately $80 million.charges, which could be material.
The Company also tested the recoverability of its goodwill and indefinite-lived intangible assets as of its annual test dates of October 1, 2018 and 2019, the results of which indicated that the estimated fair value of each reporting unit
HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
THE HERTZ CORPORATION AND SUBSIDIARIES
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ITEM 7. | MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) |
and tradenames was in excess of its carrying value by more than 10% in all instances, therefore, the Company concluded there was no impairment.
Subrogation Receivables
Subrogation receivables represent recoveries that the Company is contractually entitled to receive for vehicle damage caused while a vehicle is on rent with a customer. The amount of subrogation receivables recorded by the Company reflects our best estimate of both billed and unbilled recoveries from customers and/or third parties and represents the amount of damage the Company expects to recover. We estimate recoveries based on the relationship between historical collection data from subrogation claims and total damage expense, as well as other inputs, such as historical recovery periods, average recovery rates, average recovery dollars and other qualitative facts and circumstances.
Income Taxes
Our income tax expense, or benefit, deferred tax assets and liabilities, and liabilities for unrecognized tax benefits reflect management'smanagement’s best assessmentestimate of estimated current and future taxes to be paid. Deferred tax asset valuation allowancesWe are subject to income taxes in the United
HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
THE HERTZ CORPORATION AND SUBSIDIARIES
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
States and our liabilities for unrecognized tax benefits require significant management judgment regarding applicable statutesnumerous foreign jurisdictions. Significant judgments and their related interpretation,estimates are required in the statusdetermination of variousthe consolidated income tax audits and our particular facts and circumstances.expense.
Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Valuation allowances are estimated and recorded to reduceWe record net deferred tax assets when it isto the extent we believe these assets will more likely than not that a tax benefit will not be realized. In evaluating our ability to recover our deferred tax assets withinin the jurisdiction from which they arise, we consider all available positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax planningtax-planning strategies, and results of recent operations. In projectingThe assumptions about future taxable income we consider historical resultsrequire the use of significant judgment and incorporate assumptions about the amount of future state, federal and foreign pretax operating income adjusted for items that do not have tax consequences. Our assumptions regarding future taxable income are consistent with the plans and estimates we useare using to manage ourthe underlying businesses. Subsequent changes to enacted
The calculation of our tax ratesliabilities involves dealing with uncertainties in the application of complex tax laws and changes to theregulations in a multitude of jurisdictions across our global mix of operating results will result in changes to the tax rates used to calculate deferred taxes and any related valuation allowances. We record deferred tax assets for net operating loss carry forwards in various tax jurisdictions when applicable. Upon utilization of those carry forwards, the taxing authorities may examine the positionsoperations. ASC 740 states that led to the generation of those net operating losses and determine that some of those losses are disallowed, which could result in additional income tax payable to the Company.
We evaluate our exposures associated with our various tax filing positions and recognize a tax benefit only iffrom an uncertain tax position may be recognized when it is more likely than not that the tax position will be sustained upon examination, by the relevant taxing authorities, including resolutions of any related appeals or litigation processes, based on the basis of the technical merits of our position. For uncertain tax positions that do not meet this threshold, wemerits.
We record a related liability. We adjust our unrecognized tax benefit liabilitybenefits as liabilities in accordance with ASC 740 and income tax expenseadjust these liabilities in the period in which the uncertain tax position is effectively settled, the statute of limitations expires for the relevant taxing authority to examine the tax position or when new information becomes available. ThereBecause of the complexity of some of these uncertainties, the ultimate resolution may result in a payment or a loss of a tax attribute or deduction that is a reasonable possibility thatmaterially different from our current estimate of the unrecognized tax benefit liabilitybenefits. These differences will be adjusted within twelve months duereflected as increases or decreases to the expiration of a statute of limitations and/or resolution of examinations with taxing authorities.
Our income tax returns are periodically audited by domestic and foreign tax authorities. These audits include review of our tax filing positions, includingexpense in the timing and amount of deductions taken andperiod in which the allocation of income between tax jurisdictions.change in judgement occurs.
Recent Accounting Pronouncements
For a discussion of recent accounting pronouncements, see Note 2, "Significant Accounting Policies," — "Recently Issued Accounting Pronouncements," to the Notes to our consolidated financial statements included in this 20192022 Annual Report under the caption Item 8, "Financial Statements and Supplementary Data."
HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
THE HERTZ CORPORATION AND SUBSIDIARIES
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
RISK MANAGEMENT
For a discussion of additional risks arising from our operations, including vehicle liability, general liability and property damage insurable risks, see “Item 1—Business—Risk Management” included in this 20192022 Annual Report.
Market RisksMARKET 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 fuel prices. We manage our exposure to these market risks through our regular operating and financing activities and, when deemed appropriate, through the use of derivative financial instruments. Derivative financial instruments are viewed as risk management tools and have not been used for speculative or trading purposes. In addition, derivative financialAlthough the instruments utilized involve varying degrees of credit, market and interest risk, we contract with multiple counterparties to mitigate concentrations of risk and the counterparties to the agreements are entered into withexpected to perform fully under the terms of the agreements. We monitor counterparty credit risk, including lenders, on a diversified group of major financial institutions in order to manageregular basis, but cannot be certain that all risks will be discerned or that our exposure to counterparty nonperformance on such instruments.risk management policies and procedures will always be effective.
Interest Rate Risk
We have a significant amount of debtindebtedness with a mix of fixed and variable rates of interest. Floating rate debt carries interest based generally on LIBOR, Secured Overnight Financing Rate ("SOFR"), Euro inter-bank offeredoffer rate (“EURIBOR”("EURIBOR") or their equivalents for local currencies or bank conduit commercial paper rates plus an applicable margin. IncreasesIncrease in interest rates could therefore significantly increase the associated interest payments that we are required to make on this debt. See Note 5,6, "Debt," to the Notes to our consolidated financial statements included in this 2019 Annual Report under the caption Item 8, "Financial Statements and Supplementary Data.”Data” included in this 2022 Annual Report.
