|
x
|
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
For the fiscal year ended December 31, 2016
|
|
OR
|
|
o
|
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
DELAWARE
|
|
001-37665
|
|
61-1770902
|
DELAWARE
|
|
001-07541
|
|
13-1938568
|
(State or other jurisdiction of
incorporation or organization)
|
|
(Commission File Number)
|
|
(I.R.S Employer Identification No.)
|
|
|
|
|
|
|
|
8501 Williams Road
|
|
|
|
|
Estero, Florida 33928
|
|
|
|
|
8501 Williams Road
|
|
|
|
|
Estero, Florida 33928
|
|
|
|
|
(Address of principal executive offices, including zip code)
|
|
|
|
|
|
|
|
|
|
(239) 301-7000
|
|
|
|
|
(239) 301-7000
|
|
|
|
|
(Registrant’s telephone number, including area code)
|
|
|
Securities registered pursuant to Section 12(b) of the Act:
|
||||
|
|
Title of each class
|
|
Name of each exchange on which registered
|
Hertz Global Holdings, Inc.
|
|
Common Stock, Par Value $0.01 per share
|
|
New York Stock Exchange
|
The Hertz Corporation
|
|
None
|
|
None
|
|
|
|
|
|
Securities registered pursuant to Section 12(g) of the Act:
|
||||
Hertz Global Holdings, Inc.
|
|
None
|
|
None
|
The Hertz Corporation
|
|
None
|
|
None
|
Hertz Global Holdings, Inc.
|
Large accelerated filer
|
o
|
Accelerated filer
|
o
|
Non-accelerated filer
|
x
|
Smaller reporting company
|
o
|
The Hertz Corporation
|
Large accelerated filer
|
o
|
Accelerated filer
|
o
|
Non-accelerated filer
|
x
|
Smaller reporting company
|
o
|
|
|
Class
|
|
Shares Outstanding at
|
March 1, 2017
|
Hertz Global Holdings, Inc.
|
|
Common Stock, par value $0.01 per share
|
|
83,034,166
|
|
The Hertz Corporation
|
|
Common Stock, par value $0.01 per share
|
|
100 (100% owned by
Rental Car Intermediate Holdings, LLC)
|
Hertz Global Holdings, Inc.
|
|
Information required by Items 10, 11, 12 and 13 of Part III of this Form 10-K are incorporated by reference for Hertz Global Holdings, Inc. from its definitive proxy statement for its 2017 Annual Meeting of Stockholders.
|
The Hertz Corporation
|
|
None
|
|
|
|
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)
|
"2016 Annual Report" or "Combined Form 10-K" means this Annual Report on Form 10-K for the year ended December 31, 2016 which combines the annual reports for Hertz Global Holdings, Inc. and The Hertz Corporation into a single filing;
|
(ii)
|
"the Company", "we", "our" and "us" means Hertz Global and Hertz interchangeably;
|
(iii)
|
"company-operated" rental locations are those through which we, or an agent of ours, rent vehicles that we own or lease;
|
(iv)
|
"concessions" mean licensing or permitting agreements or arrangements granting us the right to conduct a vehicle rental business at respective airports;
|
(v)
|
"Corporate" means corporate operations which include general corporate assets and expenses and certain interest expense (including net interest on non-vehicle debt);
|
(vi)
|
"Dollar Thrifty" means Dollar Thrifty Automotive Group, Inc., a consolidated subsidiary of the Company;
|
(vii)
|
"Donlen" means Donlen Corporation, a consolidated subsidiary of the Company. Donlen conducts our fleet leasing and fleet management services;
|
(viii)
|
"Hertz Gold Choice" means allowing Hertz Gold Plus Rewards members to choose a different model and color from those vehicles available at the Hertz Gold Choice area, when booking a midsize class vehicle or higher;
|
(ix)
|
"Hertz Gold Plus Rewards" means our customer loyalty program and our global expedited rental program;
|
(x)
|
"Hertz" means The Hertz Corporation and its consolidated subsidiaries, our primary operating company and a direct wholly-owned subsidiary of Rental Car Intermediate Holdings, LLC, which is wholly-owned by Hertz Holdings;
|
(xi)
|
"Hertz Global" means Hertz Global Holdings, Inc., our top-level holding company (and the accounting successor to Old Hertz Holdings, as defined below) and its consolidated subsidiaries, including The Hertz Corporation;
|
(xii)
|
"Hertz Holdings" refers to the Hertz Global Holdings, Inc. excluding its subsidiaries;
|
(xiii)
|
"International RAC" means the international rental car reportable segment;
|
(xiv)
|
"New Hertz" means Hertz Global Holdings, Inc., subsequent to the June 30, 2016 Spin-Off;
|
(xv)
|
“non-program vehicles” means vehicles not purchased under repurchase or guaranteed depreciation programs for which we are exposed to residual risk;
|
(xvi)
|
"Old Hertz Holdings" for periods on or prior to June 30, 2016, and "Herc Holdings" for periods after June 30, 2016, refer to the former Hertz Global Holdings, Inc.;
|
(xvii)
|
"program vehicles" means vehicles purchased under repurchase or guaranteed depreciation programs with vehicle manufacturers;
|
(xviii)
|
"replacement renters" means renters who need vehicles while their vehicle is being repaired or is temporarily unavailable for other reasons;
|
(xix)
|
"SEC" means United States Securities and Exchange Commission;
|
(xx)
|
"Spin-Off" means the spin-off by Old Hertz Holdings of its global vehicle rental business through a dividend to stockholders of record of Old Hertz Holdings as of the close of business on June 22, 2016, the record date for the distribution, of all of the issued and outstanding shares of common stock of Hertz Rental Car Holding Company, Inc., which was re-named Hertz Global Holdings, Inc. in connection with the Spin-Off, on a one-to-five basis. As a result of the Spin-Off, each of Hertz Holdings and Herc Holdings are independent public companies trading on the New York Stock Exchange, with Hertz Holdings trading under the symbol "HTZ" and Herc Holdings, which changed its name to Herc Holdings Inc. on June 30, 2016, trading under the symbol “HRI”.
