HERTZ GLOBAL HOLDINGS, INC 10-K

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Index Page Hertz Global Holdings, Inc. and Subsidiaries (Debtor-in-Possession) Reports of Independent Registered Public Accounting Firms 87 Consolidated Balance Sheets as of December 31, 2020 and December 31, 2019 101 Consolidated Statements of Operations for Years Ended December 31, 2020, 2019 and 2018 102 Consolidated Statements of Comprehensive Income (Loss) for Years Ended December 31, 2020, 2019 and 2018 103 Consolidated Statements of Changes in Equity for Years Ended December 31, 2020, 2019 and 2018 104 Consolidated Statements of Cash Flows for Years Ended December 31, 2020, 2019 and 2018 105 The Hertz Corporation and Subsidiaries (Debtor-in-Possession) Reports of Independent Registered Public Accounting Firms 94 Consolidated Balance Sheets as of December 31, 2020 and December 31, 2019 107 Consolidated Statements of Operations for Years Ended December 31, 2020, 2019 and 2018 108 Consolidated Statements of Comprehensive Income (Loss) for Years Ended December 31, 2020, 2019 and 2018 109 Consolidated Statements of Changes in Equity for Years Ended December 31, 2020, 2019 and 2018 110 Consolidated Statements of Cash Flows for Years Ended December 31, 2020, 2019 and 2018 111 Notes to the Consolidated Financial Statements Note 1 Background 113 Note 2 Significant Accounting Policies 117 Note 3 Divestitures 126 Note 4 Revenue Earning Vehicles 128 Note 5 Goodwill and Intangible Assets, Net 128 Note 6 Debt 131 Note 7 Revenue from Contracts with Customers 142 Note 8 Employee Retirement Benefits 144 Note 9 Stock-Based Compensation 151 Note 10 Leases 153 Note 11 Restructuring 156 Note 12 Income Tax (Provision) Benefit 157 Note 13 Fair Value Measurements 161 Note 14 Accumulated Other Comprehensive Income (Loss) 163 Note 15 Contingencies and Off-Balance Sheet Commitments 163 Note 16 Related Party Transactions 165 Note 17 Equity and Earnings (Loss) Per Share - Hertz Global 167 Note 18 Segment Information 168 Note 19 Liabilities Subject to Compromise 174 Note 20 Reorganization Items, Net 174 Note 21 Condensed Combined Debtor-in-Possession Financial Information 174 Schedule I Condensed Financial Information of Registrant Hertz Global Holdings, Inc. (Debtor-in-Possession) 178 Schedule II Valuation and Qualifying Accounts 182 86 Table of Contents HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES (DEBTOR-IN-POSSESSION) REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Stockholders and the Board of Directors of Hertz Global Holdings, Inc. Opinion on the Financial Statements 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, 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 As discussed in Note 10 to the consolidated financial statements the Company changed its method of accounting for leases as a result of the adoption of Accounting Standards Update (ASU) No. 2016-02, Leases (Topic 842), and the related amendments, effective January 1, 2019. 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 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 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 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. 87 Table of Contents HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES (DEBTOR-IN-POSSESSION) Critical Audit Matters The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective or complex judgments. 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. Calculation of Non-Program Depreciation on Revenue Earning Vehicles Description of the Matter For the year ended December 31, 2020, depreciation of revenue earning vehicles and lease charges was $2.032 billion, including gains and losses on disposals. As discussed in Note 2 to the consolidated financial statements, depreciation rates are reviewed on a quarterly basis based on management’s ongoing assessment of present and estimated future market conditions, the effect of these conditions on residual values at the expected time of disposal and the estimated holding period for the revenue earning vehicles. The Company’s fleet is comprised of vehicles that are subject to vehicle repurchase programs (“program vehicles”) and (“non-program vehicles”). For program vehicles, the manufacturers guarantee a specified price or depreciation rate upon disposal, versus non-program vehicles where the Company estimates the residual value of the vehicle at the expected time of disposal. Auditing the Company’s calculation of depreciation for non-program vehicles was complex due to the significant estimation uncertainty and management judgment to determine the estimated residual values at the expected time of disposal. The significant estimation uncertainty was primarily due to management’s assumptions of future consumer demand for vehicles within their current fleet, the disposal channel of those vehicles and other external market conditions. 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. 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 measurement of depreciation expense for non-program vehicles. For example, we tested controls over management’s quarterly review of the depreciation rates, which included their procedures to validate the completeness and accuracy of the data used in the calculation and their assessment of significant assumptions, specifically the estimated residual values of non-program vehicles. To test the depreciation calculation for non-program vehicles, our audit procedures included, among others, testing the completeness and accuracy of the underlying data by comparing historical sales data and vehicle information used in the calculation (e.g., make, model, trim) to external sources and the Company’s records. We tested the base depreciation rate calculations performed within the IT application and evaluated the reasonableness of other significant assumptions such as resale market conditions, including consumer demand for specific vehicles, and disposition channels to assess the reasonableness of the residual value estimates made by management. 