HERC HOLDINGS INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Unaudited

Note 1—Background

Herc Holdings Inc. ("we," "us," "our," "Herc Holdings,"or "the Company" ~~or, as the context requires, "its"~~) is one of the leading equipment rental suppliers with approximately ~~275 company-operated~~270 locations ~~at September 30, 2017, principally~~ in North ~~America.~~America at June 30, 2020. The Company conducts substantially all of its operations through subsidiaries, including Herc Rentals Inc. ("Herc"). ~~Operations are conducted under~~With over 50 years of experience, the ~~Herc Rentals brand in the United States and under the Hertz Equipment Rental brand in Canada and other international locations. The~~ Company ~~has been in the equipment rental business since 1965 and~~ is a full-line equipment rental supplier ~~in key markets, including commercial~~offering a broad portfolio of equipment for rent. In addition to its principal business of equipment rental, the Company sells used equipment and ~~residential~~contractor supplies such as construction ~~industrial~~consumables, tools, small equipment and ~~manufacturing, civil infrastructure, automotive, government~~safety supplies; provides repair, maintenance, equipment management services and ~~municipalities, energy, remediation, emergency response, facilities, entertainment~~safety training to certain of its customers; offers equipment re-rental services and ~~agriculture,~~provides on-site support to its customers; and provides ancillary services such as ~~well as refineries~~equipment transport, rental protection, cleaning, refueling and ~~petrochemicals.~~ labor.

The Company's classic fleet includes aerial, earthmoving, material handling, trucks and trailers, air compressors, compaction and lighting. The Company's equipment rental business is supported by ProSolutions^TMR, ~~the Company's~~its industry-specific solutions-based services, which includes power generation, climate control, remediation and restoration, and studio and production equipment, and its ProContractor ~~its~~ professional grade ~~tools, commercial vehicles, and pump, power and climate control product offerings.~~tools.

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

For accounting purposes, due to the relative significance of New Hertz to Hertz Holdings, New Hertz was considered the spinnor or divesting entity in the Spin-Off and Herc Holdings was considered the spinnee or divested entity. As a result, despite the legal form of the transaction, New Hertz was the "accounting successor" to Hertz Holdings. Under the accounting rules, the historical financial information of New Hertz is required to reflect the financial information of Hertz Holdings, as if New Hertz spun off Herc Holdings in the Spin-Off. In contrast, the historical financial information of Herc Holdings, for the first half of 2016 which is included in certain information presented in these condensed consolidated financial statements, reflects the financial information of the equipment rental business and certain parent legal entities of Herc as historically operated as part of Hertz Holdings, as if Herc Holdings was a stand-alone company for such period. The historical financial information of Herc Holdings presented in these condensed consolidated financial statements is not necessarily indicative of what Herc Holdings’ financial position or results of operations actually would have been had Herc Holdings operated as a separate, independent company for all periods presented.

Note 2—Basis of Presentation and Recently Issued Accounting Pronouncements

Basis of Presentation

The Company prepares its condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States of America ("U.S. GAAP"). In the opinion of management, the condensed consolidated financial statements reflect all adjustments of a normal recurring nature that are necessary for a fair statement of the results for the interim periods presented. Interim results are not necessarily indicative of results for a full year. The year-end condensed consolidated balance sheet data was derived from audited financial statements, ~~but does~~however, these condensed consolidated financial statements do not include all of the disclosures required byfor complete annual financial statements and, accordingly, certain information, footnotes and disclosures normally included in annual financial statements, prepared in accordance with U.S. ~~GAAP.~~GAAP, have been condensed or omitted in accordance with Securities and Exchange Commission ("SEC") rules and regulations. The Company believes that the disclosures made are adequate to make the information not misleading. Accordingly, the condensed consolidated financial statements should be read in conjunction with the Company's audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019, filed with the SEC on February 27, 2020.

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and footnotes. Actual results could differ materially from those estimates.

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

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HERC HOLDINGS INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Unaudited

Since the Spin-Off occurred on June 30, 2016, the financial statements included in this Quarterly Report on Form 10-Q (this "Report") represent the carve-out financial results for the first six months of 2016 and the actual results for the three months ended September 30, 2016.

Principles of Consolidation

The condensed consolidated financial statements include the accounts of Herc Holdings and its wholly owned subsidiaries. In the event that the Company is a primary beneficiary of a variable interest entity, the assets, liabilities and results of operations of the variable interest entity are included in the Company's condensed consolidated financial statements. The Company accounts for ~~its~~ investments in joint ventures using the equity method when it has significant influence but not control and is not the primary beneficiary. All significant intercompany transactions have been eliminated in consolidation.

~~Transactions between~~Impacts of COVID-19

In December 2019, a novel strain of coronavirus (COVID-19) was identified in China and has since spread globally. In March 2020, the World Health Organization characterized COVID-19 as a pandemic. Federal, state and local efforts to contain the spread of COVID-19 intensified in March 2020 when most states in the United States, including Florida where the Company is headquartered, enacted shelter in place orders, declared states of emergency, took steps to restrict travel, enacted temporary closures of non-essential businesses and ~~THC and its affiliates prior~~took other restrictive measures in response to the ~~Spin-Off are herein referred~~COVID-19 pandemic. The Company's business was deemed essential and was allowed to remain open, however, many industries in which its customers operate were required to temporarily close their facilities or delay or cancel projects and events. The Company has reduced its capital spending in the short-term and, where possible, and is also reducing operating expenses while ensuring ongoing safe and reliable operations. Additionally, as ~~“related party” or “affiliated” transactions. Effective with~~ the ~~Spin-Off on June 30, 2016, all transactions with THC~~timing of the removal of these measures and ~~its affiliates were settled and paid in full. Effective upon~~ the ~~Spin-Off,~~residual economic impact of the pandemic remains unclear, the Company ~~entered into certain agreements with New Hertz, including~~is currently experiencing a ~~transition services agreement ("TSA"). See Note 15, "Arrangements with New Hertz" for further information.~~

~~For periods prior~~year-over-year decrease in volume of fleet on rent and this reduction in volume is likely to ~~the Spin-Off, the condensed consolidated financial statements include net interest expense~~have a negative impact on loans receivable and payable to affiliates and expense allocations for certain corporate functions historically performed by THC, including, but not limited to, general corporate expenses related to finance, legal, information technology, human resources, communications, employee benefits and incentives, insurance and stock-based compensation. These expenses were allocated to the Company on the basis of direct usage when identifiable, with the remainder allocated on the basis of revenues, operating expenses, headcount or other relevant measures. Management believes the assumptions underlying the condensed consolidated financial statements, including the assumptions regarding the allocation of corporate expenses from THC, are reasonable. Nevertheless, the condensed consolidated financial statements may not include allequipment rental revenue. The impact of the ~~expenses~~COVID-19 pandemic continues to evolve as state and local governments are re-opening businesses in multiple phases and, in certain jurisdictions, reversing re-opening decisions. Therefore, we cannot predict the extent to which our financial condition, results of operations or cash flows will ultimately be impacted.

Recently Issued Accounting Pronouncements

Adopted

Fair Value Measurement

In August 2018, the Financial Accounting Standards Board ("FASB") issued new guidance that ~~would~~modifies disclosure requirements on fair value measurements, removing and modifying certain disclosures, while adding other disclosures. The guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019, with early adoption permitted. The Company adopted the new guidance on its effective date and it did not have ~~been incurred had~~a material impact on its financial statement disclosures.

Measurement of Credit Losses on Financial Instruments

In June 2016, the ~~Company been a stand-alone company during~~FASB issued guidance that requires companies to present assets held at amortized cost and available for sale debt securities net of the amount expected to be collected. The guidance requires the measurement of expected credit losses to be based on relevant information from past events, including historical experiences, current conditions and reasonable and supportable forecasts that affect collectibility. The guidance is effective for fiscal years, and interim periods ~~presented~~within those fiscal years, beginning after December 15, 2019 with early adoption permitted. Different components of the guidance require modified retrospective or prospective adoption. This guidance does not apply to receivables arising from operating leases and, ~~may not reflect~~as discussed in Note 3, "Revenue Recognition," most of the Company's ~~condensed consolidated~~equipment rental revenue is accounted for as lease revenue under Accounting Standards Codification("ASC") Topic 842, Leases, ("Topic 842"). The Company adopted this guidance on its effective date and there was no material impact on its financial position, results of operations ~~and~~or cash ~~flows had~~flows.

Simplifying the ~~Company been a stand-alone company during~~Accounting for Income Taxes

In December 2019, the ~~periods presented. Actual costs~~FASB issued guidance that ~~would have been incurred if~~simplifies the Company had been a stand-alone company would have depended on multiple factors, including organizational structure and strategic decisions made in various areas, including information technology and infrastructure. For additional information related to costs allocatedaccounting for income taxes. The guidance removes the following exceptions: (i) exceptions to the ~~Company by THC, see Note 14, "Related Party Transactions."~~

~~Reclassification of Prior Period Presentation~~

~~Certain prior period amounts have been reclassified~~approach for ~~consistency with the current period presentation. These reclassifications had no effect on the reported condensed consolidated balance sheets, results of~~intraperiod tax allocation when there is a loss from continuing operations ~~equity~~and income or ~~cash flows for any period presented.~~

~~Correction of Errors~~

~~The Company revised its condensed consolidated statement of operations for the nine months ended September 30, 2016 to correct the recording of $3.0 million of expense~~a gain from ~~direct operating expense into selling, general and administrative expense, which did not impact net income. The correction resulted from incorrect mapping of certain expense accounts~~other items, (ii) exception to the ~~financial statement line items.~~

~~During the first quarter of 2017, the Company identified~~requirement to recognize a deferred tax liability for equity method investments when a foreign subsidiary becomes an error related to its classification of certain restricted cash. Accordingly, the Company revised its consolidated balance sheet as of December 31, 2016 to correct the classification of $12.4 million from restricted cash to cash and cash equivalents as the cash was determined to be available for use in general operations. This correction also impacted the condensed consolidated statements of cash flows for the nine months ended September 30, 2016 by increasing cash used in investing activities by $7.6 million and increasing cash and cash equivalents at the beginning and end of the period by $9.0 million and $1.4 million, respectively. The Company will also correct its previously reported financial statements in its future filings. The Company assessed the materiality of the error from qualitative and quantitative perspectives and concluded the adjustments were not material to its previously issued annual and interim financial statements. There was no impact of this errorequity method investment, (iii) exception to the condensed consolidated statements of operations, condensed consolidated statements of other comprehensive income (loss) or condensed consolidated statement of equity presented in this Report or for any period.

ability not to

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Unaudited

~~Recently Issued Accounting Pronouncements~~

~~Adopted~~

~~Simplifying~~recognize a deferred tax liability for a foreign subsidiary when a foreign equity method investment becomes a subsidiary and (iv) exception to the ~~Subsequent Measurement~~general methodology for calculating income taxes in an interim period when a year-to-date loss exceeds the anticipated loss for the year. Additionally, the guidance simplifies the accounting for income taxes by: (i) requiring that an entity recognize a franchise tax (or similar tax) that is partially based on income as an income-based tax and account for any incremental amount incurred as a non-income-based tax, (ii) requiring that an entity evaluate when a step up in the tax basis of ~~Inventory~~

~~In July 2015,~~goodwill should be considered part of the ~~Financial Accounting Standards Board ("FASB") issued guidance~~business combination in which the book goodwill was originally recognized and when it should be considered a separate transaction, (iii) specifying that ~~requires inventory~~an entity is not required to ~~be measured at~~allocate the ~~lower~~consolidated amount of ~~cost~~current and ~~net realizable value (rather than cost~~deferred tax expense to a legal entity that is not subject to tax in its separate financial statements (although the entity may elect to do so (on an entity-by-entity basis) for a legal entity that is both not subject to tax and disregarded by the taxing authority), (iv) requiring that an entity reflect the effect of an enacted change in tax laws or ~~market), excluding inventory measured~~rates in the annual effective tax rate computation in the interim period that includes the enactment date and (v) making minor improvements for income tax accounting related to employee stock ownership plans and investments in qualified affordable housing projects accounted for using the ~~last-in, first-out method or the retail inventory~~equity method. ~~Net realizable value is defined as the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation.~~ The Company early adopted this guidance on January 1, ~~2017 in accordance with the effective date. Adoption of this guidance did not~~2020 and there was no material impact ~~the Company's~~on its financial position, results of operations or cash flows.

~~Simplifying the Transition to the Equity Method of Accounting~~Not Yet Adopted

Compensation - Retirement Benefits

In ~~March 2016,~~August 2018, the FASB issued guidance that ~~eliminates the requirement~~adds, removes, and modifies disclosure requirements related to apply the equity method of accounting retrospectively when significant influence over a previously held investment is obtained. Rather, the guidance requires the investor to add the cost of acquiring the additional interestdefined benefit pension and other postretirement plans in the investee to the current basis of the investor’s previously held interest and adopt the equity method of accounting as of the date the investment becomes qualified for equity method of accounting. The Company adopted this guidance on January 1, 2017 in accordance with the effective date. Adoption of this guidance did not impact the Company's financial position, results of operations or cash flows.

