What changed in this filing

/stocks — the workspaceLOADING

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

2021-02-26 compared with 2020-02-25 · 36 added, 20 removed, 19 unchanged (75% of the section changed)

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK (Continued)

Note 11 , " Financial Instruments ," to the Notes to our consolidated financial statements included in this 2019 Annual Report under the caption Item 8, "Financial Statements and Supplementary Data.”

We do not hedge our operating results against currency movement as they are primarily translational in nature.

Using foreign currency forward rates as of December 31, 2019 , we expect revenue to be positively impacted by approximately 0.1% over a twelve-month period.

Additionally, each one percentage point change in foreign currency movements is estimated to impact our Adjusted Corporate EBITDA by an estimated $1 million over a twelve-month period.

We purchase unleaded gasoline and diesel fuel at prevailing market rates.

We are subject to price exposure related to the fluctuations in the price of fuel.

We anticipate that fuel risk will remain a market risk for the foreseeable future.

We have determined that a 10% hypothetical change in the price of fuel will not have a material impact on our operating results.

The increased cost of vehicles is the primary inflationary factor affecting us.

2 unchanged sentences

OTHER INCOME TAX RELATED MATTERS

Prior to the TCJA, we operated a like-kind exchange (“LKE”) program for our U.S.

Prior to the TCJA, we operated a LKE program for our U.S.

vehicle rental business.

5 unchanged sentences

Given the repeal of LKE and changes to bonus depreciation, we could incur material cash tax payments in the future.

In connection with the Spin-Off in 2016, Herc Holdings received a private letter ruling from the IRS to the effect that, subject to the accuracy of and compliance with certain representations, assumptions and covenants, (i) the Spin-Off will qualify as a tax-free transaction under Sections 355 and 368(a)(1)(D) of the Code, and (ii) the internal spin-off transactions will qualify as tax-free under Section 355 of the Code.

A private letter ruling from the IRS generally is binding on the IRS.

However, the IRS ruling did not rule that the Spin-Offs satisfied every requirement for a tax-free spin-off, and Herc Holdings and Hertz Global relied solely on opinions of professional advisors to determine that such additional requirements were satisfied.

The ruling and the opinions relied on certain facts, assumptions, representations and undertakings from Herc Holdings and Hertz Holdings regarding the past and future conduct of the companies’ respective businesses and other matters.

If any of these facts, assumptions, representations or undertakings were incorrect or not otherwise satisfied, Herc Holdings and Hertz Global, and their affiliates may not be able to rely on the ruling or the opinions of tax advisors and could be subject to significant tax liabilities.

Notwithstanding the private letter ruling and opinions of tax advisors, the IRS could determine on audit that the Spin-Offs and related transactions are taxable if it determines that any of these facts, assumptions, representations or undertakings are not correct or have been violated or if it disagrees with the conclusions in the opinions that are not covered by the private letter ruling, or for any other reason, including as a result of certain significant changes in the stock ownership of Herc Holdings or Hertz Global after the Spin-Off.

If the Spin-Offs or related transactions are determined to be taxable for U.S.

federal income tax purposes, Herc Holdings and Hertz Global and, in certain cases, their stockholders (at the time of the Spin-Off) could incur significant U.S.

federal income tax liabilities, including taxation on the value of the Hertz Global stock distributed in the Spin-Off and the value of other companies distributed in the internal Spin-Off transactions, and Hertz Global could incur significant liabilities, either directly to the tax authorities or under a Tax Matters Agreement entered into with Herc Holdings.

TCJA also contains other provisions impacting our ability to fully expense the costs of purchased revenue earning vehicles under Section 163(j).

Generally, this provision limits the deductibility of business interest expense to a percentage of the taxpayer’s adjusted taxable income.

However, as amended by TCJA, Section 163(j) taxpayers with floor plan financing are not eligible for 100% expensing of the costs of the purchased vehicles.

As a result, our cash tax flows may be materially and adversely affected.

Our NOL utilization was statutorily limited under the TCJA, which limited a taxpayer's ability to use NOLs up to 80% of taxable income, disallowed the carryback of NOLs arising after 2017 and made the carryforward of NOLs indefinite.

The CARES Act temporarily suspends the TCJA's 80% limitation on NOLs for tax years beginning after December 31, 2017 and before January 1, 2021.

Such limitations on NOL utilization may materially impact our cash tax position.

During 2020, the IRS proposed transfer pricing adjustments to our 2014 and 2015 tax years, for which we are pursuing competent authority relief.

The IRS continues to audit our 2016 tax year.

Current year to date dispositions of Hertz Global's common stock by certain significant shareholders, as disclosed in Note 16, "Related Party Transactions," to the Notes to our consolidated financial statements included in this 2020 Annual Report under the caption Item 8, "Financial Statements and Supplementary Data," likely resulted in an "ownership change" as that term is defined in IRC Section 382.

IRC Section 382 can limit the utilization of the federal and state NOL and tax credit carryforwards.

We currently believe that this "ownership change" will not significantly impact our ability to utilize these U.S.

tax attributes.

However, there are numerous factors that are considered in the calculation of the IRC Section 382 limitation and, if one or several of these factors should be revised in the future, our ability to utilize our tax attributes could change.

Any Chapter 11 plan we may implement extinguishing pre-petition debt securities, a primary credit facility and certain other obligations, absent an exception, would result in CODI upon discharge of outstanding indebtedness for an amount of consideration that is less than its adjusted issue price.

The IRC provides that a debtor in a bankruptcy case may exclude CODI from income but must reduce certain of its tax attributes by the amount of any CODI realized as a result of the consummation of a plan of reorganization.

As a result, the market value of our equity upon emergence from Chapter 11 bankruptcy proceedings will dictate what portion of our U.S.

NOL, capital loss and tax credit carryforwards, after reduction of the Tax Attributes for CODI, will be realized on emergence from Chapter 11 bankruptcy proceedings.

IRC Sections 382 and 383 provide an annual limitation with respect to the ability of a corporation to utilize its Tax Attributes, as well as certain built-in-losses, against future U.S.

taxable income in the event of a change in ownership.

Our emergence from Chapter 11 bankruptcy proceedings will likely be considered a change in ownership for purposes of IRC Section 382.

The limitation under the IRC is based on the value of the

HERTZ GLOBAL HOLDINGS, INC.

1 unchanged sentence

THE HERTZ CORPORATION AND SUBSIDIARIES

(DEBTORS-IN-POSSESSION)

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK (Continued)

The IRS completed its audit of our 2007 to 2009 tax returns and surveyed 2010 and 2011 tax returns and had no changes to the previously-filed tax returns.

Currently, our 2014 through 2016 tax years are under audit by the IRS.

corporation as of the emergence date.

As a result, our future U.S.

taxable income may not be fully offset by the Tax Attributes if such income exceeds our annual limitation, and we may incur a tax liability with respect to such income.

In addition, subsequent changes in ownership for purposes of the IRC could further diminish our Tax Attributes.

In 2016, the German Tax Authorities provided us with an assessment which asserted that we underreported our German taxable income for our 2005–2010 tax years based on the German Tax Authorities’ belief that certain transfer pricing matters made by the U.S.

to our German entity were overstated.

To avoid the double taxation resulting in these tax years from this assessment, we pursued U.S.

and German competent authority relief.

We expect to receive notification from the German and U.S.

tax authorities within ninety (90) days from the filing date of this 2020 Annual Report that they have agreed on a resolution of the transfer pricing matter covering the 2005-2010 tax years.

Upon receipt of such notification, we will reassess and, if appropriate, adjust our uncertain tax benefit related to the matter.