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. 88 Table of Contents HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES (DEBTOR-IN-POSSESSION) Valuation of Self-insured Liabilities Description of the Matter 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 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-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. 89 Table of Contents 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 We have served as the Company's auditor since 2019. Tampa, Florida February 26, 2021 90 Table of Contents HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES (DEBTOR-IN-POSSESSION) REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Stockholders and the Board of Directors of Hertz Global Holdings, Inc. Opinion on Internal Control Over Financial Reporting We have audited Hertz Global Holdings, Inc. 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, 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 The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management's Report on Internal Control over Financial Reporting appearing under Item 9A. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. 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 effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Definition and Limitations of Internal Control Over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. 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 91 Table of Contents 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; 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. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. /s/ Ernst & Young LLP Tampa, Florida February 26, 2021 92 Table of Contents HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES (DEBTOR-IN-POSSESSION) REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Stockholders of Hertz Global Holdings, Inc. Opinion on the Financial Statements 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 As discussed in Note 2 to the consolidated financial statements, the Company changed the manner in which it accounts for revenues in 2018. 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. 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 audit of these consolidated financial statements 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. 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. /s/ PricewaterhouseCoopers LLP Fort Lauderdale, Florida 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 auditor from 1994 to 2019. 93 Table of Contents THE HERTZ CORPORATION AND SUBSIDIARIES (DEBTOR-IN-POSSESSION) REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Stockholder and the Board of Directors of The Hertz Corporation Opinion on the 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”). 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, 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 As discussed in Note 10 to the consolidated financial statements the Company changed its method of accounting for leases as a result of the adoption of Accounting Standards Update (ASU) No. 2016-02, Leases (Topic 842), and the related amendments, effective January 1, 2019. 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 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 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 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. 94 Table of Contents THE HERTZ CORPORATION AND SUBSIDIARIES (DEBTOR-IN-POSSESSION) Critical Audit Matters The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective or complex judgments. 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. Calculation of Non-Program Depreciation on Revenue Earning Vehicles Description of the Matter For the year ended December 31, 2020, depreciation of revenue earning vehicles and lease charges was $2.032 billion, including gains and losses on disposals. As discussed in Note 2 to the consolidated financial statements, depreciation rates are reviewed on a quarterly basis based on management’s ongoing assessment of present and estimated future market conditions, the effect of these conditions on residual values at the expected time of disposal and the estimated holding period for the revenue earning vehicles. The Company’s fleet is comprised of vehicles that are subject to vehicle repurchase programs (“program vehicles”) and (“non-program vehicles”). For program vehicles, the manufacturers guarantee a specified price or depreciation rate upon disposal, versus non-program vehicles where the Company estimates the residual value of the vehicle at the expected time of disposal. Auditing the Company’s calculation of depreciation for non-program vehicles was complex due to the significant estimation uncertainty and management judgment to determine the estimated residual values at the expected time of disposal. The significant estimation uncertainty was primarily due to management’s assumptions of future consumer demand for vehicles within their current fleet, the disposal channel of those vehicles and other external market conditions. 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. 