~~Improvements to Employee Share-Based Payment Accounting~~

In March 2016, the FASB issued guidance that simplifies several areas of employee share-based payment accounting, including: (i) eliminating tracking of tax "windfalls" in a separate pool within additional paid-in capital; instead, excess tax benefits and tax deficiencies are recorded within income tax expense; (ii) eliminating the requirement that excess tax benefits be realized before they can be recognized, which is required to be recorded as an adjustment to opening retained earnings; however, the impact to the Company upon adoption was immaterial; (iii) presentation of excess tax benefits as an operating activity on the statement of cash flows, which had no impact on the Company; (iv) presentation of employee taxes paid directly to a taxing authority when directly withholding shares for tax-withholding purposes as a financing activity on the statement of cash flows, which had no impact as the Company has historically followed this presentation and (v) making a policy election regarding treatment of forfeitures, with respect to which the Company will continue to estimate forfeitures. The Company adopted this guidance on January 1, 2017 in accordance with the effective date. Adoption of this guidance did not impact the Company's consolidated statement of operations.

~~Improvements to Accounting for Hedging Activities~~

~~In August 2017, the FASB issued guidance that amends the hedge accounting recognition and presentation requirements~~order to improve the ~~transparency and understandability of information conveyed to the financial statement users about an entity’s risk management activities.~~disclosure effectiveness. The guidance is effective for fiscal years beginning after December 15, ~~2018~~2020 and ~~interim~~should be applied on a retrospective basis to all periods ~~therein; however,~~presented, with early adoption is permitted. The Company ~~adopted~~expects to adopt the new and modified disclosures requirements of this new guidance on its effective date.

Note 3—Revenue Recognition

The Company is principally engaged in the ~~third quarter~~business of ~~2017 using a modified retrospective approach, as required, which did not have a significant impact on~~renting equipment. Ancillary to the Company’s principal equipment rental business, the Company also sells used rental equipment, new equipment and parts and supplies and offers certain services to support its ~~financial position, results~~customers. The Company operates in North America with revenue from the United States representing approximately 92.0% and 90.9% of ~~operations or cash flows.~~total revenue for the three and six months ended June 30, 2020, respectively, compared to 89.7% and 89.2% for the same periods in 2019.

~~Not Yet Adopted~~

The Company’s rental transactions are accounted for under Topic 842. The Company’s sale of rental and new equipment, parts and supplies along with certain services provided to customers are accounted for under ASC Topic 606, Revenue from Contracts with Customers,

~~In May 2014,~~ ("Topic 606"). The Company recognizes revenue when it satisfies a performance obligation by transferring control over a product or service to a customer. The amount of revenue recognized reflects the FASB issued guidance that will replace most existing revenue recognition guidance in U.S. GAAP. The new guidance applies to all contracts with customers except for leases, insurance contracts, financial instruments, certain nonmonetary exchanges and certain guarantees. The core principle ofconsideration the ~~guidance is that an entity should recognize revenue for the transfer of goods or services equal to the amount that it~~Company expects to be entitled to ~~receive~~in exchange for ~~those goods~~such products or services. The new principles-based revenue recognition model requires an entity to perform five steps in its analysis: (i) identify the contract(s) with a customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations in the contract, and (v) recognize revenue when (or as) the entity satisfies a performance obligation. Under the new guidance, performance obligations in a contract will be separately identified, which may impact the timing of recognition

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Unaudited

The following tables summarizes the applicable accounting guidance for the Company’s revenues for the three and six months ended June 30, 2020 and 2019 (in millions):


	Three Months Ended June 30,
	2020										2019
	Topic 842		Topic 606		Total		Topic 842		Topic 606		Total
Revenues:
Equipment rental	$	298.0	$	—	$	298.0	$	371.5	$	—	$	371.5
Other rental revenue:
Delivery and pick-up	—		17.9		17.9		—		24.1		24.1
Other	11.7		—		11.7		12.0		—		12.0
Total other rental revenues	11.7		17.9		29.6		12.0		24.1		36.1
Total equipment rentals	309.7		17.9		327.6		383.5		24.1		407.6
Sales of rental equipment	—		31.4		31.4		—		51.3		51.3
Sales of new equipment, parts and supplies	—		7.0		7.0		—		13.2		13.2
Service and other revenues	—		2.0		2.0		—		3.0		3.0
Total revenues	$	309.7	$	58.3	$	368.0	$	383.5	$	91.6	$	475.1


	Six Months Ended June 30,
	2020										2019
	Topic 842		Topic 606		Total		Topic 842		Topic 606		Total
Revenues:
Equipment rental	$	651.5	$	—	$	651.5	$	718.2	$	—	$	718.2
Other rental revenue:
Delivery and pick-up	—		38.8		38.8		—		44.0		44.0
Other	23.8		—		23.8		23.0		—		23.0
Total other rental revenues	23.8		38.8		62.6		23.0		44.0		67.0
Total equipment rentals	675.3		38.8		714.1		741.2		44.0		785.2
Sales of rental equipment	—		71.4		71.4		—		136.4		136.4
Sales of new equipment, parts and supplies	—		14.0		14.0		—		24.1		24.1
Service and other revenues	—		4.7		4.7		—		5.1		5.1
Total revenues	$	675.3	$	128.9	$	804.2	$	741.2	$	209.6	$	950.8

Topic 842 revenues

Equipment Rental Revenue

The Company offers a broad portfolio of equipment for rent on a daily, weekly or monthly basis, with most rental agreements cancelable upon the return of the equipment. Virtually all customer contracts can be canceled by the customer with no penalty by returning the equipment within one day; therefore, the Company does not allocate the transaction price between the different contract elements.

Equipment rental revenue ~~allocated~~includes revenue generated from renting equipment to ~~each obligation. The measurement~~customers and is recognized on a straight-line basis over the length of the rental contract. As part of this straight-line methodology, when the equipment is returned, the Company recognizes as incremental revenue the excess, if any, between the amount the customer is contractually required to pay, which is based on the rental contract period applicable to the actual number of days the equipment was out on rent, over the cumulative amount of revenue recognized ~~may also~~to date. In any given accounting period, the Company will have customers return equipment and be ~~impacted by identification of new performance obligations and other matters, such as collectability and variable consideration. Also, additional disclosures are~~contractually required ~~about~~to pay more than the ~~nature,~~cumulative amount ~~timing and uncertainty~~ of revenue ~~and cash flows arising from customer contracts, including significant judgments and changes~~recognized to date under the straight-line methodology. Also included in judgments. The new guidance may be adopted on either a full or modified retrospective basis. As originally issued, the guidance was effective for annual reporting periods beginning after December 15, 2016, including interim periods within those reporting periods. However in July 2015, the FASB agreed to defer the effective date until annual and interim reporting periods beginning after December 15, 2017.

In March 2016, the FASB issued clarifying guidance on assessing whether an entity is a principal or an agent in a revenue transaction, which impacts whether an entity reports revenue on a gross or net basis. In April 2016, the FASB issued guidance that reduces the complexity for identifying performance obligations and clarifies the implementation guidance on licensing for intellectual property. In May 2016, the FASB issued guidance that clarifies the collectability criterion, the presentation of sales taxes and non-cash consideration, and provides additional implementation practical expedients.

~~The Company believes the accounting for~~ equipment rental revenue is ~~primarily outside of the scope of the new~~re-rent revenue ~~guidance and will be evaluated under the new lease guidance,~~in which is described further under the heading "Leases" below. The Company's review of its revenue accounting with respect to sales of revenue earning equipment, sales of new equipment, parts and supplies and service and other revenues is ongoing; however, the Company ~~does not believe this guidance~~ will have a significant impact on its financial statements. The Company anticipates adopting the new revenue guidance using the modified retrospective approach, but a final determination on the selected adoption approach has not yet been made. Additionally, the Company is evaluating the disclosure requirements of the new revenue guidance, as well as its impact on the Company's internal control over financial reporting.

~~Leases~~

In February 2016, the FASB issued guidance that replaces the existing lease guidance. The new guidance establishes a right-of-use (“ROU”) model that requires a lessee to record a ROU asset and lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. This guidance also expands the requirements for lessees to record leases embedded in other arrangements and the required quantitative and qualitative disclosures surrounding leases. Accounting guidance for lessors is largely unchanged. This guidance is effective for annual periods beginning after December 15, 2018 and interim periods within those annual periods using a modified retrospective transition approach. The Company is in the process of assessing the potential impacts of adopting this guidance on its financial position, results of operations and cash flows.

~~Statement of Cash Flows: Classification of Certain Cash Receipts and Cash Payments~~

In August 2016, the FASB issued guidance to eliminate the diversity in practice related to the classification of certain cash receipts and payments in the statement of cash flows, by adding or clarifying guidance on eight specific cash flow issues. This guidance is effective for annual and interim reporting periods beginning after December 15, 2017, with early adoption permitted. The Company plans to adopt this guidance upon its effective date of January 1, 2018 and is in the process of evaluating the potential impacts of adopting this guidance on its consolidated statements of cash flows.

~~Statement of Cash Flows: Restricted Cash~~

In November 2016, the FASB issued guidance requiring restricted cash and cash equivalents to be included with cash and cash equivalents on the statement of cash flows. This guidance is effective for annual and interim reporting periods beginning after December 15, 2017, with early adoption permitted. The Company plans to adopt this guidance upon its effective date of January 1, 2018 and does not expect the guidance to have a significant impact on its cash flows.

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

In October 2016, the FASB issued guidance requiring an entity to recognize upon transfer the income tax consequences of an intra-entity transfer of an asset other than inventory, eliminating the current recognition exception. Two common examples of assets included in the scope of this standard are intellectual property and property, plant and equipment. This guidance is effective for annual and interim reporting periods beginning after December 15, 2017. The Company plans to adopt this guidance upon itsrent

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Unaudited

~~effective date~~specific pieces of ~~January 1, 2018~~equipment from vendors and isthen re-rent that equipment to its customers. Provisions for discounts, rebates to customers and other adjustments are provided for in the ~~process~~period the related revenue is recorded.

Other

Other equipment rental revenue is primarily comprised of ~~evaluating~~fees for the ~~potential impacts~~Company’s rental protection program and environmental charges. Fees paid for the rental protection program allow customers to limit the risk of ~~adopting this guidance~~financial loss in the event the Company’s equipment is damaged or lost. Fees for the rental protection program and environmental recovery fees are recognized on ~~its financial position, results of operations and cash flows.~~

~~Simplifying~~a straight-line basis over the ~~Test for Goodwill Impairment~~

~~In January 2017, the FASB issued guidance to simplify the subsequent measurement of goodwill by removing the second step~~length of the ~~two-step impairment test. The guidance requires that an entity recognize an impairment charge for~~rental contract.

Topic 606 revenues

Delivery and pick-up

Delivery and pick-up revenue associated with renting equipment is recognized when the ~~amount by which the carrying amount~~services are performed.

Sales of ~~the reporting unit exceeds the reporting unit’s fair value. This guidance is effective for annual~~Rental Equipment, New Equipment, Parts and ~~interim periods beginning after December 15, 2019, with early adoption permitted.~~ Supplies

The Company ~~plans to adopt the~~sells its used rental equipment, new ~~guidance in the fourth quarter of 2017 when it performs its annual goodwill impairment test~~equipment, parts and supplies. Revenues recorded for each category are as ~~of October 1, 2017. Adoption of the guidance will not impact the Company's financial position, results of operations or cash flows.~~

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

In March 2017, the FASB issued guidance on the presentation of net periodic pension and postretirement benefit costs in the income statement and on the components eligible for capitalization. The guidance requires the reporting of the service cost component of the net periodic benefit costs in the same income statement line item as other components of net periodic costs arising from services rendered by an employee during the period, and that non-service-cost components be presented in the income statement separately from the service cost components and outside a subtotal of income from operations. The guidance also allows for the capitalization of the service cost components, when applicable. This guidance is effective for annual and interim periods beginning after December 15, 2017. The Company plans to adopt this guidance upon its effective date of January 1, 2018. Adoption of this guidance will not have a significant impact on the Company's results of operations.

~~Compensation - Stock Compensation~~

In May 2017, the FASB issued guidance pursuant to which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting. Under the updated guidance, a modification is defined as a change in the terms or conditions of a share-based payment award, and an entity should account for the effects of a modification unless all of the following are met:


1.	The fair value of the modified award is the same as the fair value of the original award immediately before the original award is modified. If the modification does not affect any of the inputs to the valuation techniques that the entity uses to value the award, the entity is not required to estimate the value immediately before and after the modification.


2.	~~The vesting conditions of the modified award are the same as the vesting conditions of the original award immediately before the original award is modified.~~


3.	~~The classification of the modified award as an equity instrument or a liability instrument is the same as the classification of the original award immediately before the original award is modified.~~

This guidance requires prospective adoption and is effective for annual and interim periods beginning after December 15, 2017, with early adoption permitted. The Company plans to adopt this guidance upon its effective date of January 1, 2018 and does not expect the guidance to have a significant impact on its financial position, results of operations or cash flows.

~~Note 3—Revenue Earning Equipment~~

~~Revenue earning equipment consists of the following~~follows (in millions):


	Three Months Ended June 30,						Six Months Ended June 30,
	2020		2019		2020		2019
Sales of rental equipment	$	31.4	$	51.3	$	71.4	$	136.4
Sales of new equipment	3.1		6.7		6.1		11.2
Sales of parts and supplies	3.9		6.5		7.9		12.9
Total	$	38.4	$	64.5	$	85.4	$	160.5

September 30, 2017 December 31, 2016
Revenue earning equipment $ 3,858.1
$ 3,695.5
Less: Accumulated depreciation (1,392.6 ) (1,305.5 )
Revenue earning equipment, net $ 2,465.5
$ 2,390.0

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

~~During~~The Company routinely sells its used rental equipment in order to manage repair and maintenance costs, as well as the ~~second quarter~~composition, age and size of ~~2017,~~its fleet. The Company disposes of used equipment through a variety of channels including retail sales to customers and other third parties, sales to wholesalers, brokered sales and auctions.