|
(xxi)
|
"Hertz Ultimate Choice" means an expansion of our Hertz Gold Choice program where a Hertz Gold Plus Rewards member can choose the exact vehicle they drive, when booking a midsize class vehicle or higher;
|
(xxii)
|
"U.S." means the United States of America
|
(xxiii)
|
"U.S. RAC" means the U.S. rental car reportable segment;
|
(xxiv)
|
"vehicle utilization" means the portion of our vehicles that are being utilized to generate revenue; and
|
(xxv)
|
"vehicles” means cars, crossovers and light trucks (and internationally, vans).
|
•
|
enhancing investors' understanding of Hertz Global and Hertz by enabling investors to view the business as a whole in the same manner as management views and operates the business;
|
•
|
eliminating duplicative disclosure and providing a more streamlined and readable presentation since a substantial portion of the disclosures apply to both Hertz Global and Hertz; and
|
•
|
creating time and cost efficiencies through the preparation of one combined annual report instead of two separate annual reports.
|
•
|
any claims, investigations or proceedings arising as a result of the restatement in 2015 of our previously issued financial results;
|
•
|
our ability to remediate the material weaknesses in our internal controls over financial reporting;
|
•
|
levels of travel demand, particularly with respect to airline passenger traffic in the United States and in global markets;
|
•
|
the effect of our separation of our vehicle and equipment rental businesses, any failure by Herc Holdings Inc. to comply with the agreements entered into in connection with the separation and our ability to obtain the expected benefits of the separation;
|
•
|
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;
|
•
|
increased vehicle costs due to declines in the value of our non-program vehicles;
|
•
|
occurrences that disrupt rental activity during our peak periods;
|
•
|
our ability to purchase adequate supplies of competitively priced vehicles and risks relating to increases in the cost of the vehicles we purchase;
|
•
|
our ability to accurately estimate future levels of rental activity and adjust the number and mix of vehicles used in our rental operations accordingly;
|
•
|
our ability to maintain sufficient liquidity and the availability to us of additional or continued sources of financing for our revenue earning vehicles and to refinance our existing indebtedness;
|
•
|
our ability to adequately respond to changes in technology and customer demands;
|
•
|
our ability to maintain access to third-party distribution channels, including current or favorable prices, commission structures and transaction volumes;
|
•
|
an increase in our vehicle costs or disruption to our rental activity, particularly during our peak periods, due to safety recalls by the manufacturers of our vehicles;
|
•
|
a major disruption in our communication or centralized information networks;
|
•
|
financial instability of the manufacturers of our vehicles;
|
•
|
any impact on us from the actions of our franchisees, dealers and independent contractors;
|
•
|
our ability to sustain operations during adverse economic cycles and unfavorable external events (including war, terrorist acts, natural disasters and epidemic disease);
|
•
|
shortages of fuel and increases or volatility in fuel costs;
|
•
|
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, the fact that substantially all of our consolidated assets secure certain of our outstanding indebtedness and increases in interest rates or in our borrowing margins;
|
•
|
our ability to meet the financial and other covenants contained in our Senior 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 operating results;
|
•
|
risks associated with operating in many different countries, including the risk of a violation or alleged violation of applicable anticorruption or antibribery laws and our ability to repatriate cash from non-U.S. affiliates without adverse tax consequences;
|
•
|
our ability to successfully outsource a significant portion of our information technology services or other activities;
|
•
|
our ability to successfully implement our finance and information technology transformation programs;
|
•
|
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;
|
•
|
changes to our senior management team and the dependence of our business operations on our senior management team;
|
•
|
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 currency exchange rates; and
|
•
|
other risks described from time to time in periodic and current reports that we file with the SEC.
|
•
|
U.S. RAC - Rental of vehicles, as well as sales of ancillary products and services, in the U.S. We maintain a substantial network of company-operated 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 RAC - Rental and leasing of vehicles, as well as sales of 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 partners also operate rental locations in approximately
150
countries and jurisdictions, including many of the countries in which we also have company-operated rental locations; and
|
•
|
All Other Operations - Comprised of our Donlen business, which provides vehicle leasing and fleet management services, and other business activities
.
