|
x
|
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
For the fiscal year ended December 31, 2014
|
|
OR
|
|
o
|
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
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) |
||
Securities registered pursuant to Section 12(b) of the Act:
|
||
Title of each class
|
|
Name of each exchange on which registered
|
Common Stock, Par Value $0.01 per share
|
|
New York Stock Exchange
|
|
|
|
Securities registered pursuant to Section 12(g) of the Act: None
|
Large accelerated filer
|
x
|
Accelerated filer
|
o
|
Non-accelerated filer
|
o
|
Smaller reporting company
|
o
|
|
|
|
|
(Do not check if a smaller
reporting company) |
|
|
|
|
|
|
Page
|
|
|
|
ITEM 1.
|
||
ITEM 1A.
|
||
ITEM 1B.
|
||
ITEM 2.
|
||
ITEM 3.
|
||
ITEM 4.
|
||
|
|
|
ITEM 5.
|
||
ITEM 6.
|
||
ITEM 7.
|
||
ITEM 7A.
|
||
ITEM 8.
|
||
|
||
|
||
|
||
|
||
|
||
|
||
|
||
ITEM 9.
|
||
ITEM 9A.
|
||
ITEM 9B.
|
||
|
|
|
ITEM 10.
|
||
ITEM 11.
|
||
ITEM 12.
|
||
ITEM 13.
|
||
ITEM 14.
|
||
|
|
|
ITEM 15.
|
||
(i)
|
“Hertz Holdings” means Hertz Global Holdings, Inc., our top-level holding company;
|
(ii)
|
“Hertz” means The Hertz Corporation, our primary operating company and a direct wholly-owned subsidiary of Hertz Investors, Inc., which is wholly-owned by Hertz Holdings;
|
(iii)
|
"the Company," “we,” “us” and “our” mean Hertz Holdings and its consolidated subsidiaries;
|
(iv)
|
"Dollar Thrifty" means Dollar Thrifty Automotive Group, Inc., a consolidated subsidiary of the Company since being acquired in late 2012;
|
(v)
|
“HERC” means Hertz Equipment Rental Corporation, Hertz's wholly-owned equipment rental subsidiary, together with our various other wholly-owned international subsidiaries that conduct our industrial, construction, material handling and entertainment equipment rental business;
|
(vi)
|
"Donlen" means Donlen Corporation, a consolidated subsidiary of the Company. Donlen conducts our fleet leasing and management services.
|
(vii)
|
“cars” means cars, crossovers and light trucks (including sport utility vehicles and, outside North America, light commercial vehicles);
|
(viii)
|
“program cars” means cars purchased by car rental companies under repurchase or guaranteed depreciation programs with car manufacturers;
|
(ix)
|
“non-program cars” means cars not purchased under repurchase or guaranteed depreciation programs for which we are exposed to residual risk;
|
(x)
|
“company-operated” rental locations are those through which we, or an agent of ours, rent cars that we own or lease;
|
(xi)
|
“equipment” means industrial, construction and material handling equipment;
|
(xii)
|
*“Total RPD” means total revenue per transaction day;
|
(xiii)
|
*"Dollar Utilization" means revenue derived from the rental of equipment divided by the cost of the equipment including additional capitalized refurbishment costs (with the basis of refurbished assets reset at the refurbishment date);
|
(xiv)
|
*"Time Utilization" means the percentage of time an equipment unit is on-rent during a given period.
|
•
|
the effect of the restatement of our previously issued financial results for the years ended December 31, 2012 and 2013 as described in Note 2 to the restated financial statements, and any claims, investigations or proceedings arising as a result;
|
•
|
our ability to remediate the material weaknesses in our internal controls over financial reporting described in Item 9A of this Annual Report;
|
•
|
the effect of our proposed separation of HERC and ability to obtain the expected benefits of any related transaction;
|
•
|
levels of travel demand, particularly with respect to airline passenger traffic in the United States and in global markets;
|
•
|
significant changes in the competitive environment, including as a result of industry consolidation, and the effect of competition in our markets on rental volume and pricing, including on our pricing policies or use of incentives;
|
•
|
an increase in our fleet costs as a result of an increase in the cost of new vehicles and/or a decrease in the price at which we dispose of used vehicles either in the used vehicle market or under repurchase or guaranteed depreciation programs;
|
•
|
occurrences that disrupt rental activity during our peak periods;
|
•
|
our ability to achieve and maintain cost savings and efficiencies and realize opportunities to increase productivity and profitability;
|
•
|
our ability to accurately estimate future levels of rental activity and adjust the size and mix of our fleet accordingly;
|
•
|
our ability to maintain sufficient liquidity and the availability to us of additional or continued sources of financing for our revenue earning equipment and to refinance our existing indebtedness;
|
•
|
our ability to integrate the car rental operations of Dollar Thrifty and realize operational efficiencies from the acquisition;
|
•
|
our ability to maintain access to third-party distribution channels, including current or favorable prices, commission structures and transaction volumes;
|
•
|
the operational and profitability impact of the divestitures that we agreed to undertake in order to secure regulatory approval for the acquisition of Dollar Thrifty;
|
•
|
an increase in our fleet costs or disruption to our rental activity, particularly during our peak periods, due to safety recalls by the manufacturers of our vehicles and equipment;
|
•
|
changes to our senior management team;
|
•
|
a major disruption in our communication or centralized information networks;
|
•
|
financial instability of the manufacturers of our vehicles and equipment, which could impact their ability to perform under agreements with us and/or their willingness or ability to make cars available to us or the car rental industry on commercially reasonable terms;
|
•
|
any impact on us from the actions of our franchisees, dealers and independent contractors;
|
•
|
our ability to maintain profitability during adverse economic cycles and unfavorable external events (including war, terrorist acts, natural disasters and epidemic disease);
|
•
|
shortages of fuel and increases or volatility in fuel costs;
|
•
|
our ability to successfully integrate acquisitions and complete dispositions;
|
•
|
our ability to maintain favorable brand recognition;
|
•
|
costs and risks associated with litigation and investigations;
|
•
|
risks related to our indebtedness, including our substantial amount of debt, our ability to incur substantially more debt and increases in interest rates or in our borrowing margins;
|
•
|
our ability to meet the financial and other covenants contained in our Senior Credit Facilities, our outstanding unsecured Senior Notes and certain asset-backed and asset-based arrangements;
|
•
|
changes in accounting principles, or their application or interpretation, and our ability to make accurate estimates and the assumptions underlying the estimates, which could have an effect on earnings;
|
•
|
changes in the existing, or the adoption of new laws, regulations, policies or other activities of governments, agencies and similar organizations where such actions may affect our operations, the cost thereof or applicable tax rates;
|
•
|
the effect of tangible and intangible asset impairment charges;
|
•
|
our exposure to uninsured claims in excess of historical levels;
|
•
|
fluctuations in interest rates and commodity prices;
|
•
|
our exposure to fluctuations in foreign exchange rates; and
|
•
|
other risks described from time to time in periodic and current reports that we file with the SEC.