The Company also sells new equipment, parts and supplies. The types of new equipment that the Company ~~deemed certain~~sells vary by location and include a variety of ProContractor tools and supplies, small equipment (such as work lighting, generators, pumps, compaction equipment and power trowels), safety supplies and expendables.

Under Topic 606, the accounts receivable balance, prior to allowances for doubtful accounts, for the sale of rental equipment, new equipment, parts and supplies, was approximately $13.2 million and $15.6 million as of June 30, 2020 and December 31, 2019, respectively.

Service and other revenues

Service and other revenues primarily include revenue ~~earning~~earned from equipment management and similar services for rental customers which includes providing customer support functions such as dedicated in-plant operations, plant management services, equipment and safety training, and repair and maintenance services particularly to industrial customers who request such services.

The Company recognizes revenue for service and other revenues as the services are provided. Service and other revenues are typically invoiced together with a ~~net book value of approximately $3.8 million,~~customer’s rental amounts and, therefore, it is not practical for the Company to ~~be held for sale and reclassified such equipment~~separate the accounts receivable amount related to ~~"Prepaid~~services and other ~~current assets" in the condensed consolidated~~revenues that are accounted for under Topic 606; however, such amount is not considered material.

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HERC HOLDINGS INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Unaudited

Receivables and contract assets and liabilities

~~balance sheet.~~

Most of the Company's equipment rental revenue is accounted for under Topic 842. The customers that are responsible for the remaining equipment rental revenue that is accounted for under Topic 606 are generally the same customers that rent the Company's equipment. Concentration of credit risk with respect to the Company's accounts receivable is limited because a large number of geographically diverse customers makes up its customer base. The Company ~~also performed an impairment assessment~~manages credit risk associated with its accounts receivable at the customer level through credit approvals, credit limits and other monitoring procedures. The Company maintains allowances for doubtful accounts that reflect the Company's estimate of ~~revenue earning equipment and recorded a charge~~the amount of ~~$3.1 million during~~receivables that the ~~nine months ended September 30, 2017.~~Company will be unable to collect based on its historical write-off experience.

~~Note 4—Intangible Asset Impairment~~

The Company ~~had been~~does not have material contract assets or contract liabilities associated with customer contracts. The Company's contracts with customers do not generally result in material amounts billed to customers in excess of recognizable revenue. The Company did not recognize material revenue during the three and six months ended June 30, 2020 and 2019 that was included in the ~~process of developing a new financial system and point of sale system~~contract liability balance as ~~part~~ of the ~~separation from New Hertz that was initiated prior to~~beginning of each such period.

Performance obligations

Most of the ~~Spin-Off. During June 2017,~~Company's revenue recognized under Topic 606 is recognized at a point-in-time, rather than over time. Accordingly, in any particular period, the Company ~~made~~does not generally recognize a significant amount of revenue from performance obligations satisfied (or partially satisfied) in previous periods, and the decision to discontinue developing these new systems based on the inability to provide the anticipated substantive service potential and significantly higher costs than were originally expected to develop the systems. As a result, the Company recorded an impairment chargeamount of ~~$26.2 million~~such revenue recognized during the ~~nine~~three and six months ended ~~September~~June 30, ~~2017.~~2020 and 2019 was not material. We also do not expect to recognize material revenue in the future related to performance obligations that are unsatisfied (or partially unsatisfied) as of June 30, 2020.

Contract estimates and judgments

~~Note 5—Debt~~

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

•The transaction price is generally fixed and stated on the Company's contracts;

•As noted above, the Company's contracts generally do not include multiple performance obligations, and accordingly do not generally require estimates of the standalone selling price for each performance obligation;

•The Company's revenues do not include material amounts of variable consideration; and

•Most of the Company's revenue is recognized as of a point-in-time and the timing of the satisfaction of the applicable performance obligations is readily determinable. As noted above, the revenue recognized under Topic 606 is generally recognized at the time of delivery to, or pick-up by, the customer.

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

Note 4—Rental Equipment

Rental equipment consists of the following (in millions):


	June 30, 2020		December 31, 2019
Rental equipment	$	3,786.6	$	3,821.6
Less: Accumulated depreciation	(1,389.9)		(1,331.6)
Rental equipment, net	$	2,396.7	$	2,490.0

Weighted Average Effective Interest Rate at September 30, 2017 Weighted Average Stated Interest Rate at September 30, 2017 Fixed or Floating Interest Rate Maturity September 30,
2017 December 31,
2016
Senior Secured Second Priority Notes
2022 Notes 7.88% 7.50% Fixed 2022 $ 549.0
$ 610.0
2024 Notes 8.06% 7.75% Fixed 2024 562.5
625.0
Other Debt
ABL Credit Facility N/A 2.96% Floating 2021 1,075.0
910.0
Capital leases 4.01% N/A Fixed 2017-2021 57.9
70.3
Other borrowings N/A 4.79% Floating 2018 2.1
—
Unamortized Debt Issuance Costs^(a)
(17.0 ) (21.0 )
Total debt 2,229.5
2,194.3
Less: Current maturities of long-term debt (17.2 ) (15.7 )
Long-term debt, net $ 2,212.3
$ 2,178.6


~~(a)~~	Unamortized debt issuance costs totaling $14.2 million and $17.1 million related to the ABL Credit Facility (as defined below) are included in "Other long-term assets" in the condensed consolidated balance sheets as of September 30, 2017 and December 31, 2016, respectively.

~~The effective interest rates for the fixed rate 2022 Notes and 2024 Notes (as defined below) include the stated interest on the notes and the amortization of any debt issuance costs.~~

~~Senior Secured Second Priority Notes~~

In June 2016, Herc issued $610.0 million aggregate principal amount of 7.50% senior secured second priority notes due 2022 (the "2022 Notes") and $625.0 million aggregate principal amount of 7.75% senior secured second priority notes due 2024 (the "2024 Notes" and, together with the 2022 Notes, the "Notes"). Interest on the 2022 Notes accrues at the rate of 7.50% per annum and is payable semi-annually in arrears on June 1 and December 1. The 2022 Notes mature on June 1, 2022. Interest on the 2024 Notes accrues at the rate of 7.75% per annum and is payable semi-annually in arrears on June 1 and December 1. The 2024 Notes mature on June 1, 2024.

In March 2017, Herc drew down on its ABL Credit Facility (as defined below) and redeemed $61.0 million in aggregate principal amount of the 2022 Notes and $62.5 million in aggregate principal amount of the 2024 Notes and recorded a $5.8 million loss on the early extinguishment of debt, comprised of a 3% cash premium totaling $3.7 million and a non-cash charge of $2.1 million for the write-off of unamortized debt issuance costs. The loss on early extinguishment of debt is included in "Interest expense, net” in the Company's condensed consolidated statement of operations.

~~See Note 16, "Subsequent Events" regarding an additional partial redemption of the Notes.~~

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HERC HOLDINGS INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Unaudited

Note 5 —Assets Held for Sale and Impairment

As of December 31, 2019, the Company's assets held for sale consisted of the net assets of its remaining international operations outside of North America. In connection with the reclassification of the assets held for sale, an impairment analysis was performed and an impairment charge of approximately $4.0 million was recorded during the year ended December 31, 2019. In April 2020, the Company closed on the sale which was comprised of six locations and realized a loss on the sale of $2.8 million that was recorded in "Other income (expense), net" in the Company's condensed consolidated statements of operations.

As of June 30, 2020, the Company's assets held for sale consisted of the net assets of two locations. The operations have been actively marketed for sale and management expects the sale to be completed in the next 12 months. In connection with the reclassification of the assets held for sale, an impairment analysis was performed and an impairment charge of approximately $1.5 million was recorded at June 30, 2020.

During June 2020, the Company recorded a right-of-use ("ROU") asset impairment charge of $1.7 million related to two leased locations that were closed during the second quarter of 2019. See Note 6, "Leases" for additional information on the restructuring charges taken in the prior year related to the closures.

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

Note 6—Leases

The Company leases real estate, office equipment and service vehicles. The Company's leases have remaining lease terms of up to 15 years, some of which include options to extend the leases for up to 20 years. The Company has included the initial lease term and, in the case where there are options to extend, will include the option to extend if it has determined that it is reasonably certain that the Company would exercise those options.

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

The components of lease expense consist of the following (in millions):


		Three Months Ended June 30,						Six Months Ended June 30,
	Classification	2020		2019		2020		2019
Operating lease cost^(a)	Direct operating	$	17.4	$	22.3	$	41.7	$	44.7
Finance lease cost:
Amortization of ROU assets	Depreciation and amortization^(b)	2.8		1.3		5.9		3.7
Interest on lease liabilities	Interest expense, net	0.4		0.3		0.8		0.7
Sublease income	Equipment rental revenue	(8.0)		(14.4)		(23.1)		(29.1)
Net lease cost		$	12.6	$	9.5	$	25.3	$	20.0

(a) Includes short-term leases of $5.2 million and $17.2 million for the three and six months ended June 30, 2020 and $11.5 million and $23.1 million for the three and six months ended June 30, 2019, respectively, and variable lease costs of $0.7 million and $1.5 million for the three and six months ended June 30, 2020 and $0.7 million and $2.3 million for the three and six months ended June 30, 2019, respectively.

(b) Depreciation and amortization is included with selling, general and administrative expense.

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HERC HOLDINGS INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Unaudited

In response to the impact of COVID-19 on the Company's operations, the Company engaged in negotiations with its landlords regarding rent concessions. The Company has received a rent abatement on certain properties ranging from one to three months and has elected to recognize these concessions as a variable credit to rent expense in accordance with the relief issued by the FASB titled ASC Topic 842 and ASC Topic 840: Accounting for Lease Concessions Related to the Effects of the COVID-19 Pandemic. The Company has also received a rent abatement in exchange for an extension of the term of the lease on other properties and the Company has accounted for these arrangements as lease modifications.

During the second quarter of 2019, the Company entered into a plan of restructuring with respect to certain branches in Canada. As part of the plan, certain of its leased locations were closed and the Company recorded a ROU asset impairment of$4.8 million. Additionally, the Company recorded related leasehold improvement impairments of $0.7 million and severance charges of $2.3 million. See Note 5, "Assets Held for Sale and Impairment " for information on additional impairment charges taken on the ROU assets related to these locations during the second quarter of 2020.

Note 7—Debt

The Company's debt consists of the following (in millions):


	Weighted Average Effective Interest Rate at June 30, 2020	Weighted Average Stated Interest Rate at June 30, 2020	Fixed or Floating Interest Rate	Maturity	June 30, 2020		December 31, 2019
Senior Notes
2027 Notes	5.61%	5.50%	Fixed	2027	$	1,200.0	$	1,200.0
Other Debt
ABL Credit Facility	N/A	1.61%	Floating	2024	577.0		650.0
AR Facility	N/A	0.84%	Floating	2020	130.0		175.0
Finance lease liabilities	3.04%	N/A	Fixed	2020-2027	47.2		56.2
Other borrowings	N/A	NA	NA	NA	—		5.2
Unamortized Debt Issuance Costs^(a)					(7.5)		(7.9)
Total debt					1,946.7		2,078.5
Less: Current maturities of long-term debt					(15.4)		(27.0)
Long-term debt, net					$	1,931.3	$	2,051.5

(a) Unamortized debt issuance costs totaling $8.0 million and $9.3 million related to the ABL Credit Facility and AR Facility (as each is defined below) as of June 30, 2020 and December 31, 2019, respectively, and are included in "Other long-term assets" in the condensed consolidated balance sheets.

The effective interest rate for the fixed rate 2027 Notes (as defined below) includes the stated interest on the notes and the amortization of any debt issuance costs.

Senior Notes

On July 9, 2019, the Company issued $1.2 billion aggregate principal amount of its 5.50% Senior Notes due 2027 (the "2027 Notes"). Interest on the 2027 Notes accrues at the rate of 5.50% per annum and is payable semi-annually in arrears on January 15 and July 15. The 2027 Notes will mature on July 15, 2027. Additional information about the 2027 Notes is included in Note 10 to the Company's financial statements included in its Annual Report on Form 10-K for the year ended December 31, 2019.

