What changed in this filing

/stocks — the workspaceLOADING

Item 8. Financial Statements and Supplementary Data

2021-02-26 compared with 2020-02-25 · 1662 added, 1077 removed, 1741 unchanged (61% of the section changed)

1 unchanged sentence

Hertz Global Holdings, Inc.

and Subsidiaries

and Subsidiaries (Debtor-in-Possession)

Reports of Independent Registered Public Accounting Firms

4 unchanged sentences

Consolidated Statements of Cash Flows for Years Ended December 31, 2020, 2019 and 2018

The Hertz Corporation and Subsidiaries

The Hertz Corporation and Subsidiaries (Debtor-in-Possession)

Reports of Independent Registered Public Accounting Firms

6 unchanged sentences

Significant Accounting Policies

Goodwill and Intangible Assets

Revenue Earning Vehicles

Goodwill and Intangible Assets, Net

Revenue from Contracts with Customers

1 unchanged sentence

Stock-Based Compensation

Restructuring

Income Tax (Provision) Benefit

Financial Instruments

Fair Value Measurements

4 unchanged sentences

Segment Information

Quarterly Financial Information (Unaudited)

Guarantor and Non-Guarantor Annual Condensed Consolidating Financial Information - Hertz

Subsequent Events

Liabilities Subject to Compromise

Reorganization Items, Net

Condensed Combined Debtor-in-Possession Financial Information

Condensed Financial Information of Registrant Hertz Global Holdings, Inc.

(Debtor-in-Possession)

Valuation and Qualifying Accounts

1 unchanged sentence

AND SUBSIDIARIES

(DEBTOR-IN-POSSESSION)

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

1 unchanged sentence

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheet of Hertz Global Holdings, Inc.

and its subsidiaries (the Company) as of December 31, 2019, the related consolidated statements of operations, comprehensive income (loss), changes in equity and cash flows for the year then ended, and the related notes and financial statement schedules listed in the Index at Item 15(a) (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2019, and the results of its operations and its cash flows for the year then ended in conformity with U.S.

We have audited the accompanying consolidated balance sheets of Hertz Global Holdings, Inc.

and subsidiaries (the Company) as of December 31, 2020 and 2019, the related consolidated statements of operations, comprehensive income (loss), changes in equity and cash flows for each of the two years in the period ended December 31, 2020, and the related notes and financial statement schedules listed in the Index at Item 15(a) (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2020, in conformity with U.S.

generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated February 25, 2020 expressed an unqualified opinion thereon.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated February 26, 2021 expressed an adverse opinion thereon.

The Company’s Ability to Continue as a Going Concern

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern.

As discussed in Note 1 to the consolidated financial statements, the Company has filed for relief under Chapter 11 of title 11 of the United States Code in the United States Bankruptcy Court for the District of Delaware and has stated that substantial doubt exists about the Company’s ability to continue as a going concern.

Management's evaluation of the events and conditions and management’s plans regarding these matters are also described in Note 1.

The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Adoption of New Accounting Standard

1 unchanged sentence

2016-02, Leases (Topic 842), and the related amendments, effective January 1, 2019.

See below for discussion of our related critical audit matter.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company's management.

Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audit.

Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits.

We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.

Our audit included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

We conducted our audits in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements.

Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that our audit provides a reasonable basis for our opinion.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that our audits provide a reasonable basis for our opinion.

HERTZ GLOBAL HOLDINGS, INC.

AND SUBSIDIARIES

(DEBTOR-IN-POSSESSION)

Critical Audit Matters

2 unchanged sentences

The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

HERTZ GLOBAL HOLDINGS, INC.

AND SUBSIDIARIES

Adoption of New Lease Standard

Description of the Matter

As more fully described above and in Note 2 to the consolidated financial statements, the Company changed its method of accounting for leases upon its adoption of the new lease standard, ASC 842 - Leases (“ASC 842”), on January 1, 2019, which included recognizing a right-of-use asset and corresponding lease liability based on the present value of future lease payments.

Upon adoption, the Company recorded $1.585 billion of operating lease right-of-use assets and $1.588 billion of operating lease liabilities on the consolidated balance sheet.

Auditing the adoption of ASC 842 was challenging due to the volume and variety of lease contracts the Company is a party to in the normal course of business.

Specifically, the calculation of the Company’s operating lease right-of-use asset and operating lease liability involved subjective auditor judgment due to the complexity of evaluating the varying lease payments and other terms within the lease agreements.

For example, certain leases include guaranteed minimum lease payments which required evaluation for inclusion in the right-of-use asset and lease liability calculations.