|
•
|
capitalization and timing of depreciation for non-fleet capital and information technology expenditures;
|
•
|
accruals for uninvoiced non-fleet vendor obligations;
|
•
|
accrual for salvage vehicles;
|
•
|
the amortization period associated with vehicle registration and license fees;
|
•
|
reserve estimates associated with allowances for uncollectible amounts receivable for renter obligations related to damaged vehicles;
|
•
|
reserve estimates associated with allowances for doubtful accounts, including credit memos;
|
•
|
reserve estimates associated with probable credit card charge backs;
|
•
|
accruals for customer rewards programs;
|
•
|
accrued unbilled revenue;
|
•
|
reserve estimates associated with allowances for doubtful accounts for the Brazil operations;
|
•
|
accruals for travel vouchers associated with the Brazil operations;
|
•
|
Brazil operations litigation reserves;
|
•
|
other assets and intercompany accounts for the Brazil operations;
|
•
|
accruals for restoration obligations at the end of facility leases; and
|
•
|
disclosure of gross equipment and accumulated depreciation balances associated with the capitalization of refurbishment costs.
|
•
|
Our investigation found that an inconsistent and sometimes inappropriate tone at the top was present under the then existing senior management that did not in certain instances result in adherence to accounting principles generally accepted in the United States of America (“GAAP”) and Company accounting policies and procedures. In particular, our former Chief Executive Officer’s management style and temperament created a pressurized operating environment at the Company, where challenging targets were set and achieving those targets was a key performance expectation. There was in certain instances an inappropriate emphasis on meeting internal budgets, business plans, and current estimates. Our former Chief Executive Officer further encouraged employees to focus on potential business risks and opportunities, and on potential financial or operating performance gaps, as well as ways of ameliorating potential risks or gaps, including through accounting reviews. This resulted in an environment which in some instances may have led to inappropriate accounting decisions and the failure to disclose information critical to an effective review of transactions and accounting entries, such as certain changes in accounting methodologies, to the appropriate finance and accounting personnel or our Board, Audit Committee, or independent registered public accounting firm.
|
•
|
We did not have a sufficient complement of personnel with an appropriate level of knowledge, experience, and training commensurate with our financial reporting requirements to ensure proper selection and application of GAAP in certain circumstances.
|
•
|
We did not establish clear reporting structures, reporting lines, and decisional authority responsibilities in the organization.
|
•
|
We did not design effective controls over the non-fleet procurement process, which was exacerbated by the lack of training of field personnel as part of our Oracle enterprise resource planning ("ERP") system implementation during 2013.
|
•
|
We did not design and maintain effective controls over certain accounting estimates. Specifically, we did not design and maintain controls over the effective review of the models, assumptions, and data used in developing estimates or changes made to assumptions and data, related to information technology expenditures; reserve estimates associated with allowances for uncollectible amounts receivable for renter obligations related to damaged vehicles; and accrued unbilled revenue.
|
•
|
We did not design and maintain effective controls over the review, approval, and documentation related to journal entries.
|
•
|
We did not design and maintain effective controls over changes to our policies and procedures over GAAP, as well as the review, approval, and documentation related to the application of GAAP.
|
•
|
We did not design effective controls over certain business processes including our period-end financial reporting process. This includes the identification and execution of controls over the preparation, analysis, and review of significant account reconciliations and closing adjustments required to assess the appropriateness of certain account balances at period end.
|
•
|
U.S. Car Rental - Rental of cars, crossovers and light trucks, as well as ancillary products and services, in the U.S. We maintain a substantial network of car rental locations and we believe we have the largest number of company-operated airport car rental locations in the U.S., enabling us to provide consistent quality and service. We also have franchisees and associates that operate rental locations under our brands throughout the U.S.
|
•
|
International Car Rental - Rental of cars, crossovers and light trucks, as well as ancillary products and services, internationally. We maintain a substantial network of company-operated car rental locations internationally, a majority of which are in Europe. Our franchisees and associates also operate rental locations in approximately
144
countries and jurisdictions, including many of the countries in which we also have company-operated rental locations.
|
•
|
Worldwide Equipment Rental - Rental of industrial, construction, material handling and other equipment. We believe that HERC is one of the largest equipment rental companies in the U.S. and Canada combined. HERC rents a broad range of earthmoving, material handling, aerial and electrical equipment, air compressors, power generators, pumps, small tools, compaction equipment, construction-related trucks, and other commercial vehicles. HERC also derives revenues from the sale of new equipment and contractor supplies as well as through its Hertz Entertainment Services division, which rents studio and production equipment products used primarily in the U.S. entertainment industry.
|
•
|
All Other Operations - Comprised of our Donlen business, which provides fleet leasing and management services, and other business activities, such as our Hertz Claims Management subsidiary ("HCM"), which provides our claim management service
.