ABL Credit Facility

~~The Company's~~On July 31, 2019, Herc Holdings, Herc and certain other subsidiaries of Herc Holdings entered into a credit agreement with respect to a senior secured asset-based revolving credit ~~agreement, executed by its Herc subsidiary,~~facility (the "ABL Credit Facility"). The ABL Credit Facility provides ~~for senior secured revolving loans up to a maximum aggregate principal amount of $1,750 million~~ (subject to availability under a borrowing base)~~, including~~ for aggregate maximum borrowings of up to $1,750 million under a revolving ~~loans in an aggregate principal amount of $350 million available to Canadian borrowers and U.S. borrowers (the "ABL Credit Facility").~~loan facility. Up to $250 million of the revolving loan facility is available for the issuance of letters of credit, subject to certain conditions including issuing lender participation. Extensions of credit under the ABL Credit Facility are limited by a borrowing base calculated periodically based on specified percentages of the value of eligible rental equipment, eligible service vehicles, eligible spare parts and merchandise, eligible accounts receivable, and eligible unbilled accounts subject to certain reserves and other adjustments. Subject to the satisfaction of certain conditions and limitations, the ABL Credit Facility allows for the addition of incremental revolving commitments and/or incremental term loan commitments. In addition, the ABL Credit Facility permits Herc to increase the amount of commitments under the ABL Credit Facility with the consent of each lender providing an additional commitment, subject to satisfaction of certain conditions.loans. The ABL Credit ~~Facility matures on June 30, 2021.~~

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

~~Other Borrowings~~

In June 2017, the Company's subsidiary in China entered into uncommitted credit agreements with a bank for up to the aggregate principal amount of $10.0 million. Interest accrues on the loans drawn under these facilities at a rate of 110% of the prevailing base lending rates published by People's Bank of China and is payable quarterly. As of September 30, 2017, the Company had short-term borrowings under these facilities totaling $2.1 million.

~~Covenants~~

~~Notes~~

The indenture governing the Notes contains covenants that, among other things, limit the ability of Herc to incur additional indebtedness, guarantee indebtedness or issue certain preferred shares; pay dividends on, redeem or repurchase stock or make other distributions in respect of its capital stock; repurchase, prepay or redeem subordinated indebtedness; make loans and investments; create liens; transfer or sell assets; consolidate, merge or sell or otherwise dispose of all or substantially all of its assets; enter into certain transactions with affiliates; and designate subsidiaries as unrestricted subsidiaries.

~~ABL Credit Facility~~

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

Failure to maintain certain levels of liquidity will subject the Herc credit group to a contractually specified fixed charge coverage ratio of not less than 1:1 for the four quarters most recently ended. As of September 30, 2017, the Company was not subject to the fixed charge coverage ratio test.

Covenants in the ABL Credit Facility restrict payment of cash dividends to any parent of Herc, including Herc Holdings, except in an aggregate amount, taken together with certain investments, acquisitions and optional prepayments, not to exceed $200 million. Herc may also pay additional cash dividends under the ABL Credit Facility under certain circumstances.

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HERC HOLDINGS INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Unaudited

~~The~~Facility matures on July 31, 2024. Additional information about the ABL Credit Facility ~~also contains certain affirmative covenants, including~~is included in Note 10 to the Company's financial statements included in its Annual Report on Form 10-K for the year ended December 31, 2019.

Accounts Receivable Securitization Facility

In September 2018, the Company entered into an accounts receivable securitization facility (the "AR Facility") with aggregate commitments of $175 million that matures on September 16, 2020. In connection with the AR Facility, Herc and one of its wholly-owned subsidiaries sell their accounts receivables on an ongoing basis to Herc Receivables U.S. LLC, a wholly-owned special-purpose entity (the "SPE"). The SPE's sole business consists of the purchase by the SPE of accounts receivable from Herc and the Herc subsidiary seller and borrowing by the SPE against the eligible accounts receivable from the lenders under the facility. The borrowings are secured by liens on the accounts receivable and other ~~reporting requirements.~~assets of the SPE. Collections on the accounts receivable are used to service the borrowings. The SPE is a separate legal entity that is consolidated in the Company's financial statements. The SPE assets are owned by the SPE and are not available to settle the obligations of the Company or any of its other subsidiaries. Herc is the servicer of the accounts receivable under the AR Facility. All of the obligations of the Herc subsidiary seller and the servicer and certain indemnification obligations of the SPE under the agreements governing the AR Facility are guaranteed by Herc pursuant to a performance guarantee. The AR Facility is excluded from current maturities of long-term debt as the Company has the intent and ability to consummate refinancing and extend the term of the agreement.

Other Borrowings

The Company's former subsidiary in China had uncommitted credit agreements for up to an aggregate principal amount of $10.0 million. Interest accrued on the loans drawn under these facilities at an applicable loan prime rate plus 0.535% published by National Interbank Funding Center and was payable quarterly. In conjunction with the sale of the Company's subsidiary in China in April 2020, the credit agreement was terminated and no borrowings were outstanding at June 30, 2020.

Borrowing Capacity and Availability

After outstanding borrowings, the following was available to the Company under the ABL Credit Facility and AR Facility as of ~~September~~June 30, ~~2017~~2020 (in millions):


	Remaining Capacity		Availability Under Borrowing Base Limitation
ABL Credit Facility	$	1,147.4	$	1,147.4
AR Facility	45.0		13.4
Total	$	1,192.4	$	1,160.8

Remaining
Capacity

Availability Under
Borrowing Base
Limitation
ABL Credit Facility $ 652.5
$ 652.5

~~In addition, as of September 30, 2017, the Company's subsidiary in China had uncommitted credit facilities of which $7.9 million was unutilized.~~

Letters of Credit

As of ~~September~~June 30, ~~2017, the~~2020, $25.6 million of standby letters of credit were issued and outstanding, NaN of which have been drawn upon. The ABL Credit Facility had ~~$227.5~~$224.4 million available under the letter of credit facility sublimit, subject to borrowing base ~~restrictions, as $22.5 million of standby letters of credit were issued and outstanding, none of which have been drawn upon.~~restrictions.

Note ~~6—Employee Retirement Benefits~~8—Financing Obligations

In ~~July 2016,~~October 2017, Herc consummated a sale-leaseback transaction pursuant to which it sold 42 of its properties located in the ~~Company established~~U.S. for gross proceeds of approximately $119.5 million, and during the fourth quarter of 2018, entered into sale-leaseback transactions with respect to 2 additional properties for gross proceeds of $6.4 million. Herc ~~Holdings Retirement Plan (the "Plan"). Prior~~entered into a master lease agreement pursuant to ~~the Spin-Off, the Company participated in~~which it has continued operations at those properties as a tenant. The ~~Hertz Corporation Account Balance Defined Benefit Pension Plan (the "Hertz Plan").~~triple net lease agreement has an initial term of 20 years, subject to extension, at Herc's option, for up to 5 additional periods of five years each. The ~~majority of assets and liabilities attributable to current and former employees~~sale of the ~~equipment rental business were transferred~~properties did not qualify for sale-leaseback accounting due to continuing involvement with the properties. Therefore, the book value of the buildings and land remains on the Company's consolidated balance sheet.

During March 2019, Herc entered into a sale-leaseback transaction for certain service vehicles that did not qualify for sale-leaseback accounting, therefore the book value of the vehicles remains on the Company's consolidated balance sheet. Gross proceeds from the ~~Hertz Plan to the Plan following the Spin-Off based on a preliminary allocation. The final allocations and transfers~~sale-leaseback transaction were completed in April and August 2017 and were $3.6 million lower than the preliminary allocation, resulting in an increase to the pension liability funded status and a corresponding offset to additional paid-in capital.

~~The following table sets forth the net periodic pension cost (benefit) (in millions):~~$4.7 million.

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
Components of Net Periodic Pension Cost (Benefit):
Interest cost $ 1.6
$ 1.3
$ 4.6
$ 4.4
Expected return on plan assets (1.6 ) (1.9 ) (4.7 ) (5.9 )
Net amortizations of actuarial net loss 0.2
0.5
1.1
1.4
Net periodic pension cost (benefit) $ 0.2
$ (0.1 ) $ 1.0
$ (0.1 )

~~Note 7—Stock-Based Compensation~~

During the three months ended September 30, 2017, under the Herc Holdings Inc. 2008 Omnibus Incentive Plan (the "Omnibus Plan"), the Company granted 20,385 restricted stock units ("RSUs") and 4,587 performance stock units ("PSUs") at a weighted average grant date fair value of $43.72 per unit.

~~A summary of the total compensation expense and associated income tax benefits recognized under the Omnibus Plan are as follows (in millions):~~

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
Compensation expense $ 3.0
$ 1.1
$ 7.5
$ 3.8
Income tax benefit (1.1 ) (0.4 ) (2.9 ) (1.5 )
Total $ 1.9
$ 0.7
$ 4.6
$ 2.3

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HERC HOLDINGS INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Unaudited

~~Stock-based compensation expense includes expense attributable to the Company based on the terms~~The Company's financing obligations consist of the awards granted under the Omnibus Plan to the participants in the Omnibus Plan. Additionally, during the nine months ended September 30, 2016, stock-based compensation expense includes an allocation of THC's corporatefollowing (in millions):


	Weighted Average Effective Interest Rate at June 30, 2020	Maturities	June 30, 2020		December 31, 2019
Financing obligations	5.00%	2026-2038	$	121.7	$	123.5
Unamortized financing issuance costs			(2.4)		(2.5)
Total financing obligations			119.3		121.0
Less: Current maturities of financing obligations			(3.5)		(3.4)
Financing obligations, net			$	115.8	$	117.6

Note 9—Income Taxes

Income tax benefit was $1.9 million and ~~shared functional employee expenses of $2.0~~$0.8 million ~~on a pre-tax basis.~~

As of September 30, 2017, there was $20.1 million of total unrecognized compensation cost related to non-vested stock options, RSUs and PSUs granted under the Omnibus Plan. The total unrecognized compensation cost is expected to be recognized over the remaining 2.0 years, on a weighted average basis, of the requisite service period that began on the grant dates.

~~Employee Stock Purchase Plan~~

In connection with the Spin-Off, Herc Holdings inherited the Hertz Global Holdings, Inc. Employee Stock Purchase Plan (the "ESPP"). At the date of the Spin-Off, the ESPP had been suspended; however, the Company reinstated the ESPP on January 1, 2017, which was amended and restated as the Herc Holdings Inc. Employee Stock Purchase Plan.

~~The ESPP enables eligible employees to purchase the Company's common stock at a price per share equal to 85% of the fair market value of a share at the acquisition date. Payment~~ for ~~shares is made through payroll deductions based on a predetermined contribution amount established by the individual employee. During~~ the three and ~~nine~~six months ended ~~September~~June 30, ~~2017, the Company recognized compensation expense of $0.1 million and $0.3 million, respectively, related to the ESPP.~~

~~Note 8—Income Taxes~~

~~Income tax provision of $5.8 million for the third quarter of 2017~~2020, respectively. The benefit was primarily driven by the level of pre-tax income ~~and~~(loss), offset by non-deductible expenses, ~~and~~stock-based compensation, valuation allowances recorded on losses generated by certain foreign loss jurisdictions. Income tax benefit of $31.5 million for the nine months ended September 30, 2017 was primarily driven by pre-tax losses, partially offset by non-deductible expenses and valuation allowances recorded on losses generated by foreign loss jurisdictions.

Income tax provision of $3.7 million in the third quarter of 2016 was primarily driven by certain nondeductible charges within the quarter. Income tax provision of $9.0 million for the nine months ended September 30, 2016 was primarily due to $6.4 million of tax expense related to state taxes incurred as a result of the Spin-Off. The effective tax rate for the 2017 fiscal year is expected to be approximately 37%.

~~In connection with the Spin-Off, net operating loss carryforwards were split between the Company and New Hertz pursuant to the~~jurisdictions, Internal Revenue ~~Code~~Service ("IRS") audit adjustments and ~~regulations. While not expected to be significant, the split of net operating loss carryforwards may be further adjusted as income tax returns are finalized through 2017.~~related refunds from foreign jurisdictions.

Note 9—10—Accumulated Other Comprehensive Income (Loss)

The changes in the accumulated other comprehensive income (loss) balance by component (net of tax) for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 are presented in the table below (in millions).


	Pension and Other Post-Employment Benefits		Unrealized Gains (Loss) on Hedging Instruments		Foreign Currency Items		Accumulated Other Comprehensive Income (Loss)
Balance at December 31, 2019	$	(16.0)	$	1.2	$	(94.9)	$	(109.7)
Other comprehensive loss before reclassification	—		—		(13.4)		(13.4)
Amounts reclassified from accumulated other comprehensive loss	0.6		(1.2)		2.1		1.5
Net current period other comprehensive income (loss)	0.6		(1.2)		(11.3)		(11.9)
Balance at June 30, 2020	$	(15.4)	$	—	$	(106.2)	$	(121.6)

Pension and Other Post-Employment Benefits Unrealized Losses on Hedging Instruments Foreign Currency Items Accumulated Other Comprehensive Income (Loss)
Balance at December 31, 2016 $ (14.6 ) $ —
$ (104.1 ) $ (118.7 )
Other comprehensive income (loss) before reclassification (1.7 ) (0.2 ) 21.5
19.6
Amounts reclassified from accumulated other comprehensive loss 0.7
—
—
0.7
Net current period other comprehensive income (loss) (1.0 ) (0.2 ) 21.5
20.3
Balance at September 30, 2017 $ (15.6 ) $ (0.2 ) $ (82.6 ) $ (98.4 )

~~Table of Contents~~

~~HERC HOLDINGS INC. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)~~

~~Unaudited~~

Amounts reclassified from accumulated other comprehensive income (loss) to net income (loss) were as follows (in millions):


		Three Months Ended June 30,						Six Months Ended June 30,
Pension and other postretirement benefit plans	Statement of Operations Caption	2020		2019		2020		2019
Amortization of actuarial losses	Selling, general and administrative	$	0.4	$	0.4	$	0.8	$	0.8
Tax benefit	Income tax benefit (provision)	(0.1)		(0.1)		(0.2)		(0.2)
		0.3		0.3		0.6		0.6
Hedging instruments
Gain on settlement	Interest expense, net	—		—		(1.5)		—
Tax provision	Income tax benefit (provision)	—		—		0.3		—
		—		—		(1.2)		—
Reclassification of foreign currency items	Other expense (income), net	2.1		—		2.1		—
Total reclassifications for the period		$	2.4	$	0.3	$	1.5	$	0.6