How We Addressed the Matter in Our Audit

We obtained an understanding, evaluated the design and tested the operating effectiveness of internal controls over the Company’s ASC 842 adoption process.

For example, we tested controls over the Company’s process for evaluating the completeness of their lease population, assessing the terms of their lease agreements and reviewing their right-of-use asset and lease liability calculations.

To test the right-of-use asset and related lease liabilities recognized in connection with the Company’s adoption of ASC 842, our audit procedures included, among others, assessing the Company’s accounting policy under the new standard, evaluating the terms of the Company’s lease agreements, and evaluating management’s application of the standard to their lease agreements.

For example, we inspected a sample of lease agreements and assessed the lease payment terms within those agreements to determine whether the payment amounts were required to be included in the right-of-use asset and lease liability calculations.

We also performed procedures to evaluate the completeness of the population of leases used to determine and record the right-of-use asset and lease liability and tested that the right-of-use asset and lease liability recorded upon adoption of the standard was complete and accurate.

Calculation of Non-Program Depreciation on Revenue Earning Vehicles

7 unchanged sentences

Additionally, auditing the calculation of depreciation was challenging due to the volume of data inputs utilized in management’s calculation, including historical sales data from multiple sources at varying levels of disaggregation, along with additional data specific to the Company’s current fleet.

HERTZ GLOBAL HOLDINGS, INC.

AND SUBSIDIARIES

How We Addressed the Matter in Our Audit

4 unchanged sentences

Additionally, we performed analytical procedures to evaluate historical gains and losses recognized upon disposal in order to retrospectively review the reasonableness of management’s estimates.

Valuation of Self-insurance Liabilities

HERTZ GLOBAL HOLDINGS, INC.

AND SUBSIDIARIES

(DEBTOR-IN-POSSESSION)

Valuation of Self-insured Liabilities

Description of the Matter

As disclosed in Notes 2 and 14 to the consolidated financial statements, the Company is self-insured for public liability, property damage, general liability, liability insurance supplement, and worker's compensation, with the Company’s public liability and property damage reserve representing the largest balance at $399 million as of December 31, 2019.

As disclosed in Notes 2 and 15 to the consolidated financial statements, the Company is self-insured for public liability, property damage, general liability, liability insurance supplement, and worker's compensation.

The Company records liabilities for these matters based on actuarial analyses of historical claim activity and estimates of both reported accident claims not yet paid, and claims incurred but not yet reported.

The estimated self-insured liabilities as of December 31, 2020 were $488 million.

The actuarial analyses that determine the claims incurred but not yet reported portion of the liability balances considers a variety of factors, including the frequency and severity of losses, changes in claim reporting and resolution patterns, insurance industry practices, the regulatory environment and legal precedent.

Auditing the self-insurance liabilities is complex and required the involvement of actuarial specialists due to the significant measurement uncertainty associated with the estimate, management’s application of complex judgments, and the use of actuarial methods.

In addition, the self-insurance reserve estimate is sensitive to management’s assumptions, including claim frequency, actuarial evaluations of historical claim experience, and future projections of ultimate losses, expenses and administrative costs used in the computation of self-insurance liabilities.

Auditing self-insured liabilities is complex and required the involvement of our actuarial specialists due to the significant valuation uncertainty associated with the estimate, management’s application of complex judgments, and the use of actuarial methods.

In addition, the self-insured liabilities estimates are sensitive to management’s assumptions, including claim frequency, actuarial evaluations of historical claim experience, and future projections of ultimate losses used in the computation of self-insured liabilities.

How We Addressed the Matter in Our Audit

We obtained an understanding, evaluated the design and tested the operating effectiveness of internal controls over the Company’s self-insurance liability process.

For example, we tested controls over management’s review of the assumptions outlined above that are used in the self-insurance liability calculation and the completeness and accuracy of the data underlying the self-insurance liability.

To test the valuation of the self-insurance liabilities, we performed audit procedures that included, among others, testing the completeness and accuracy of the underlying claims data used to develop the related reserves.

Furthermore, we involved our actuarial specialists to assist us in evaluating the models used by management and the reasonableness of assumptions used in those models (e.g., actuarial evaluations of historical claim experience and future projections of ultimate losses, expenses and administrative costs).

We obtained an understanding, evaluated the design and tested the operating effectiveness of internal controls over the Company’s self-insured liabilities process.

For example, we tested controls over management’s review of the assumptions outlined above that are used in the self-insured liabilities calculation and the completeness and accuracy of the data underlying the self-insured liabilities.