Donlen is a leading provider of fleet leasing and management services for corporate fleets. Donlen's fleet management programs provide outsourcing solutions to reduce fleet operating costs and improve driver productivity. These programs include administration of preventive maintenance, advisory services, and fuel and accident management along with other complementary services. Additionally, Donlen provides a specialized consulting and technology expertise that allows us to model, measure and manage fleet performance more effectively and efficiently.
|
•
|
Provides customers a more convenient and geographically extensive network of rental locations, thereby creating revenue opportunities from replacement renters, non-airline travel renters and airline travelers with local rental needs;
|
•
|
Provides a more balanced revenue mix by reducing our reliance on air travel and therefore limiting our exposure to external events that may disrupt airline travel trends;
|
•
|
Contributes to higher fleet utilization as a result of the longer average rental periods associated with off airport business, compared to those of airport rentals;
|
•
|
Insurance replacement rental volume is less seasonal than that of other business and leisure rentals, which permits efficiencies in both fleet and labor planning; and
|
•
|
Cross-selling opportunities exist for us to promote off airport rentals among frequent airport Hertz Gold Plus Rewards program renters and, conversely, to promote airport rentals to off airport renters. In view of those benefits, we intend to seek profitable growth in the off airport rental market, both in the U.S. and internationally.
|
|
Year Ended December 31, 2014
|
||||||||||
|
U.S.
|
|
International
|
||||||||
|
Revenues
|
|
Transactions
|
|
Revenues
|
|
Transactions
|
||||
Type of Car Rentals
|
|
|
|
|
|
|
|
||||
By Customer:
|
|
|
|
|
|
|
|
||||
Business
|
35
|
%
|
|
41
|
%
|
|
59
|
%
|
|
65
|
%
|
Leisure
|
65
|
|
|
59
|
|
|
41
|
|
|
35
|
|
|
100
|
%
|
|
100
|
%
|
|
100
|
%
|
|
100
|
%
|
By Location:
|
|
|
|
|
|
|
|
||||
Airport
|
72
|
%
|
|
65
|
%
|
|
55
|
%
|
|
57
|
%
|
Off airport
|
28
|
|
|
35
|
|
|
45
|
|
|
43
|
|
|
100
|
%
|
|
100
|
%
|
|
100
|
%
|
|
100
|
%
|
|
Years Ended December 31,
|
||||||||
|
2014
|
|
2013
|
|
2012
|
|
2011
|
|
2010
|
U.S.
|
49%
|
|
18%
|
|
19%
|
|
45%
|
|
54%
|
International
|
59%
|
|
57%
|
|
53%
|
|
55%
|
|
56%
|
|
As of December 31, 2014
|
||||
|
U.S.
|
|
International
|
|
Worldwide Total
|
General Motors Company
|
27%
|
|
13%
|
|
24%
|
Fiat Chrysler Motor Company
|
17%
|
|
3%
|
|
14%
|
Nissan Motor Company
|
17%
|
|
5%
|
|
14%
|
Toyota Motor Corporation
|
15%
|
|
9%
|
|
13%
|
Ford Motor Company
|
8%
|
|
18%
|
|
10%
|
•
|
Vehicle financing, acquisition and remarketing;
|
•
|
License, title and registration;
|
•
|
Maintenance consultation;
|
•
|
Fuel management;
|
•
|
Accident management;
|
•
|
Toll management;
|
•
|
Telematics-based location, driver performance and scorecard reporting; and
|
•
|
Equipment financing,
|
•
|
legal liability arising from the operation of our cars and on-road equipment (vehicle liability);
|
•
|
legal liability to members of the public and employees from other causes (general liability/workers' compensation); and
|
•
|
risk of property damage and/or business interruption and/or increased cost of operating as a consequence of property damage.
|
•
|
the market price for similar new equipment;
|
•
|
wear and tear on the equipment relative to its age and the performance of preventive maintenance;
|
•
|
the time of year that it is sold;
|
•
|
the supply of used equipment relative to the demand for used equipment, including as a result of changes in economic conditions or conditions in the markets that we serve; and
|
•
|
the existence and capacities of different sales outlets and our ability to develop and maintain different types of sales outlets.
|
•
|
a decrease in expected levels of infrastructure spending;
|
•
|
a decrease in the expected levels of rental versus ownership of equipment;
|
•
|
a lack of availability of credit;
|
•
|
an increase in the cost of construction materials;
|
•
|
an increase in interest rates;
|
•
|
adverse weather conditions, which may temporarily affect a particular region; or
|
•
|
terrorism or hostilities involving the United States or Canada.
|
ITEM 2.