Three Months Ended September 30, Nine Months Ended September 30,
Pension and other postretirement benefit plans Statement of Operations Caption 2017 2016 2017 2016
Amortization of actuarial losses Selling, general and administrative $ 0.2
$ 0.5
$ 1.1
$ 1.4
Tax benefit Income tax benefit —
(0.2 ) (0.4 ) (0.5 )
Total reclassifications for the period $ 0.2
$ 0.3
$ 0.7
$ 0.9

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HERC HOLDINGS INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Unaudited

Note ~~10—~~11—Commitments and Contingencies

Legal Proceedings

~~From time to time the Company is a party to various legal proceedings. Summarized below are the most significant legal proceedings to which the Company is a party.~~

In re Hertz Global Holdings, Inc. Securities Litigation - In November 2013, a putative shareholder class action, Pedro Ramirez, Jr. v. Hertz Global Holdings, Inc., et al., was commenced in the U.S. District Court for the District of New Jersey naming Hertz Holdings and certain of its officers as defendants and alleging violations of the federal securities laws. The complaint alleged that Hertz Holdings made material misrepresentations and/or omission of material fact in its public disclosures during the period from February 25, 2013 through November 4, 2013, in violation of Section 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and Rule 10b-5 promulgated thereunder. The complaint sought unspecified monetary damages on behalf of the purported class and an award of costs and expenses, including counsel fees and expert fees. In June 2014, Hertz Holdings moved to dismiss the amended complaint. In October 2014, the court granted Hertz Holdings’ motion to dismiss without prejudice, allowing the plaintiff to amend the complaint a second time. In November 2014, plaintiff filed a second amended complaint which shortened the putative class period and made allegations that were not substantively very different than the allegations in the prior complaint. In early 2015, Hertz Holdings moved to dismiss the second amended complaint. In July 2015, the court granted Hertz Holdings’ motion to dismiss without prejudice, allowing plaintiff to file a third amended complaint. In August 2015, plaintiff filed a third amended complaint which included additional allegations, named additional then-current and former officers as defendants and expanded the putative class period to extend from February 14, 2013 to July 16, 2015. In November 2015, Hertz Holdings moved to dismiss the third amended complaint. The plaintiff then sought leave to add a new plaintiff because of challenges to the standing of the first plaintiff. The court granted plaintiff leave to file a fourth amended complaint to add the new plaintiff, and the new complaint was filed on March 1, 2016. Hertz Holdings and the individual defendants moved to dismiss the fourth amended complaint with prejudice on March 24, 2016. In April 2017, the court granted Hertz Holdings' and the individual defendants' motions to dismiss and dismissed the action with prejudice. In May 2017, plaintiff filed a notice of appeal and, in June 2018, oral argument was conducted before the U.S. Court of Appeals for the Third Circuit. In September 2018, the court affirmed the dismissal of the action with prejudice. On February 5, 2019, plaintiff filed a motion to set aside the judgment against it, and for leave to file a fifth amended complaint. The proposed amended complaint would add allegations related to New Hertz’s December 31, 2018 settlement with the SEC that, among other things, ordered New Hertz to cease and desist from violating certain of the federal securities laws and imposed a civil penalty of $16.0 million. On February 26, 2019, New Hertz filed an opposition to plaintiff’s motion for relief from judgment and leave to file a fifth amended complaint. On March 8, 2019, plaintiff filed a reply in support of that motion. On September 30, 2019, the court denied plaintiff’s motion for relief from judgment and leave to file a fifth amended complaint. On October ~~2017,~~30, 2019, plaintiff filed a notice of appeal with the U.S. Court of Appeals for the Third Circuit, ~~issued a~~and appellate briefing ~~schedule. The plaintiff/appellant's initial brief is due~~was completed in ~~November 2017 and briefing is scheduled to conclude in January 2018.~~March 2020.

~~Governmental Investigations~~ - In June 2014, Hertz Holdings was advised by the staff of the New York Regional Office of the Securities and Exchange Commission ("SEC") that it is investigating the events disclosed in certain of Hertz Holdings’ filings with the SEC. In addition, in December 2014 a state securities regulator requested information from Hertz Holdings regarding the same or similar events. In May 2017, the state securities regulator advised New Hertz that it had closed its investigation. Starting in June 2016, Hertz Holdings and New Hertz have had communications with the United States Attorney’s Office for the District of New Jersey regarding the same or similar events. New Hertz is responsible for managing these matters. The investigations and communications generally involve the restatements included in Hertz Holdings’ 2014 Form 10-K and related accounting for prior periods. Among other matters, the restatements included in Hertz Holdings’ 2014 Form 10-K addressed a variety of accounting matters involving THC's former Brazil vehicle rental operations. Hertz Holdings identified certain activities by THC's former vehicle rental operations in Brazil that may raise issues under the Foreign Corrupt Practices Act and other federal and local laws. THC has self-reported these issues to appropriate government entities, and these issues continue to be investigated. The Company has and intends to continue to cooperate with all governmental requests related to the foregoing. At this time, the Company is currently unable to

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~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)~~

~~Unaudited~~

~~predict the outcome of these proceedings and issues or to reasonably estimate the range of possible losses, which could be material.~~

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

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

Off-Balance Sheet Commitments

Indemnification Obligations

In the ordinary course of business, the Company executes contracts involving indemnification obligations customary in the relevant industry and indemnifications specific to a transaction such as the sale of a ~~business.~~ business or assets or a financial transaction.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Unaudited

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

The Spin-Off

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

Environmental

The Company has indemnified various parties for the costs associated with remediating numerous hazardous substance storage, recycling or disposal sites in many states and, in some instances, for natural resource damages. The amount of any such expenses or related natural resource damages for which the Company may be held responsible could be substantial. The probable expenses that the Company expects to incur for such matters have been accrued, and those expenses are reflected in the Company's consolidated financial statements. As of ~~September~~June 30, ~~2017~~2020 and December 31, ~~2016,~~2019, the aggregate amounts accrued for environmental liabilities, including liability for environmental indemnities, reflected in the Company's consolidated balance sheets in "Accrued liabilities" ~~were $0.1~~was $0.3 million and $0.2 million, respectively. The accrual generally represents the estimated cost to study potential environmental issues at sites deemed to require investigation or clean-up activities, and the estimated cost to implement remediation actions, including ~~on-~~

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~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)~~

~~Unaudited~~

~~going~~on-going maintenance, as required. Cost estimates are developed by site. Initial cost estimates are based on historical experience at similar sites and are refined over time on the basis of in-depth studies of the sites. For many sites, the remediation costs and other damages for which the Company ultimately may be responsible cannot be reasonably estimated because of uncertainties with respect to factors such as the Company's connection to the site, the materials there, the involvement of other potentially responsible parties, the application of laws and other standards or regulations, site conditions, and the nature and scope of investigations, studies, and remediation to be undertaken (including the technologies to be required and the extent, duration, and success of remediation).

Guarantee

~~Note 11—Financial Instruments~~

The Company ~~established risk management policies and procedures, which seek to reduce~~has guaranteed an outstanding bank loan in connection with a previous joint venture. The Company has determined the Company’s risk exposure to fluctuations in foreign currency exchange rates and interest rates. However, there can be no assurance that these policies and procedures will be successful. Although the instruments utilized involve varying degrees of credit, market and interest risk, the counterparties to the agreements are expected to perform fullymaximum potential payment amount under the ~~terms~~guarantee is approximately $5.8 million; however, the probability of any payment is remote and therefore the Company has not recorded a liability on its balance sheet as of June 30, 2020. The bank loan is collateralized by the rental equipment and other assets of the ~~agreements. The Company monitors counterparty credit risk, including lenders, on a regular basis, but cannot be certain that all risks will be discerned or that its risk management policies~~joint venture entity and ~~procedures will always be effective. Additionally, in the event of default under the Company’s master derivative agreements, the non-defaulting party~~ has ~~the option to set-off any amounts owed with regard to open derivative positions.~~maturities through 2023.

~~Foreign Currency Exchange Rate Risk~~

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

~~Interest Rate Swap Arrangement~~

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

~~The following table summarizes the outstanding interest rate swap arrangement as of September 30, 2017 (dollars in millions):~~

Aggregate Notional Amount Receive Rate Receive Rate as of September 30, 2017 Pay Rate
ABL Credit Facility $ 350.0
1 month LIBOR + 1.75% 3.0 % 3.5 %

~~The following table summarizes the estimated fair value of the Company's financial instruments (in millions):~~

Fair Value of Financial Instruments
Prepaid & Other Current Assets Accrued Liabilities
September 30,
2017 December 31,
2016 September 30,
2017 December 31,
2016
Derivatives Designated as Hedging Instruments
Interest rate swap $ —
$ —
$ 0.4
$ —
Derivatives Not Designated as Hedging Instruments

Foreign currency forward contracts $ —
$ 0.1
$ —
$ —

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~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)~~

~~Unaudited~~

The following table summarizes the gains and losses on derivative instruments for the periods indicated. Gains and losses recognized on foreign currency forward contracts and the effective portion of interest rate swaps are included in the condensed consolidated statements of operations together with the corresponding offsetting gains and losses on the underlying hedged transactions. All gains and losses recognized are included in "Selling, general and administrative" in the condensed consolidated statements of operations (in millions).

Loss Recognized
Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
Derivatives Not Designated as Hedging Instruments
Foreign currency forward contracts $ (0.4 ) $ (2.6 ) $ (4.0 ) $ (2.7 )

Note 12—Fair Value Measurements

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The fair value of accounts receivable, accounts payable and accrued liabilities, to the extent the underlying liability will be settled in cash, approximates the carrying values because of the short-term nature of these instruments.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Unaudited

Cash Equivalents

Cash equivalents, when held, primarily consist of money market accounts which are classified as Level 1 assets which the Company measures at fair value on a recurring basis. The Company determines the fair value of cash equivalents using a market approach based on quoted prices in active markets. The Company had no$50.0 million of cash equivalents at ~~September~~June 30, ~~2017 or~~2020 and 0 cash equivalents at December 31, ~~2016.~~2019.

~~Financial Instruments~~Debt Obligations

The fair values of the Company's ABL Credit Facility, AR Facility, finance lease liabilities and other borrowings approximated their book values as of June 30, 2020 and December 31, 2019. The fair value of the Company's ~~financial instruments as of September 30, 2017 and December 31, 2016~~2027 Notes are shown in Note 11, "Financial Instruments." The Company's financial instruments are classified as Level 2 assets and liabilities and are priced using quoted market prices for similar assets or liabilities in active markets.

~~Debt Obligations~~

~~The fair value of debt is~~ estimated based on quoted market rates as well as borrowing rates currently available to the Company for loans with similar terms and average maturities (Level 2 inputs) (in millions).


	June 30, 2020						December 31, 2019
	Nominal Unpaid Principal Balance		Aggregate Fair Value		Nominal Unpaid Principal Balance		Aggregate Fair Value
2027 Notes	$	1,200.0	$	1,202.6	$	1,200.0	$	1,265.0

September 30, 2017 December 31, 2016
Nominal Unpaid Principal Balance Aggregate Fair Value Nominal Unpaid Principal Balance Aggregate Fair Value
Debt $ 2,246.5
$ 2,334.1
$ 2,215.3
$ 2,275.5

Note 13—Earnings (Loss) Per Share

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

The following table sets forth the computation of basic and diluted earnings (loss) per share (in millions, except per share data).


	Three Months Ended June 30,						Six Months Ended June 30,
	2020		2019		2020		2019
Basic and diluted earnings (loss) per share:
Numerator:
Net income (loss), basic and diluted	$	2.0	$	9.7	$	(1.7)	$	3.0
Denominator:
Basic weighted average common shares	29.1		28.7		29.0		28.6
Stock options, RSUs and PSUs	0.1		0.4		—		0.4
Weighted average shares used to calculate diluted earnings (loss) per share	29.2		29.1		29.0		29.0
Earnings (loss) per share:
Basic	$	0.07	$	0.34	$	(0.06)	$	0.10
Diluted	$	0.07	$	0.33	$	(0.06)	$	0.10
Antidilutive stock options, RSUs and PSUs	0.8		0.2		0.9		0.4

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HERC HOLDINGS INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Unaudited

~~The following table sets forth the computation of basic and diluted income (loss) per share (in millions, except per share data).~~

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
Basic and diluted income (loss) per share:
Numerator:
Net income (loss), basic and diluted $ 12.8
$ 3.0
$ (54.0 ) $ (6.5 )
Denominator:
Basic weighted average common shares 28.3
28.3
28.3
28.3
Stock options, RSUs and PSUs 0.3
—
—
—
Weighted average shares used to calculate diluted loss per share 28.6
28.3
28.3
28.3
Income (loss) per share:
Basic $ 0.45
$ 0.11
$ (1.91 ) $ (0.23 )
Diluted $ 0.45
$ 0.11
$ (1.91 ) $ (0.23 )
Antidilutive stock options, RSUs and PSUs 0.4
0.3
0.7
0.2

Note 14—Related Party Transactions

Transactions between the Company and THC and its affiliates prior to the Spin-Off are herein referred to as "related party" or "affiliated" transactions. Effective with the Spin-Off on June 30, 2016, all transactions with THC and its affiliates were settled and paid in full. Effective upon the Spin-Off, the Company entered into, among other things, a transition services agreement with New Hertz. See Note 15, "Arrangements with New Hertz" for further information.

