10-Q
Table of Contents




 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_______________________________________________________________________________
FORM 10-Q/A
Amendment No. 1
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2015
OR
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 001-33139
HERTZ GLOBAL HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
 
20-3530539
(I.R.S. Employer
Identification Number)

999 Vanderbilt Beach Road - 3rd Floor
Naples, Florida 34108
(239) 552-5800
(Address, including Zip Code, and telephone number,
including area code, of registrant's principal executive offices)

Not Applicable
(Former name, former address and former fiscal year,
if changed since last report.)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes o No x

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No x

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer 
x
Accelerated filer 
o
Non-accelerated filer 
o
Smaller reporting company 
o
 
 
 
 
(Do not check if a smaller
reporting company)
 
 
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
As of November 2, 2015, 444,358,703 shares of the registrant's common stock, par value $0.01 per share, were outstanding.

 


Table of Contents




HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
INDEX

 
 
 
 
 
Page
 
 
 
 
 
 
 


Table of Contents




HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES



EXPLANATORY NOTE

Amendment

The purpose of this Amendment No. 1 to our Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2015, filed with the Securities and Exchange Commission on August 10, 2015 (the “Quarterly Report”) is to restate our previously issued condensed consolidated financial statements to correct an error related to the depreciation of vehicles sold through our retail car sales locations. As a result of this error, our depreciation expense during the three and six months ended June 30, 2015 was overstated by $21 million and $18 million, respectively. The impact of this error to the three months ended March 31, 2015 was a $3 million understatement of depreciation expense which we deemed immaterial and therefore has been reflected as an out of period adjustment in our restated results for the three months ended June 30, 2015. In addition to the depreciation expense error, in this amendment we have corrected for an error in direct operating expenses that resulted in a $3 million overstatement of direct operating expenses for the three and six months ended June 30, 2015. The correction of the errors described above resulted in an increase of $21 million to pre-tax income and $13 million to net income (loss) for the three and six months ended June 30, 2015. Management identified errors that impacted the second quarter 2015 balance sheet classification of tax accounts. As a result, as of June 30, 2015, prepaid expenses and other assets, deferred taxes on income, net, and accrued taxes, net, were understated by $26 million, $5 million and $21 million, respectively. See Note 2, “Restatement,” to our condensed consolidated financial statements for additional information. This Amendment amends and restates our unaudited condensed consolidated financial statements and related disclosures in “Part I - Item 1. Financial Statements” for the three and six months ended June 30, 2015, as well as related disclosures in “Part I - Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations” and “Part I - Item 4. Controls and Procedures” to reflect the correction of these errors. This Amendment speaks as of the original filing date of the Quarterly Report, does not reflect events that may have occurred subsequent to the original filing date, and does not modify or update in any way disclosures made in the Quarterly Report, except as noted above.

Annual and Quarterly Filings

As described in additional detail in the Explanatory Note to our Annual Report on Form 10-K for the year ended December 31, 2014 (the "2014 Form 10-K"), during the preparation of our Form 10-Q for the first quarter of 2014, misstatements were identified in our previous financial statements relating to the capitalization and timing of depreciation for certain non-fleet assets, allowances for doubtful accounts in Brazil, as well as other items. These misstatements, in combination with misstatements previously identified in the revision included in our 2013 10-K/A related to vehicle vendor allowances for marketing and misstatements related to the Brazil operations, resulted in the Audit Committee of our Board of Directors (the “Audit Committee” and the “Board”), in consultation with our management, concluding on June 3, 2014 that our financial statements for 2011 should no longer be relied upon, and would require restatement.

On November 10, 2014, the Audit Committee, in consultation with our management, concluded that additional proposed adjustments arising out of the review were material to our 2012 and 2013 financial statements and that, as a result, our 2012 and 2013 financial statements also would require restatement. Those restated financial statements are included in Item 8 of the 2014 Form 10-K.

Due to the length of the review of our historical financial statements, we were unable to file the 2014 Form 10-K until July 16, 2015. In the 2014 Form 10-K we restated our financial statements for the years ended December 31, 2012 and 2013, including the 2013 interim periods. In addition, we also included restated unaudited selected financial data for the year ended December 31, 2011. We also included in the 2014 Form 10-K the financial data for the three and six months ended June 30, 2014 and management's discussion and analysis for the quarterly period then ended that would typically be disclosed in a Form 10-Q. We have not, and do not intend to file our Quarterly Report on Form 10‑Q for the quarterly period ended June 30, 2014.


i

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HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
PART I—FINANCIAL INFORMATION
ITEM l.    CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
Unaudited
(In millions, except par value)
 
June 30, 2015
(Restated)
 
December 31, 2014
ASSETS
 
 
 
Cash and cash equivalents
$
537

 
$
490

Restricted cash and cash equivalents
421

 
571

Receivables, net of allowance of $73 and $67, respectively
1,390

 
1,597

Inventories, net
75

 
67

Prepaid expenses and other assets
964

 
917

Revenue earning equipment:
 
 
 
Cars
16,393

 
14,622

Less accumulated depreciation - cars
(2,986
)
 
(3,411
)
Equipment
3,781

 
3,613

Less accumulated depreciation - equipment
(1,174
)
 
(1,171
)
Revenue earning equipment, net
16,014

 
13,653

Property and other equipment:
 
 
 
Land, buildings and leasehold improvements
1,364

 
1,268

Service equipment and other
1,075

 
1,148

Less accumulated depreciation
(1,129
)
 
(1,094
)
Property and other equipment, net
1,310

 
1,322

Other intangible assets, net
3,945

 
4,009

Goodwill
1,360

 
1,359

Total assets
$
26,016

 
$
23,985

LIABILITIES AND EQUITY
 
 
 
Accounts payable
$
1,431

 
$
1,008

Accrued liabilities
1,128

 
1,148

Accrued taxes, net
123

 
134

Debt
17,682

 
15,993

Public liability and property damage
384

 
385

Deferred taxes on income, net
2,868

 
2,853

Total liabilities
23,616

 
21,521

Commitments and contingencies

 

Equity:
 
 
 
Preferred Stock, $0.01 par value, 200 shares authorized, no shares issued and outstanding

 

Common Stock, $0.01 par value, 2,000 shares authorized, 463 and 463 shares issued and 459 and 459 shares outstanding
5

 
5

Additional paid-in capital
3,330

 
3,325

Accumulated deficit
(698
)
 
(664
)
Accumulated other comprehensive income (loss)
(150
)
 
(115
)
 
2,487

 
2,551

Treasury Stock, at cost, 4 shares and 4 shares
(87
)
 
(87
)
Total equity
2,400

 
2,464

Total liabilities and equity
$
26,016

 
$
23,985

The accompanying notes are an integral part of these financial statements.