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 measurement of depreciation expense for non-program vehicles. For example, we tested controls over management’s quarterly review of the depreciation rates, which included their procedures to validate the completeness and accuracy of the data used in the calculation and their assessment of significant assumptions, specifically the estimated residual values of non-program vehicles. To test the depreciation calculation for non-program vehicles, our audit procedures included, among others, testing the completeness and accuracy of the underlying data by comparing historical sales data and vehicle information used in the calculation (e.g., make, model, trim) to external sources and the Company’s records. We tested the base depreciation rate calculations performed within the IT application and evaluated the reasonableness of other significant assumptions such as resale market conditions, including consumer demand for specific vehicles, and disposition channels to assess the reasonableness of the residual value estimates made by management. 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. 95 Table of Contents THE HERTZ CORPORATION AND SUBSIDIARIES (DEBTOR-IN-POSSESSION) Valuation of Self-insured Liabilities Description of the Matter 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 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-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. 96 Table of Contents THE HERTZ CORPORATION AND SUBSIDIARIES (DEBTOR-IN-POSSESSION) 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. 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 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 We have served as the Company's auditor since 2019. Tampa, Florida February 26, 2021 97 Table of Contents THE HERTZ CORPORATION AND SUBSIDIARIES (DEBTOR-IN-POSSESSION) REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Stockholder and the Board of Directors of The Hertz Corporation Opinion on Internal Control Over Financial Reporting We have audited The Hertz Corporation 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, because of the effect of the material weakness described below on the achievement of the objectives of the control criteria, The Hertz Corporation 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 schedule 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 The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management's Report on Internal Control over Financial Reporting appearing under Item 9A. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. 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 effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Definition and Limitations of Internal Control Over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. 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 98 Table of Contents THE HERTZ CORPORATION 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; 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. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. /s/ Ernst & Young LLP Tampa, Florida February 26, 2021 99 Table of Contents THE HERTZ CORPORATION AND SUBSIDIARIES (DEBTOR-IN-POSSESSION) REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Stockholder of The Hertz Corporation Opinion on the Financial Statements We have audited the consolidated statements of operations, comprehensive income (loss), changes in equity and cash flows of The Hertz Corporation and its subsidiaries (the “Company”) for the year ended December 31, 2018 including the related notes and schedule of 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 As discussed in Note 2 to the consolidated financial statements, the Company changed the manner in which it accounts for revenues in 2018. 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. 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 audit of these consolidated financial statements 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. 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. /s/ PricewaterhouseCoopers LLP Fort Lauderdale, Florida February 25, 2019, except for the effects of the changes to segment information disclosed in Note 18, as to which the date is February 25, 2020. We served as the Company's auditor from 1994 to 2019. 100 Table of Contents HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES (DEBTOR-IN-POSSESSION) CONSOLIDATED BALANCE SHEETS (In millions, except par value and share data) December 31, 2020 December 31, 2019 ASSETS Cash and cash equivalents $ 1,096 $ 865 Restricted cash and cash equivalents: Vehicle 50 466 Non-vehicle 361 29 Total restricted cash and cash equivalents 411 495 Total cash, cash equivalents, restricted cash and restricted cash equivalents 1,507 1,360 Receivables: Vehicle 164 791 Non-vehicle, net of allowance of $ 46 and $ 35 , respectively 613 1,049 Total receivables, net 777 1,840 Prepaid expenses and other assets 373 689 Revenue earning vehicles: Vehicles 7,540 17,085 Less: accumulated depreciation ( 1,478 ) ( 3,296 ) Total revenue earning vehicles, net 6,062 13,789 Property and equipment, net 666 757 Operating lease right-of-use assets 1,675 1,871 Intangible assets, net 2,992 3,238 Goodwill 1,045 1,083 Assets held for sale 1,811 — Total assets (1) $ 16,908 $ 24,627 LIABILITIES AND STOCKHOLDERS' EQUITY Accounts payable: Vehicle $ 29 $ 289 Non-vehicle 389 654 Total accounts payable 418 943 Accrued liabilities 759 1,032 Accrued taxes, net 121 150 Debt: Vehicle 6,024 13,368 Non-vehicle 243 3,721 Total debt 6,267 17,089 Operating lease liabilities 1,636 1,848 Self-insured liabilities 488 553 Deferred income taxes, net 730 1,124 Total liabilities not subject to compromise 