~~Loans with Affiliates~~

Prior to the Spin-Off, the Company entered into various loan agreements with affiliates as part of a centralized approach to the financing of worldwide operations by THC. The amounts due to and from other affiliates had various interest rates and maturity dates but were generally short-term in nature. Effective with the Spin-Off on June 30, 2016, any loans with affiliates were settled and paid in full, including any accrued interest.

~~Intercompany Transactions~~

Prior to the Spin-Off, all significant intercompany payable and receivable balances between the Company and THC were considered to be effectively settled for cash in the consolidated financial statements at the time the transaction was recorded.

~~Corporate Allocations~~

Prior to the Spin-Off, THC provided services to and funded certain expenses for the Company that were recorded at the THC level. As discussed in Note 2, "Basis of Presentation and Recently Issued Accounting Pronouncements," the financial information in these condensed consolidated financial statements includes, in periods prior to June 30, 2016, direct costs of the Company incurred by THC on the Company’s behalf and an allocation of general corporate expenses of THC which were not historically allocated to the Company for certain support functions that were provided on a centralized basis within THC and not recorded at the business unit level, such as expenses related to finance, human resources, information technology, facilities and legal, among others, and that would have been incurred had the Company been a separate, stand-alone entity.

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~~HERC HOLDINGS INC. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)~~

~~Unaudited~~

Costs incurred and allocated by THC that were included in the condensed consolidated statements of operations are shown in the following table (in millions). No costs were allocated by THC after the Spin-Off occurred on June 30, 2016.

Nine Months Ended September 30,
2016
Direct operating $ 0.6
Selling, general and administrative 18.0
Total allocated expenses $ 18.6

Agreements with Carl C. Icahn

The Company is subject to the Nomination and Standstill Agreement, dated September 15, 2014 (the "Nomination and Standstill Agreement"), with Carl C. Icahn High River Limited Partnership, Hopper Investments LLC, Barberry Corp., Icahn Partners LP, Icahn Partners Master Fund LP, Icahn Enterprises G.P. Inc., Icahn Enterprises Holdings L.P., IPH GP LLC, Icahn Capital LP, Icahn Onshore LP, Icahn Offshore LP, Beckton Corp., Vincent J. Intrieri, Samuel Merksamer and ~~Daniel A. Ninivaggi (collectively, the "Original Icahn Group").~~certain related entities and individuals. In connection with their appointments or nomination, as applicable, to the Company’s board of directors (the "Board"), each of ~~Courtney Mather, Louis J. Pastor~~Jonathan Frates, Nicholas F. Graziano and ~~Stephen A. Mongillo~~Andrew N. Langham (collectively, the "Icahn Designees," and, together with Carl C. Icahn and the ~~Original Icahn Group,~~other parties to the Nomination and Standstill Agreements, the "Icahn Group") executed a Joinder Agreement agreeing to become bound as a party to the terms and conditions of the Nomination and Standstill Agreement (such Joinder Agreements, together with the Nomination and Standstill Agreement, are collectively referred to herein as the "Icahn Agreements").

Pursuant to the Icahn Agreements, the Icahn Designees were appointed or nominated to the Company’s ~~board of directors effective June 30, 2016.~~Board. Pursuant to the Icahn Agreements, so long as an Icahn Designee is a member of the ~~board of directors,~~Board, the ~~board of directors~~Board will not be expanded beyond its current size ~~of 11 members~~ without approval from the Icahn Designees then on the ~~board of directors.~~Board. In addition, pursuant to the Icahn Agreements, subject to certain restrictions and requirements, the Icahn Group will have certain replacement rights in the event an Icahn Designee resigns or is otherwise unable to serve as a director (other than as a result of not being nominated by the Company for an annual meeting).

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

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

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

Note 15—Arrangements with New Hertz

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

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~~HERC HOLDINGS INC. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)~~

~~Unaudited~~

Separation and Distribution Agreement

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

~~Transition Services Agreement~~Table of Contents

HERC HOLDINGS INC. AND SUBSIDIARIES

The Company entered into a TSA pursuant to which New Hertz or its affiliates provide specified services to the Company on a transitional basis to help ensure an orderly transition following the Spin-Off. The TSA generally provides for a term of up to two years following the Spin-Off, though the recipient of the services may elect to terminate a service at any time upon advance written notice. During the three and nine months ended September 30, 2017, the Company incurred expenses of $4.2 million and $14.3 million, respectively, under the TSA which is included in "Direct operating" and "Selling, general and administrative" expenses in the Company's condensed consolidated statements of operations. During the three and nine months ended September 30, 2016, the Company incurred $5.6 million under the TSA.NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Unaudited

Tax Matters Agreement

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

Employee Matters Agreement

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

Intellectual Property Agreement

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

~~Real Estate Arrangements~~

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

~~Note 16—Subsequent Events~~

~~Sale-leaseback Transaction~~

On October 10, 2017, Herc consummated a sale-leaseback transaction pursuant to which it sold 42 of its properties located in the U.S. for gross proceeds of approximately $119.5 million, and entered into a master lease agreement pursuant to which it will continue operations at those properties as a tenant. The lease agreement has an initial term of 20 years, subject to extension, at Herc's option, for up to five additional periods of five years each. The sale of the properties does not qualify for sale-leaseback

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HERC HOLDINGS INC. AND SUBSIDIARIES

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)~~

~~Unaudited~~

~~accounting. Therefore, the book value of the buildings and land will remain on the Company’s condensed consolidated balance sheet.~~

~~Notes Redemption~~

On October 20, 2017, pursuant to the terms of the supplemental indentures governing the Notes, for the redemption period from June 1, 2017 to May 31, 2018, Herc redeemed $61.0 million in aggregate principal amount of the 2022 Notes and $62.5 million in aggregate principal amount of the 2024 Notes at a redemption price of 103% of the aggregate principal amount plus accrued and unpaid interest thereon, if any, to, but not including, the date of redemption. Herc drew down on its ABL Credit Facility to fund the redemption.

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~~HERC HOLDINGS INC. AND SUBSIDIARIES~~


~~ITEM 2.~~	ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Management’s discussion and analysis of financial condition and results of operations ("MD&A") should be read in conjunction with the unaudited condensed consolidated financial statements and accompanying notes included in Part I, Item 1 of this Quarterly Report, ~~on Form 10-Q (this "Report"),~~ which include additional information about our accounting policies, practices and the transactions underlying our financial results. The preparation of our unaudited condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States of America ("U.S. GAAP") requires us to make estimates and assumptions that affect the reported amounts in our unaudited condensed consolidated financial statements and the accompanying notes including ~~reserves for litigation and other contingencies, accounting for income taxes, pension and postretirement benefits,~~receivables allowances, depreciation of ~~revenue earning~~rental equipment, the recoverability of long-lived assets, useful lives and impairment of long-lived tangible and intangible assets including goodwill and trade name, pension and postretirement benefits, valuation of stock-based compensation, ~~allowances~~reserves for ~~accounts receivable~~litigation and other contingencies, accounting for income taxes and other matters arising during the normal course of business. We apply our best judgment, our knowledge of existing facts and circumstances and our knowledge of actions that we may undertake in the future in determining the estimates that will affect our ~~unaudited~~ condensed consolidated financial statements. We evaluate our estimates on an ongoing basis using our historical experience, as well as other factors we believe appropriate under the circumstances, such as current economic conditions, and adjust or revise our estimates as circumstances change. As future events and their effects cannot be determined with precision, actual results may differ from these estimates.

OVERVIEW OF OUR BUSINESS AND OPERATING ENVIRONMENT

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

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

•Equipment rental (includes all revenue associated with the rental of equipment including ancillary revenue from delivery, rental protection programs and fueling charges);

•Sales of ~~revenue earning~~rental equipment and sales of new equipment, parts and supplies; and

•Service and other ~~revenues~~revenue (primarily relating to training and labor provided to customers).

Our expenses primarily consist of:

•Direct operating expenses (primarily wages and related benefits, facility costs and other costs relating to the operation and rental of ~~revenue earning~~rental equipment, such as delivery, maintenance and fuel costs);

•Cost of sales of ~~revenue earning~~rental equipment, new equipment, parts and supplies;

•Depreciation expense relating to ~~revenue earning~~rental equipment;

•Selling, general and administrative expenses; and

•Interest expense.

Impacts of COVID-19

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HERC HOLDINGS INC. AND SUBSIDIARIES

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

term and, where possible, we are also reducing operating expenses while ensuring ongoing safe and reliable operations. Additionally, as the timing of the removal of these measures and the residual economic impact of the pandemic remains unclear, we estimate that we will experience a year-over-year decrease in volume of fleet on rent of approximately 8% to 13% and this reduction in volume is likely to have a negative impact on our equipment rental revenue of approximately 10% to 15% during the second half of 2020. The impact of the COVID-19 pandemic continues to evolve as state and local governments are re-opening businesses in multiple phases and, in certain jurisdictions, reversing re-opening decisions. Therefore, we cannot predict the extent to which our financial condition, results of operations or cash flows will ultimately be impacted.

We remain focused on the safety and well-being of our employees, customers and communities as we maintain a high-level of service to our customers. We continue to communicate frequently throughout the organization to reinforce our health and safety guidelines, based on the Center for Disease Control recommendations. Within our operations, a number of adjustments have been made to minimize physical interactions. These include utilizing our information technology platforms to accommodate as many employees as possible to work remotely from their homes. At the operations level, we have implemented new policies to expand the washing of equipment and sanitization of high-touch areas such as dashboards and steering wheels. We have reduced access to or closed our customer showrooms and have implemented curb-side pick-up and drop-off of equipment at our branches requiring customers and vendors to call before they visit. We are supplying personal protective equipment for those employees who interact with customers and employed remediation companies to assist in cleaning branches where necessary.

Seasonality

Our business is usually seasonal, with demand for our rental equipment tending to be lower in the winter ~~months.~~months, particularly in the northern United States and Canada. Our equipment rental business, especially in the construction industry, has historically experienced decreased levels of business from December until late spring and heightened activity during our third and fourth quarters until December. We have the ability to manage certain costs to meet market demand, such as fleet capacity, the most significant portion of our cost structure. For instance, to accommodate increased demand, we increase our available fleet and staff during the second and third quarters of the year. A number of our other major operating costs vary directly with revenues or transaction volumes; however, certain operating expenses, including rent, insurance and administrative overhead, remain fixed and cannot be adjusted for seasonal demand, typically resulting in higher

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~~HERC HOLDINGS INC. AND SUBSIDIARIES~~


~~ITEM 2.~~	~~MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)~~

profitability in periods when our revenues are higher, and lower profitability in periods when our revenues are lower. ~~In an effort to~~To reduce the ~~impacts~~impact of seasonality, we are focused on expanding our customer base through specialty products that serve different industries with less seasonality and different business cycles.

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HERC HOLDINGS INC. AND SUBSIDIARIES

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

RESULTS OF OPERATIONS


	Three Months Ended September 30,											Nine Months Ended September 30,												Three Months Ended June 30,														Six Months Ended June 30,
($ in millions)	2017			2016			$ Change			% Change		2017			2016			$ Change			% Change		($ in millions)	2020		2019		$ Change		% Change		2020		2019		$ Change		% Change
Equipment rentals	$	413.1		$	360.3		$	52.8		14.7	%	$	1,084.5		$	996.0		$	88.5		8.9	%
Sales of revenue earning equipment	27.7			24.9			2.8			11.2		128.5			94.0			34.5			36.7
Equipment rental																							Equipment rental	$	327.6	$	407.6	$	(80.0)	(19.6)	%	$	714.1	$	785.2	$	(71.1)	(9.1)	%
Sales of rental equipment																							Sales of rental equipment	31.4		51.3		(19.9)		(38.8)		71.4		136.4		(65.0)		(47.7)
Sales of new equipment, parts and supplies	13.9			15.7			(1.8		)	(11.5	)	40.3			50.9			(10.6		)	(20.8	)	Sales of new equipment, parts and supplies	7.0		13.2		(6.2)		(47.0)		14.0		24.1		(10.1)		(41.9)
Service and other revenues	2.9			2.7			0.2			7.4		9.5			8.7			0.8			9.2
Service and other revenue																							Service and other revenue	2.0		3.0		(1.0)		(33.3)		4.7		5.1		(0.4)		(7.8)
Total revenues	457.6			403.6			54.0			13.4		1,262.8			1,149.6			113.2			9.8		Total revenues	368.0		475.1		(107.1)		(22.5)		804.2		950.8		(146.6)		(15.4)
Direct operating	188.2			169.9			18.3			10.8		526.2			487.8			38.4			7.9		Direct operating	144.7		188.5		(43.8)		(23.2)		333.9		377.6		(43.7)		(11.6)
Depreciation of revenue earning equipment	96.3			89.1			7.2			8.1		283.5			255.1			28.4			11.1
Cost of sales of revenue earning equipment	28.6			27.5			1.1			4.0		134.9			111.6			23.3			20.9
Depreciation of rental equipment																							Depreciation of rental equipment	101.4		100.9		0.5		0.5		201.8		200.9		0.9		0.4
Cost of sales of rental equipment																							Cost of sales of rental equipment	29.6		50.0		(20.4)		(40.8)		72.0		133.5		(61.5)		(46.1)
Cost of sales of new equipment, parts and supplies	10.8			12.1			(1.3		)	(10.7	)	30.3			39.2			(8.9		)	(22.7	)	Cost of sales of new equipment, parts and supplies	5.1		10.4		(5.3)		(51.0)		10.2		18.6		(8.4)		(45.2)
Selling, general and administrative	84.6			66.8			17.8			26.6		244.6			203.5			41.1			20.2		Selling, general and administrative	56.8		73.5		(16.7)		(22.7)		126.6		145.0		(18.4)		(12.7)
Restructuring																							Restructuring	0.7		7.8		(7.1)		(91.0)		0.7		7.8		(7.1)		(91.0)
Impairment	—			—			—			—		29.3			—			29.3			NM		Impairment	3.2		—		3.2		100.0		9.5		—		9.5		100.0
Interest expense, net	32.4			32.3			0.1			0.3		101.8			52.1			49.7			95.4		Interest expense, net	23.3		31.6		(8.3)		(26.3)		47.7		64.5		(16.8)		(26.0)
Other expense (income), net	(1.9		)	(0.8		)	(1.1		)	NM		(2.3		)	(2.2		)	(0.1		)	4.5		Other expense (income), net	3.1		(2.6)		5.7		NM		4.3		(2.3)		6.6		NM
Income (loss) before income taxes	18.6			6.7			11.9			NM		(85.5		)	2.5			(88.0		)	NM		Income (loss) before income taxes	0.1		15.0		(14.9)		(99.3)		(2.5)		5.2		(7.7)		(148.1)
Income tax benefit (provision)	(5.8		)	(3.7		)	(2.1		)	56.8		31.5			(9.0		)	40.5			NM		Income tax benefit (provision)	1.9		(5.3)		7.2		135.8		0.8		(2.2)		3.0		136.4
Net income (loss)	$	12.8		$	3.0		$	9.8		NM		$	(54.0	)	$	(6.5	)	$	(47.5	)	NM
Net income ( loss)																							Net income ( loss)	$	2.0	$	9.7	$	(7.7)	(79.4)	%	$	(1.7)	$	3.0	$	(4.7)	(156.7)	%