1

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HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Unaudited
(In millions, except per share data)
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2015
(Restated)
 
2014
 
2015
(Restated)
 
2014
Revenues:
 
 
 
 
 
 
 
Worldwide car rental
$
2,171

 
$
2,304

 
$
4,127

 
$
4,343

Worldwide equipment rental
375

 
384

 
730

 
743

All other operations
146

 
142

 
288

 
280

Total revenues
2,692

 
2,830

 
5,145

 
5,366

Expenses:

 
 
 
 
 
 
Direct operating
1,502

 
1,594

 
2,910

 
3,037

Depreciation of revenue earning equipment and lease charges, net
678

 
708

 
1,385

 
1,434

Selling, general and administrative
295

 
264

 
560

 
541

Interest expense, net
156

 
164

 
310

 
320

Other (income) expense, net
(10
)
 
(21
)
 
(4
)
 
(24
)
Total expenses
2,621

 
2,709

 
5,161

 
5,308

Income (loss) before income taxes
71

 
121

 
(16
)
 
58

(Provision) benefit for taxes on income (loss)
(35
)
 
(49
)
 
(18
)
 
(56
)
Net income (loss)
$
36

 
$
72

 
$
(34
)
 
$
2

Weighted average shares outstanding:

 
 
 
 
 
 
Basic
459

 
452

 
459

 
450

Diluted
461

 
465

 
459

 
457

Earnings (loss) per share:

 
 
 
 
 
 
Basic
$
0.08

 
$
0.16

 
$
(0.07
)
 
$

Diluted
$
0.08

 
$
0.15

 
$
(0.07
)
 
$



The accompanying notes are an integral part of these financial statements.


2

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HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
Unaudited
(In millions)
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2015
(Restated)
 
2014
 
2015
(Restated)
 
2014
Net income (loss)
$
36

 
$
72

 
$
(34
)
 
$
2

Other comprehensive income (loss):
 
 
 
 
 
 
 
Foreign currency translation adjustments
9

 
21

 
(39
)
 
18

Unrealized holding gains (losses) on securities

 

 

 
(14
)
Reclassification of net unrealized gains on securities to prepaid expense and other assets

 
(7
)
 

 
(7
)
Reclassification from other comprehensive income (loss) to selling, general and administrative expense for amortization of actuarial losses on defined benefit pension plans
4

 
(1
)
 
6

 
(1
)
Total other comprehensive income (loss) before income taxes
13

 
13

 
(33
)
 
(4
)
Income tax (provision) benefit related to items of other comprehensive income (loss)
(2
)
 
(1
)
 
(2
)
 
(2
)
Total other comprehensive income (loss)
11

 
12

 
(35
)
 
(6
)
Total comprehensive income (loss)
$
47

 
$
84

 
$
(69
)
 
$
(4
)



The accompanying notes are an integral part of these financial statements.


3

Table of Contents
HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Unaudited
(In millions)



 
Six Months Ended
June 30,
 
2015
(Restated)
 
2014
Cash flows from operating activities
 
 
 
Net income (loss)
$
(34
)
 
$
2

Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
 
 
 
Depreciation of revenue earning equipment, net
1,349

 
1,393

Depreciation and amortization, non-fleet
169

 
180

Amortization and write-off of deferred financing costs
31

 
27

Amortization and write-off of debt discount (premium)
(2
)
 
(2
)
Stock-based compensation charges
9

 
13

Provision for receivables allowance
35

 
32

Deferred taxes on income
19

 
21

Impairment charges and asset write-downs
20

 
10

Other
(7
)
 
(4
)
Changes in assets and liabilities
 
 
 
Receivables
(164
)
 
(284
)
Inventories, prepaid expenses and other assets
(68
)
 
(51
)
Accounts payable
57

 
32

Accrued liabilities
24

 
(2
)
Accrued taxes
3

 
7

Public liability and property damage
10

 
28

Net cash provided by (used in) operating activities
1,451

 
1,402

Cash flows from investing activities
 
 
 
Net change in restricted cash and cash equivalents
144

 
143

Revenue earning equipment expenditures
(7,991
)
 
(5,996
)
Proceeds from disposal of revenue earning equipment
4,909

 
3,717

Capital asset expenditures, non-fleet
(170
)
 
(151
)
Proceeds from disposal of property and other equipment
47

 
45

Acquisitions, net of cash acquired
(95
)
 
(6
)
Net cash provided by (used in) investing activities
(3,156
)
 
(2,248
)

The accompanying notes are an integral part of these financial statements.


4


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HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
Unaudited
(In millions)

 
Six Months Ended
June 30,
 
2015
(Restated)
 
2014
Cash flows from financing activities
 
 
 
Proceeds from issuance of long-term debt
1,069

 
414

Repayments of long-term debt
(1,032
)
 
(97
)
Short-term borrowings:
 
 
 
Proceeds
383

 
269

Payments
(258
)
 
(369
)
Proceeds under the revolving lines of credit
5,307

 
2,779

Payments under the revolving lines of credit
(3,688
)
 
(2,017
)
Payment of financing costs
(8
)
 
(6
)
Other
(4
)
 
4

Net cash provided by (used in) financing activities
1,769

 
977

Effect of foreign exchange rate changes on cash and cash equivalents
(17
)
 
(2
)
Net increase (decrease) in cash and cash equivalents during the period
47

 
129

Cash and cash equivalents at beginning of period
490

 
411

Cash and cash equivalents at end of period
$
537

 
$
540

 

 

Supplemental disclosures of cash information:
 
 
 
Cash paid during the period for:
 
 
 
Interest, net of amounts capitalized
$
291

 
$
272

Income taxes, net of refunds
19

 
33

Supplemental disclosures of non-cash information:
 
 
 
Purchases of revenue earning equipment included in accounts payable and accrued liabilities
$
533

 
$
865

Sales of revenue earning equipment included in receivables
189

 
156

Purchases of property and other equipment included in accounts payable   
63

 
52

Sales of property and other equipment included in receivables
16

 
8

Conversion of Convertible Senior Notes included in debt, common stock and additional paid-in capital

 
84



The accompanying notes are an integral part of these financial statements.


5


Table of Contents
HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Unaudited


Note 1Background

Hertz Global Holdings, Inc. ("Hertz Holdings," and together with its subsidiaries, the "Company") was incorporated in Delaware in 2005 to serve as the top-level holding company for Hertz Investors, Inc. which wholly owns The Hertz Corporation ("Hertz"), Hertz Holdings' primary operating company. The Company's common stock trades on the New York Stock Exchange under the symbol "HTZ".
In March 2014, the Company announced that its Board of Directors approved plans to separate Hertz Holdings into two independent, publicly traded companies. One of the companies will continue to operate the Hertz, Dollar, Thrifty and Firefly rental car businesses as well as Donlen; and the other will operate the Hertz Equipment Rental Corporation ("HERC"). The separation is planned to be in the form of a tax-free spin-off to Hertz Holdings' shareholders (the "HERC spin-off") and the Company expects to separate the businesses in a tax-efficient manner.

Note 2 - Restatement

During the preparation of the Company's Form 10-Q for the third quarter 2015, an error related to the depreciation of vehicles sold through the Company's retail car sales locations was identified that impacted the financial statements filed in the Company's Form 10-Q for the second quarter 2015 and had an immaterial impact on the first quarter 2015. As a result of this error, our depreciation expense during the three and six months ended June 30, 2015 was overstated by $21 million and $18 million, respectively. The impact of this error to the three months ended March 31, 2015 was a $3 million understatement of depreciation expense which we deemed immaterial and therefore has been reflected as an out of period adjustment in our restated results for the three months ended June 30, 2015. In addition to the depreciation expense error, in this amendment we have corrected for an error in direct operating expenses that resulted in a $3 million overstatement of direct operating expenses for the three and six months ended June 30, 2015. The correction of the errors resulted in an increase of $21 million to pre-tax income and $13 million to net income (loss) for the three and six months ended June 30, 2015. The correction also increased diluted earnings per share for the three months ended June 30, 2015, and decreased diluted loss per share for the six months ended June 30, 2015, by $0.03. Management identified errors that impacted the second quarter 2015 balance sheet classification of tax accounts. As a result, as of June 30, 2015, prepaid expenses and other assets, deferred taxes on income, net, and accrued taxes, net, were understated by $26 million, $5 million and $21 million, respectively.
The impact of the adjustments to previously reported financial statements is shown in the following tables.