Donlen is a leading provider of vehicle leasing and fleet 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.
|
•
|
Provide customers a more convenient and geographically extensive network of rental locations, thereby creating revenue opportunities from replacement renters, non-airline travel renters and airline travelers with local rental needs;
|
•
|
Provide a more balanced revenue mix by reducing our reliance on air travel and therefore reducing our exposure to external events that may disrupt airline travel trends;
|
•
|
Contribute to higher vehicle 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 vehicle 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.
|
|
|
Business
|
|
|
Leisure
|
|
|
Airport
|
|
|
Off airport
|
•
|
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
|
•
|
Lease financing.
|
•
|
legal liability arising from the operation of our vehicles 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.
|
Name
|
|
Age
|
|
Number of Years Employed
|
|
Position
|
Kathryn V. Marinello
|
|
60
|
|
–
|
|
President and Chief Executive Officer
|
Michel Taride
|
|
59
|
|
30
|
|
Group President, Rent A Car International
|
Thomas C. Kennedy
|
|
51
|
|
3
|
|
Senior Executive Vice President and Chief Financial Officer
|
Eliana Zem
|
|
54
|
|
2
|
|
Executive Vice President and Chief Human Resources Officer
|
Alexandria Marren
|
|
56
|
|
2
|
|
Executive Vice President, North American Rental Car Operations
|
Richard J. Frecker
|
|
47
|
|
8
|
|
Executive Vice President, General Counsel and Secretary
|
Tyler A. Best
|
|
49
|
|
2
|
|
Executive Vice President and Chief Information Officer
|
Robin C. Kramer
|
|
51
|
|
2
|
|
Senior Vice President, Chief Accounting Officer
|
2015
|
|
High
|
Low
|
||||
1
st
Quarter
|
$
|
125.60
|
|
$
|
100.60
|
|
|
2
nd
Quarter
|
113.15
|
|
90.25
|
|
|||
3
rd
Quarter
|
102.50
|
|
74.25
|
|
|||
4
th
Quarter
|
100.25
|
|
68.15
|
|
|||
2016
|
|
|
|
||||
1
st
Quarter
|
$
|
71.50
|
|
$
|
34.75
|
|
|
2
nd
Quarter
|
59.40
|
|
37.80
|
|
|||
3
rd
Quarter
|
53.14
|
|
38.43
|
|
|||
4
th
Quarter
|
40.70
|
|
17.20
|
|
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
|
|
886,364
|
|
|
$
|
66.24
|
|
|
6,710,697
|
|
Performance Stock Units
|
|
592,931
|
|
|
N/A
|
|
|
—
|
|
|
Restricted Stock Units
|
|
346,984
|
|
|
N/A
|
|
|
—
|
|
|
Total
|
|
1,826,279
|
|
|
|
|
6,710,697
|
|
(In millions, except per share data)
|
Years Ended December 31,
|
||||||||||||||||||
Statement of Operations Data
|
2016
|
|
2015
|
|
2014
|
|
2013
|
|
2012
(c)
|
||||||||||
Revenues:
|
|
|
|
|
|
|
|
|
|
||||||||||
Worldwide vehicle rental
(a)
|
$
|
8,211
|
|
|
$
|
8,434
|
|
|
$
|
8,907
|
|
|
$
|
8,709
|
|
|
$
|
7,153
|
|
All other operations
|
592
|
|
|
583
|
|
|
568
|
|
|
527
|
|
|
478
|
|
|||||
Total revenues
|
8,803
|
|
|
9,017
|
|
|
9,475
|
|
|
9,236
|
|
|
7,631
|
|
|||||
Expenses:
|
|
|
|
|
|
|
|
|
|
||||||||||
Direct vehicle and operating
|
4,932
|
|
|
5,055
|
|
|
5,458
|
|
|
4,965
|
|
|
4,093
|
|
|||||
Depreciation of revenue earning vehicles and lease charges, net
|
2,601
|
|
|
2,433
|
|
|
2,705
|
|
|
2,234
|
|
|
1,856
|
|
|||||
Selling, general and administrative
|
899
|
|
|
873
|
|
|
936
|
|
|
931
|
|
|
853
|
|
|||||
Interest expense, net:
|
|
|
|
|
|
|
|
|
|
||||||||||
Vehicle
|
280
|
|
|
253
|
|
|
277
|
|
|
302
|
|
|
297
|
|
|||||
Non-vehicle
|
344
|
|
|
346
|
|
|
340
|
|
|
342
|
|
|
282
|
|
|||||
Total interest expense, net
|
624
|
|
|
599
|
|
|
617
|
|
|
644
|
|
|
579
|
|
|||||
Goodwill and intangible asset impairments
|
292
|
|
|
40