|
PROPERTIES
|
2013
|
|
High
|
Low
|
||||
1
st
Quarter
|
$
|
22.68
|
|
$
|
16.69
|
|
|
2
nd
Quarter
|
26.45
|
|
21.05
|
|
|||
3
rd
Quarter
|
27.75
|
|
21.20
|
|
|||
4
th
Quarter
|
28.90
|
|
19.73
|
|
|||
2014
|
|
|
|
||||
1
st
Quarter
|
$
|
29.81
|
|
$
|
24.82
|
|
|
2
nd
Quarter
|
30.52
|
|
25.32
|
|
|||
3
rd
Quarter
|
31.61
|
|
24.66
|
|
|||
4
th
Quarter
|
25.72
|
|
18.50
|
|
Equity compensation plans approved by security holders
|
|
Number of securities to
be issued upon exercise
of outstanding options,
warrants and rights
(a)
|
|
Weighted average exercise price of outstanding options and RSU's / PSU's
(b)
|
|
Number of securities
remaining available for
future issuance under
equity compensation
plans (excluding
securities reflected in
column (a)
(c)
|
||||
Stock Options
|
|
8,895,521
|
|
|
$
|
12.03
|
|
|
15,884,957
|
|
Performance Stock Units
|
|
2,056,509
|
|
|
N/A
|
|
|
—
|
|
|
Restricted Stock Units
|
|
324,304
|
|
|
N/A
|
|
|
—
|
|
|
Total
|
|
11,276,334
|
|
|
$
|
12.03
|
|
|
15,884,957
|
|
(In millions, except per share data)
|
Years Ended December 31,
|
|||||||||||||||
Statement of Operations Data
|
2014
(b)(c)
|
|
2013
(b)(c)(d)(e)
(As Restated)
|
|
2012
(b)(c)(e)
(As Restated)
|
|
2011
(c)(f)
(As Restated)
(Unaudited)
|
|||||||||
Revenues:
|
|
|
|
|
|
|
|
|||||||||
Worldwide car rental
(a)
|
$
|
8,907
|
|
|
$
|
8,709
|
|
|
$
|
7,153
|
|
|
$
|
6,938
|
|
|
Worldwide equipment rental
|
1,571
|
|
|
1,539
|
|
|
1,382
|
|
|
1,208
|
|
|||||
All other operations
|
568
|
|
|
527
|
|
|
478
|
|
|
149
|
|
|||||
Total revenues
|
11,046
|
|
|
10,775
|
|
|
9,013
|
|
|
8,295
|
|
|||||
Expenses:
|
|
|
|
|
|
|
|
|||||||||
Direct operating
|
6,314
|
|
|
5,777
|
|
|
4,861
|
|
|
4,599
|
|
|||||
Depreciation of revenue earning equipment and lease charges, net
|
3,034
|
|
|
2,533
|
|
|
2,128
|
|
|
1,896
|
|
|||||
Selling, general and administrative
|
1,088
|
|
|
1,053
|
|
|
978
|
|
|
787
|
|
|||||
Interest expense, net
|
648
|
|
|
707
|
|
|
647
|
|
|
699
|
|
|||||
Other (income) expense, net
|
(15
|
)
|
|
102
|
|
|
34
|
|
|
59
|
|
|||||
Total expenses
|
11,069
|
|
|
10,172
|
|
|
8,648
|
|
|
8,040
|
|
|||||
Income (loss) before income taxes
|
(23
|
)
|
|
603
|
|
|
365
|
|
|
255
|
|
|||||
Provision for taxes on income (loss)
|
(59
|
)
|
|
(301
|
)
|
|
(181
|
)
|
|
(88
|
)
|
|||||
Net income (loss)
|
(82
|
)
|
|
302
|
|
|
184
|
|
|
167
|
|
|||||
Noncontrolling interest
|
—
|
|
|
—
|
|
|
—
|
|
|
(20
|
)
|
|||||
Net income (loss) attributable to Hertz Global Holdings, Inc. and Subsidiaries' common stockholders
|
$
|
(82
|
)
|
|
$
|
302
|
|
|
$
|
184
|
|
|
$
|
147
|
|
|
Weighted average shares outstanding
|
|
|
|
|
|
|
|
|||||||||
Basic
|
454
|
|
|
422
|
|
|
420
|
|
|
416
|
|
|||||
Diluted
|
454
|
|
|
464
|
|
|
448
|
|
|
445
|
|
|||||
Earnings (loss) per share
|
|
|
|
|
|
|
|
|||||||||
Basic
|
$
|
(0.18
|
)
|
|
$
|
0.72
|
|
|
$
|
0.44
|
|
|
$
|
0.35
|
|
|
Diluted
|
$
|
(0.18
|
)
|
|
$
|
0.67
|
|
|
$
|
0.41
|
|
|
$
|
0.33
|
|
(In millions)
|
As of December 31,
|
||||||||||||||
Balance Sheet Data
|
2014
|
|
2013
(e)
(As Restated)
|
|
2012
(e)
(As Restated)
|
|
2011
(f)
(As Restated)
(Unaudited)
|
||||||||
Cash and cash equivalents
|
$
|
490
|
|
|
$
|
411
|
|
|
$
|
541
|
|
|
$
|
919
|
|
Total assets
|
23,985
|
|
|
24,423
|
|
|
23,128
|
|
|
17,562
|
|
||||
Total debt
|
15,993
|
|
|
16,309
|
|
|
15,449
|
|
|
11,317
|
|
||||
Total equity
|
2,464
|
|
|
2,567
|
|
|
2,331
|
|
|
2,118
|
|
(a)
|
Includes U.S. Car Rental and International Car Rental segments.
|
(b)
|
Our results from November 19, 2012 include the results of Dollar Thrifty which we acquired in 2012. See
Note 5
, "
Acquisitions and Divestitures
" to the Notes to our consolidated financial statements included in this Annual Report under the caption Item 8, "Financial Statements and Supplementary Data."
|
(c)
|
Our results from September 1, 2011 include the results of Donlen, our fleet leasing and management services subsidiary which we acquired in 2011.
|
(d)
|
See
Note 19
, "
Earnings Per Share
" for reconciliation of net income used in diluted earnings per share calculation.
|
(e)
|
For further details regarding the restatement see
Note 2
, "
Restatement
" to the Notes to our consolidated financial statements included in this Annual Report under the caption Item 8, "Financial Statements and Supplementary Data."
|
(f)
|
Financial data presented for 2011 has been restated as follows:
|
a.
|
Allowance for doubtful accounts misstatements associated with estimation methodologies utilized to estimate recoveries for the worldwide equipment rental business which reduced pre-tax income by $
3 million
.
|
b.
|
Hertz #1 Gold loyalty program accrual misstatement reduced pre-tax income by $3 million.
|
c.
|
Subrogation (damage) receivables and the related allowance for doubtful accounts misstatements associated with estimation methodologies utilized to estimate recoveries from third parties responsible for damages to vehicles reduced pre-tax income by $
9 million
.
|
d.
|
Adjustments to accounts payable and accrued expenses for previously unrecorded liabilities, including incurred but not reported charges, which reduced pre-tax income by $
1 million
.
|
e.
|
Capitalization and timing of depreciation for certain non-fleet assets and IT assets which reduced pre-tax income by $
16 million
.
|
f.
|
Adjustments associated with the Brazilian operations, including allowances for doubtful accounts, certain assets and reserves for legal expenses and litigation which reduced pre-tax income by $
11 million
.