10,419 22,739 Liabilities subject to compromise 4,965 — Liabilities held for sale 1,431 — Total liabilities (1) 16,815 22,739 Commitments and contingencies Stockholders' equity: Preferred stock, $ 0.01 par value, no shares issued and outstanding — — Common stock, $ 0.01 par value, 158,235,410 and 144,153,444 shares issued, respectively and 156,206,478 and 142,124,512 shares outstanding, respectively 2 1 Additional paid-in capital 3,047 3,024 Accumulated deficit ( 2,681 ) ( 967 ) Accumulated other comprehensive income (loss) ( 212 ) ( 189 ) Treasury stock, at cost, 2,028,932 and 2,028,932 shares, respectively ( 100 ) ( 100 ) Stockholders' equity attributable to Hertz Global 56 1,769 Noncontrolling interests 37 119 Total stockholders' equity 93 1,888 Total liabilities and stockholders' equity $ 16,908 $ 24,627 (1) Hertz Global Holdings, Inc.'s consolidated total assets as of December 31, 2020 and December 31, 2019 include total assets of VIEs of $ 511 million and $ 1.3 billion, respectively, which can only be used to settle obligations of the VIEs. Hertz Global Holdings, Inc.'s consolidated total liabilities as of December 31, 2020 and December 31, 2019 include total liabilities of VIEs of $ 475 million and $ 1.1 billion, respectively, for which the creditors of the VIEs have no recourse to Hertz Global Holdings, Inc. See "Special Purpose Entities" in Note 6, "Debt," and "767 Auto Leasing LLC" in Note 16, "Related Party Transactions," for further information. The accompanying notes are an integral part of these financial statements. 101 Table of Contents HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES (DEBTOR-IN-POSSESSION) CONSOLIDATED STATEMENTS OF OPERATIONS (In millions, except per share data) Years Ended December 31, 2020 2019 2018 Revenues: Worldwide vehicle rental $ 4,628 $ 9,107 $ 8,756 All other operations 630 672 748 Total revenues 5,258 9,779 9,504 Expenses: Direct vehicle and operating 3,627 5,486 5,355 Depreciation of revenue earning vehicles and lease charges 2,032 2,565 2,690 Selling, general and administrative 664 969 1,017 Interest expense, net: Vehicle 455 494 448 Non-vehicle (excludes contractual interest of $ 129 million for the year ended December 31, 2020) 153 311 291 Total interest expense, net 608 805 739 Intangible and other asset impairments 213 — — Other (income) expense, net ( 9 ) ( 59 ) ( 40 ) Reorganization items, net 175 — — Total expenses 7,310 9,766 9,761 Income (loss) before income taxes ( 2,052 ) 13 ( 257 ) Income tax (provision) benefit 329 ( 63 ) 30 Net income (loss) ( 1,723 ) ( 50 ) ( 227 ) Net (income) loss attributable to noncontrolling interests 9 ( 8 ) 2 Net income (loss) attributable to Hertz Global $ ( 1,714 ) $ ( 58 ) $ ( 225 ) Weighted-average shares outstanding: Basic 150 117 96 Diluted 150 117 96 Earnings (loss) per share: Basic earnings (loss) per share $ ( 11.44 ) $ ( 0.49 ) $ ( 2.35 ) Diluted earnings (loss) per share $ ( 11.44 ) $ ( 0.49 ) $ ( 2.35 ) The accompanying notes are an integral part of these financial statements. 102 Table of Contents HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES (DEBTOR-IN-POSSESSION) CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (In millions) Years Ended December 31, 2020 2019 2018 Net income (loss) $ ( 1,723 ) $ ( 50 ) $ ( 227 ) Other comprehensive income (loss): Foreign currency translation adjustments ( 19 ) 6 ( 34 ) Reclassification of foreign currency items to other (income) expense, net — — ( 1 ) Net gain (loss) on pension and postretirement benefit plans ( 11 ) ( 11 ) ( 44 ) Reclassification from other comprehensive income (loss) to other (income) expense for amortization of actuarial net losses 13 11 5 Total other comprehensive income (loss) before income taxes ( 17 ) 6 ( 74 ) Income tax (provision) benefit related to pension and postretirement benefit plans ( 4 ) ( 1 ) 12 Income tax (provision) benefit related to reclassified amounts of net periodic costs on pension and postretirement benefit plans ( 2 ) ( 2 ) ( 1 ) Total other comprehensive income (loss) ( 23 ) 3 ( 63 ) Total comprehensive income (loss) ( 1,746 ) ( 47 ) ( 290 ) Comprehensive (income) loss attributable to noncontrolling interests 9 ( 8 ) 2 Comprehensive income (loss) attributable to Hertz Global $ ( 1,737 ) $ ( 55 ) $ ( 288 ) The accompanying notes are an integral part of these financial statements. 103 Table of Contents HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES (DEBTOR-IN-POSSESSION) CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (In millions) Preferred Stock Shares Common Stock Shares Common Stock Amount Additional Paid-In Capital Accumulated Deficit Accumulated Other Comprehensive Income (Loss) Treasury Stock Shares Treasury Stock Amount Stockholders' Equity Attributable to Hertz Global Non- controlling Interests Total Stockholders' Equity Balance as of: December 31, 2017 — 84 $ 1 $ 2,243 $ ( 506 ) $ ( 118 ) 2 $ ( 100 ) $ 1,520 $ — $ 1,520 Change in accounting principle — — — — ( 189 ) — — — ( 189 ) — ( 189 ) January 1, 2018 (as adjusted) — 84 1 2,243 ( 695 ) ( 118 ) 2 ( 100 ) 1,331 — 1,331 Net income (loss) — — — — ( 225 ) — — — ( 225 ) ( 2 ) ( 227 ) Other comprehensive income (loss) — — — — — ( 63 ) — — ( 63 ) — ( 63 ) Net settlement on vesting of restricted stock — — — ( 3 ) — — — — ( 3 ) — ( 3 ) Stock-based compensation charges — — — 21 — — — — 21 — 21 Reclassification of income tax effects resulting from the Tax Cuts and Jobs Act — — — — 11 ( 11 ) — — — — — Contributions from noncontrolling interests — — — — — — — — — 61 61 December 31, 2018 — 84 1 2,261 ( 909 ) ( 192 ) 2 ( 100 ) 1,061 59 1,120 Net income (loss) — — — — ( 58 ) — — — ( 