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|||||
Other (income) expense, net
|
(75
|
)
|
|
(115
|
)
|
|
(10
|
)
|
|
68
|
|
|
35
|
|
|||||
Total expenses
|
9,273
|
|
|
8,885
|
|
|
9,706
|
|
|
8,842
|
|
|
7,416
|
|
|||||
Income (loss) from continuing operations before income taxes
|
(470
|
)
|
|
132
|
|
|
(231
|
)
|
|
394
|
|
|
215
|
|
|||||
Income tax (provision) benefit
|
(4
|
)
|
|
(17
|
)
|
|
17
|
|
|
(223
|
)
|
|
(128
|
)
|
|||||
Net income (loss) from continuing operations
|
(474
|
)
|
|
115
|
|
|
(214
|
)
|
|
171
|
|
|
87
|
|
|||||
Net income (loss) from discontinued operations
|
(17
|
)
|
|
158
|
|
|
132
|
|
|
131
|
|
|
97
|
|
|||||
Net income (loss)
|
$
|
(491
|
)
|
|
$
|
273
|
|
|
$
|
(82
|
)
|
|
$
|
302
|
|
|
$
|
184
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Weighted average shares outstanding
(b)
|
|
|
|
|
|
|
|
|
|
||||||||||
Basic
|
84
|
|
|
90
|
|
|
91
|
|
|
84
|
|
|
84
|
|
|||||
Diluted
|
84
|
|
|
91
|
|
|
91
|
|
|
91
|
|
|
90
|
|
|||||
|
|
|
|
|
|
|
|
|
|
||||||||||
Earnings (loss) per share - basic and diluted:
(b)
|
|
|
|
|
|
|
|
|
|
||||||||||
Basic earnings (loss) per share from continuing operations
|
$
|
(5.65
|
)
|
|
$
|
1.28
|
|
|
$
|
(2.35
|
)
|
|
$
|
2.04
|
|
|
$
|
1.04
|
|
Basic earnings (loss) per share from discontinued operations
|
(0.20
|
)
|
|
1.75
|
|
|
1.45
|
|
|
1.56
|
|
|
1.15
|
|
|||||
Basic earnings (loss) per share
|
$
|
(5.85
|
)
|
|
$
|
3.03
|
|
|
$
|
(0.90
|
)
|
|
$
|
3.60
|
|
|
$
|
2.19
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Diluted earnings (loss) per share from continuing operations
|
$
|
(5.65
|
)
|
|
$
|
1.26
|
|
|
$
|
(2.35
|
)
|
|
$
|
1.88
|
|
|
$
|
0.97
|
|
Diluted earnings (loss) per share from discontinued operations
|
(0.20
|
)
|
|
1.74
|
|
|
1.45
|
|
|
1.44
|
|
|
1.07
|
|
|||||
Diluted earnings (loss) per share
|
$
|
(5.85
|
)
|
|
$
|
3.00
|
|
|
$
|
(0.90
|
)
|
|
$
|
3.32
|
|
|
$
|
2.04
|
|
(In millions)
|
As of December 31,
|
||||||||||||||||||
Balance Sheet Data
|
2016
|
|
2015
|
|
2014
(e)
|
|
2013
(e)
|
|
2012
(e)
|
||||||||||
Cash and cash equivalents
|
$
|
816
|
|
|
$
|
474
|
|
|
$
|
474
|
|
|
$
|
396
|
|
|
$
|
519
|
|
Total assets
(d)
|
19,155
|
|
|
23,514
|
|
|
23,904
|
|
|
24,318
|
|
|
23,015
|
|
|||||
Total debt
|
13,541
|
|
|
15,770
|
|
|
15,720
|
|
|
15,916
|
|
|
14,848
|
|
|||||
Total equity
|
1,075
|
|
|
2,019
|
|
|
2,464
|
|
|
2,567
|
|
|
2,331
|
|
(a)
|
Includes U.S. Rental Car and International Rental Car segments.
|
(b)
|
Weighted average shares outstanding used to calculate basic and diluted earnings (loss) per share presented in the above table has been adjusted for the one-to-five distribution ratio in connection with the Spin-Off. See
Note 19
, "
Equity and Earnings (Loss) Per Share - Hertz Global
," for additional information.
|
(c)
|
Results for the period from January 1, 2012 through November 18, 2012 exclude the results of Dollar Thrifty which were acquired in 2012.
|
(d)
|
The balance of total assets as of December 31, 2016 reflect the impact of discontinuing the equipment rental operations and certain parent legal entities, goodwill and intangible asset impairments, and a reduction in vehicle receivables as compared to the historical periods presented.
|
(e)
|
Balance sheet data in this table for 2014, 2013 and 2012 includes reclassification of certain debt issuance costs from assets to liabilities in conformity with recently adopted accounting pronouncements, see
Note 2
, "
Significant Accounting Policies
" for additional information.