We have assessed our exposure to changes in interest rates by analyzing the sensitivity to our operating results assuming various changes in market interest rates. Assuming a hypothetical increase of one percentage point in interest rates on our debt portfolio, and cash equivalents and investments as of December 31, 2019,2022, our pre-tax operating results would decrease by an estimated $52$50 million over a twelve-month period.
From time to time, we may enter into interest rate swap agreements and/or interest rate cap/floorcap agreements to manage interest rate risk and our mix of fixed and floating rate debt. As of December 31, 2019, we do not have material exposures resulting from our interest rate swap agreements or interest rate cap/floor agreements. See Note 11,12, "Financial Instruments," to the Notes to our consolidated financial statements included in this 2019 Annual Report under the caption Item 8, "Financial Statements and Supplementary Data.”Data” included in this 2022 Annual Report.
Consistent with the terms of certain agreements governing the respective debt obligations, we may be required to hedge a portion of the floating rate interest exposure under the various debt facilities to provide protection in respect of such exposure.
Foreign Currency Exchange Rate Risk
We have exposure to foreign currency exchange rate fluctuations worldwide and primarily with respect to the Euro, Canadian dollar, Australian dollar and British pound.pound resulting from intercompany transactions and other cross currency obligations. We do not hedge our operating results against currency movement as they are primarily translational in nature. Assuming a hypothetical change of one percentage point to the foreign currency exchange rates on our intercompany loan balance as of December 31, 2022, our pre-tax operating results would increase (decrease) by approximately $3 million. Additionally, each one percentage point change in foreign currency movements is estimated to impact our Adjusted Corporate EBITDA by an estimated $3 million over a twelve-month period.
We manage our foreign currency exchange rate 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 purchases and borrowing locally. Also, we have purchasedoperate. We may also purchase foreign currency exchange rate optionsderivative financial instruments to manage exposure to fluctuations in foreign currency exchange rates for selected cross currency marketing programs. Our risks with respect to foreign currency exchange rate options are limitedexchanges rates. See Note 12, "Financial Instruments," to the premium paid forNotes to our consolidated financial statements under the right to exercise the optioncaption Item 8, "Financial Statements and the future performance of the option's counterparty.
We also manage exposure to fluctuationsSupplemental Data," included in currency risk on cross currency intercompany loans we make to certain of our subsidiaries by entering into foreign currency forward contracts at the time the loans are entered which are intended to offset the impact of foreign currency movements on the underlying intercompany loan obligations. See
this 2022 Annual Report.
HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
THE HERTZ CORPORATION AND SUBSIDIARIES
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK (Continued)
Note 11, "Financial Instruments," to the Notes to our consolidated financial statements included in this 2019 Annual Report under the caption Item 8, "Financial Statements and Supplementary Data.”
We do not hedge our operating results against currency movement as they are primarily translational in nature. Using foreign currency forward rates as of December 31, 2019, we expect revenue to be positively impacted by approximately 0.1% over a twelve-month period. Additionally, each one percentage point change in foreign currency movements is estimated to impact our Adjusted Corporate EBITDA by an estimated $1 million over a twelve-month period.
Fuel Risks
We purchase unleaded gasoline and diesel fuel at prevailing market rates. We are subject to price exposure related to the fluctuations in the price of fuel. We anticipate that fuel risk will remain a market risk for the foreseeable future. We have determined that a 10% hypothetical change in the price of fuel will not have a material impact on our operating results.
Inflation
The increased cost of vehicles isand staffing costs are the primary inflationary factorfactors 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.
Other Income Tax Related Matters
Prior to the TCJA, we operated a like-kind exchange (“LKE”) program for our U.S. vehicle rental business. The program resulted in deferral of federal and state income taxes for fiscal years 2006 through 2009 and 2013 through 2017, and part of 2010 and 2012. The TCJA repealed the LKE deferral rules as applicable to personal property, including rental vehicles. To offset the detriment of LKE repeal for personal property, we will utilize the increases to existing first-year depreciation from 50 percent to 100 percent (“bonus depreciation”) under the TCJA. Generally, the bonus depreciation percentage is increased for property acquired and placed in service after September 27, 2017, and before January 1, 2023. At that point, a progressive step-down in bonus depreciation begins, with 80 percent permitted in 2023, 60 percent in 2024, 40 percent in 2025, and 20 percent in 2026.
Given the repeal of LKE and changes to bonus depreciation, we could incur material cash tax payments in the future.
In connection with the Spin-Off in 2016, Herc Holdings received a private letter ruling from the IRS to the effect that, subject to the accuracy of and compliance with certain representations, assumptions and covenants, (i) the Spin-Off will qualify as a tax-free transaction under Sections 355 and 368(a)(1)(D) of the Code, and (ii) the internal spin-off transactions will qualify as tax-free under Section 355 of the Code. A private letter ruling from the IRS generally is binding on the IRS. However, the IRS ruling did not rule that the Spin-Offs satisfied every requirement for a tax-free spin-off, and Herc Holdings and Hertz Global relied solely on opinions of professional advisors to determine that such additional requirements were satisfied. The ruling and the opinions relied on certain facts, assumptions, representations and undertakings from Herc Holdings and Hertz Holdings regarding the past and future conduct of the companies’ respective businesses and other matters. If any of these facts, assumptions, representations or undertakings were incorrect or not otherwise satisfied, Herc Holdings and Hertz Global, and their affiliates may not be able to rely on the ruling or the opinions of tax advisors and could be subject to significant tax liabilities. Notwithstanding the private letter ruling and opinions of tax advisors, the IRS could determine on audit that the Spin-Offs and related transactions are taxable if it determines that any of these facts, assumptions, representations or undertakings are not correct or have been violated or if it disagrees with the conclusions in the opinions that are not covered by the private letter ruling, or for any other reason, including as a result of certain significant changes in the stock ownership of Herc Holdings or Hertz Global after the Spin-Off. If the Spin-Offs or related transactions are determined to be taxable for U.S. federal income tax purposes, Herc Holdings and Hertz Global and, in certain cases, their stockholders (at the time of the Spin-Off) could incur significant U.S. federal income tax liabilities, including taxation on the value of the Hertz Global stock distributed in the Spin-Off and the value of other companies distributed in the internal Spin-Off transactions, and Hertz Global could incur significant liabilities, either directly to the tax authorities or under a Tax Matters Agreement entered into with Herc Holdings.
HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
THE HERTZ CORPORATION AND SUBSIDIARIES
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK (Continued)
The IRS completed its audit of our 2007 to 2009 tax returns and surveyed 2010 and 2011 tax returns and had no changes to the previously-filed tax returns. Currently, our 2014 through 2016 tax years are under audit by the IRS.
HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
THE HERTZ CORPORATION AND SUBSIDIARIES
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
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HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and the Board of Directors of Hertz Global Holdings, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheetsheets of Hertz Global Holdings, Inc. and its subsidiaries (the Company) as of December 31, 2019,2022 and 2021, the related consolidated statements of operations, comprehensive income (loss), changes in mezzanine equity and stockholders' equity and cash flows for each of the year thenthree years in the period ended December 31, 2022, and the related notes and financial statement schedules listed in the Index at Item 15(a) (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2019,2022 and 2021, and the results of its operations and its cash flows for each of the year thenthree years in the period ended December 31, 2022, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2019,2022, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework)and our report dated February 25, 20207, 2023 expressed an unqualified opinion thereon.
Adoption of New Accounting Standard
As discussed in Note 2 to the consolidated financial statements, the Company changed its method of accounting for leases as a result of the adoption of Accounting Standards Update (ASU) No. 2016-02, Leases (Topic 842), and the related amendments effective January 1, 2019. See below for discussion of our related critical audit matter.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audit.audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our auditaudits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our auditaudits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our auditaudits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audit providesaudits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidatedfinancial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
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| | Adoption of New Lease Standard |
Description of the Matter | | As more fully described above and in Note 2 to the consolidated financial statements, the Company changed its method of accounting for leases upon its adoption of the new lease standard, ASC 842 - Leases (“ASC 842”), on January 1, 2019, which included recognizing a right-of-use asset and corresponding lease liability based on the present value of future lease payments. Upon adoption, the Company recorded $1.585 billion of operating lease right-of-use assets and $1.588 billion of operating lease liabilities on the consolidated balance sheet.
Auditing the adoption of ASC 842 was challenging due to the volume and variety of lease contracts the Company is a party to in the normal course of business. Specifically, the calculation of the Company’s operating lease right-of-use asset and operating lease liability involved subjective auditor judgment due to the complexity of evaluating the varying lease payments and other terms within the lease agreements. For example, certain leases include guaranteed minimum lease payments which required evaluation for inclusion in the right-of-use asset and lease liability calculations.
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How We Addressed the Matter in Our Audit | | We obtained an understanding, evaluated the design and tested the operating effectiveness of internal controls over the Company’s ASC 842 adoption process. For example, we tested controls over the Company’s process for evaluating the completeness of their lease population, assessing the terms of their lease agreements and reviewing their right-of-use asset and lease liability calculations.
To test the right-of-use asset and related lease liabilities recognized in connection with the Company’s adoption of ASC 842, our audit procedures included, among others, assessing the Company’s accounting policy under the new standard, evaluating the terms of the Company’s lease agreements, and evaluating management’s application of the standard to their lease agreements. For example, we inspected a sample of lease agreements and assessed the lease payment terms within those agreements to determine whether the payment amounts were required to be included in the right-of-use asset and lease liability calculations. We also performed procedures to evaluate the completeness of the population of leases used to determine and record the right-of-use asset and lease liability and tested that the right-of-use asset and lease liability recorded upon adoption of the standard was complete and accurate.
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| | Calculation of Non-Program Depreciation on Revenue Earning Vehicles in the Americas Rental Car (“RAC”) Segment |
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Description of the Matter | | For the year ended December 31, 2019,2022, total depreciation of revenue earning vehicles and lease charges, net in the Americas RAC segment was $2.565 billion,$553 million, including gains and losses on disposals. As discussed in Note 2 to the consolidated financial statements, depreciation rates are reviewed on a quarterly basis based on management’s ongoing assessment of present and estimated future market conditions, the effect of these conditions on residual values at the expected time of disposal and the estimated holding period for the revenue earning vehicles. The Company’s fleet is comprised of vehicles that are subject to and are not subject to vehicle repurchase programs ("(“program vehicles")vehicles” and (“non-program vehicles”)“non-program vehicles,” respectively). For program vehicles, the manufacturers guarantee a specified price or depreciation rate upon disposal, versus non-program vehicles where the Company estimates the residual value of the vehicle at the expected time of disposal. |
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| | Auditing the Company’s calculation of depreciation for non-program vehicles related to the Americas RAC segment was complex due to the significant estimation uncertainty and management judgment to determine the estimated residual values at the expected time of disposal. The significant estimation uncertainty was primarily due to management’s assumptions of future consumer demand for vehicles withinrelated to market conditions and their current fleet, the disposal channel of those vehicles and other external market conditions.effect on estimated residual values. Additionally, auditing the calculation of depreciation was challenging due to the volume of data inputs utilized in management’s calculation, including historical sales data from multiple sources at varying levels of disaggregation along with additional data specific to the Company’s current fleet. |
HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
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How We Addressed the Matter in Our Audit | | We obtained an understanding, evaluated the design and tested the operating effectiveness of internal controls over the Company’s measurement of depreciation expense for non-program vehicles.vehicles related to the Americas RAC segment. For example, we tested controls over management’s quarterly review of the depreciation rates, which included their procedures to validate the completeness and accuracy of the data used in the calculation and their assessment of significant assumptions, specifically the estimated residual values of non-program vehicles. vehicles related to the Americas RAC segment. |
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| | To test the depreciation calculation for non-program vehicles, our audit procedures included, among others, testing the completeness and accuracy of the underlying data by comparing historical sales data and vehicle information used in the calculation (e.g., make, model, trim) to external sources and the Company’s records. We tested the base depreciation rate calculations performed within the IT application and evaluated the reasonableness of other significant assumptions, such as resale market conditions, including consumer demand for specific vehicles, and disposition channels to assess the reasonableness of the residual value estimates made by management. Additionally, we performed analytical procedures to evaluate historical gains and losses recognized upon disposal in order to retrospectively review the reasonableness of management’s estimates. |