58 ) 8 ( 50 ) Other comprehensive income (loss) — — — — — 3 — — 3 — 3 Net settlement on vesting of restricted stock — — — ( 3 ) — — — — ( 3 ) — ( 3 ) Stock-based compensation charges — — — 18 — — — — 18 — 18 Rights Offering, net — 58 — 748 — — — — 748 — 748 Contributions from noncontrolling interests — — — — — — — — — 52 52 December 31, 2019 — 142 1 3,024 ( 967 ) ( 189 ) 2 ( 100 ) 1,769 119 1,888 Net income (loss) — — — — ( 1,714 ) — — — ( 1,714 ) ( 9 ) ( 1,723 ) Other comprehensive income (loss) — — — — — ( 23 ) — — ( 23 ) — ( 23 ) Net settlement on vesting of restricted stock — — — ( 3 ) — — — — ( 3 ) — ( 3 ) Stock-based compensation charges — — — ( 2 ) — — — — ( 2 ) — ( 2 ) Stock issuance, net — 14 1 28 — — — — 29 — 29 Distributions to noncontrolling interests, net — — — — — — — — — ( 73 ) ( 73 ) December 31, 2020 — 156 $ 2 $ 3,047 $ ( 2,681 ) $ ( 212 ) 2 $ ( 100 ) $ 56 $ 37 $ 93 The accompanying notes are an integral part of these financial statements. 104 Table of Contents HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES (DEBTOR-IN-POSSESSION) CONSOLIDATED STATEMENTS OF CASH FLOWS (In millions) Years Ended December 31, 2020 2019 2018 Cash flows from operating activities: Net income (loss) $ (1,723) $ ( 50 ) $ ( 227 ) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and reserves for revenue earning vehicles 2,259 2,791 2,546 Depreciation and amortization, non-vehicle 225 203 218 Amortization of deferred financing costs and debt discount (premium) 59 52 50 Loss on extinguishment of debt 5 43 22 Stock-based compensation charges ( 2 ) 18 14 Provision for receivables allowance 94 53 35 Deferred income taxes, net ( 353 ) 27 ( 66 ) Intangible and other asset impairments 213 — — (Gain) loss on marketable securities — ( 30 ) ( 20 ) (Gain) loss on sale of non-vehicle capital assets ( 24 ) ( 39 ) ( 1 ) Other 13 ( 9 ) 7 Changes in assets and liabilities: Non-vehicle receivables 195 ( 88 ) ( 136 ) Prepaid expenses and other assets 92 ( 8 ) ( 23 ) Operating lease right-of-use assets 366 402 — Non-vehicle accounts payable 98 65 70 Accrued liabilities ( 61 ) ( 98 ) 72 Accrued taxes, net ( 52 ) 14 ( 8 ) Operating lease liabilities ( 375 ) ( 428 ) — Self-insured liabilities ( 76 ) ( 18 ) 3 Net cash provided by (used in) operating activities 953 2,900 2,556 Cash flows from investing activities: Revenue earning vehicles expenditures ( 5,542 ) ( 13,714 ) ( 12,493 ) Proceeds from disposal of revenue earning vehicles 10,098 9,486 8,452 Non-vehicle capital asset expenditures ( 98 ) ( 224 ) ( 177 ) Proceeds from non-vehicle capital assets disposed of or to be disposed of 60 27 51 Purchases of marketable securities — — ( 60 ) Sales of marketable securities 74 — 36 Other ( 1 ) — ( 6 ) Net cash provided by (used in) investing activities 4,591 ( 4,425 ) ( 4,197 ) Cash flows from financing activities: Proceeds from issuance of vehicle debt 4,546 13,013 14,009 Repayments of vehicle debt ( 10,751 ) ( 11,530 ) ( 12,426 ) Proceeds from issuance of non-vehicle debt 1,812 3,016 557 Repayments of non-vehicle debt ( 855 ) ( 3,732 ) ( 571 ) Payment of financing costs ( 75 ) ( 53 ) ( 47 ) Early redemption premium payment — ( 34 ) ( 19 ) Proceeds from issuance of stock, net 28 — — Contributions from (distributions to) noncontrolling interests ( 75 ) 49 60 105 Table of Contents HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES (DEBTOR-IN-POSSESSION) CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued) (In millions) Years Ended December 31, 2020 2019 2018 Proceeds from Rights Offering, net — 748 — Other ( 2 ) ( 3 ) ( 2 ) Net cash provided by (used in) financing activities ( 5,372 ) 1,474 1,561 Effect of foreign currency exchange rate changes on cash, cash equivalents, restricted cash and restricted cash equivalents 46 1 ( 14 ) Net increase (decrease) in cash, cash equivalents, restricted cash and restricted cash equivalents during the period 218 ( 50 ) ( 94 ) Cash, cash equivalents, restricted cash and restricted cash equivalents at beginning of period 1,360 1,410 1,504 Cash, cash equivalents, restricted cash and restricted cash equivalents at end of period (1) $ 1,578 $ 1,360 $ 1,410 Supplemental disclosures of cash flow information: Cash paid during the period for: Interest, net of amounts capitalized: Vehicle $ 335 $ 431 $ 379 Non-vehicle 109 272 286 Income taxes, net of refunds ( 11 ) 21 26 Operating lease liabilities 546 575 — Supplemental disclosures of non-cash information: Purchases of revenue earning vehicles included in accounts payable, net of incentives $ 9 $ 165 $ 169 Sales of revenue earning vehicles included in vehicle receivables 144 667 510 Sales-type capital lease of revenue earning vehicles included in other receivables — — 75 Fleet payables included in liabilities subject to compromise 2 — — Purchases of non-vehicle capital assets included in accounts payable 7 40 42 Revenue earning vehicles and non-vehicle capital assets acquired through capital leases 32 23 21 Purchases of non-vehicle capital assets included in liabilities subject to compromise 18 — — Operating lease right-of-use assets obtained in exchange for lease liabilities 152 680 — (1) Amounts include cash and cash equivalents and restricted cash and cash equivalents which are held for sale as disclosed in Note 3, "Divestitures." The accompanying notes are an integral part of these financial statements. 