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HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Unaudited

CONDENSED CONSOLIDATED BALANCE SHEET
(In millions, except par value)
 
June 30, 2015
 
As Previously Reported
 
Restatement Adjustment
 
As Restated
ASSETS
 
 
 
 
 
Cash and cash equivalents
$
537

 
$

 
$
537

Restricted cash and cash equivalents
421

 

 
421

Receivables, net of allowance of $73 and $67, respectively
1,390

 

 
1,390

Inventories, net
75

 

 
75

Prepaid expenses and other assets
938

 
26

 
964

Revenue earning equipment:
 
 
 
 
 
Cars
16,393

 

 
16,393

Less accumulated depreciation - cars
(3,004
)
 
18

 
(2,986
)
Equipment
3,781

 

 
3,781

Less accumulated depreciation - equipment
(1,174
)
 

 
(1,174
)
Revenue earning equipment, net
15,996

 
18

 
16,014

Property and other equipment:
 
 
 
 
 
Land, buildings and leasehold improvements
1,364

 

 
1,364

Service equipment and other
1,072

 
3

 
1,075

Less accumulated depreciation
(1,129
)
 

 
(1,129
)
Property and other equipment, net
1,307

 
3

 
1,310

Other intangible assets, net
3,945

 

 
3,945

Goodwill
1,360

 

 
1,360

Total assets
$
25,969

 
$
47

 
$
26,016

LIABILITIES AND EQUITY
 
 
 
 
 
Accounts payable
$
1,431

 
$

 
$
1,431

Accrued liabilities
1,128

 

 
1,128

Accrued taxes, net
102

 
21

 
123

Debt
17,682

 

 
17,682

Public liability and property damage
384

 

 
384

Deferred taxes on income, net
2,855

 
13

 
2,868

Total liabilities
23,582

 
34

 
23,616

Commitments and contingencies

 

 

Equity:
 
 
 
 
 
Preferred Stock, $0.01 par value, 200 shares authorized, no shares issued and outstanding

 

 

Common Stock, $0.01 par value, 2,000 shares authorized, 463 and 463 shares issued and 459 and 459 shares outstanding
5

 

 
5

Additional paid-in capital
3,330

 

 
3,330

Accumulated deficit
(711
)
 
13

 
(698
)
Accumulated other comprehensive income (loss)
(150
)
 

 
(150
)
 
2,474

 
13

 
2,487

Treasury Stock, at cost, 4 shares and 4 shares
(87
)
 

 
(87
)
Total equity
2,387

 
13

 
2,400

Total liabilities and equity
$
25,969

 
$
47

 
$
26,016






7

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HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Unaudited


CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(In millions, except per share data)
 
Three Months Ended June 30, 2015
 
As Previously Reported
 
Restatement Adjustment
 
As Restated
Revenues:
 
 
 
 
 
Worldwide car rental
$
2,171

 
$

 
$
2,171

Worldwide equipment rental
375

 

 
375

All other operations
146

 

 
146

Total revenues
2,692

 

 
2,692

Expenses:
 
 
 
 
 
Direct operating
1,505

 
(3
)
 
1,502

Depreciation of revenue earning equipment and lease charges, net
696

 
(18
)
 
678

Selling, general and administrative
295

 

 
295

Interest expense, net
156

 

 
156

Other (income) expense, net
(10
)
 

 
(10
)
Total expenses
2,642

 
(21
)
 
2,621

Income (loss) before income taxes
50

 
21

 
71

(Provision) benefit for taxes on income (loss)
(27
)
 
(8
)
 
(35
)
Net income (loss)
$
23

 
$
13

 
$
36

Weighted average shares outstanding:
 
 
 
 
 
Basic
459

 
459

 
459

Diluted
461

 
461

 
461

Earnings (loss) per share:
 
 
 
 
 
Basic
$
0.05

 
$
0.03

 
$
0.08

Diluted
$
0.05

 
$
0.03

 
$
0.08








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Table of Contents
HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Unaudited

CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(In millions, except per share data)
 
Six Months Ended June 30, 2015
 
As Previously Reported
 
Restatement Adjustment
 
As Restated
Revenues:
 
 
 
 
 
Worldwide car rental
$
4,127

 
$

 
$
4,127

Worldwide equipment rental
730

 

 
730

All other operations
288

 

 
288

Total revenues
5,145

 

 
5,145

Expenses:
 
 
 
 
 
Direct operating
2,913

 
(3
)
 
2,910

Depreciation of revenue earning equipment and lease charges, net
1,403

 
(18
)
 
1,385

Selling, general and administrative
560

 

 
560

Interest expense, net
310

 

 
310

Other (income) expense, net
(4
)
 

 
(4
)
Total expenses
5,182

 
(21
)
 
5,161

Income (loss) before income taxes
(37
)
 
21

 
(16
)
(Provision) benefit for taxes on income (loss)
(10
)
 
(8
)
 
(18
)
Net income (loss)
$
(47
)
 
$
13

 
$
(34
)
Weighted average shares outstanding:
 
 
 
 
 
Basic
459

 
459

 
459

Diluted
459

 
461

 
459

Earnings (loss) per share:
 
 
 
 
 
Basic
$
(0.10
)
 
$
0.03

 
$
(0.07
)
Diluted
$
(0.10
)
 
$
0.03

 
$
(0.07
)





















9

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HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Unaudited

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(In millions)
 
Six Months Ended June 30, 2015
 
As Previously Reported
 
Restatement Adjustment
 
As Restated
Cash flows from operating activities
 
 
 
 
 
Net income (loss)
$
(47
)
 
$
13

 
$
(34
)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
 
 
 
 
 
Depreciation of revenue earning equipment, net
1,367

 
(18
)
 
1,349

Depreciation and amortization, non-fleet
169

 

 
169

Amortization and write-off of deferred financing costs
31

 

 
31

Amortization and write-off of debt discount (premium)
(2
)
 

 
(2
)
Stock-based compensation charges
9

 

 
9

Provision for receivables allowance
35

 

 
35

Deferred taxes on income
11

 
8

 
19

Impairment charges and asset write-downs
20

 

 
20

Other
(4
)
 
(3
)
 
(7
)
Changes in assets and liabilities
 
 

 
 
Receivables
(164
)
 

 
(164
)
Inventories, prepaid expenses and other assets
(42
)
 
(26
)
 
(68
)
Accounts payable
57

 

 
57

Accrued liabilities
24

 

 
24

Accrued taxes
(23
)
 
26

 
3

Public liability and property damage
10

 

 
10

Net cash provided by (used in) operating activities
1,451

 

 
1,451

Cash flows from investing activities
 
 
 
 
 
Net change in restricted cash and cash equivalents
144

 

 
144

Revenue earning equipment expenditures
(7,991
)
 

 
(7,991
)
Proceeds from disposal of revenue earning equipment
4,909

 

 
4,909

Capital asset expenditures, non-fleet
(170
)
 