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| | Valuation of Self-insuranceSelf-insured Liabilities – Public Liability, Property Damage, and Liability Insurance Supplement |
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Description of the Matter | | As disclosed in Notes 2 and 1415 to the consolidated financial statements, the Company is self-insured for public liability, property damage, general liability, liability insurance supplement, personal accident insurance, and worker's compensation, with the Company’s public liability and property damage reserve representing the largest balance at $399 million as of December 31, 2019.workers' compensation. The Company records liabilities for these matters based on actuarial analyses of historical claim activity and estimates of both reported accident claims not yet paid, and claims incurred but not yet reported. The estimated self-insured liabilities as of December 31, 2022 were $472 million. The actuarial analyses that determine the claims incurred but not yet reported portion of the liability balances considers a variety of factors, including the frequency and severity of losses, changes in claim reporting and resolution patterns, insurance industry practices, the regulatory environment and legal precedent. The adequacy of the liabilities is regularly monitored based on evolving accident claim history and insurance related state legislation changes. If the Company’s estimates change or if actual results differ from these assumptions, the amount of the recorded liabilities are adjusted to reflect these results. |
HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
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| | Auditing the self-insurance liabilitiespublic liability, property damage, and liability insurance supplement components of the self-insured liability reserves is complex and required the involvement of our actuarial specialists due to the significant measurementvaluation uncertainty associated with the estimate,estimates, management’s application of complex judgments, and the use of actuarial methods. In addition, the self-insurancepublic liability, property damage, and liability insurance supplement self-insured liability reserve estimate isestimates are sensitive to management’s assumptions including claim frequency,related to rental volume, actuarial evaluations of historical claim experience and trends, and future projections of ultimate losses expenses and administrative costs used in the computation of self-insurancethese self-insured liabilities. |
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How We Addressed the Matter in Our Audit | | We obtained an understanding, evaluated the design and tested the operating effectiveness of internal controls over the Company’s self-insurancepublic liability, property damage, and liability insurance supplement self-insured liability estimation process. For example, we tested controls over management’s review of the assumptions outlined above that are used in the self-insurancethese self-insured liability calculationcalculations and the completeness and accuracy of the data underlying the self-insurance liability. these self-insured liabilities. |
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| | To test the valuation of the self-insurance liabilities,public liability, property damage, and liability insurance supplement self-insured liability reserves, we performed audit procedures that included among others, testing the completeness and accuracy of the underlying claims data used to develop the related reserves. Furthermore, we involvedinvolving our internal actuarial specialists to assist us in developing an independent range and evaluating the modelsmethods used by management and the reasonableness of assumptions used in thosetheir models (e.g., actuarial evaluations of historical claim experience and future projections of ultimate losses, expenses and administrative costs)losses). We compared the Company's reserve to a rangeestimates of the liability developed by our actuarial specialists based on the underlying claims data and independently selected assumptions. |
/s/ Ernst & Young LLP
We have served as the Company's auditor since 2019.
Tampa, Florida
February 25, 20207, 2023
HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and the Board of Directors of Hertz Global Holdings, Inc.
Opinion on Internal Control Over Financial Reporting
We have audited Hertz Global Holdings, Inc. and subsidiaries’ internal control over financial reporting as of December 31, 2019,2022, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Hertz Global Holdings, Inc. and its subsidiaries (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2019,2022, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheetsheets of the Company as of December 31, 2019,2022 and 2021, the related consolidated statements of operations, comprehensive income (loss), changes in mezzanine equity and stockholders’ equity and cash flows for each of the year thenthree years in the period ended December 31, 2022, and the related notes and consolidated financial statement schedules listed in the Index at Item 15(a) and our report dated February 25, 20207, 2023 expressed an unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management's Report on Internal Control over Financial Reporting appearing under Item 9A.Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Ernst & Young LLP
Tampa, Florida
February 7, 2023
THE HERTZ CORPORATION AND SUBSIDIARIES
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholder and the Board of Directors of The Hertz Corporation
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of The Hertz Corporation and subsidiaries (the Company) as of December 31, 2022 and 2021, the related consolidated statements of operations, comprehensive income (loss), changes in stockholder’s equity (deficit) and cash flows for each of the three years in the period ended December 31, 2022, and the related notes and financial statement schedule listed in the Index at Item 15(a) (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2022, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework)and our report dated February 7, 2023 expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidatedfinancial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
THE HERTZ CORPORATION AND SUBSIDIARIES
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| | Calculation of Non-Program Depreciation on Revenue Earning Vehicles in the Americas Rental Car (“RAC”) Segment |
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Description of the Matter | | For the year ended December 31, 2022, total depreciation of revenue earning vehicles and lease charges, net in the Americas RAC segment was $553 million, including gains and losses on disposals. As discussed in Note 2 to the consolidated financial statements, depreciation rates are reviewed on a quarterly basis based on management’s ongoing assessment of present and estimated future market conditions, the effect of these conditions on residual values at the expected time of disposal and the estimated holding period for the revenue earning vehicles. The Company’s fleet is comprised of vehicles that are subject to and are not subject to vehicle repurchase programs (“program vehicles” and “non-program vehicles,” respectively). For program vehicles, the manufacturers guarantee a specified price or depreciation rate upon disposal, versus non-program vehicles where the Company estimates the residual value of the vehicle at the expected time of disposal. |
| | |
| | Auditing the Company’s calculation of depreciation for non-program vehicles related to the Americas RAC segment was complex due to the significant estimation uncertainty and management judgment to determine the estimated residual values at the expected time of disposal. The significant estimation uncertainty was primarily due to management’s assumptions related to market conditions and their effect on estimated residual values. Additionally, auditing the calculation of depreciation was challenging due to the volume of data inputs utilized in management’s calculation, including historical sales data from multiple sources at varying levels of disaggregation along with additional data specific to the Company’s current fleet. |