|
g.
|
Accruals for open rental agreements which reduced pre-tax income by $
5 million
.
|
h.
|
Asset restoration costs associated with contractual obligations included in lease agreements which reduced pre-tax income by $
1 million
.
|
i.
|
Certain other restatement matters not described above which decreased 2011 pre-tax income by $5 million, net.
|
j.
|
Reclassification between cash and cash equivalents and accounts payable due to right of offset which reduced cash by $
12 million
.
|
(In millions except per share data)
|
Year Ended December 31, 2011
|
||||||||||||
|
Unaudited
|
||||||||||||
Statement of Operations Data
|
As Previously Reported
|
|
Adjustments
|
|
Ref
|
|
As Restated
|
||||||
Revenues:
|
|
|
|
|
|
|
|
||||||
Worldwide car rental
|
$
|
6,941
|
|
|
$
|
(3
|
)
|
|
g, i
|
|
$
|
6,938
|
|
Worldwide equipment rental
|
1,209
|
|
|
(1
|
)
|
|
i
|
|
1,208
|
|
|||
All other operations
|
149
|
|
|
—
|
|
|
|
|
149
|
|
|||
Total revenues
|
8,299
|
|
|
(4
|
)
|
|
|
|
8,295
|
|
|||
Expenses:
|
|
|
|
|
|
|
|
||||||
Direct operating
|
4,573
|
|
|
26
|
|
|
c, d, f, g, h, i
|
|
4,599
|
|
|||
Depreciation of revenue earning equipment and lease charges, net
|
1,896
|
|
|
—
|
|
|
i
|
|
1,896
|
|
|||
Selling, general and administrative
|
768
|
|
|
19
|
|
|
a, b, c, d, e, f, i
|
|
787
|
|
|||
Interest expense, net
|
694
|
|
|
5
|
|
|
i
|
|
699
|
|
|||
Other (income) expense, net
|
62
|
|
|
(3
|
)
|
|
i
|
|
59
|
|
|||
Total expenses
|
7,993
|
|
|
47
|
|
|
|
|
8,040
|
|
|||
Income (loss) before income taxes
|
306
|
|
|
(51
|
)
|
|
|
|
255
|
|
|||
Provision for taxes on income
|
(122
|
)
|
|
34
|
|
|
|
|
(88
|
)
|
|||
Net income (loss)
|
184
|
|
|
(17
|
)
|
|
|
|
167
|
|
|||
Noncontrolling interest
|
(20
|
)
|
|
—
|
|
|
|
|
(20
|
)
|
|||
Net income (loss) attributable to Hertz Global Holdings, Inc. and Subsidiaries' common stockholders
|
$
|
164
|
|
|
$
|
(17
|
)
|
|
|
|
$
|
147
|
|
Weighted average shares outstanding
|
|
|
|
|
|
|
|
||||||
Basic
|
416
|
|
|
—
|
|
|
|
|
416
|
|
|||
Diluted
|
445
|
|
|
—
|
|
|
|
|
445
|
|
|||
Earnings (loss) per share
|
|
|
|
|
|
|
|
||||||
Basic
|
$
|
0.39
|
|
|
$
|
(0.04
|
)
|
|
|
|
$
|
0.35
|
|
Diluted
|
$
|
0.37
|
|
|
$
|
(0.04
|
)
|
|
|
|
$
|
0.33
|
|
(In millions)
|
|
|
|
|
|
|
|
||||||
Balance Sheet Data
|
|
|
|
|
|
|
|
||||||
Cash and cash equivalents
|
$
|
932
|
|
|
$
|
(13
|
)
|
|
j
|
|
$
|
919
|
|
Total assets
|
17,647
|
|
|
(85
|
)
|
|
a - i
|
|
17,562
|
|
|||
Total debt
|
11,317
|
|
|
—
|
|
|
|
|
11,317
|
|
|||
Total equity
|
2,218
|
|
|
(100
|
)
|
|
a - i
|
|
2,118
|
|
ITEM 7.
|
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|
•
|
Adjusted Pre-Tax Income - important to management because it allows management to assess the operational performance of our business, exclusive of certain items and allows management to assess the performance of the entire business on the same basis as the segment measure of profitability. Management believes that it is important to investors for the same reasons it is important to management and because it allows them to assess our operational performance on the same basis that management uses internally.
|
•
|
Total Revenue Per Day ("Total RPD") - important to management and investors as it represents the best measurement of the changes in underlying pricing in the car rental business and encompasses the elements in car rental pricing that management has the ability to control.
|
•
|
Transaction Days - important to management and investors as it represents the number of revenue generating days per rental agreement. It is used as a component to measure Total RPD and fleet efficiency.
|
•
|
Fleet Efficiency - important to management and investors because it is the measurement of the proportion of our car rental fleet that is being used to generate revenues relative to the total amount of available fleet capacity. Higher fleet efficiency means more of the fleet is being utilized to generate revenue.
|
•
|
Net Depreciation Per Unit Per Month - important to management and investors as depreciation of revenue earning equipment and lease charges, is one of our largest expenses for the car rental business and is driven by the number of vehicles, expected residual values at the time of disposal and expected hold period of the vehicles. Net depreciation per unit per month is reflective of how we are managing the costs of our fleet and facilitates comparison with other participants in the car rental industry.
|
•
|
Dollar Utilization -
important to management and investors because
it is the measurement of the proportion of our equipment rental revenue earning equipment, including additional capitalized refurbishment costs (with the basis for refurbished assets reset at the refurbishment date), that is being used to generate revenues relative to the total amount of available equipment fleet capacity.
|
•
|
Time Utilization - important to management and investors as it measures the extent to which the equipment rental fleet is on rent compared to total operated fleet and is an efficiency measurement utilized by participants in the equipment rental industry.
|
ITEM 7.