106 Table of Contents THE HERTZ CORPORATION AND SUBSIDIARIES (DEBTOR-IN-POSSESSION) CONSOLIDATED BALANCE SHEETS (In millions, except par value and share data) December 31, 2020 December 31, 2019 ASSETS Cash and cash equivalents $ 1,096 $ 865 Restricted cash and cash equivalents: Vehicle 50 466 Non-vehicle 333 29 Total restricted cash and cash equivalents 383 495 Total cash, cash equivalents, restricted cash and restricted cash equivalents 1,479 1,360 Receivables: Vehicle 164 791 Non-vehicle, net of allowance of $ 46 and $ 35 , respectively 613 1,049 Total receivables, net 777 1,840 Due from Hertz Holdings 1 — Prepaid expenses and other assets 372 689 Revenue earning vehicles: Vehicles 7,540 17,085 Less: accumulated depreciation ( 1,478 ) ( 3,296 ) Total revenue earning vehicles, net 6,062 13,789 Property and equipment, net 666 757 Operating lease right-of-use assets 1,675 1,871 Intangible assets, net 2,992 3,238 Goodwill 1,045 1,083 Assets held for sale 1,811 — Total assets (1) $ 16,880 $ 24,627 LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT) Accounts payable: Vehicle $ 29 $ 289 Non-vehicle 389 654 Total accounts payable 418 943 Accrued liabilities 759 1,032 Accrued taxes, net 121 150 Debt: Vehicle 6,024 13,368 Non-vehicle 243 3,721 Total debt 6,267 17,089 Operating lease liabilities 1,636 1,848 Self-insured liabilities 488 553 Deferred income taxes, net 735 1,128 Total liabilities not subject to compromise 10,424 22,743 Liabilities subject to compromise 5,030 — Liabilities held for sale 1,431 — Total liabilities (1) 16,885 22,743 Commitments and contingencies Stockholder's equity: Common stock, $ 0.01 par value, 3,000 shares authorized, 100 and 100 shares issued and outstanding, respectively — — Additional paid-in capital 3,953 3,955 Due from affiliate — ( 64 ) Accumulated deficit ( 3,783 ) ( 1,937 ) Accumulated other comprehensive income (loss) ( 212 ) ( 189 ) Stockholder's equity (deficit) attributable to Hertz ( 42 ) 1,765 Noncontrolling interests 37 119 Total stockholder's equity (deficit) ( 5 ) 1,884 Total liabilities and stockholder's equity (deficit) $ 16,880 $ 24,627 (1) The Hertz Corporation's consolidated total assets as of December 31, 2020 and December 31, 2019 include total assets of VIEs of $ 511 million and $ 1.3 billion, respectively, which can only be used to settle obligations of the VIEs. The Hertz Corporation's consolidated total liabilities as of December 31, 2020 and December 31, 2019 include total liabilities of VIEs of $ 475 million and $ 1.1 billion, respectively, for which the creditors of the VIEs have no recourse to The Hertz Corporation. See "Special Purpose Entities" in Note 6, "Debt," and "767 Auto Leasing LLC" in Note 16, "Related Party Transactions," for further information. The accompanying notes are an integral part of these financial statements. 107 Table of Contents THE HERTZ CORPORATION AND SUBSIDIARIES (DEBTOR-IN-POSSESSION) CONSOLIDATED STATEMENTS OF OPERATIONS (In millions) Years Ended December 31, 2020 2019 2018 Revenues: Worldwide vehicle rental $ 4,628 $ 9,107 $ 8,756 All other operations 630 672 748 Total revenues 5,258 9,779 9,504 Expenses: Direct vehicle and operating 3,627 5,486 5,355 Depreciation of revenue earning vehicles and lease charges 2,032 2,565 2,690 Selling, general and administrative 664 969 1,017 Interest expense, net: Vehicle 455 494 448 Non-vehicle (excludes contractual interest of $ 129 million for the year ended December 31, 2020) 151 304 284 Total interest expense, net 606 798 732 Intangible and other asset impairments 213 — — Write-off of intercompany loan 133 — — Other (income) expense, net ( 9 ) ( 59 ) ( 40 ) Reorganization items, net 175 — — Total expenses 7,441 9,759 9,754 Income (loss) before income taxes ( 2,183 ) 20 ( 250 ) Income tax (provision) benefit 328 ( 65 ) 28 Net income (loss) ( 1,855 ) ( 45 ) ( 222 ) Net (income) loss attributable to noncontrolling interests 9 ( 8 ) 2 Net income (loss) attributable to Hertz $ ( 1,846 ) $ ( 53 ) $ ( 220 ) The accompanying notes are an integral part of these financial statements. 108 Table of Contents THE HERTZ CORPORATION AND SUBSIDIARIES (DEBTOR-IN-POSSESSION) CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (In millions) Years Ended December 31, 2020 2019 2018 Net income (loss) $ ( 1,855 ) $ ( 45 ) $ ( 222 ) Other comprehensive income (loss): Foreign currency translation adjustments ( 19 ) 6 ( 34 ) Reclassification of foreign currency items to other (income) expense, net — — ( 1 ) Net gain (loss) on pension and postretirement benefit plans ( 11 ) ( 11 ) ( 44 ) Reclassification from other comprehensive income (loss) to other (income) expense for amortization of actuarial net losses 13 11 5 Total other comprehensive income (loss) before income taxes ( 17 ) 6 ( 74 ) Income tax (provision) benefit related to pension and postretirement benefit plans ( 4 ) ( 1 ) 12 Income tax (provision) benefit related to reclassified amounts of net periodic costs on pension and postretirement benefit plans ( 2 ) ( 2 ) ( 1 ) Total other comprehensive income (loss) ( 23 ) 3 ( 63 ) Total comprehensive income (loss) ( 1,878 ) ( 42 ) ( 285 ) Comprehensive (income) loss attributable to noncontrolling interests 9 ( 8 ) 2 Comprehensive income (loss) attributable to Hertz $ ( 1,869 ) $ ( 50 ) $ ( 283 ) The accompanying notes are an integral part of these financial statements. 