| | |
How We Addressed the Matter in Our Audit | | We obtained an understanding, evaluated the design and tested the operating effectiveness of internal controls over the Company’s measurement of depreciation expense for non-program vehicles related to the Americas RAC segment. For example, we tested controls over management’s quarterly review of the depreciation rates, which included their procedures to validate the completeness and accuracy of the data used in the calculation and their assessment of significant assumptions, specifically the estimated residual values of non-program vehicles related to the Americas RAC segment. |
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| | To test the depreciation calculation for non-program vehicles, our audit procedures included, among others, testing the completeness and accuracy of the underlying data by comparing historical sales data and vehicle information used in the calculation (e.g., make, model, trim) to external sources and the Company’s records. We evaluated the reasonableness of other significant assumptions, such as resale market conditions, to assess the reasonableness of the residual value estimates made by management. Additionally, we performed analytical procedures to evaluate historical gains and losses recognized upon disposal in order to retrospectively review the reasonableness of management’s estimates. |
| | |
| | Valuation of Self-insured Liabilities – Public Liability, Property Damage, and Liability Insurance Supplement |
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Description of the Matter | | As disclosed in Notes 2 and 15 to the consolidated financial statements, the Company is self-insured for public liability, property damage, general liability, liability insurance supplement, personal accident insurance, and workers' compensation. The Company records liabilities for these matters based on actuarial analyses of historical claim activity and estimates of both reported accident claims not yet paid, and claims incurred but not yet reported. The estimated self-insured liabilities as of December 31, 2022 were $472 million. The actuarial analyses that determine the claims incurred but not yet reported portion of the liability balances considers a variety of factors, including the frequency and severity of losses, changes in claim reporting and resolution patterns, insurance industry practices, the regulatory environment and legal precedent. The adequacy of the liabilities is regularly monitored based on evolving accident claim history and insurance related state legislation changes. If the Company’s estimates change or if actual results differ from these assumptions, the amount of the recorded liabilities are adjusted to reflect these results. |
THE HERTZ CORPORATION AND SUBSIDIARIES
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| | Auditing the public liability, property damage, and liability insurance supplement components of the self-insured liability reserves is complex and required the involvement of our actuarial specialists due to the significant valuation uncertainty associated with the estimates, management’s application of complex judgments, and the use of actuarial methods. In addition, the public liability, property damage, and liability insurance supplement self-insured liability reserve estimates are sensitive to management’s assumptions related to rental volume, actuarial evaluations of historical claim experience and trends, and future projections of ultimate losses used in the computation of these self-insured liabilities. |
| | |
How We Addressed the Matter in Our Audit | | We obtained an understanding, evaluated the design and tested the operating effectiveness of internal controls over the Company’s public liability, property damage, and liability insurance supplement self-insured liability estimation process. For example, we tested controls over management’s review of the assumptions outlined above that are used in these self-insured liability calculations and the completeness and accuracy of the data underlying these self-insured liabilities. |
| | |
| | To test the valuation of the public liability, property damage, and liability insurance supplement self-insured liability reserves, we performed audit procedures that included involving our internal actuarial specialists to assist us in developing an independent range and evaluating the methods used by management and the reasonableness of assumptions used in their models (e.g., actuarial evaluations of historical claim experience and future projections of ultimate losses). We compared the Company's reserve to estimates of the liability developed by our actuarial specialists based on the underlying claims data and independently selected assumptions. |
/s/ Ernst & Young LLP
We have served as the Company's auditor since 2019.
Tampa, Florida
February 7, 2023
THE HERTZ CORPORATION AND SUBSIDIARIES
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholder and the Board of Directors of The Hertz Corporation
Opinion on Internal Control Over Financial Reporting
We have audited The Hertz Corporation and subsidiaries’ internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, The Hertz Corporation and subsidiaries (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2022, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2022 and 2021, the related consolidated statements of operations, comprehensive income (loss), changes in stockholder’s equity (deficit) and cash flows for each of the three years in the period ended December 31, 2022, and the related notes and financial statement schedule listed in the Index at Item 15(a) and our report dated February 7, 2023 expressed an unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management's Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Ernst & Young LLP
Tampa, Florida
February 25, 2020
7, 2023
HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors
and Stockholders of
Hertz Global Holdings, Inc.
Opinion on the Financial Statements
We have audited the consolidated balance sheet of Hertz Global Holdings, Inc. and its subsidiaries (the “Company”) as of December 31, 2018,and the related consolidated statements of operations, comprehensive income (loss), changes in equity and cash flows for each of the two years in the period endedDecember 31, 2018, including the related notes and schedules of (i) condensed financial information of Hertz Global Holdings, Inc. as of December 31, 2018 and for each of the two years in the period ended December 31, 2018 and (ii) valuation and qualifying accounts for each of the two years in the period ended December 31, 2018 appearing under Item 8 (collectively referred to as the “consolidated financial statements”).
In our opinion, the consolidatedfinancial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2018, and the results of itsoperations and itscash flows for each of the two years in the period endedDecember 31, 2018in conformity with accounting principles generally accepted in the United States of America.
Change in Accounting Principle
As discussed in Note 2 to the consolidated financial statements, the Company changed the manner in which it accounts for revenues in 2018.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s consolidatedfinancial statements, before the effects of the adjustments described above, based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits of these consolidated financial statements, before the effects of the adjustments described above, in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidatedfinancial statements are free of material misstatement, whether due to error or fraud.
Our audits included performing procedures to assess the risks of material misstatement of the consolidatedfinancial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidatedfinancial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidatedfinancial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ PricewaterhouseCoopers LLP
Fort Lauderdale, Florida
February 25, 2019, except for the effects of the rights offering discussed in Note 16 and the changes to segment information disclosed in Note 17, as to which the date is February 25, 2020.
We served as the Company’s or its predecessor’s auditor from 1994 to 2019.