NM - ~~Not Meaningful~~not meaningful

Three Months Ended ~~September~~June 30, ~~2017~~2020 Compared with Three Months Ended ~~September~~June 30, ~~2016~~2019

Equipment rental ~~revenues increased $52.8~~revenue decreased $80.0 million, or ~~14.7%~~19.6%, in the three months ended September 30, 2017 when compared with the prior-year period. The increase was attributable to a higher level of revenue earning equipment on rent resulting from diversifying and growing our customer base through increases in our ProSolutions^TM ~~and ProContractorproduct offerings. Additionally, pricing increased by 1.7%~~ during the ~~third~~second quarter of ~~2017 as~~2020 when compared to the ~~third~~second quarter of ~~2016.~~2019. The decrease was primarily attributable to lower volume (including re-rent and delivery revenue) primarily related to the impact of the regulatory orders addressing COVID-19 ("COVID-19 Orders") as customers we serve that were not designated essential businesses were closed throughout a significant portion of the quarter. Additionally, pricing declined 0.3% during the second quarter of 2020.

Sales of ~~revenue earning~~rental equipment ~~increased $2.8~~decreased $19.9 million, or ~~11.2%~~38.8%, during the ~~third~~second quarter of ~~2017 as~~2020 when compared to the ~~prior-year period.~~second quarter of 2019. During the ~~third~~second quarter of ~~2017,~~2020, the ~~level~~volume of ~~revenue earning equipment sold increased compared~~sales declined due to COVID-19 related impact to sales channels and decreased demand for used rental equipment. We expect continued reductions in the ~~same period in 2016 as part~~volume of ~~our strategy to shift~~sales for the ~~mix~~remainder of ~~our fleet.~~2020. The corresponding cost of sales of ~~revenue earning~~rental equipment as a percentage of the related revenue was ~~103.2%~~94.3% in the ~~third~~second quarter of ~~2017~~2020 compared to ~~110.4%~~97.5% in the ~~third~~second quarter of ~~2016.~~2019. The ~~improvement~~increase in margin ison sale of rental equipment in the second quarter of 2020 was primarily due to a ~~reduction in the volume~~lower proportion of sales ~~made~~ through the lower-margin auction ~~channel and a shift toward the wholesale~~ channel.

Sales of new equipment, parts and supplies decreased ~~$1.8~~$6.2 million, or ~~11.5%~~47.0%, during the ~~third~~second quarter of ~~2017~~2020 when compared ~~with~~to the ~~prior-year period. This decrease was~~second quarter of 2019, driven by ~~our implementation~~the impact of ~~changes to de-emphasize new equipment sales programs.~~the COVID-19 Orders. The cost of sales of new equipment, parts and supplies as a percentage of the related revenue was ~~77.7%~~72.9% for the ~~third~~second quarter of ~~2017~~2020 compared to ~~77.1%~~78.8% for the ~~third~~second quarter of ~~2016.~~2019. The increase in margin was ~~due~~attributable to the mix of ~~the new~~ equipment sold.

Direct operating expenses in the second quarter of 2020 decreased $43.8 million, or 23.2%, when compared to the second quarter of 2019, however, within direct operating expenses were the following fluctuations:

•Fleet and related expenses decreased $27.1 million as a result of (i) a decrease in delivery and freight expenses of $9.7 million due to the decrease in deliveries related to the impact of the COVID-19 Orders and better management of transportation costs; (ii) a decrease in maintenance expense of $6.0 million as more rental equipment was idle during the second quarter of 2020; (iii) a decrease in re-rent expense of $5.0 million due to the decrease in re-rent revenue and

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HERC HOLDINGS INC. AND SUBSIDIARIES


~~ITEM 2.~~	~~MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)~~

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

~~Direct~~

(iv) a decrease in fuel expense of $4.9 million due to the decrease in volume of equipment on rent and a decrease in the price of fuel.

•Personnel-related expenses decreased $16.2 million primarily due to a reduction in wages related to furloughs implemented during the second quarter of 2020 and limitations on overtime in response to reduced volume due to the COVID-19 Orders.

•Other direct operating costs decreased $0.5 million primarily due to decreased field facilities expense resulting from rent abatements received from landlords during the quarter.

Selling, general and administrative expenses ~~increased $18.3~~decreased $16.7 million, or ~~10.8%~~22.7%, in the ~~third~~second quarter of ~~2017~~2020 when compared to the ~~third~~second quarter of ~~2016~~2019. The decline was primarily due to decreases in selling expense of $4.0 million, travel expense of $3.7 million and various other expenses due to cost containment measures management has taken primarily due to the ~~following:~~decreased volume associated with the COVID-19 Orders.

~~Fleet~~Restructuring expense was $0.7 million during the second quarter of 2020 related to personnel reductions and additional costs related ~~expenses increased $11.0~~to a prior restructuring plan. Restructuring expense was $7.8 million ~~primarily~~during the second quarter of 2019 as a result of ~~higher delivery, freight~~our plan of restructuring in Canada, which included right-of-use ("ROU") assets and ~~maintenance~~related leasehold improvement impairment of $5.5 million and severance charges of $2.3 million.

Impairment expense was $3.2 million during the second quarter of ~~$10.4 million due to an increase in deliveries associated with higher equipment rental revenues.~~

Personnel-related expenses increased $5.2 million as a result of an increase in salary expense primarily associated with continued investment in branch management to drive operational improvements and investments in branch operating personnel to support revenue growth.

~~Other direct operating costs increased $2.1 million primarily due to higher depreciation of $1.4 million resulting from the addition of new service vehicles and higher facilities expense of $1.2~~2020, including $1.5 million related to ~~new~~certain assets that were deemed held for sale at June 30, 2020, and $1.7 million related to an ROU asset impairment charge for two previously closed locations.

~~Depreciation of revenue earning equipment increased $7.2~~Interest expense, net decreased $8.3 million, or ~~8.1%~~26.0%, induring the ~~third quarter of 2017~~three months ended June 30, 2020 when compared with the same period in ~~2016. The increase was due to a larger fleet size in the third quarter of 2017 as compared to the same period in 2016 and an increase of $3.9 million~~2019 primarily due to the ~~impact of the 2016 reduction in residual values~~lower interest rates on our 2027 Notes and ~~the planned holding period of certain classes of equipment.~~lower average outstanding balances on our ABL Credit Facility.

Selling, general and administrative expenses increased $17.8 million, or 26.6%, in the third quarter of 2017 compared to the prior-year period. The increase is primarily due to a $6.2 million increase in provision for bad debt attributable to higher revenue and levels of receivables, a $4.8 million increase for additional sales personnel and related commissions to drive revenue growth, and higher information technology costs related to the Spin-Off of $4.0 million.

Income tax ~~provision~~benefit was ~~$5.8~~$1.9 million ~~for~~during the three months ended ~~September~~June 30, ~~2017~~2020 when compared ~~to $3.7~~with a provision of $5.3 million for the same period in ~~2016. Income tax provision~~2019. The benefit in ~~2017~~the second quarter of 2020 was primarily driven by the level of pre-tax income, ~~partially~~ offset by non-deductible expenses, ~~and~~stock-based compensation, valuation allowances recorded on losses generated by certain foreign loss jurisdictions, IRS audit adjustments and related refunds from foreign jurisdictions. ~~Income tax provision in the comparable period of 2016 was primarily driven by certain nondeductible charges within the quarter.~~

~~Nine~~Six Months Ended ~~September~~June 30, ~~2017~~2020 Compared with ~~Nine~~Six Months Ended ~~September~~June 30, ~~2016~~2019

Equipment rental ~~revenues increased $88.5~~revenue decreased $71.1 million, or ~~8.9%~~9.1%, during the ~~nine months ended September 30, 2017 when compared with the prior-year period. The increase was attributable to a higher level~~first half of ~~revenue earning equipment on rent resulting from higher demand from existing customers as well as diversifying and growing our customer base through increases in our ProSolutions~~^TM ~~and ProContractorproduct offerings. Additionally, pricing increased by 1.4% during the nine months ended September 30, 2017 as compared to the same period in 2016.~~

~~Sales of revenue earning equipment increased $34.5 million, or 36.7%, during the nine months ended September 30, 2017~~2020 when compared to the ~~prior-year period.~~first half of 2019. The decrease was primarily attributable to lower volume (including re-rent and delivery revenue) primarily related to the impact of the COVID-19 Orders as customers we serve that were not designated essential businesses were closed throughout a significant portion of the second quarter of 2020. The decrease was partially offset by pricing increases of 1.1% during the first half of 2020.

Sales of rental equipment decreased $65.0 million, or 47.7%, during the first half of 2020 when compared to the first half of 2019. During ~~2017,~~ the ~~level~~first half of ~~revenue earning equipment sold increased as part~~2020, the volume of ~~our strategy to shift the mix of our fleet as well as higher~~ sales declined due to COVID-19 related impact to sales channels and decreased demand for used rental equipment. We expect continued reductions in the ~~rotation~~volume of ~~our revenue earning equipment based on normal holding periods.~~sales for the remainder of 2020. The corresponding cost of sales of ~~revenue earning~~rental equipment as a percentage of the related revenue was ~~105.0%~~100.8% in ~~2017~~the first half of 2020 compared to ~~118.7%~~97.9% in ~~2016. Losses~~the first half of 2019. The reduction in margin on ~~the~~ sale of ~~revenue earning~~rental equipment ~~decreased~~ in ~~2017 as~~ the ~~volume~~first half of 2020 was primarily due to a higher proportion of sales ~~made~~ through the lower-margin auction channel ~~was reduced and shifted toward~~during the ~~wholesale channel. The loss on sale~~first quarter of revenue earning equipment in 2016 was primarily due to the higher level of sales through the auction channel of equipment used in the upstream oil and gas markets and equipment manufactured by certain suppliers as we reduced the number of brands of equipment we carry in our fleet.2020.

Sales of new equipment, parts and supplies decreased ~~$10.6~~$10.1 million, or ~~20.8%~~41.9%, during the ~~nine months ended September 30, 2017~~first half of 2020 when compared ~~with~~to the ~~prior-year period. This decrease was~~first half of 2019, driven by ~~our implementation~~the impact of ~~changes to de-emphasize new equipment sales programs, including~~ the ~~elimination of certain equipment dealerships.~~COVID-19 Orders. The cost of sales of new equipment, parts and supplies as a percentage of the related revenue was ~~75.2%~~72.9% for the ~~nine months ended September 30, 2017~~second quarter of 2020 compared to ~~77.0%~~77.2% for the ~~same period~~second quarter of ~~2016.~~2019. The ~~decrease~~increase in margin was ~~due~~attributable to the mix of ~~the new~~ equipment sold.