109 Table of Contents THE HERTZ CORPORATION AND SUBSIDIARIES (DEBTOR-IN-POSSESSION) CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (In millions) Common Stock Shares Common Stock Amount Additional Paid-In Capital Due From Affiliate Accumulated Deficit Accumulated Other Comprehensive Income (Loss) Stockholder's Equity (Deficit) Attributable to Hertz Noncontrolling Interests Total Stockholder's Equity (Deficit) Balance as of: December 31, 2017 100 $ — $ 3,166 $ ( 42 ) $ ( 1,486 ) $ ( 118 ) $ 1,520 $ — $ 1,520 Change in accounting principle — — — — ( 189 ) — ( 189 ) — ( 189 ) January 1, 2018 (as adjusted) 100 — 3,166 ( 42 ) ( 1,675 ) ( 118 ) 1,331 — 1,331 Net income (loss) — — — — ( 220 ) — ( 220 ) ( 2 ) ( 222 ) Due from Hertz Holdings — — — ( 10 ) — — ( 10 ) — ( 10 ) Other comprehensive income (loss) — — — — — ( 63 ) ( 63 ) — ( 63 ) Reclassification of income tax effects resulting from the Tax Cuts and Jobs Act — — — — 11 ( 11 ) — — — Stock-based compensation charges — — 21 — — — 21 — 21 Other — — — — — — — 61 61 December 31, 2018 100 — 3,187 ( 52 ) ( 1,884 ) ( 192 ) 1,059 59 1,118 Net income (loss) — — — — ( 53 ) — ( 53 ) 8 ( 45 ) Due from Hertz Holdings — — — ( 12 ) — — ( 12 ) — ( 12 ) Other comprehensive income (loss) — — — — — 3 3 — 3 Stock-based compensation charges — — 18 — — — 18 — 18 Contributions from noncontrolling interests — — — — — — — 52 52 Contributions from Hertz Holdings — — 750 — — — 750 — 750 December 31, 2019 100 — 3,955 ( 64 ) ( 1,937 ) ( 189 ) 1,765 119 1,884 Net income (loss) — — — — ( 1,846 ) — ( 1,846 ) ( 9 ) ( 1,855 ) Due from Hertz Holdings — — — ( 4 ) — — ( 4 ) — ( 4 ) Liabilities subject to compromise (1) — — — ( 65 ) — — ( 65 ) — ( 65 ) Write-off of intercompany loan (2) — — — 133 — — 133 — 133 Other comprehensive income (loss) — — — — — ( 23 ) ( 23 ) — ( 23 ) Stock-based compensation charges — — ( 2 ) — — — ( 2 ) — ( 2 ) Distributions to noncontrolling interests, net — — — — — — — ( 73 ) ( 73 ) December 31, 2020 100 $ — $ 3,953 $ — $ ( 3,783 ) $ ( 212 ) $ ( 42 ) $ 37 $ ( 5 ) (1) As a result of the Chapter 11 Cases, a Pre-petition loan due to an affiliate was classified as liabilities subject to compromise in the accompanying consolidated balance sheet as of December 31, 2020. See Note 19, "Liabilities Subject to Compromise." (2) As a result of the filing of the Chapter 11 Cases, the full amount outstanding under a loan due from affiliate was deemed uncollectible and written off. See Note, 14, "Related Party Transactions." The accompanying notes are an integral part of these financial statements. 110 Table of Contents THE HERTZ CORPORATION AND SUBSIDIARIES (DEBTOR-IN-POSSESSION) CONSOLIDATED STATEMENTS OF CASH FLOWS (In millions) Years Ended December 31, 2020 2019 2018 Cash flows from operating activities: Net income (loss) $ ( 1,855 ) $ ( 45 ) $ ( 222 ) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and reserves for revenue earning vehicles 2,259 2,791 2,546 Depreciation and amortization, non-vehicle 225 203 218 Amortization of deferred financing costs and debt discount (premium) 59 52 50 Loss on extinguishment of debt 5 43 22 Stock-based compensation charges ( 2 ) 18 14 Provision for receivables allowance 94 53 35 Deferred income taxes, net ( 353 ) 28 ( 64 ) Intangible and other asset impairments 213 — — Write-off of intercompany loan 133 — — (Gain) loss on marketable securities — ( 30 ) ( 20 ) (Gain) loss on sale of non-vehicle capital assets ( 24 ) ( 39 ) ( 1 ) Other 13 ( 8 ) 7 Changes in assets and liabilities: Non-vehicle receivables 195 ( 88 ) ( 136 ) Prepaid expenses and other assets 94 ( 8 ) ( 23 ) Operating lease right-of-use assets 366 402 — Non-vehicle accounts payable 98 65 70 Accrued liabilities ( 61 ) ( 98 ) 72 Accrued taxes, net ( 52 ) 14 ( 8 ) Operating lease liabilities ( 375 ) ( 428 ) — Self-insured liabilities ( 76 ) ( 18 ) 3 Net cash provided by (used in) operating activities 956 2,907 2,563 Cash flows from investing activities: Revenue earning vehicles expenditures ( 5,542 ) ( 13,714 ) ( 12,493 ) Proceeds from disposal of revenue earning vehicles 10,098 9,486 8,452 Non-vehicle capital asset expenditures ( 98 ) ( 224 ) ( 177 ) Proceeds from non-vehicle capital assets disposed of or to be disposed of 60 27 51 Purchases of marketable securities — — ( 60 ) Sales of marketable securities 74 — 36 Other ( 1 ) — ( 6 ) Net cash provided by (used in) investing activities 4,591 ( 4,425 ) ( 4,197 ) Cash flows from financing activities: Proceeds from issuance of vehicle debt 4,546 13,013 14,009 Repayments of vehicle debt ( 10,751 ) ( 11,530 ) ( 12,426 ) 111 Table of Contents THE HERTZ CORPORATION AND SUBSIDIARIES (DEBTOR-IN-POSSESSION) CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued) (In millions) Years Ended December 31, 2020 2019 2018 Proceeds from issuance of non-vehicle debt 1,812 3,016 557 Repayments of non-vehicle debt ( 855 ) ( 3,732 ) ( 571 ) Payment of financing costs ( 75 ) ( 53 ) ( 47 ) Early redemption premium payment — ( 34 ) ( 19 ) Advances to Hertz Holdings ( 5 ) ( 12 ) ( 9 ) Contributions from (distributions to) noncontrolling interests ( 75 ) 49 60 Contributions from Hertz Holdings — 750 — Net cash provided by (used in) financing activities ( 5,403 ) 1,467 1,554 Effect of foreign currency exchange rate changes on cash, cash equivalents, restricted cash and restricted cash equivalents 46 1 ( 14 ) Net increase (decrease) in cash, cash equivalents, restricted cash and restricted cash equivalents during the period 190 ( 50 ) ( 94 ) Cash, cash equivalents, restricted cash and restricted cash equivalents at beginning of period 1,360 1,410 1,504 Cash, cash equivalents, restricted cash and restricted cash equivalents at end of period (1) $ 1,550 $ 1,360 $ 1,410 Supplemental disclosures of cash flow information: Cash paid during the period for: Interest, net of amounts capitalized: Vehicle $ 335 $ 431 $ 379 Non-vehicle 109 272 286 Income taxes, net of refunds ( 11 ) 21 26 Operating lease liabilities 546 575 — Supplemental disclosures of non-cash information: Purchases of revenue earning vehicles included in accounts payable, net of incentives $ 9 $ 165 $ 169 Sales of revenue earning vehicles included in vehicle receivables 144 667 510 Sales-type capital lease of revenue earning vehicles included in other receivables — — 75 Fleet payables included in liabilities subject to compromise 2 — — Purchases of non-vehicle capital assets included in accounts payable 7 40 42 Revenue earning vehicles and non-vehicle capital assets acquired through capital leases 32 23 21 Purchases of non-vehicle capital assets included in liabilities subject to compromise 18 — — Operating lease right-of-use assets obtained in exchange for lease liabilities 152 680 — (1) Amounts include cash and cash equivalents and restricted cash and cash equivalents which are held for sale as disclosed in Note 3, "Divestitures." The accompanying notes are an integral part of these financial statements. 