THE HERTZ CORPORATION AND SUBSIDIARIES
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholder and the Board of Directors of The Hertz Corporation
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheet of The Hertz Corporation and its subsidiaries (the Company) as of December 31, 2019, the related consolidated statements of operations, comprehensive income (loss), changes in equity and cash flows for the year then ended, and the related notes and consolidated financial statement schedule listed in the Index at Item 15(a) (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2019, and the results of its operations and its cash flows for the year then ended in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated February 25, 2020 expressed an unqualified opinion thereon.
Adoption of New Accounting Standard
As discussed in Note 2 to the consolidated financial statements, the Company changed its method of accounting for leases as a result of the adoption of Accounting Standards Update (ASU) No. 2016-02, Leases (Topic 842), and the related amendments effective January 1, 2019.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audit included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audit provides a reasonable basis for our opinion.
/s/ Ernst & Young LLP
We have served as the Company's auditor since 2019.
Tampa, Florida
February 25, 2020
THE HERTZ CORPORATION AND SUBSIDIARIES
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholder and the Board of Directors of The Hertz Corporation
Opinion on Internal Control Over Financial Reporting
We have audited The Hertz Corporation and subsidiaries’ internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, The Hertz Corporation and its subsidiaries (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2019, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheet of the Company as of December 31, 2019, the related consolidated statements of operations, comprehensive income (loss), changes in equity and cash flows for the year then ended, and the related notes and consolidated financial statement schedule listed in the Index at Item 15(a) and our report dated February 25, 2020 expressed an unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management's Report on Internal Control over Financial Reporting appearing under Item 9A. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
THE HERTZ CORPORATION AND SUBSIDIARIES
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Ernst & Young LLP
Tampa, Florida
February 25, 2020
THE HERTZ CORPORATION AND SUBSIDIARIES
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors
and Stockholder of
The Hertz Corporation
Opinion on the Financial Statements
We have audited the consolidated balance sheet of The Hertz Corporation and its subsidiaries(the “Company”) as of December 31, 2018,and the related consolidated statements of operations, comprehensive income (loss), changes in equity and cash flows for each of the two years in the period endedDecember 31, 2018, including the related notes and schedule of valuation and qualifying accounts for each of the three years in the period ended December 31, 2018 appearing under Item 8 (collectively referred to as the “consolidated financial statements”).
In our opinion, the consolidatedfinancial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2018, and the results of itsoperations and itscash flows for each of the two years in the period endedDecember 31, 2018in conformity with accounting principles generally accepted in the United States of America.
Change in Accounting Principle
As discussed in Note 2 to the consolidated financial statements, the Company changed the manner in which it accounts for revenues in 2018.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company's management.Our responsibility is to express an opinion on the Company’s consolidatedfinancial statements, before the effects of the adjustments described above, based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits of these consolidated financial statements, before the effects of the adjustments described above, in accordance with the standards of the PCAOB and in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidatedfinancial statements are free of material misstatement, whether due to error or fraud.
Our audits included performing procedures to assess the risks of material misstatement of the consolidatedfinancial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidatedfinancial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidatedfinancial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ PricewaterhouseCoopers LLP
Fort Lauderdale, Florida
February 25, 2019, except for the effects of the changes to segment information disclosed in Note 17, as to which the date is February 25, 2020.
We served as the Company’s auditor from 1994 to 2019.
HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In millions, except par value)value and share data) | | | | | | | | | | | |
| December 31, 2022 | | December 31, 2021 |
ASSETS | | | |
Cash and cash equivalents | $ | 943 | | | $ | 2,258 | |
Restricted cash and cash equivalents: | | | |
Vehicle | 180 | | | 77 | |
Non-vehicle | 295 | | | 316 | |
Total restricted cash and cash equivalents | 475 | | | 393 | |
Total cash and cash equivalents and restricted cash and cash equivalents | 1,418 | | | 2,651 | |