 
(170
)
Proceeds from disposal of property and other equipment
47

 

 
47

Acquisitions, net of cash acquired
(95
)
 

 
(95
)
Net cash provided by (used in) investing activities
(3,156
)
 

 
(3,156
)

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HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Unaudited

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(In millions)
 
Six Months Ended June 30, 2015
 
As Previously Reported
 
Restatement Adjustment
 
As Restated
Cash flows from financing activities
 
 
 
 
 
Proceeds from issuance of long-term debt
1,069

 

 
1,069

Repayments of long-term debt
(1,032
)
 

 
(1,032
)
Short-term borrowings:
 
 
 
 
 
Proceeds
383

 

 
383

Payments
(258
)
 

 
(258
)
Proceeds under the revolving lines of credit
5,307

 

 
5,307

Payments under the revolving lines of credit
(3,688
)
 

 
(3,688
)
Payment of financing costs
(8
)
 

 
(8
)
Other
(4
)
 

 
(4
)
Net cash provided by (used in) financing activities
1,769

 

 
1,769

Effect of foreign exchange rate changes on cash and cash equivalents
(17
)
 

 
(17
)
Net increase (decrease) in cash and cash equivalents during the period
47

 

 
47

Cash and cash equivalents at beginning of period
490

 

 
490

Cash and cash equivalents at end of period
$
537

 
$

 
$
537


Note 3Basis of Presentation and Recently Issued Accounting Pronouncements

Basis of Presentation

The Company prepares its unaudited 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 unaudited condensed consolidated financial statements reflect all adjustments of a normal recurring nature that are necessary for a fair presentation of the results for the interim periods presented. Interim results are not necessarily indicative of results for a full year.

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.

The year-end condensed balance sheet data was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America. The information included in this Form 10-Q/A should be read in conjunction with information included in the Company’s Form 10-K for the year ended December 31, 2014 filed with the U.S. Securities and Exchange Commission on July 16, 2015 (the "2014 Form 10-K").

In the 2014 Form 10-K, the Company filed its 2014 annual financial statements along with its restated annual financial statements for 2013 and 2012, as well as unaudited restated selected financial data for 2011. In lieu of filing quarterly reports on Form 10-Q for 2014, quarterly financial information and management's discussion and analysis for 2014 was included in the 2014 Form 10-K.

Principles of Consolidation

The unaudited condensed consolidated financial statements include the accounts of Hertz Holdings and its wholly and majority owned domestic and international 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 consolidated financial statements. The Company accounts for its investment in CAR, Inc. and other

11

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HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Unaudited

immaterial 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.

Recent Accounting Pronouncements

Adopted

Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity

In April 2014, the Financial Accounting Standards Board ("FASB") issued guidance that changes the criteria for reporting discontinued operations. As a result of this guidance, only disposals of a component that represent a strategic shift that have, or will have, a major effect on the Company’s operations and financial results will be reported as a discontinued operation. Expanded disclosures are required for discontinued operations and for individually significant components that do not qualify for discontinued operations reporting. The Company adopted this guidance on January 1, 2015 in accordance with the effective date. Adoption of this new guidance did not impact the Company's financial position, results of operations or cash flows.

Not yet adopted

Revenue from Contracts with Customers

In May 2014, the FASB issued guidance that will replace most existing revenue recognition guidance in U.S. GAAP. The core principle of the guidance is that an entity should recognize revenue for the transfer of goods or services equal to the amount that it expects to be entitled to receive for those goods or services. The guidance requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments. The new guidance may be adopted on either a full or modified retrospective basis. As issued, the guidance is effective for annual reporting periods beginning after December 15, 2016, including interim periods within those reporting periods. In July 2015, the FASB agreed to defer the effective date of the guidance until annual and interim reporting periods beginning after December 15, 2017. The Company is in the process of determining the method of adoption and assessing the potential impacts of adopting this guidance on its financial position, results of operations and cash flows.

Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could be Achieved after the Requisite Service Period
In June 2014, the FASB issued guidance that requires that a performance target in a share-based payment award that affects vesting and that can be achieved after the requisite service period is completed is to be accounted for as a performance condition; therefore, compensation cost should be recognized in the period in which it becomes probable that the performance target will be achieved, and the amount of compensation cost recognized should be based on the portion of the service period fulfilled. The guidance is effective either prospectively or retrospectively for annual periods beginning after December 15, 2015 and interim periods within those annual periods. The Company is in the process of determining the method of adoption and assessing the potential impacts of adopting this guidance on its financial position, results of operations and cash flows.
Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items

In January 2015, the FASB issued guidance that eliminates the concept of an event or transaction that is unusual in nature and occurs infrequently being treated as an extraordinary item. The guidance is effective for annual periods beginning after December 15, 2015 and interim periods within those annual periods. The Company has assessed the potential impacts from future adoption of this guidance and has determined that there will be no impact on its financial position, results of operations and cash flows.


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HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Unaudited

Amendments to the Consolidation Analysis
In February 2015, the FASB issued guidance that changes the analysis that a reporting entity must perform to determine whether it should consolidate certain types of legal entities. The new guidance may be applied using a full or modified retrospective approach. The guidance is effective for annual periods beginning after December 15, 2015 and interim periods within those annual periods. The Company is in the process of determining the method of adoption and assessing the potential impacts of adopting this guidance on its financial position, results of operations and cash flows.

Simplifying the Presentation of Debt Issuance Costs

In April 2015, the FASB issued guidance requiring debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability. The guidance is effective retrospectively for annual periods beginning after December 15, 2015 and interim periods within those annual periods. The Company is in the process of determining the method of adoption and assessing the potential impacts of adopting this guidance on its financial condition, results of operations and cash flows.

Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement

In April 2015, the FASB issued guidance for customers about whether a cloud computing arrangement includes a software license. If a cloud computing arrangement includes a software license, then the customer should account for the software license element of the arrangement consistent with the acquisition of other software licenses. If a cloud computing arrangement does not include a software license, the customer should account for the arrangement as a service contract. This new guidance is effective for annual periods, including interim periods within those annual periods, beginning after December 15, 2015. Adoption of this guidance is not expected to have a material impact on the Company’s financial condition, results of operations or cash flows.

Note 4Acquisitions and Divestitures

Acquisition

In February 2015, the Company acquired substantially all of the assets of certain Hertz-branded franchises, including existing fleets and contract and concession rights, for $87 million. The franchises acquired include on airport locations in Indianapolis, South Bend and Ft. Wayne, Indiana and in Memphis, Tennessee, as well as several smaller off airport locations. The acquisition was part of a strategic decision to increase the number of Hertz-owned locations and capitalize on certain benefits of ownership not available under a franchise agreement.

The acquisition was accounted for utilizing the acquisition method of accounting where the purchase price of the reacquired franchises was allocated based on estimated fair values of the assets acquired and liabilities assumed. The excess of the purchase price over the estimated fair value of the net tangible and intangible assets acquired was recorded as goodwill. The purchase price was allocated as follows:

(In millions)
U.S. Car Rental
Revenue earning equipment
$
71

Property and other equipment
6

Other intangible assets
9

Goodwill
1

Total
$
87


Divestiture

In June 2015, the Company signed a letter of intent for the sale of its HERC France and Spain businesses. The proposed transaction includes 60 locations in France and two in Spain. The proposed transaction is subject to receipt of the requisite works council opinions, the signing of the sale agreements and obtaining required corporate and regulatory approvals.