|
(In millions, except per share data)
|
Years Ended December 31,
|
||||||||||||||||||
Statement of Operations Data
|
2016
|
|
2015
|
|
2014
|
|
2013
|
|
2012
(b)
|
||||||||||
Revenues:
|
|
|
|
|
|
|
|
|
|
||||||||||
Worldwide vehicle rental
(a)
|
$
|
8,211
|
|
|
$
|
8,434
|
|
|
$
|
8,907
|
|
|
$
|
8,709
|
|
|
$
|
7,153
|
|
All other operations
|
592
|
|
|
583
|
|
|
568
|
|
|
527
|
|
|
478
|
|
|||||
Total revenues
|
8,803
|
|
|
9,017
|
|
|
9,475
|
|
|
9,236
|
|
|
7,631
|
|
|||||
Expenses:
|
|
|
|
|
|
|
|
|
|
||||||||||
Direct vehicle and operating
|
4,932
|
|
|
5,055
|
|
|
5,458
|
|
|
4,965
|
|
|
4,093
|
|
|||||
Depreciation of revenue earning vehicles and lease charges, net
|
2,601
|
|
|
2,433
|
|
|
2,705
|
|
|
2,234
|
|
|
1,856
|
|
|||||
Selling, general and administrative
|
899
|
|
|
873
|
|
|
936
|
|
|
931
|
|
|
853
|
|
|||||
Interest expense, net:
|
|
|
|
|
|
|
|
|
|
||||||||||
Vehicle
|
280
|
|
|
253
|
|
|
277
|
|
|
302
|
|
|
297
|
|
|||||
Non-vehicle
|
343
|
|
|
346
|
|
|
340
|
|
|
342
|
|
|
282
|
|
|||||
Total interest expense, net
|
623
|
|
|
599
|
|
|
617
|
|
|
644
|
|
|
579
|
|
|||||
Goodwill and intangible asset impairments
|
292
|
|
|
40
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|||||
Other (income) expense, net
|
(75
|
)
|
|
(115
|
)
|
|
(10
|
)
|
|
68
|
|
|
35
|
|
|||||
Total expenses
|
9,272
|
|
|
8,885
|
|
|
9,706
|
|
|
8,842
|
|
|
7,416
|
|
|||||
Income (loss) from continuing operations before income taxes
|
(469
|
)
|
|
132
|
|
|
(231
|
)
|
|
394
|
|
|
215
|
|
|||||
Income tax (provision) benefit
|
(4
|
)
|
|
(17
|
)
|
|
17
|
|
|
(223
|
)
|
|
(128
|
)
|
|||||
Net income (loss) from continuing operations
|
(473
|
)
|
|
115
|
|
|
(214
|
)
|
|
171
|
|
|
87
|
|
|||||
Net income (loss) from discontinued operations
|
(15
|
)
|
|
161
|
|
|
136
|
|
|
179
|
|
|
130
|
|
|||||
Net income (loss)
|
$
|
(488
|
)
|
|
$
|
276
|
|
|
$
|
(78
|
)
|
|
$
|
350
|
|
|
$
|
217
|
|
(In millions)
|
As of December 31,
|
||||||||||||||||||
Balance Sheet Data
|
2016
|
|
2015
|
|
2014
(d)
|
|
2013
(d)
|
|
2012
(d)
|
||||||||||
Cash and cash equivalents
|
$
|
816
|
|
|
$
|
474
|
|
|
$
|
474
|
|
|
$
|
396
|
|
|
$
|
519
|
|
Total assets
(c)
|
19,155
|
|
|
23,509
|
|
|
23,999
|
|
|
24,411
|
|
|
23,019
|
|
|||||
Total debt
|
13,541
|
|
|
15,770
|
|
|
15,720
|
|
|
15,917
|
|
|
14,848
|
|
|||||
Total equity
|
1,075
|
|
|
1,948
|
|
|
2,495
|
|
|
2,680
|
|
|
2,742
|
|
(a)
|
Includes U.S. Rental Car and International Rental Car segments.
|
(b)
|
Results for the period from January 1, 2012 through November 18, 2012 exclude the results of Dollar Thrifty which were acquired in 2012.
|
(c)
|
The balance of total assets as of December 31, 2016 reflect the impact of discontinuing the equipment rental operations, goodwill and intangible asset impairments, and a reduction in vehicle receivables as compared to the historical periods presented.
|
(d)
|
Balance sheet data in this table for 2014, 2013 and 2012 includes reclassification of certain debt issuance costs from assets to liabilities in conformity with recently adopted accounting pronouncements, see
Note 2
, "
Significant Accounting Policies
" for additional information.
|
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 Transaction Day ("Total RPD", also referred to as "pricing") - important to management and investors as it represents a measurement of the changes in underlying pricing in the vehicle rental business and encompasses the elements in vehicle rental pricing that management has the ability to control.
|
•
|
Total Revenue Per Unit Per Month ("Total RPU") - important to management and investors as it provides a measure of revenue productivity relative to the total number of vehicles in our fleet whether owned or leased ("average vehicles" or "fleet capacity").
|
•
|
Transaction Days - important to management and investors as it represents the number of revenue generating days ("volume"). It is used as a component to measure Total RPD and vehicle utilization. Transaction days represent the total number of 24-hour periods, with any partial period counted as one transaction day, that vehicles were on rent (the period between when a rental contract is opened and closed) in a given period. Thus, it is possible for a vehicle to attain more than one transaction day in a 24-hour period. Late in the third quarter of 2015 we fully integrated the Dollar Thrifty and Hertz counter systems and as a result aligned the transaction day calculation in the Hertz system. As a result of this alignment, we determined that there was an impact to the calculation and we estimate that transaction days for the U.S. Rental Car segment were increased by approximately 1% relative to historical calculations through the third quarter of 2016. This also impacts key metrics calculations that utilize transaction days, although to a lesser extent.