Receivables: | | | |
Vehicle | 111 | | | 62 | |
Non-vehicle, net of allowance of $45 and $48, respectively | 863 | | | 696 | |
Total receivables, net | 974 | | | 758 | |
Prepaid expenses and other assets | 1,155 | | | 1,017 | |
Revenue earning vehicles: | | | |
Vehicles | 14,281 | | | 10,836 | |
Less: accumulated depreciation | (1,786) | | | (1,610) | |
Total revenue earning vehicles, net | 12,495 | | | 9,226 | |
Property and equipment, net | 637 | | | 608 | |
Operating lease right-of-use assets | 1,887 | | | 1,566 | |
Intangible assets, net | 2,887 | | | 2,912 | |
Goodwill | 1,044 | | | 1,045 | |
Total assets(1) | $ | 22,497 | | | $ | 19,783 | |
LIABILITIES AND STOCKHOLDERS' EQUITY | | | |
Accounts payable: | | | |
Vehicle | $ | 79 | | | $ | 56 | |
Non-vehicle | 578 | | | 516 | |
Total accounts payable | 657 | | | 572 | |
Accrued liabilities | 911 | | | 863 | |
Accrued taxes, net | 170 | | | 157 | |
Debt: | | | |
Vehicle | 10,886 | | | 7,921 | |
Non-vehicle | 2,977 | | | 2,986 | |
Total debt | 13,863 | | | 10,907 | |
Public Warrants | 617 | | | 1,324 | |
Operating lease liabilities | 1,802 | | | 1,510 | |
Self-insured liabilities | 472 | | | 463 | |
Deferred income taxes, net | 1,360 | | | 1,010 | |
Total liabilities(1) | 19,852 | | | 16,806 | |
Commitments and contingencies | | | |
Stockholders' equity: | | | |
Preferred stock, $0.01 par value, no shares issued and outstanding | — | | | — | |
Common stock, $0.01 par value, 478,914,062 and 477,233,278 shares issued, respectively, and 323,483,178 and 449,782,424 shares outstanding, respectively | 5 | | | 5 | |
Treasury stock, at cost, 155,430,884 and 27,450,854 common shares, respectively | (3,136) | | | (708) | |
Additional paid-in capital | 6,326 | | | 6,209 | |
Retained earnings (Accumulated deficit) | (256) | | | (2,315) | |
Accumulated other comprehensive income (loss) | (294) | | | (214) | |
Total stockholders' equity | 2,645 | | | 2,977 | |
Total liabilities and stockholders' equity | $ | 22,497 | | | $ | 19,783 | |
|
| | | | | | | |
| December 31, 2019 | | December 31, 2018 |
ASSETS | | | |
Cash and cash equivalents | $ | 865 |
| | $ | 1,127 |
|
Restricted cash and cash equivalents: | | | |
Vehicle | 466 |
| | 257 |
|
Non-vehicle | 29 |
| | 26 |
|
Total restricted cash and cash equivalents | 495 |
| | 283 |
|
Total cash, cash equivalents, restricted cash and restricted cash equivalents | 1,360 |
| | 1,410 |
|
Receivables: | | | |
Vehicle | 791 |
| | 625 |
|
Non-vehicle, net of allowance of $35 and $27, respectively | 1,049 |
| | 962 |
|
Total receivables, net | 1,840 |
| | 1,587 |
|
Prepaid expenses and other assets | 689 |
| | 902 |
|
Revenue earning vehicles: | | | |
Vehicles | 17,085 |
| | 15,703 |
|
Less: accumulated depreciation | (3,296 | ) | | (3,284 | ) |
Total revenue earning vehicles, net | 13,789 |
| | 12,419 |
|
Property and equipment, net | 757 |
| | 778 |
|
Operating lease right-of-use assets | 1,871 |
| | — |
|
Intangible assets, net | 3,238 |
| | 3,203 |
|
Goodwill | 1,083 |
| | 1,083 |
|
Total assets(a) | $ | 24,627 |
| | $ | 21,382 |
|
LIABILITIES AND STOCKHOLDERS' EQUITY | | | |
Accounts payable: | | | |
Vehicle | $ | 289 |
| | $ | 284 |
|
Non-vehicle | 654 |
| | 704 |
|
Total accounts payable | 943 |
| | 988 |
|
Accrued liabilities | 1,186 |
| | 1,304 |
|
Accrued taxes, net | 150 |
| | 136 |
|
Debt: | | | |
Vehicle | 13,368 |
| | 11,902 |
|
Non-vehicle | 3,721 |
| | 4,422 |
|
Total debt | 17,089 |
| | 16,324 |
|
Operating lease liabilities | 1,848 |
| | — |
|
Public liability and property damage | 399 |
| | 418 |
|
Deferred income taxes, net | 1,124 |
| | 1,092 |
|
Total liabilities(a) | 22,739 |
| | 20,262 |
|
Commitments and contingencies |
|
| |
|
|
Stockholders' equity: | | | |
Preferred stock, $0.01 par value, no shares issued and outstanding | — |
| | — |
|
Common stock, $0.01 par value, 144 and 86 shares issued, respectively and 142 and 84 shares outstanding, respectively | 1 |
| | 1 |
|
Additional paid-in capital | 3,024 |
| | 2,261 |
|
Accumulated deficit | (967 | ) | | (909 | ) |
Accumulated other comprehensive income (loss) | (189 | ) | | (192 | ) |
Treasury stock, at cost, 2 shares and 2 shares, respectively | (100 | ) | | (100 | ) |
Stockholders' equity attributable to Hertz Global | 1,769 |
| | 1,061 |
|
Noncontrolling interests | 119 |
| | 59 |
|
Total stockholders' equity | 1,888 |
| | 1,120 |
|
Total liabilities and stockholders' equity | $ | 24,627 |
| | $ | 21,382 |
|
(a)(1) Hertz Global Holdings, Inc.'s consolidated total assets as of December 31, 20192022 and December 31, 20182021 include total assets of variable interest entities (“VIEs”("VIEs") of $1.3 billion and $1.0 billion,$734 million, respectively, which can only be used to settle obligations of the VIEs. Hertz Global Holdings, Inc.'s consolidated total liabilities as of December 31, 20192022 and December 31, 20182021 include total liabilities of VIEs of $1.1$1.3 billion and $947$733 million, respectively, for which the creditors of the VIEs have no recourse to Hertz Global Holdings, Inc. See "Special Purpose Entities""Pledges Related to Vehicle Financing" in Note 5,6, "Debt," and "767"Termination of 767 Auto Leasing LLC"Agreement" in Note 15, "Related Party Transactions,3, "Divestitures," for further information.
The accompanying notes are an integral part of these financial statements.