To test the valuation of the self-insured liabilities, we performed audit procedures that included, among others, testing the completeness and accuracy of the underlying claims data used to develop the related reserves.

Furthermore, we involved our internal actuarial specialists to assist us in evaluating the models used by management and the reasonableness of assumptions used in those models (e.g., actuarial evaluations of historical claim experience and future projections of ultimate losses).

We compared the Company's reserve to a range developed by our actuarial specialists based on the underlying claims data and independently selected assumptions.

Valuation of Indefinite-Lived Intangible Tradename Assets and of Goodwill related to the U.S.

Rental Car Reporting Unit

Description of the Matter

As disclosed in Notes 1 and 5 to the consolidated financial statements, the Company’s indefinite-lived intangible tradename assets and goodwill related to its U.S.

rental car reporting unit (U.S.

RAC) totaled $2.794 billion and $1.029 billion, respectively, as of December 31, 2020.

As disclosed in Notes 1 and 5 to the consolidated financial statements, indefinite-lived intangible assets and goodwill are tested for impairment on an annual basis, as of October 1, and at interim periods when circumstances require as a result of a triggering event.

The Company recorded an impairment of $20 million related to the Hertz tradename in the Company’s International RAC segment.

Auditing the Company’s indefinite-lived intangible tradename assets and goodwill related to the U.S.

RAC reporting unit was complex and highly judgmental due to the significant estimation required to determine the fair values of the indefinite-lived intangible tradename assets and the U.S.

RAC reporting unit as a result of the Company’s current operating performance and the current industry and economic environment in which the Company operates.

The Company’s estimate of fair value for the indefinite-lived intangible tradename assets and U.S.

RAC reporting unit required significant judgment to estimate the impact of declines in revenues and profitability, industry trends on future operating results, and the future cash flows expected to be generated.

HERTZ GLOBAL HOLDINGS, INC.

AND SUBSIDIARIES

(DEBTOR-IN-POSSESSION)

Additionally, the fair value estimate of the U.S.

RAC reporting unit was sensitive to significant assumptions such as forecasted annual revenue growth rates, earnings before interest, taxes, depreciation, amortization (“EBITDA”) margins, and the weighted average cost of capital.

In addition, the fair value estimates of the indefinite-lived intangible tradename assets were sensitive to significant assumptions such as projected revenues, royalty rates, and discount rates.

These significant assumptions are affected by expected future market or economic conditions, including the impact of COVID-19.

How We Addressed the Matter in Our Audit

We obtained an understanding, evaluated the design, and tested the operating effectiveness of internal controls over the Company’s indefinite-lived intangible tradename assets and goodwill impairment review processes.

For example, we tested controls over management’s review of the assumptions, including assumptions related to projected financial information, as outlined above that are used in the indefinite-lived intangible tradename assets and goodwill impairment test.

To test the estimated fair value of the Company’s indefinite-lived intangible tradename assets and U.S.

RAC reporting unit, we performed audit procedures that included, among others, assessing methodologies and testing the significant assumptions and the completeness and accuracy of the underlying data used by the Company in its analyses.

We compared the significant assumptions used by management to current industry and economic trends, expected changes to the Company’s business model, the Company’s historical results, and other relevant factors.

We assessed the historical accuracy of management’s estimates, including projected financial information, and performed sensitivity analyses of significant assumptions to evaluate the changes in the fair value of the indefinite-lived intangible tradename assets and U.S.

RAC reporting unit that would result from hypothetical changes in the assumptions.

We also involved valuation specialists to assist in our evaluation of the Company’s model, valuation methodologies, and certain significant assumptions, such as the royalty rates and weighted average cost of capital.

In addition, we inspected the Company’s reconciliation of the fair value of all reporting units to the market capitalization of the Company and assessed the results.

/s/ Ernst & Young LLP

4 unchanged sentences

AND SUBSIDIARIES

(DEBTOR-IN-POSSESSION)

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

3 unchanged sentences

and subsidiaries’ internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria).

In our opinion, Hertz Global Holdings, Inc.

and its subsidiaries (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2019, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheet of the Company as of December 31, 2019, the related consolidated statements of operations, comprehensive income (loss), changes in equity and cash flows for the year then ended, and the related notes and consolidated financial statement schedules listed in the Index at Item 15(a) and our report dated February 25, 2020 expressed an unqualified opinion thereon.