|
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
|
•
|
Car rental revenues - revenues from all company-operated car rental operations, including charges to customers for the reimbursement of costs incurred relating to airport concession fees and vehicle license fees, the fueling of vehicles and revenues associated with ancillary products associated with car rentals, including the sale of loss or collision damage waivers, liability insurance coverage, parking and other products and fees, ancillary products associated with the retail car sales channel and certain royalty fees from our franchisees;
|
•
|
Equipment rental revenues - revenues from all company-operated equipment rental operations, including amounts charged to customers for the fueling and delivery of equipment and sale of loss damage waivers, as well as revenues from the sale of new equipment and consumables; and
|
•
|
All other operations revenues - revenues from fleet leasing and management services (Donlen) and other business activities.
|
•
|
Direct operating expenses (primarily wages and related benefits; commissions and concession fees paid to airport authorities, travel agents and others; facility, self-insurance and reservation costs; the cost of new equipment and consumables purchased for resale; and other costs relating to the operation and rental of revenue earning equipment, such as damage, maintenance and fuel costs);
|
•
|
Depreciation expense and lease charges, net relating to revenue earning equipment (including net gains or losses on the disposal of such equipment). Revenue earning equipment includes cars and rental equipment;
|
•
|
Selling, general and administrative expenses; and
|
•
|
Interest expense, net.
|
•
|
U.S. Car Rental - Rental of cars, crossovers and light trucks, as well as sales of ancillary products and services, in the U.S.;
|
•
|
International Car Rental - Rental of cars, crossovers and light trucks, as well as sales of ancillary products and services, internationally;
|
•
|
Worldwide Equipment Rental - Rental of industrial, construction, material handling and other equipment; and
|
•
|
All Other Operations - Comprised of our Donlen business, which provides fleet leasing and management services, and other business activities, such as our claim management services (HCM).
|
ITEM 7.
|
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
|
•
|
In November 2014, we announced a new fleet strategy for the U.S. Car Rental segment, which includes a significant increase in new 2015 vehicles and reductions in risk vehicles and holding periods, to strengthen our competitive position, improve the customer experience, provide greater flexibility for demand fluctuations and better protect against a fluctuating used-car sales cycle;
|
•
|
An unprecedented level of vehicle manufacturer recalls affecting our U.S. Car Rental segment, which negatively impacted fleet available for rent and tempered transaction days during the peak rental period;
|
•
|
Weaker on airport U.S. Car Rental segment performance and loss of market share due to reduced fleet available to rent in peak periods as a result of fleet recall activity, utilization of fleet available for rent to support off airport growth and the impact of less desirable higher mileage product;
|
•
|
A decrease in Total RPD for the U.S. Car Rental segment due to a higher mix of off airport rentals as a result of an increase in the number of replacement renters during the period;
|
•
|
Increased operating costs in the U.S. Car Rental segment due to damage expenditures and maintenance expenditures associated with higher mileage cars in the fleet and increased personnel costs to support the higher mileage fleet;
|
•
|
Higher maintenance costs in the Worldwide Equipment Rental segment due to the investment made to improve the fleet available to rent and sales costs due to an increase in sales force personnel to focus on winning new accounts and diversifying the customer base;
|
•
|
As a result of our corporate relocation from Park Ridge, NJ to Estero, FL in 2013 and the migration of activities in the second half of 2013 and into 2014, we experienced significant turnover in corporate personnel. The turnover resulted in approximately 30% of experienced personnel relocating;
|
•
|
Refinanced and amended various credit and fleet financing facilities to facilitate execution of our new fleet strategy and to extend maturities of certain financing arrangements, including:
|
ITEM 7.
|
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
|
•
|
CORPORATE DEBT
|
•
|
FLEET DEBT
|
•
|
In October 2014, Hertz Vehicle Financing II LP (“HVF II”), entered into various amendment agreements pursuant to which certain terms of HVF II’s Series 2013-A Variable Funding Rental Car Asset Backed Notes (the “HVF II Series 2013-A Notes”) and HVF II’s Series 2013-B Variable Funding Rental Car Asset Backed Notes (the “HVF II Series 2013-B Notes”) were amended. The amendments, among other things, amend the maturity of each facility from November 2015 to October 2016.
|
•
|
In October 2014, HVF II also amended the terms of its Series 2014-A Variable Funding Rental Car Asset Backed Notes (the “HVF II Series 2014-A Notes”), originally issued in July 2014, to provide for, among other things, (i) an extension of the maturity of the HVF II Series 2014-A Notes from December 2014 to October 2016 and (ii) an increase in aggregate borrowing capacity under the HVF II Series 2014-A Notes from $1,000 million to $3,250 million. Additionally, the HVF II Series 2014-A Notes contain provisions requiring the commitments to be terminated based on the volume of specified debt issued by Hertz or certain of its subsidiaries. These mandatory commitment termination provisions do not apply until at least $1,500 million of such specified debt has been issued.
|
•
|
Incurred approximately $
39 million
in costs associated with the anticipated separation of the equipment rental business;
|
•
|
Incurred approximately $30 million in consulting, audit and legal costs associated with the restatement and investigation activities;
|
•
|
Incurred approximately $11 million in fees paid directly to our lenders, noteholders and agents (including increased interest spread on the Senior Term Facility) to obtain waivers under various financing facilities relating to, among other things, the failure to file certain quarterly and annual reports and matters relating to the restatement; and
|
•
|
Incurred approximately
$9 million
in costs associated with the Dollar Thrifty integration.
|
ITEM 7.