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HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Unaudited

Note 5Revenue Earning Equipment

The components of revenue earning equipment, net are as follows:
(In millions)
June 30, 2015
(Restated)
 
December 31, 2014
Revenue earning equipment
$
19,734

 
$
17,837

Less: Accumulated depreciation
(4,042
)
 
(4,427
)
 
15,692

 
13,410

Revenue earning equipment held for sale, net
322

 
243

Revenue earning equipment, net
$
16,014

 
$
13,653


Depreciation of revenue earning equipment and lease charges, net includes the following:
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
(In millions)
2015
(Restated)
 
2014
 
2015
(Restated)
 
2014
Depreciation of revenue earning equipment
$
662

 
$
685

 
$
1,337

 
$
1,353

(Gain) loss on disposal of revenue earning equipment(a)
(2
)
 
2

 
12

 
40

Rents paid for vehicles leased
18

 
21

 
36

 
41

Depreciation of revenue earning equipment and lease charges, net
$
678

 
$
708

 
$
1,385

 
$
1,434


(a)     (Gain) loss on disposal of revenue earning equipment by segment is as follows:
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
(In millions)
2015
 
2014
 
2015
 
2014
U.S. Car Rental
$
5

 
$
11

 
$
25

 
$
54

International Car Rental
(1
)
 
(4
)
 
(1
)
 
(3
)
Worldwide Equipment Rental
(6
)
 
(5
)
 
(12
)
 
(11
)
Total
$
(2
)
 
$
2

 
$
12

 
$
40


Depreciation rates are reviewed on a quarterly basis based on management's ongoing assessment of present and estimated future market conditions, their effect on residual values at the time of disposal and the estimated holding periods for the fleet and equipment. Depreciation rate changes impacted the following segments:
Increase (decrease)
Three Months Ended
June 30,
 
Six Months Ended
June 30,
(In millions)
2015
 
2014
 
2015
 
2014
U.S. Car Rental
$
27

 
$
37

 
$
57

 
$
76

International Car Rental

 
1

 

 
1

Total
$
27

 
$
38

 
$
57

 
$
77










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HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Unaudited

Note 6Debt

The Company's debt consists of the following (in millions):
Facility
 
Average Interest Rate at June 30, 2015
 
Fixed or
Floating
Interest
Rate
 
Maturity
 
June 30,
2015
 
December 31,
2014
Corporate Debt
 
 
 
 
 
 
 
 
 
 
Senior Term Facility
 
3.68%
 
Floating
 
3/2018
 
$
2,072

 
$
2,083

Senior ABL Facility
 
2.42%
 
Floating
 
3/2016 - 3/2017
 
547

 
344

Senior Notes(1)
 
6.58%
 
Fixed
 
4/2018–10/2022
 
3,900

 
3,900

Promissory Notes
 
7.00%
 
Fixed
 
1/2028
 
27

 
27

Other Corporate Debt
 
3.86%
 
Floating
 
Various
 
69

 
74

Unamortized Net (Discount) Premium (Corporate)
 
 
 
 
 
 
 
3

 
3

Total Corporate Debt
 
 
 
 
 
 
 
6,618

 
6,431

Fleet Debt
 
 
 
 
 
 
 
 
 
 
HVF U.S. Fleet Medium Term Notes
 
 
 
 
 
 
 
 
 
 
HVF Series 2009-2
 
N/A
 
N/A
 
N/A
 

 
404

HVF Series 2010-1(2)
 
4.23%
 
Fixed
 
2/2014–2/2018
 
490

 
490

HVF Series 2011-1(2)
 
3.51%
 
Fixed
 
3/2015–3/2017
 
230

 
414

HVF Series 2013-1(2)
 
1.68%
 
Fixed
 
8/2016–8/2018
 
950

 
950

 
 
 
 
 
 
 
 
1,670

 
2,258

RCFC U.S. ABS Program
 
 
 
 
 
 
 
 
 
 
RCFC U.S. Fleet Medium Term Notes
 
 
 
 
 
 
 
 
 
 
RCFC Series 2011-1 Notes
 
N/A
 
N/A
 
N/A
 

 
167

RCFC Series 2011-2 Notes
 
N/A
 
N/A
 
N/A
 

 
266

 
 
 
 
 
 
 
 

 
433

HVF II U.S. ABS Program
 
 
 
 
 
 
 
 
 
 
HVF II U.S. Fleet Variable Funding Notes
 
 
 
 
 
 
 
 
 
 
HVF II Series 2013-A(2)
 
1.12%
 
Floating
 
10/2016
 
1,374

 
1,999

HVF II Series 2013-B(2)
 
1.12%
 
Floating
 
10/2016
 
1,400

 
976

HVF II Series 2014-A(2)
 
1.42%
 
Floating
 
10/2016
 
2,446

 
869

 
 
 
 
 
 
 
 
5,220

 
3,844

HVF II U.S. Fleet Medium Term Notes
 
 
 
 
 
 
 
 
 
 
HVF II Series 2015-1(2)
 
2.93%
 
Fixed
 
3/2020
 
780

 

 
 
 
 
 
 
 
 
780

 

Donlen ABS Program
 
 
 
 
 
 
 
 
 
 
HFLF Variable Funding Notes
 
 
 
 
 
 
 
 
 
 
HFLF Series 2013-2 Notes(2)
 
1.05%
 
Floating
 
9/2016
 
160

 
247

 
 
 
 
 
 
 
 
160

 
247


15

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HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Unaudited

Facility
 
Average Interest Rate at June 30, 2015
 
Fixed or
Floating
Interest
Rate
 
Maturity
 
June 30,
2015
 
December 31,
2014
HFLF Medium Term Notes
 
 
 
 
 
 
 
 
 
 
HFLF Series 2013-3 Notes(2)
 
0.83%
 
Floating
 
9/2016–11/2016
 
370

 
500

HFLF Series 2014-1 Notes(2)
 
0.71%
 
Floating
 
12/2016–3/2017
 
368

 
400

HFLF Series 2015-1 Notes(2)
 
0.83%
 
Floating
 
3/2018–5/2018
 
289

 

 
 
 
 
 
 
 
 
1,027

 
900

Other Fleet Debt
 
 
 
 
 
 
 
 
 
 
U.S. Fleet Financing Facility
 
2.94%
 
Floating
 
3/2017
 
190

 
164

European Revolving Credit Facility
 
2.55%
 
Floating
 
10/2017
 
380

 
304

European Fleet Notes
 
4.375%
 
Fixed
 
1/2019
 
475

 
517

European Securitization(2)
 
1.90%
 
Floating
 
10/2016
 
365

 
270

Hertz-Sponsored Canadian Securitization(2)
 
1.93%
 
Floating
 
10/2016
 
142

 
105

Dollar Thrifty-Sponsored Canadian Securitization(2)
 
1.95%
 
Floating
 
10/2016
 
61

 
40

Australian Securitization(2)
 
3.71%
 
Floating
 
12/2016
 
93

 
112

Brazilian Fleet Financing Facility
 
17.55%
 
Floating
 
10/2015
 
9

 
11

Capitalized Leases
 
3.19%
 
Floating
 
2/2015 - 10/2017
 
501

 
364

Unamortized Net (Discount) Premium (Fleet)
 
 
 
 
 
 
 
(9
)
 
(7
)
 
 
 
 
 