In our opinion, because of the effect of the material weakness described below on the achievement of the objectives of the control criteria, Hertz Global Holdings, Inc.

and subsidiaries (the Company) have not maintained effective internal control over financial reporting as of December 31, 2020, based on the COSO criteria.

A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company's annual or interim financial statements will not be prevented or detected on a timely basis.

The following material weakness has been identified and included in management's assessment.

Management has identified a material weakness in controls related to information technology general controls (ITGCs) whereby the Company did not maintain effective ITGCs, specifically logical security controls over financially significant system applications.

The ineffective logical security controls included user provisioning and de-provisioning and user and privileged access reviews.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2020 and 2019, the related consolidated statements of operations, comprehensive income (loss), changes in equity and cash flows for each of the two years in the period ended December 31, 2020, and the related notes and financial statement schedules listed in the Index at Item 15(a) (collectively referred to as the “consolidated financial statements”).

This material weakness was considered in determining the nature, timing and extent of audit tests applied in our audit of the 2020 consolidated financial statements, and this report does not affect our report dated February 26, 2021 which expressed an unqualified opinion thereon that included an explanatory paragraph regarding the Company’s ability to continue as a going concern.

Basis for Opinion

10 unchanged sentences

A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;

(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company;

and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

(2) provide reasonable

HERTZ GLOBAL HOLDINGS, INC.

AND SUBSIDIARIES

(DEBTOR-IN-POSSESSION)

assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company;

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.

5 unchanged sentences

AND SUBSIDIARIES

(DEBTOR-IN-POSSESSION)

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors

and Stockholders of

To the Board of Directors and Stockholders of

Hertz Global Holdings, Inc.

Opinion on the Financial Statements

We have audited the consolidated balance sheet of Hertz Global Holdings, Inc.

and its subsidiaries (the “Company”) as of December 31, 2018, and the related consolidated statements of operations, comprehensive income (loss), changes in equity and cash flows for each of the two years in the period ended December 31, 2018, including the related notes and schedules of (i) condensed financial information of Hertz Global Holdings, Inc.

as of December 31, 2018 and for each of the two years in the period ended December 31, 2018 and (ii) valuation and qualifying accounts for each of the two years in the period ended December 31, 2018 appearing under Item 8 (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2018 , and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2018 in conformity with accounting principles generally accepted in the United States of America.

We have audited the consolidated statements of operations, comprehensive income (loss), changes in equity and cash flows of Hertz Global Holdings, Inc.

and its subsidiaries (the “Company”) for the year ended December 31, 2018 including the related notes and schedules of (i) condensed financial information of Hertz Global Holdings, Inc.

for the year ended December 31, 2018 and (ii) valuation and qualifying accounts for the year ended December 31, 2018 appearing under Item 8 (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the results of operations and cash flows of the Company for the year ended December 31, 2018 in conformity with accounting principles generally accepted in the United States of America.

Change in Accounting Principle

2 unchanged sentences

These consolidated financial statements are the responsibility of the Company's management.

Our responsibility is to express an opinion on the Company’s consolidated financial statements, before the effects of the adjustments described above, based on our audits.

Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audit.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits of these consolidated financial statements, before the effects of the adjustments described above, in accordance with the standards of the PCAOB.

We conducted our audit of these consolidated financial statements in accordance with the standards of the PCAOB.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements.

We believe that our audits provide a reasonable basis for our opinion.

We believe that our audit provides a reasonable basis for our opinion.

/s/ PricewaterhouseCoopers LLP

1 unchanged sentence

February 25, 2019, except for the effects of the rights offering discussed in Note 17 and the changes to segment information disclosed in Note 18, as to which the date is February 25, 2020.

We served as the Company’s or its predecessor’s auditor from 1994 to 2019.

We served as the Company's auditor from 1994 to 2019.

THE HERTZ CORPORATION AND SUBSIDIARIES

(DEBTOR-IN-POSSESSION)

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

1 unchanged sentence

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheet of The Hertz Corporation and its subsidiaries (the Company) as of December 31, 2019, the related consolidated statements of operations, comprehensive income (loss), changes in equity and cash flows for the year then ended, and the related notes and consolidated financial statement schedule listed in the Index at Item 15(a) (collectively referred to as the “consolidated financial statements”).

We have audited the accompanying consolidated balance sheets of The Hertz Corporation and subsidiaries (the Company) as of December 31, 2020 and 2019, the related consolidated statements of operations, comprehensive income (loss), changes in equity and cash flows for each of the two years in the period ended December 31, 2020, and the related notes and financial statement schedule listed in the Index at Item 15(a) (collectively referred to as the “consolidated financial statements”).