|
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
|
|
Years Ended December 31,
|
|
Percent Increase/(Decrease)
|
||||||||||||||
($ in millions)
|
2014
|
|
2013
(As Restated)
(a)
|
|
2012
(As Restated)
(a)
|
|
2014 vs. 2013
|
|
2013 vs. 2012
|
||||||||
Total revenues
|
$
|
11,046
|
|
|
$
|
10,775
|
|
|
$
|
9,013
|
|
|
3
|
%
|
|
20
|
%
|
Direct operating expenses
|
6,314
|
|
|
5,777
|
|
|
4,861
|
|
|
9
|
|
|
19
|
|
|||
Depreciation of revenue earning equipment and lease charges, net
|
3,034
|
|
|
2,533
|
|
|
2,128
|
|
|
20
|
|
|
19
|
|
|||
Selling, general and administrative
|
1,088
|
|
|
1,053
|
|
|
978
|
|
|
3
|
|
|
8
|
|
|||
Interest expense, net
|
648
|
|
|
707
|
|
|
647
|
|
|
(8
|
)
|
|
9
|
|
|||
Other (income) expense, net
|
(15
|
)
|
|
102
|
|
|
34
|
|
|
NM
|
|
|
200
|
|
|||
Income (loss) before income taxes
|
(23
|
)
|
|
603
|
|
|
365
|
|
|
NM
|
|
|
65
|
|
|||
Provision for taxes on income (loss)
|
(59
|
)
|
|
(301
|
)
|
|
(181
|
)
|
|
(80
|
)
|
|
66
|
|
|||
Net income (loss)
|
$
|
(82
|
)
|
|
$
|
302
|
|
|
$
|
184
|
|
|
NM
|
|
|
64
|
|
Adjusted pre-tax income
(loss)
(b)
|
$
|
403
|
|
|
$
|
1,096
|
|
|
$
|
816
|
|
|
(63
|
)
|
|
34
|
|
ITEM 7.
|
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
|
ITEM 7.
|
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
|
ITEM 7.
|
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
|
|
Years Ended December 31,
|
|
Percent Increase/(Decrease)
|
||||||||||||||
($ in millions, except for Total RPD and net depreciation per unit per month)
|
2014
|
|
2013
(As Restated)
(a)
|
|
2012
(As Restated)
(a)
|
|
2014 vs. 2013
|
|
2013 vs. 2012
|
||||||||
Total revenues
|
$
|
6,471
|
|
|
$
|
6,331
|
|
|
$
|
4,888
|
|
|
2
|
%
|
|
30
|
%
|
Direct operating expenses
|
$
|
3,921
|
|
|
$
|
3,531
|
|
|
$
|
2,726
|
|
|
11
|
|
|
30
|
|
Depreciation of revenue earning equipment and lease charges, net
|
$
|
1,758
|
|
|
$
|
1,281
|
|
|
$
|
945
|
|
|
37
|
|
|
36
|
|
Income before income taxes
|
$
|
258
|
|
|
$
|
872
|
|
|
$
|
647
|
|
|
(70
|
)
|
|
35
|
|
Adjusted pre-tax income
(b)
|
$
|
387
|
|
|
$
|
1,033
|
|
|
$
|
813
|
|
|
(63
|
)
|
|
27
|
|
Transaction days (in thousands)
(c)
|
139,752
|
|
|
133,181
|
|
|
105,539
|
|
|
5
|
|
|
26
|
|
|||
Total RPD
(d)
|
$
|
46.07
|
|
|
$
|
46.94
|
|
|
$
|
46.22
|
|
|
(2
|
)
|
|
2
|
|
Average fleet
(e)
|
499,100
|
|
|
490,000
|
|
|
359,100
|
|
|
2
|
|
|
36
|
|
|||
Fleet efficiency
(e)
|
77
|
%
|
|
78
|
%
|
|
81
|
%
|
|
N/A
|
|
|
N/A
|
|
|||
Net depreciation per unit per month
(f)
|
$
|
294
|
|
|
$
|
218
|
|
|
$
|
219
|
|
|
35
|
|
|
—
|
|
Program cars as a percentage of average fleet at period end
|
21
|
%
|
|
9
|
%
|
|
5
|
%
|
|
N/A
|
|
|
N/A
|
|
ITEM 7.
|
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
|
•
|
Fleet related expenses increased $
182 million
, or
25%
, from
2013
primarily comprised of:
|
•
|
Increased vehicle maintenance expenses of $
73 million
which reflects an
89%
increase in maintenance expense per vehicle due to the age and mileage of our fleet and the level of recall activity in the second, third and fourth quarters of 2014;
|
•
|
Increased vehicle damage expenses of
$59 million
which reflects a
35%
increase in expense per transaction day due to age and mileage of the fleet, as well as growth in our off airport business;
|
•
|
Increased damage related liability and third party property damage of
$35 million
resulting from the shift in transaction day mix to more off airport rentals and older fleet compared with the prior year; and
|
•
|
Increased other vehicle operating costs of
$24 million
resulting from additional vehicle registration, taxes and stolen vehicles expenses due to our business mix.
|
•
|
Personnel related expenses
increase
d
$30 million
, or
3%
, from
2013
, primarily driven by increases in field payroll wages and benefits. The increases were driven by the off airport transaction growth in the insurance replacement business and the increased transportation of vehicles in an effort to maximize fleet sharing initiatives between our brands as well as maintenance on a higher mileage fleet and increased recalls.
|
•
|
Other direct operating expenses
increase
d
$177 million
, or
11%
, from
2013
primarily comprised of:
|
•
|
Increased facilities expense of
$34 million
primarily resulting from additional depreciation expense when compared with the prior year due to an increase in the amount of capital expenditures on new and existing facilities;
|
•
|
Increased restructuring costs of
$46 million
driven by our business transformation and integration initiatives;
|
•
|
Increased field administration expenses of
$33 million
reflective of higher shared services operating expenses driven by our off airport market expansion and employee relocation expenses related to the new headquarters in Florida;
|
•
|
Increased customer service expenses of $
29 million
which was attributable to a change in contract terms with a certain service provider during the year;
|
•
|
Increased commissions of
$33 million
resulting from commission program rate changes and a shift of revenue mix to higher cost commission reservation sources; and
|
ITEM 7.
|
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
|
•
|
Increased computers and field systems expenses of
$22 million
driven by growth in the number of off airport transactions and integration of our on airport field back-office and maintenance operations.
|
•
|
Fleet related expenses increased $
153 million
, or
27%
, from 2012 primarily comprised of increases in vehicle damage expenses of $
38 million
, self-insurance expenses of $
40 million
, gasoline costs of
$38 million
, and vehicle maintenance costs of $
27 million
.