 
 
 
2,207

 
1,880

Total Fleet Debt
 
 
 
 
 
 
 
11,064

 
9,562

Total Debt
 
 
 
 
 
 
 
$
17,682

 
$
15,993

N/A - Not Applicable

(1)
References to the "Senior Notes" include the series of Hertz's unsecured senior notes. Outstanding principal amounts for each such series of the Senior Notes is specified below:
(In millions)
Outstanding Principal 
Senior Notes
June 30, 2015
 
December 31, 2014
4.25% Senior Notes due April 2018
$
250

 
$
250

7.50% Senior Notes due October 2018
700

 
700

6.75% Senior Notes due April 2019
1,250

 
1,250

5.875% Senior Notes due October 2020
700

 
700

7.375% Senior Notes due January 2021
500

 
500

6.25% Senior Notes due October 2022
500

 
500

 
$
3,900

 
$
3,900


(2)
Maturity reference is to the "expected final maturity date" as opposed to the subsequent "legal maturity date." The expected final maturity date is the date by which Hertz and investors in the relevant indebtedness expect the relevant indebtedness to be repaid, which in the case of the HFLF Medium Term Notes was based upon various assumptions made at the time of the pricing of such notes. The legal final maturity date is the date on which the relevant indebtedness is legally due and payable.

Fleet Debt

RCFC U.S. Fleet Medium Term Notes: Rental Car Finance Corp. ("RCFC"), a bankruptcy remote, indirect, wholly-owned, special purpose subsidiary of Hertz was the issuer under the RCFC U.S. ABS Program. In 2011, RCFC issued Series 2011-1 Rental Car Asset-Backed Notes in an aggregate original principal amount of $500 million and issued Series 2011-2 Rental Car Asset-Backed Notes in an aggregate original principal amount of $400 million (collectively, the "RCFC U.S. Fleet Medium Term Notes"). In February 2015, the RCFC U.S. Fleet Medium Term Notes were paid in full as scheduled in accordance with their terms.


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HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Unaudited

HVF II U.S. Fleet Medium Term Notes: In April 2015, HVF II issued the Series 2015-1 Rental Car Asset-Backed Notes, Class A, Class B, and Class C, or the “HVF II Series 2015-1 Notes”, collectively, in an aggregate principal amount of $780 million. The expected maturity of the HVF II Series 2015-1 Notes is March 2020. The HVF II Series 2015-1 Notes are comprised of $622 million aggregate principal amount of 2.73% Rental Car Asset-Backed Notes, Class A, $119 million aggregate principal amount of 3.52% Rental Car Asset-Backed Notes, Class B, and $39 million aggregate principal amount of 4.35% Rental Car Asset-Backed Notes, Class C. The net proceeds from the sale of the HVF II Series 2015-1 Notes were used (i) to repay a portion of the outstanding principal amount of HVF II's Series 2013-A Notes and HVF II's Series 2014-A Notes and (ii) to make loans to HVF for HVF to acquire or refinance vehicles to be leased to the Company or DTG Operations, Inc. for use in their daily rental operations.

Capitalized Leases: In May 2015, the U.K. Leveraged Financing was amended to provide for aggregate maximum leasing capacity (subject to asset availability) of up to £300 million during the peak season and at the same time amended and increased the ongoing core facility to £250 million.

European Revolving Credit Facility: In May 2015, HHN BV amended the European Revolving Credit Facility to provide for aggregate maximum borrowings of up to €340 million during the peak season, subject to borrowing base availability, for a seasonal commitment period through December 2015.

HFLF Medium Term Notes: In June 2015, HFLF issued $300 million in aggregate principal amount of Series 2015-1 Floating Rate Asset-Backed Notes, Class A, Class B, Class C, Class D, and Class E, or the “HFLF Series 2015-1 Notes,” collectively. The net proceeds from the issuance of the HFLF Series 2015-1 Notes were used (i) to repay a portion of amounts then-outstanding under the HFLF Series 2014-1 Notes and the HFLF Series 2013-2 Notes and (ii) to make loans to DNRS II. The HFLF Series 2015-1 Notes are floating rate and carry an interest rate based upon a spread to one-month LIBOR. An affiliate of HFLF purchased the Class E Notes, therefore, $11 million of the obligation is eliminated in consolidation.

Borrowing Capacity and Availability

The following facilities were available to the Company as of June 30, 2015:
(In millions)
Remaining
Capacity
 
Availability Under
Borrowing Base
Limitation
Corporate Debt
 
 
 
Senior ABL Facility
$
1,093

 
$
1,027

Total Corporate Debt
1,093

 
1,027

Fleet Debt
 
 
 
HVF II U.S. Fleet Variable Funding Notes
1,355

 

HFLF Variable Funding Notes
240

 

European Revolving Credit Facility

 

European Securitization
82

 

Hertz-Sponsored Canadian Securitization
12

 

Dollar Thrifty-Sponsored Canadian Securitization
61

 

Australian Securitization
99

 

Capitalized Leases
12

 
5

Total Fleet Debt
1,861

 
5

Total
$
2,954

 
$
1,032


As of June 30, 2015, the Senior ABL Facility had $984 million available under the letter of credit facility sublimit, subject to borrowing base restrictions.


17

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HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Unaudited

Letters of Credit

As of June 30, 2015, there were outstanding standby letters of credit totaling $676 million. Of this amount, $662 million was issued under the Senior Term Facility and the Senior ABL Facility (together, the “Senior Credit Facilities”). As of June 30, 2015, none of these letters of credit have been drawn upon.

Cash Restrictions

Certain amounts of cash and cash equivalents are restricted for the purchase of revenue earning vehicles and other specified uses under the Fleet Debt facilities and the Like-Kind Exchange Program ("LKE Program"). As of June 30, 2015 and December 31, 2014, the portion of total restricted cash and cash equivalents that was associated with the Fleet Debt facilities was $378 million and $515 million, respectively. Restricted cash balances fluctuate based on the timing of purchases and sales of revenue earning vehicles and could also be impacted by the occurrence of an amortization event.

Special Purpose Entities

Substantially all of the revenue earning equipment and certain related assets are owned by special purpose entities, or are encumbered in favor of the lenders under the various credit facilities, other secured financings and asset-backed securities programs. None of such assets (including the assets owned by Hertz Vehicle Financing II LP, Hertz Vehicle Financing LLC, Rental Car Finance Corp., DNRS II LLC, HFLF, Donlen Trust and various international subsidiaries that facilitate the Company's international securitizations) are available to satisfy the claims of general creditors.

Some of these special purpose entities are consolidated variable interest entities, of which the Company is the primary beneficiary, whose sole purpose is to provide commitments to lend in various currencies subject to borrowing bases comprised of rental vehicles and related assets of certain of Hertz International, Ltd.'s subsidiaries. As of June 30, 2015 and December 31, 2014, the Company's International Fleet Financing No. 1 B.V., International Fleet Financing No. 2 B.V. and HA Funding Pty, Ltd. variable interest entities had total assets of $549 million and $427 million, respectively, primarily comprised of loans receivable and revenue earning equipment, and total liabilities of $549 million and $426 million, respectively, primarily comprised of debt.

Financial Covenant Compliance

Under the terms of the Senior Term Facility and Senior ABL Facility, the Company is not subject to ongoing financial maintenance covenants; however, under the Senior ABL Facility, failure to maintain certain levels of liquidity will subject the Company to a contractually specified fixed charge coverage ratio of not less than 1:1 for the four quarters most recently ended. As of June 30, 2015, the Company was not subject to the fixed charge coverage ratio test.