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HERC HOLDINGS INC. AND SUBSIDIARIES


~~ITEM 2.~~	~~MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)~~

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)


~~For the quarterly period ended September 30, 2017~~OR
OR
o☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



Delaware						20-3530539
(State or other jurisdiction of incorporation or organization)						~~20-3530539~~ (I.R.S. Employer Identification Number)



~~Class~~		~~Shares Outstanding at November 3, 2017~~
~~Common Stock, par value $0.01 per share~~	~~28,370,805~~




	Page
PART I. FINANCIAL INFORMATION
ITEM 1.		Financial Statements	12
		Condensed Consolidated Balance Sheets as of ~~September~~Ju ne 30, ~~2017~~2020 and December 31, ~~2016~~2019	12
		Condensed Consolidated Statements of Operations for the Three and ~~Nine~~Si x Months Ended ~~September~~Ju ne 30, ~~2017~~2020 and ~~2016~~2019	23
		Condensed Consolidated Statements of Comprehensive Income (Loss) for the Three and ~~Nine~~ Si x Months Ended ~~September 30, 2017~~June 3 0 , 2020 and ~~2016~~2019	34
		Condensed Consolidated ~~Statement~~Statements of Changes in Equity for the ~~Nine~~Three and Si x Months Ended ~~September~~June 30 ~~2017~~, 2020 and 2019	45
		Condensed Consolidated Statements of Cash Flows for the ~~Nine~~Six Months Ended ~~September~~June 30, ~~2017~~2020 and ~~2016~~2019	56
		Notes to Condensed Consolidated Financial Statements	78
ITEM 2.		Management's Discussion and Analysis of Financial Condition and Results of Operations	2423
ITEM 3.		Quantitative and Qualitative Disclosures About Market Risk	3331
ITEM 4.		Controls and Procedures	3431
PART II. OTHER INFORMATION
ITEM 1.		Legal Proceedings	3632
ITEM 1A.		Risk Factors	3632
ITEM 2.		Unregistered Sales of Equity Securities and Use of Proceeds	3632
ITEM 5.		Other Information	3632
ITEM 6.		Exhibits	3733
SIGNATURE				3834


	September 30, 2017			December 31, 2016				June 30, 2020		December 31, 2019
ASSETS	(Unaudited)						ASSETS	(Unaudited)
Cash and cash equivalents	$	19.1		$	24.0		Cash and cash equivalents	$	83.2	$	33.0
Restricted cash and cash equivalents	7.1			7.0
Receivables, net of allowances of $31.8 and $24.9, respectively	347.9			293.3
Taxes receivable	4.4			7.4
Inventory	26.7			24.1
Prepaid and other current assets	19.2			15.9
Receivables, net of allowances of $24.6 and $18.8, respectively							Receivables, net of allowances of $24.6 and $18.8, respectively	247.0		306.7
Other current assets							Other current assets	33.9		28.9
Assets held for sale							Assets held for sale	10.7		31.1
Total current assets	424.4			371.7			Total current assets	374.8		399.7
Revenue earning equipment, net	2,465.5			2,390.0
Rental equipment, net							Rental equipment, net	2,396.7		2,490.0
Property and equipment, net	287.3			272.0			Property and equipment, net	296.7		311.8
Right-of-use lease assets							Right-of-use lease assets	241.0		207.3
Intangible assets, net	284.4			303.9			Intangible assets, net	289.9		291.5
Goodwill	91.1			91.0			Goodwill	93.6		93.6
Other long-term assets	36.2			34.7			Other long-term assets	19.0		23.1
Total assets	$	3,588.9		$	3,463.3		Total assets	$	3,711.7	$	3,817.0
LIABILITIES AND EQUITY							LIABILITIES AND EQUITY
Current maturities of long-term debt	$	17.2		$	15.7
Current maturities of long-term debt and financing obligations							Current maturities of long-term debt and financing obligations	$	18.9	$	30.4
Current maturities of operating lease liabilities							Current maturities of operating lease liabilities	31.8		30.5
Accounts payable	246.3			139.0			Accounts payable	138.1		126.5
Accrued liabilities	105.6			78.2			Accrued liabilities	121.7		135.7
Taxes payable	18.6			10.0
Total current liabilities	387.7			242.9			Total current liabilities	310.5		323.1
Long-term debt, net	2,212.3			2,178.6			Long-term debt, net	1,931.3		2,051.5
Deferred taxes	661.8			692.1
Financing obligations, net							Financing obligations, net	115.8		117.6
Operating lease liabilities							Operating lease liabilities	218.5		182.2
Deferred tax liabilities							Deferred tax liabilities	459.9		459.3
Other long-term liabilities	38.3			32.0			Other long-term liabilities	41.7		39.0
Total liabilities	3,300.1			3,145.6			Total liabilities	3,077.7		3,172.7
Commitments and contingencies (Note 10)
Commitments and contingencies (Note 11)							Commitments and contingencies (Note 11)
Equity:							Equity:
Preferred stock, $0.01 par value, 13.3 shares authorized, no shares issued and outstanding	—			—			Preferred stock, $0.01 par value, 13.3 shares authorized, no shares issued and outstanding	—		—
Common stock, $0.01 par value, 133.3 shares authorized, 31.1 and 31.0 shares issued and 28.3 and 28.3 shares outstanding	0.3			0.3
Common stock, $0.01 par value, 133.3 shares authorized, 31.8 and 31.5 shares issued and 29.1 and 28.8 shares outstanding							Common stock, $0.01 par value, 133.3 shares authorized, 31.8 and 31.5 shares issued and 29.1 and 28.8 shares outstanding	0.3		0.3
Additional paid-in capital	1,758.1			1,753.3			Additional paid-in capital	1,800.2		1,796.9
Accumulated deficit	(679.2		)	(625.2		)	Accumulated deficit	(352.9)		(351.2)
Accumulated other comprehensive loss	(98.4		)	(118.7		)	Accumulated other comprehensive loss	(121.6)		(109.7)
Treasury stock, at cost, 2.7 shares and 2.7 shares	(692.0		)	(692.0		)	Treasury stock, at cost, 2.7 shares and 2.7 shares	(692.0)		(692.0)
Total equity	288.8			317.7			Total equity	634.0		644.3
Total liabilities and equity	$	3,588.9		$	3,463.3		Total liabilities and equity	$	3,711.7	$	3,817.0



x☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


	Three Months Ended June 30, 2020
	Common Stock					Additional Paid-In Capital		Accumulated Deficit		Accumulated Other Comprehensive Income (Loss)		Treasury Stock		Total Equity
Balance at:	Shares	Amount
March 31, 2020	29.1	$	0.3	$	1,798.2	$	(354.9)	$	(131.7)	$	(692.0)	$	619.9
Net income	—	—		—		2.0		—		—		2.0
Other comprehensive income	—	—		—		—		10.1		—		10.1
Net settlement on vesting of equity awards	—	—		(0.3)		—		—		—		(0.3)
Stock-based compensation charges	—	—		1.7		—		—		—		1.7
Employee stock purchase plan	—	—		0.6		—		—		—		0.6
June 30, 2020	29.1	$	0.3	$	1,800.2	$	(352.9)	$	(121.6)	$	(692.0)	$	634.0


	Six Months Ended June 30, 2020
	Common Stock					Additional Paid-In Capital		Accumulated Deficit		Accumulated Other Comprehensive Income (Loss)		Treasury Stock		Total Equity
Balance at:	Shares	Amount
December 31, 2019	28.8	$	0.3	$	1,796.9	$	(351.2)	$	(109.7)	$	(692.0)	$	644.3
Net loss	—	—		—		(1.7)		—		—		(1.7)
Other comprehensive loss	—	—		—		—		(11.9)		—		(11.9)
Net settlement on vesting of equity awards	0.3	—		(2.8)		—		—		—		(2.8)
Stock-based compensation charges	—	—		4.9		—		—		—		4.9
Employee stock purchase plan	—	—		1.2		—		—		—		1.2
June 30, 2020	29.1	$	0.3	$	1,800.2	$	(352.9)	$	(121.6)	$	(692.0)	$	634.0


	Three Months Ended June 30, 2019
	Common Stock					Additional Paid-In Capital		Accumulated Deficit		Accumulated Other Comprehensive Income (Loss)		Treasury Stock		Total Equity
Balance at:	Shares	Amount
March 31, 2019	28.6	$	0.3	$	1,780.6	$	(405.4)	$	(117.7)	$	(692.0)	$	565.8
Net income	—	—		—		9.7		—		—		9.7
Other comprehensive income	—	—		—		—		3.0		—		3.0
Net settlement on vesting of equity awards	0.1	—		(0.2)		—		—		—		(0.2)
Stock-based compensation charges	—	—		4.3		—		—		—		4.3
Employee stock purchase plan	—	—		0.6		—		—		—		0.6
Exercise of stock options	—	—		0.5		—		—		—		0.5
June 30, 2019	28.7	$	0.3	$	1,785.8	$	(395.7)	$	(114.7)	$	(692.0)	$	583.7


	Six Months Ended June 30, 2019
	Common Stock					Additional Paid-In Capital		Accumulated Deficit		Accumulated Other Comprehensive Income (Loss)		Treasury Stock		Total Equity
Balance at:	Shares	Amount
December 31, 2018	28.5	$	0.3	$	1,777.9	$	(391.1)	$	(122.4)	$	(692.0)	$	572.7
Net income	—	—		—		3.0		—		—		3.0
Adoption of new accounting pronouncement	—	—		—		(7.6)		—		—		(7.6)
Other comprehensive income	—	—		—		—		7.7		—		7.7
Net settlement on vesting of restricted stock	0.2	—		(2.0)		—		—		—		(2.0)
Stock-based compensation charges	—	—		8.2		—		—		—		8.2
Employee stock purchase plan	—	—		1.2		—		—		—		1.2
Exercise of stock options	—	—		0.5		—		—		—		0.5
June 30, 2019	28.7	$	0.3	$	1,785.8	$	(395.7)	$	(114.7)	$	(692.0)	$	583.7



	September 30, 2017			December 31, 2016
Revenue earning equipment	$	3,858.1		$	3,695.5
Less: Accumulated depreciation	(1,392.6		)	(1,305.5		)
Revenue earning equipment, net	$	2,465.5		$	2,390.0



	Pension and Other Post-Employment Benefits			Unrealized Losses on Hedging Instruments			Foreign Currency Items			Accumulated Other Comprehensive Income (Loss)
Balance at December 31, 2016	$	(14.6	)	$	—		$	(104.1	)	$	(118.7	)
Other comprehensive income (loss) before reclassification	(1.7		)	(0.2		)	21.5			19.6
Amounts reclassified from accumulated other comprehensive loss	0.7			—			—			0.7
Net current period other comprehensive income (loss)	(1.0		)	(0.2		)	21.5			20.3
Balance at September 30, 2017	$	(15.6	)	$	(0.2	)	$	(82.6	)	$	(98.4	)



	Aggregate Notional Amount		Receive Rate	Receive Rate as of September 30, 2017		Pay Rate
ABL Credit Facility	$	350.0	1 month LIBOR + 1.75%	3.0	%	3.5	%



	Fair Value of Financial Instruments
	Prepaid & Other Current Assets				Accrued Liabilities
	September 30, 2017		December 31, 2016		September 30, 2017		December 31, 2016
Derivatives Designated as Hedging Instruments
Interest rate swap	$	—	$	—	$	0.4	$	—
Derivatives Not Designated as Hedging Instruments
Foreign currency forward contracts	$	—	$	0.1	$	—	$	—



	Loss Recognized
	Three Months Ended September 30,						Nine Months Ended September 30,
	2017			2016			2017			2016
Derivatives Not Designated as Hedging Instruments
Foreign currency forward contracts	$	(0.4	)	$	(2.6	)	$	(4.0	)	$	(2.7	)



Exhibit Number			Description
3.1.1			Amended and Restated Certificate of Incorporation of Herc Holdings (Incorporated by reference to Exhibit 3.1 to the Annual Report on Form 10-K of Hertz Global Holdings, Inc. (File No. 001-33139), as filed on March 30, 2007).
3.1.2			Certificate of Amendment to the Amended and Restated Certificate of Incorporation of Herc Holdings, effective as of May 14, 2014 (Incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K of Hertz Global Holdings, Inc. (File No. 001-33139), as filed on May 14, 2014).
3.1.3			Certificate of Amendment to the Amended and Restated Certificate of Incorporation of Herc Holdings, dated June 30, 2016 (reflecting the registrant’s name change to “Herc Holdings Inc.”) (Incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K of Herc Holdings (File No. 001-33139), as filed on July 6, 2016).
3.1.4			Certificate of Amendment to the Amended and Restated Certificate of Incorporation of Herc Holdings, dated June 30, 2016 (Incorporated by reference to Exhibit 3.2 to the Current Report on Form 8-K of Herc Holdings (File No. 001-33139), as filed on July 6, 2016).
3.2			Amended and Restated By-Laws of Herc Holdings Inc., effective ~~June 30, 2016~~May 17, 2018 (Incorporated by reference to Exhibit ~~3.3~~3.1 to the Current Report on Form 8-K of Herc Holdings Inc. (File No. 001-33139), as filed on ~~July 6, 2016)~~May 23, 2018).
31.1*			Certification of the ~~Chief~~Principal Executive Officer pursuant to Rule 13a-14(a)/15d-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to §302 of the Sarbanes-Oxley Act of 2002 of 2002
31.2*			Certification of the ~~Chief~~Principal Financial Officer pursuant to Rule 13a-14(a)/15d-14(a) under the Securities and Exchange Act of 1934, as adopted pursuant to §302 of the Sarbanes-Oxley Act of 2002
32.1**			18 U.S.C. Section 1350 Certifications of ~~Chief~~Principal Executive Officer and the ~~Chief~~Principal Financial Officer
101.INS*			XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document
101.SCH*			Inline XBRL Taxonomy Extension Schema Document
101.CAL*			Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF*			Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB*			Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE*			Inline XBRL Taxonomy Extension Presentation Linkbase Document
104*			Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)