|
•
|
Vehicle Utilization - important to management and investors because it is the measurement of the proportion of our vehicles that are being used to generate revenues relative to fleet capacity. Higher vehicle utilization means more vehicles are being utilized to generate revenue.
|
•
|
Net Depreciation Per Unit Per Month - important to management and investors as depreciation of revenue earning vehicles and lease charges, is one of our largest expenses for the vehicle rental business and is driven by the number of vehicles, expected residual values at the time of disposal and expected hold period of the
|
ITEM 7.
|
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
|
•
|
Vehicle rental revenues - revenues from all company-operated vehicle 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 vehicle 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 vehicle sales channel and certain royalty fees from our franchisees (such fees, including initial franchise fees, are less than 2% of total revenues each period);
|
•
|
All other operations revenues - revenues from vehicle leasing and fleet management services and other business activities.
|
•
|
Direct vehicle and 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; and other costs relating to the operation and rental of revenue earning vehicles, such as damage, maintenance and fuel costs);
|
•
|
Depreciation expense and lease charges, net relating to revenue earning vehicles (including net gains or losses on the disposal of such vehicles);
|
•
|
Selling, general and administrative expenses; and
|
•
|
Interest expense, net.
|
ITEM 7.
|
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
|
•
|
U.S. RAC - Rental of vehicles, as well as sales of ancillary products and services, in the U.S.;
|
•
|
International RAC - Rental and leasing of vehicles, as well as sales of ancillary products and services, internationally; and
|
•
|
All Other Operations - Comprised of our Donlen business, which provides vehicle leasing and fleet management services, and other business activities
.
|
•
|
We successfully completed the previously announced separation of the Old Hertz Holdings vehicle rental business and equipment rental business on June 30, 2016, receiving approximately
$2.0 billion
pursuant to the Separation Agreement, which was used to repay outstanding non-vehicle debt;
|
•
|
In an effort to focus resources on continuing to grow the Hertz, Dollar and Thrifty brands, we substantially transitioned our Firefly operations to our Thrifty brand in the U.S. market in 2016;
|
•
|
In 2016, we entered into a definitive agreement to form a strategic partnership with Localiza encompassing co-branding in Brazil and use of the Localiza brand in other select markets, customer referrals and the exchange of technology and information. As part of the agreement, Localiza will purchase our operations in Brazil. The sale is expected to close in the first half of 2017, subject to regulatory approval and customary closing conditions;
|
•
|
Total revenues for U.S. RAC in 2016
decrease
d by
3%
compared to 2015 driven by a
6%
decline in Total RPD, partially offset by a
3%
increase in transaction days;
|
•
|
Depreciation of revenue earning vehicles and lease charges, net for U.S. RAC increased
12
% to
$1,753 million
from
$1,572 million
in 2016 compared to 2015. Net depreciation per unit per month in the U.S. RAC segment increased
13%
to
$301
from
$267
in 2016 compared to
2015
. The increases are the result of declining residual values on non-program vehicles and higher vehicle acquisition costs;
|
ITEM 7.
|
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
|
•
|
Total revenues for International RAC decreased
2%
in 2016 compared to 2015. Excluding the impact of foreign currency exchange rates, total revenues for International RAC were virtually flat as a
2%
increase in transaction days was offset by a
2%
decrease in Total RPD;
|
•
|
Depreciation of revenue earning vehicles and lease charges, net for International RAC decreased
2%
to
$389 million
from
$398 million
in 2016 compared to 2015, and excluding the
$12 million
impact of foreign currency exchange rates, was virtually flat. Net depreciation per unit per month for International RAC decreased
2%
to
$187
from
$191
in 2016 compared to 2015. Excluding the impact of foreign currency exchange rates, depreciation of revenue earning vehicles and lease charges, net was virtually flat for International RAC as a decline in residual values was partially offset by improved vehicle procurement, vehicle mix changes and optimized remarketing channels;
|
•
|
We realized cost savings of approximately $350 million in 2016. In addition to vehicle related initiatives, consolidated unit costs, defined as consolidated direct vehicle and operating and selling, general and administrative expenses per transaction day, decreased
$1.25
, or
4%
, in 2016 compared to 2015;
|
•
|
Recorded
$340 million