Waivers

Due to the Company's accounting restatement, investigation and remediation activities, the Company failed to file certain quarterly and annual reports and certain of its subsidiaries failed to file statutory financial statements within certain time periods set forth in the documentation of various of its (and/or its special purpose subsidiaries') financing facilities which resulted in the occurrence of various potential and/or actual defaults and potential amortization events under certain of such financing facilities.

In connection with certain refinancings consummated in October and November 2014, the Company and/or certain of its subsidiaries obtained waivers, or extensions of waivers, under certain facilities and the Australian Securitization and various counterparties in respect of derivative transactions, in each case, through June 30, 2015.

In December 2014, Hertz entered into an Amendment and Waiver (the “Amendment and Waiver”) relating to the Senior Term Facility. The waiver set forth in the Amendment and Waiver defers Hertz’s requirement to furnish certain financial statements within certain time periods set forth in the documentation of the Senior Term Facility, as well as waives defaults arising directly or indirectly from (1) the delay in providing such financial statements and (2) the restatement of Hertz’s 2012 and 2013 financial statements. The waiver is effective with respect to the non-delivery of the subject

18

Table of Contents
HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Unaudited

financial statements through December 31, 2015, provided that after June 30, 2015 such waiver will terminate if Hertz’s failure to furnish such financial statements results in Hertz being prohibited from drawing funds under the Senior ABL Facility, after giving effect to all amendments and waivers with respect to the Senior ABL Facility in effect as of such date.

The Amendment and Waiver increases the interest rates payable on the term loans and credit linked deposits during the period from December 15, 2014 through but excluding the date on which Hertz has furnished all financial statements then due to be delivered under the terms of the Senior Term Facility. During such period, (A) the Tranche B Term Loans and the Tranche B-1 Term Loans will bear interest at a floating rate measured by reference to, at Hertz’s option, either (i) an adjusted LIBOR not less than 1.00% plus a borrowing margin of 3.00% per annum or (ii) an alternate base rate plus a borrowing margin of 2.00% per annum, and (B) the Tranche B-2 Term Loans will bear interest at a floating rate measured by reference to, at Hertz’s option, either (i) an adjusted LIBOR not less than 0.75% plus a borrowing margin of 2.75% per annum or (ii) an alternate base rate plus a borrowing margin of 1.75% per annum. From and after the date on which Hertz has furnished all financial statements then due to be delivered under the terms of the Senior Term Facility, (A) the Tranche B Term Loans and the Tranche B-1 Term Loans will bear interest at a floating rate measured by reference to, at Hertz’s option, either (i) an adjusted LIBOR not less than 1.00% plus a borrowing margin of 2.75% per annum or (ii) an alternate base rate plus a borrowing margin of 1.75% per annum, and (B) the Tranche B-2 Term Loans will bear interest at a floating rate measured by reference to, at Hertz’s option, either (i) an adjusted LIBOR not less than 0.75% plus a borrowing margin of 2.25% per annum or (ii) an alternate base rate plus a borrowing margin of 1.25% per annum.

In May 2015, the Company obtained waivers from the requisite noteholders of its Senior Notes to amend and waive (the “Senior Notes Amendments and Waiver”) certain provisions of the indentures pursuant to which the Senior Notes were issued (the “Senior Notes Indentures”). The Senior Notes Amendments and Waiver amend, effective as of March 30, 2014, the reporting covenant in each of the Senior Notes Indentures to eliminate any obligation for the Company (or HHN BV as applicable) to deliver to the trustee or the noteholders or file with the SEC (i) its annual report on Form 10-K for the period ended December 31, 2014 and its quarterly reports on Form 10-Q for the periods ended March 31, 2015 and June 30, 2015, in each case prior to September 30, 2015 and (ii) its quarterly reports on Form 10-Q for the periods ended March 31, 2014, June 30, 2014 and September 30, 2014. Pursuant to the Senior Notes Amendments and Waiver, holders also waived any default or event of default under the relevant Senior Notes Indenture that may occur or exist as a result of or in connection with the Company not filing any amendments to previously filed SEC reports or the failure to timely deliver to the trustee or the noteholders, or file with the SEC, the delayed SEC reports.

In May 2015, the Company and HVF obtained waivers from the requisite noteholders of the U.S. Fleet Medium Term Notes to amend and waive (the “HVF Amendments and Waiver”) certain provisions of the operating lease between the Company and HVF that secures the U.S. Fleet Medium Term Notes (the “HVF Legacy Lease”). The HVF Amendments and Waiver amend the HVF Legacy Lease, effective as of March 30, 2014, to eliminate the requirement to furnish (or cause to be furnished) the quarterly reports on Form 10-Q for the periods ended March 31, 2014, June 30, 2014 and September 30, 2014 under the HVF Legacy Lease and in connection with the foregoing the noteholders waived any potential event of default or event of default under the HVF Legacy Lease that may occur or exist as a result, directly or indirectly arising out of or in connection with the failure to furnish (or cause to be furnished) such quarterly reports.

In June 2015, HHN BV obtained waivers from the requisite noteholders of its European Fleet Notes to amend and waive (the “European Fleet Notes Amendments and Waivers”) certain provisions of the indenture pursuant to which the European Fleet Notes were issued (the “European Fleet Notes Indenture”). The European Fleet Notes Amendments and Waiver amend, effective as of March 30, 2014, the reporting covenant in the European Fleet Notes Indenture to eliminate any obligation for the Company (or HHN BV as applicable) to deliver to the trustee or the noteholders or file with the SEC (i) its annual report on Form 10-K for the period ended December 31, 2014 and its quarterly reports on Form 10-Q for the periods ended March 31, 2015 and June 30, 2015, in each case prior to September 30, 2015 and (ii) its quarterly reports on Form 10-Q for the periods ended March 31, 2014, June 30, 2014 and September 30, 2014. Pursuant to the Senior Notes Amendments and Waiver, holders also waived any default or event of default under the European Fleet Notes Indenture that may occur or exist as a result of or in connection with the Company not filing any amendments to previously filed SEC reports or the failure to timely deliver to the trustee or the noteholders, or file with the SEC, the delayed SEC reports.

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HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Unaudited


In June 2015, the Company and/or certain of its subsidiaries obtained extensions of previously obtained waivers under the Senior ABL Facility, HVF II U.S. Fleet Variable Funding Notes, European Revolving Credit Facility, European Securitization, Hertz-Sponsored Canadian Securitization, Dollar Thrifty-Sponsored Canadian Securitization, Australian Securitization, U.K. Leveraged Financing, our U.S. Fleet Financing Facility, and various derivative transactions, in each case through August 31, 2015. Such lenders permanently waived any of the aforementioned events arising from the failure to file such financial information within the required time periods. The waivers also facilitated the Company filing a comprehensive annual report on Form 10-K for the period ended December 31, 2014, including audited financial statements of the Company for the year ended December 31, 2014 and unaudited financial statements of Hertz for the fiscal quarters ending March 31, 2014, June 30, 2014 and September 30, 2014, to satisfy its 2014 financial statement delivery obligations under such facilities. In addition, the lenders under such facilities have waived any of the aforementioned events that could arise from any restatement of annual and quarterly financial statements previously delivered by the Company and/or certain of its subsidiaries under such facilities.