83
HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions, except per share data)
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| 2022 | | 2021 | | 2020 |
| | | | | |
| | | | | |
| | | | | |
Revenues | $ | 8,685 | | | $ | 7,336 | | | $ | 5,258 | |
Expenses: | | | | | |
Direct vehicle and operating | 4,808 | | | 3,920 | | | 3,423 | |
Depreciation of revenue earning vehicles and lease charges, net | 701 | | | 497 | | | 2,030 | |
Non-vehicle depreciation and amortization | 142 | | | 196 | | | 225 | |
Selling, general and administrative | 959 | | | 688 | | | 645 | |
Interest expense, net: | | | | | |
Vehicle | 159 | | | 284 | | | 455 | |
Non-vehicle (excludes contractual interest of $129 million for the year ended December 31, 2020) | 169 | | | 185 | | | 153 | |
Interest expense, net | 328 | | | 469 | | | 608 | |
Technology-related intangible and other asset impairments | — | | | — | | | 213 | |
Other (income) expense, net | 2 | | | (21) | | | (9) | |
Reorganization items, net | — | | | 677 | | | 175 | |
(Gain) from the sale of a business | — | | | (400) | | | — | |
Change in fair value of Public Warrants | (704) | | | 627 | | | — | |
Total expenses | 6,236 | | | 6,653 | | | 7,310 | |
Income (loss) before income taxes | 2,449 | | | 683 | | | (2,052) | |
Income tax (provision) benefit | (390) | | | (318) | | | 329 | |
Net income (loss) | 2,059 | | | 365 | | | (1,723) | |
Net (income) loss attributable to noncontrolling interests | — | | | 1 | | | 9 | |
Net income (loss) attributable to Hertz Global | 2,059 | | | 366 | | | (1,714) | |
Series A Preferred Stock deemed dividends | — | | | (450) | | | — | |
Net income (loss) available to Hertz Global common stockholders | $ | 2,059 | | | $ | (84) | | | $ | (1,714) | |
| | | | | |
Weighted-average common shares outstanding: | | | | | |
Basic | 379 | | | 315 | | | 150 | |
Diluted | 403 | | | 315 | | | 150 | |
Earnings (loss) per common share: | | | | | |
Basic | $ | 5.43 | | | $ | (0.27) | | | $ | (11.44) | |
Diluted | $ | 3.36 | | | $ | (0.27) | | | $ | (11.44) | |
|
| | | | | | | | | | | |
| Years Ended December 31, |
| 2019 | | 2018 | | 2017 |
Revenues: | | | | | |
Worldwide vehicle rental | $ | 9,107 |
| | $ | 8,756 |
| | $ | 8,163 |
|
All other operations | 672 |
| | 748 |
| | 640 |
|
Total revenues | 9,779 |
| | 9,504 |
| | 8,803 |
|
Expenses: | | | | | |
Direct vehicle and operating | 5,486 |
| | 5,355 |
| | 4,958 |
|
Depreciation of revenue earning vehicles and lease charges | 2,565 |
| | 2,690 |
| | 2,798 |
|
Selling, general and administrative | 969 |
| | 1,017 |
| | 880 |
|
Interest expense, net: | | | | | |
Vehicle | 494 |
| | 448 |
| | 331 |
|
Non-vehicle | 311 |
| | 291 |
| | 306 |
|
Total interest expense, net | 805 |
| | 739 |
| | 637 |
|
Goodwill and intangible asset impairments | — |
| | — |
| | 86 |
|
Other (income) expense, net | (59 | ) | | (40 | ) | | 19 |
|
Total expenses | 9,766 |
| | 9,761 |
| | 9,378 |
|
Income (loss) before income taxes | 13 |
| | (257 | ) | | (575 | ) |
Income tax (provision) benefit | (63 | ) | | 30 |
| | 902 |
|
Net income (loss) | (50 | ) | | (227 | ) | | 327 |
|
Net (income) loss attributable to noncontrolling interests | (8 | ) | | 2 |
| | — |
|
Net income (loss) attributable to Hertz Global | $ | (58 | ) | | $ | (225 | ) | | $ | 327 |
|
Weighted-average shares outstanding: | | | | | |
Basic | 117 |
| | 96 |
| | 95 |
|
Diluted | 117 |
| | 96 |
| | 95 |
|
Earnings (loss) per share: | | | | | |
Basic earnings (loss) per share | $ | (0.49 | ) | | $ | (2.35 | ) | | $ | 3.44 |
|
Diluted earnings (loss) per share | $ | (0.49 | ) | | $ | (2.35 | ) | | $ | 3.44 |
|
The accompanying notes are an integral part of these financial statements.
8384
HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In millions)
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| 2022 | | 2021 | | 2020 |
Net income (loss) | $ | 2,059 | | | $ | 365 | | | $ | (1,723) | |
Other comprehensive income (loss): | | | | | |
Foreign currency translation adjustments | (76) | | | (36) | | | (19) | |
Net gain (loss) on pension and postretirement benefit plans | (17) | | | 25 | | | (11) | |
Reclassification from other comprehensive income (loss) to other (income) expense for amortization of actuarial net losses | 7 | | | 15 | | | 13 | |
Total other comprehensive income (loss) before income taxes | (86) | | | 4 | | | (17) | |
Income tax (provision) benefit related to pension and postretirement benefit plans | 7 | | | (3) | | | (4) | |
Income tax (provision) benefit related to reclassified amounts of net periodic costs on pension and postretirement benefit plans | (1) | | | (3) | | | (2) | |
Total other comprehensive income (loss) | (80) | | | (2) | | | (23) | |
Total comprehensive income (loss) | 1,979 | | | 363 | | | (1,746) | |
Comprehensive (income) loss attributable to noncontrolling interests | — | | | 1 | | | 9 | |
Comprehensive income (loss) attributable to Hertz Global | $ | 1,979 | | | $ | 364 | | | $ | (1,737) | |
|
| | | | | | | | | | | |
| Years Ended December 31, |
| 2019 | | 2018 | | 2017 |
Net income (loss) | $ | (50 | ) | | $ | (227 | ) | | $ | 327 |
|
Other comprehensive income (loss): |
|
| | | | |
Foreign currency translation adjustments | 6 |
| | (34 | ) | | 14 |
|
Reclassification of foreign currency items to other (income) expense, net | — |
| | (1 | ) | | 8 |
|
Reclassification of realized gain on securities to other (income) expense | — |
| | — |
| | (3 | ) |
Net gain (loss) on defined benefit pension plans | (11 | ) | | (44 | ) | | 40 |
|
Reclassification from other comprehensive income (loss) to selling, general and administrative expense for amortization of actuarial (gains) losses on defined benefit pension plans | — |
| | — |
| | 6 |
|
Reclassification from other comprehensive income (loss) to other (income) expense for amortization of actuarial (gains) losses on defined benefit pension plans | 11 |
| | 5 |
| | — |
|
Total other comprehensive income (loss) before income taxes | 6 |
| | (74 | ) | | 65 |
|
Income tax (provision) benefit related to net gains and losses on defined benefit pension plans | (1 | ) | | 12 |
| | (10 | ) |
Income tax (provision) benefit related to reclassified amounts of net periodic costs on defined benefit pension plans | (2 | ) | | (1 | ) | | (2 | ) |
Total other comprehensive income (loss) | 3 |
| | (63 | ) | | 53 |
|
Total comprehensive income (loss) | (47 | ) | | (290 | ) | | 380 |
|
Comprehensive (income) loss attributable to noncontrolling interests | (8 | ) | | 2 |
| | — |
|
Comprehensive income (loss) attributable to Hertz Global | $ | (55 | ) | | $ | (288 | ) | | $ | 380 |
|
The accompanying notes are an integral part of these financial statements.
8485