of net goodwill, intangible and tangible asset impairments and write-downs in 2016 compared to
$70 million
in 2015, primarily resulting from the 2016 impairments of
$172 million
of goodwill related to our European vehicle rental operations and the
$120 million
impairment of the Dollar Thrifty tradename;
|
•
|
Recorded
$53 million
in expenses associated with our finance and information technology transformation programs, both of which are multi-year initiatives to upgrade and modernize the Company’s systems and processes. There were no comparable costs in 2015;
|
•
|
International RAC's public liability and property damage (“PLPD”) expense increased
$11 million
in 2016 compared to 2015 due to case development and adverse experience on claims primarily in the United Kingdom. While the company cannot be assured that additional exposure may not materialize in the future periods, the company has proactively addressed the root cause of the impact from claims in the United Kingdom and changed its business practices accordingly;
|
•
|
Recorded
$53 million
in restructuring and restructuring related expenses in 2016 compared to
$84 million
in 2015. Included in these amounts were
$8 million
in consulting, audit and legal costs associated with the restatement and investigation activities in 2016 compared to
$38 million
in 2015;
|
•
|
In 2016, we sold approximately
236 million
shares of common stock of CAR Inc., a publicly traded company on the Hong Kong Stock Exchange, for net proceeds of approximately
$267 million
, recognizing a pre-tax gain of
$84 million
. In 2015, we sold approximately
138 million
shares of common stock of CAR Inc. for net proceeds of approximately
$236 million
, recognizing a pre-tax gain of
$133 million
;
|
•
|
Using proceeds from the Spin-Off, together with available cash, we repaid and terminated our Senior Credit Facilities which reduced non-vehicle debt by approximately $2.1 billion. We also undertook various refinancings of non-vehicle debt in 2016 wherein durations of maturities were extended such that maturities of non-vehicle debt in 2017 were reduced to
$8 million
; and
|
•
|
In 2016, we recognized
$55 million
of losses on extinguishment of debt. This amount is comprised of
$27 million
in early redemption premiums associated with the redemption of all of the 7.50% Senior Notes due October 2018 and a portion of the 6.75% Senior Notes due April 2019 and
$28 million
in write-offs of deferred financing costs and debt discount as a result of the above redemptions, paying off and terminating our Senior Credit Facilities and refinancing various vehicle debt. Additionally, in February 2017, we amended certain agreements to extend maturities, as further described in
Note 7
, "
Debt
," to the Notes to our consolidated financial statements included in this 2016 Annual Report under the caption Item 8, "Financial Statements and Supplementary Data."
|
ITEM 7.
|
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
|
|
Years Ended December 31,
|
|
Percent Increase/(Decrease)
|
||||||||||||||
($ In millions)
|
2016
|
|
2015
|
|
2014
|
|
2016 vs. 2015
|
|
2015 vs. 2014
|
||||||||
Total revenues
|
$
|
8,803
|
|
|
$
|
9,017
|
|
|
$
|
9,475
|
|
|
(2
|
)%
|
|
(5
|
)%
|
Direct vehicle and operating expenses
|
4,932
|
|
|
5,055
|
|
|
5,458
|
|
|
(2
|
)
|
|
(7
|
)
|
|||
Depreciation of revenue earning vehicles and lease charges, net
|
2,601
|
|
|
2,433
|
|
|
2,705
|
|
|
7
|
|
|
(10
|
)
|
|||
Selling, general and administrative expenses
|
899
|
|
|
873
|
|
|
936
|
|
|
3
|
|
|
(7
|
)
|
|||
Interest expense, net:
|
|
|
|
|
|
|
|
|
|
||||||||
Vehicle
|
280
|
|
|
253
|
|
|
277
|
|
|
11
|
|
|
(9
|
)
|
|||
Non-vehicle
|
343
|
|
|
346
|
|
|
340
|
|
|
(1
|
)
|
|
2
|
|
|||
Interest expense, net
|
623
|
|
|
599
|
|
|
617
|
|
|
4
|
|
|
(3
|
)
|
|||
Goodwill and intangible asset impairments
|
292
|
|
|
40
|
|
|
—
|
|
|
630
|
|
|
—
|
|
|||
Other (income) expense, net
|
(75
|
)
|
|
(115
|
)
|
|
(10
|
)
|
|
(35
|
)
|
|
1,050
|
|
|||
Income (loss) from continuing operations, before income taxes
|
(469
|
)
|
|
132
|
|
|
(231
|
)
|
|
NM
|
|
|
NM
|
|
|||
Income tax (provision) benefit
|
(4
|
)
|
|
(17
|
)
|
|
17
|
|
|
(76
|
)
|
|
NM
|
|
|||
Net income (loss) from continuing operations
|
(473
|
)
|
|
115
|
|
|
(214
|
)
|
|
NM
|
|
|
NM
|
|
|||
Net income (loss) from discontinued operations
|
(15
|
)
|
|
161
|
|
|
136
|
|
|
NM
|
|
|
18
|
|
|||
Net income (loss)
|
$
|
(488
|
)
|
|
$
|
276
|
|
|
$
|
(78
|
)
|
|
NM
|
|
|
NM
|
|
Adjusted pre-tax income
(loss)
(a)
|
$
|
66
|
|
|
$
|
325
|
|
|
$
|
93
|
|
|
(80
|
)
|
|
249
|
|
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)
|
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 as noted)
|
2016
|
|
2015
|
|
2014
|
|
2016 vs. 2015
|
|
2015 vs. 2014
|
||||||||
Total revenues
|
$
|
6,114
|
|
|
$
|
6,286
|
|
|
$
|
6,471
|
|
|
(3
|
)%
|
|
(3
|
)%
|
Direct vehicle and operating expenses
|
$
|
3,646
|
|
|
$
|
3,759
|
|
|
$
|
3,921
|
|
|
(3
|
)
|
|
(4
|
)
|