For so long as the waivers remain effective, any potential and/or actual defaults and potential amortization events ceased to exist and were deemed to have been cured for all purposes of the related transaction documents. On July 16, 2015, the Company filed its 2014 Form 10-K and its Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2015.

Note 7Employee Retirement Benefits

Effective December 31, 2014, the Company amended the The Hertz Corporation Account Balance Defined Benefit Pension Plan to permanently discontinue future benefit accruals and participation under the plan for non-union employees. The Company also increased employer contributions under the Company’s qualified 401(k) savings plan (the “401(k) Plan”). Effective January 1, 2015, eligible participants under the 401(k) Plan receive a matching employer contribution to their 401(k) Plan account equal to (i) 100% of the first 3% of employee contributions made by such participant and (ii) 50% of the next 2% of employee contributions, with the total amount of such matching employer contribution to be completely vested, subject to applicable limits under the United States Internal Revenue Code. Certain eligible participants under the 401(k) Plan also receive additional employer contribution amounts to their 401(k) Plan account depending on their years of service and age.

The following table sets forth the net periodic pension expense:
 
Pension Benefits
 
U.S.
 
Non-U.S.
 
Three Months Ended June 30,
(In millions)
2015
 
2014
 
2015
 
2014
Components of Net Periodic Benefit Cost:
 
 
 
 
 
 
 
Service cost
$
1

 
$
6

 
$

 
$
1

Interest cost
7

 
8

 
2

 
2

Expected return on plan assets
(10
)
 
(10
)
 
(4
)
 
(4
)
Net amortizations
1

 

 
1

 

Settlement loss
1

 
4

 

 

Net periodic pension expense (benefit)
$

 
$
8

 
$
(1
)
 
$
(1
)



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HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Unaudited

 
Pension Benefits
 
U.S.
 
Non-U.S.
 
Six Months Ended June 30,
(In millions)
2015
 
2014
 
2015
 
2014
Components of Net Periodic Benefit Cost:
 
 
 
 
 
 
 
Service cost
$
2

 
$
14

 
$
1

 
$
2

Interest cost
14

 
16

 
4

 
4

Expected return on plan assets
(20
)
 
(20
)
 
(8
)
 
(8
)
Net amortizations
2

 
1

 
1

 

Settlement loss
2

 
4

 

 

Net periodic pension expense (benefit)
$

 
$
15

 
$
(2
)
 
$
(2
)

The Company's policy for funded plans is to contribute annually, at a minimum, amounts required by applicable laws, regulations and union agreements. From time to time, the Company makes contributions beyond those legally required. The Company made no contributions to its worldwide pension plans during the three months ended June 30, 2015, and contributed $3 million during the six months ended June 30, 2015, all of which was a discretionary contribution to the United Kingdom defined benefit pension plan (the "U.K. Plan"). For the three and six months ended June 30, 2014, the Company contributed $8 million and $17 million, respectively, to its worldwide pension plans. Amounts contributed during the six months ended June 30, 2014 included $3 million of discretionary contributions to the U.K. Plan. The Company does not anticipate contributing to the worldwide pension plans during the remainder of 2015.

Note 8Stock-Based Compensation

During the six months ended June 30, 2015, the Company granted 3,223,889 non-qualified stock options to certain executives and employees at a weighted average grant date fair value of $7.43; 814,907 restricted stock units ("RSUs") at a weighted average grant date fair value of $21.07 and 998,870 performance stock units ("PSUs") at a weighted average grant date fair value of $21.34 under the Hertz Global Holdings, Inc. 2008 Omnibus Incentive Plan with vesting terms of three to five years. The stock options are subject to time-based vesting based on the participant’s continued employment.

A summary of the total compensation expense and associated income tax benefits recognized under all plans, including the cost of stock options, RSUs and PSUs, is as follows:
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
(In millions)
2015
 
2014
 
2015
 
2014
Compensation expense
$
5

 
$
5

 
$
9

 
$
13

Income tax benefit
(2
)
 
(2
)
 
(3
)
 
(5
)
Total
$
3

 
$
3

 
$
6

 
$
8


As of June 30, 2015, there was $58 million of total unrecognized compensation cost related to non-vested stock options, RSUs and PSUs granted by Hertz Holdings under all plans. The total unrecognized compensation cost is expected to be recognized over the remaining 2.1 years, on a weighted average basis, of the requisite service period that began on the grant dates.

Note 9Restructuring

As part of its ongoing effort to implement a strategy of reducing operating costs, as well as the integration of Dollar Thrifty, the Company has evaluated its workforce and operations and made adjustments, including headcount reductions and business process re-engineering.


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HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Unaudited

Restructuring charges in the condensed consolidated statements of operations are as follows:
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
(In millions)
2015
 
2014
 
2015
 
2014
By Type:
 
 
 
 
 
 
 
Termination benefits
$
6

 
$
9

 
$
12

 
$
18

Asset write-downs

 
10

 
1

 
10

Facility closure and lease obligation costs
14

 
11

 
15

 
17

Other non-cash charges
(1
)
 

 
(2
)
 

Total
$
19

 
$
30

 
$
26

 
$
45


 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
(In millions)
2015
 
2014
 
2015
 
2014
By Caption:
 
 
 
 
 
 
 
Direct operating
$
14

 
$
20

 
$
16

 
$
26

Selling, general and administrative
5

 
10

 
10

 
19

Total
$
19

 
$
30

 
$
26

 
$
45

 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
(In millions)
2015
 
2014
 
2015
 
2014
By Segment:
 
 
 
 
 
 
 
U.S. Car Rental
$
14

 
$
13

 
$
16

 
$
18

International Car Rental
5

 
11

 
7

 
15

Worldwide Equipment Rental

 

 
1

 
3

Corporate

 
6

 
2

 
9

Total
$
19

 
$
30

 
$
26

 
$
45


The following table sets forth the activity affecting the restructuring accrual during the six months ended June 30, 2015. The remainder of the restructuring accrual relates to future lease obligations which will be paid over the remaining term of the applicable leases.
(In millions)
Termination
Benefits
 
Other
 
Total
Balance as of January 1, 2015
$
21

 
$
22

 
$
43

Charges incurred
12

 
14

 
26

Cash payments
(15
)
 
(10
)
 
(25
)
Other non-cash changes
(1
)
 
(3
)
 
(4
)
Balance as of June 30, 2015
$
17

 
$
23

 
$
40


Note 10Tangible Asset Impairments

In the first quarter of 2015, the Company recorded a $3 million impairment charge to reduce the carrying value of a held for sale corporate asset to its fair market value, which is included in other (income) expense in the Company's statement of operations. The asset was sold in April 2015.

In the first quarter of 2015, the Company performed an impairment assessment of the Dollar Thrifty headquarters campus in Tulsa, Oklahoma, which the Company is currently marketing for sale, using market and income approaches to value the long-lived assets, including inputs such as expected cash flows and recent comparable transactions.

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HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Unaudited

Based on the impairment assessment, the Company recorded a charge of $6 million which is included in selling, general and administrative expense in the Company's statement of operations.

In the first quarter of 2015, the Company recorded $11 million in charges associated with U.S. Car Rental service equipment and assets deemed to have no future use, of which $4 million is included in direct operating and $7 million is included in other (income) expense in the Company's statement of operations.

During