|
•
|
Personnel related expenses increased $
210 million
, or
23%
, from 2012 primarily driven by increases in salaries and wages of
$170 million
and taxes and benefits of
$39 million
as a result of additional headcount post acquisition.
|
•
|
Other direct operating expenses increased $
441 million
, or
36%
, from 2012 and is primarily comprised of increases in concession fees of
$120 million
, facilities expenses of
$75 million
, commissions of
$37 million
, field administration of
$40 million
, amortization of intangibles of
$35 million
, guaranteed charge card expenses of
$35 million
, supplemental liability and personal accident insurance products of
$16 million
, field systems of
$15 million
, service vehicles of
$11 million
and customer service expenses of
$8 million
.
|
ITEM 7.
|
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
|
|
Years Ended December 31,
|
|
Percent Increase/(Decrease)
|
||||||||||||||
($ in millions, except for Total RPD and net depreciation per unit per month)
|
2014
|
|
2013
(As Restated)
(a)
|
|
2012
(As Restated)
(a)
|
|
2014 vs. 2013
|
|
2013 vs. 2012
|
||||||||
Total revenues
|
$
|
2,436
|
|
|
$
|
2,378
|
|
|
$
|
2,265
|
|
|
2
|
%
|
|
5
|
%
|
Direct operating expenses
|
$
|
1,491
|
|
|
$
|
1,407
|
|
|
$
|
1,347
|
|
|
6
|
|
|
4
|
|
Depreciation of revenue earning equipment and lease charges, net
|
$
|
492
|
|
|
$
|
528
|
|
|
$
|
524
|
|
|
(7
|
)
|
|
1
|
|
Income before income taxes
|
$
|
95
|
|
|
$
|
34
|
|
|
$
|
36
|
|
|
179
|
|
|
(6
|
)
|
Adjusted pre-tax income
(b)
|
$
|
144
|
|
|
$
|
134
|
|
|
$
|
83
|
|
|
7
|
|
|
61
|
|
Transaction days (in thousands)
(c)
|
46,917
|
|
|
45,019
|
|
|
43,248
|
|
|
4
|
|
|
4
|
|
|||
Total RPD
(d)
|
$
|
52.86
|
|
|
$
|
53.31
|
|
|
$
|
53.09
|
|
|
(1
|
)
|
|
—
|
|
Average Fleet
(e)
|
166,900
|
|
|
161,300
|
|
|
155,100
|
|
|
3
|
|
|
4
|
|
|||
Fleet efficiency
(e)
|
77
|
%
|
|
76
|
%
|
|
76
|
%
|
|
N/A
|
|
|
N/A
|
|
|||
Net depreciation per unit per month
(f)
|
$
|
250
|
|
|
$
|
275
|
|
|
$
|
287
|
|
|
(9
|
)
|
|
(4
|
)
|
Program cars as a percentage of average fleet at period end
|
30
|
%
|
|
24
|
%
|
|
21
|
%
|
|
N/A
|
|
|
N/A
|
|
ITEM 7.
|
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
|
•
|
Fleet related expenses increased
$50 million
, or
13%
, from
2013
primarily due to higher insurance and license fees of
$29 million
and higher vehicle damage costs of
$23 million
. Insurance costs were higher due to increases in large loss property damage claims and license fees increased due to a new toll product in Australia and increased conversion expenses from vehicle thefts in Italy. Damage costs increased due to higher vehicle reconditioning costs and lower damage recoveries; and
|
•
|
Other direct operating expenses increased
$27 million
during the period primarily due to higher commissions of
$14 million
driven by growth in our value brand segments and higher facilities costs and concession fees of
$13 million
.
|
•
|
Personnel related expenses increased
$12 million
, or
3%
, from
2012
due mainly to increased payroll costs attributable to standard inflationary increases; and
|
•
|
Other direct operating expenses
increase
d
$48 million
, or
8%
, from 2012 comprised mainly of a
$12 million
increase
in concessions, an
$11 million
increase
in restructuring costs and a
$11 million
increase in reservations and customer service expenses due to the shift in our business mix to more airports driven by the expansion of our value brands.
|
ITEM 7.
|
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
|
|
Years Ended December 31,
|
|
Percent Increase/(Decrease)
|
||||||||||||||
($ in millions)
|
2014
|
|
2013
(As Restated)
(a)
|
|
2012
(As Restated)
(a)
|
|
2014 vs. 2013
|
|
2013 vs. 2012
|
||||||||
Total revenues
|
$
|
1,571
|
|
|
$
|
1,539
|
|
|
$
|
1,382
|
|
|
2
|
%
|
|
11
|
%
|
Direct operating expenses
|
$
|
863
|
|
|
$
|
826
|
|
|
$
|
777
|
|
|
4
|
|
|
6
|
|
Depreciation of revenue earning equipment and lease charges, net
|
$
|
329
|
|
|
$
|
299
|
|
|
$
|
271
|
|
|
10
|
|
|
10
|
|
Income before income taxes
|
$
|
170
|
|
|
$
|
241
|
|
|
$
|
142
|
|
|
(29
|
)
|
|
70
|
|
Adjusted pre-tax income
(b)
|
$
|
258
|
|
|
$
|
301
|
|
|
$
|
216
|
|
|
(14
|
)
|
|
39
|
|
Dollar utilization
(g)
|
36
|
%
|
|
37
|
%
|
|
36
|
%
|
|
N/A
|
|
|
N/A
|
|
|||
Time utilization
(h)
|
64
|
%
|
|
65
|
%
|
|
62
|
%
|
|
N/A
|
|
|
N/A
|
|
|||
Rental and rental related revenue
(i)
|
$
|
1,468
|
|
|
$
|
1,400
|
|
|
$
|
1,249
|
|
|
5
|
|
|
12
|
|
Same store revenue growth
(j)
|
5
|
%
|
|
10
|
%
|
|