Depreciation of revenue earning vehicles and lease charges, net
|
$
|
1,753
|
|
|
$
|
1,572
|
|
|
$
|
1,758
|
|
|
12
|
|
|
(11
|
)
|
Income (loss) before income taxes
|
$
|
56
|
|
|
$
|
413
|
|
|
$
|
258
|
|
|
(86
|
)
|
|
60
|
|
Adjusted pre-tax income (loss)
(a)
|
$
|
298
|
|
|
$
|
551
|
|
|
$
|
387
|
|
|
(46
|
)
|
|
42
|
|
Transaction days (in thousands)
(b)
|
142,268
|
|
|
138,590
|
|
|
139,752
|
|
|
3
|
|
|
(1
|
)
|
|||
Average vehicles
(c)
|
484,800
|
|
|
489,800
|
|
|
499,100
|
|
|
(1
|
)
|
|
(2
|
)
|
|||
Vehicle utilization
(c)
|
80
|
%
|
|
78
|
%
|
|
77
|
%
|
|
N/A
|
|
|
N/A
|
|
|||
Total RPD (in whole dollars)
(d)
|
$
|
42.44
|
|
|
$
|
44.95
|
|
|
$
|
46.07
|
|
|
(6
|
)
|
|
(2
|
)
|
Total RPU (in whole dollars)
(e)
|
$
|
1,038
|
|
|
$
|
1,060
|
|
|
$
|
1,075
|
|
|
(2
|
)
|
|
(1
|
)
|
Net depreciation per unit per month (in whole dollars)
(f)
|
$
|
301
|
|
|
$
|
267
|
|
|
$
|
294
|
|
|
13
|
|
|
(9
|
)
|
Program vehicles as a percentage of average vehicles at period end
|
6
|
%
|
|
17
|
%
|
|
21
|
%
|
|
N/A
|
|
|
N/A
|
|
•
|
Vehicle related expenses decreased
$36 million
year over year primarily due to:
|
•
|
Decreased collision and short term maintenance expense of $23 million driven primarily by a $12 million decrease in net collision expense resulting from improved customer collections on damage claims resulting from process improvements and a $10 million decrease in the costs to prepare vehicles for turn-back due to a reduction in the number of program vehicles returned to the manufacturer year over year;
|
•
|
Decreased maintenance costs of $12 million primarily due to a reduction in the average age of our revenue earning vehicles, which requires less maintenance compared to 2015 and improved pricing through parts and supplier sourcing;
|
•
|
Severe weather also drove a slight increase in transportation expense as an abnormal level of fleet activity was required to rebalance fleet levels in those affected markets.
|
ITEM 7.
|
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
|
•
|
Personnel related expenses decreased
$25 million
compared to 2015, primarily due to a $13 million improvement in benefits expense, resulting from a decrease in worker's compensation reserves based on favorable loss experience, and an $8 million decrease in variable incentive compensation.
|
•
|
Transaction variable expenses decreased
$43 million
year over year due to decreased concessions and credit card expense of $29 million as a result of lower revenues and rental mix, and lower fuel expense of $32 million in 2016 compared to 2015, primarily due to lower fuel prices, partially offset by an increase in optional insurance liability expense of $21 million due to an increase in transaction days.
|
•
|
Other direct vehicle and operating expenses decreased
$9 million
year over year primarily due to a net $41 million of information technology cost savings resulting from the previously announced initiatives, offset by a $16 million increase in restructuring expenses and a $5 million increase in bad debt expense.
|
•
|
Fleet related expenses decreased $84 million year over year primarily due to:
|
•
|
Decreased fuel costs of $77 million due to lower fuel prices;
|
•
|
Decreased insurance costs of $21 million due to improved loss experience;
|
•
|
Decreased maintenance costs of $27 million due to our fleet refresh activities which have reduced the average age of the fleet, thus requiring less maintenance in 2015 compared to 2014;
|
ITEM 7.
|
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
|
•
|
Increased collision and short term maintenance expense of $21 million due primarily to a larger number of program cars returned to the original equipment manufacturer in the current year; and
|
•
|
Increased other vehicle operating costs of $25 million due primarily to higher amortization expense on vehicle tags and licenses.
|
•
|
Personnel related expenses decreased $7 million in 2015 compared to 2014 primarily due to the discontinuation of future benefit accruals and participation under certain of our pension plans as well as a reduction in other employee incentives period over period.
|
•
|
Other direct vehicle and operating expenses decreased $71 million in 2015 compared to 2014 primarily due to:
|
•
|
Decreased restructuring and restructuring related costs of $39 million related to reduced expenses for business transformation and integration initiatives; and
|
•
|
Decreased commissions expense of $10 million driven by lower revenue period over period, and field administration decreased year over year due to lower shared services costs and fewer charges related to headquarters relocation in 2015 compared to 2014.
|
ITEM 7.
|
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
|
|
Years Ended December 31,
|
|
Percent Increase/(Decrease)
|
||||||||||||||
($ In millions, except as noted)
|
2016
|
|
2015
|
|
2014
|
|
2016 vs. 2015
|
|
2015 vs. 2014
|
||||||||
Total revenues
|
$
|
2,097
|
|