112 Table of Contents HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES THE HERTZ CORPORATION AND SUBSIDIARIES (DEBTORS-IN-POSSESSION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 1— Background Hertz Global Holdings, Inc. was incorporated in Delaware in 2015 to serve as the top-level holding company for Rental Car Intermediate Holdings, LLC, which wholly owns The Hertz Corporation, Hertz Global's primary operating company. Hertz was incorporated in Delaware in 1967 and is a successor to corporations that have been engaged in the vehicle rental and leasing business since 1918. Hertz operates its vehicle rental business globally primarily through the Hertz, Dollar and Thrifty brands from company-owned, licensee and franchisee locations in the U.S., Africa, Asia, Australia, Canada, the Caribbean, Europe, Latin America, the Middle East and New Zealand. Through its Donlen subsidiary, Hertz provides vehicle leasing and fleet management services. As disclosed in Note 3, "Divestitures," in the fourth quarter of 2020, the Company entered into a stock and asset purchase agreement to sell the Donlen Assets. Unless otherwise noted, information disclosed in these notes to the consolidated financial statements exclude the Donlen Assets. In March 2020, the World Health Organization declared COVID-19 a global pandemic. In response to COVID-19, local and national governments around the world instituted shelter-in-place and similar orders and travel restrictions, and airline and other travel decreased suddenly and dramatically. Despite a strong start to the year, as a result of the impact on travel demand, late in the first quarter, the Company began experiencing a high level of rental cancellations and a significant decline in forward bookings. In response, the Company began adjusting its fleet levels to reflect the reduced level of demand by leveraging its multiple used-vehicle channels and negotiating with suppliers to reduce fleet commitments. Additionally, the Company began aggressively managing costs, including implementing employee furlough programs affecting approximately 20,000 employees worldwide to align staffing levels with the slowdown in demand. The Company (i) initiated a restructuring program affecting approximately 11,000 employees in its U.S. RAC segment and U.S. corporate operations, the majority of which were previously furloughed; (ii) actively negotiated to abate or defer its airport rent and concession payments; (iii) substantially reduced capital expenditures; (iv) eliminated discretionary marketing spend; and (v) reduced commitments to purchase vehicles by approximately $ 4.0 billion from original commitments in its U.S. RAC segment. See Note 11, "Restructuring" for further information regarding the restructuring program disclosed above. Although the Company had taken aggressive action to eliminate costs, it faced significant ongoing expenses, including monthly payments under its Operating Lease with HVF, pursuant to which Hertz leases from HVF vehicles used in the Company's U.S. rental car operations. HVF II issues asset-backed notes and lends the proceeds thereof to HVF to finance the acquisition of vehicles, which are then leased to Hertz pursuant to the Operating Lease. Monthly payments under the Operating Lease are variable and significant and are subject to volatility depending upon the changes in current market value estimates of the underlying leased vehicles. During April 2020, the Company engaged in discussions with various creditors to obtain relief from its obligations to make full rent payments under its Operating Lease. While such discussions were ongoing, to preserve liquidity, on April 27, 2020, Hertz did not make certain payments, including the full rent payments, in accordance with the Operating Lease. As a result of the failure to make the full rent payments on April 27, 2020, an amortization event was in effect as of May 5, 2020 for all series of notes issued by HVF II and a liquidation event was in effect with respect to the variable funding notes (“Series 2013-A Notes”) issued by HVF II. As a result of the amortization event, and notwithstanding the forbearance agreement described below, proceeds from the sales of vehicles that collateralize the notes issued by HVF II were to be primarily applied to the payment of principal and interest under those notes and were not available to finance new vehicle acquisitions for Hertz. A liquidation event means that, unless the affected noteholders otherwise agree, the affected noteholders can direct the liquidation of vehicles serving as collateral for their notes. On May 4, 2020, prior to the occurrence of the liquidation event with respect to the Series 2013-A Notes, Hertz, HVF, HVF II and DTG Operations, Inc. entered into a forbearance agreement (the “Forbearance Agreement”) with holders (the “VFN Noteholders”) of the Series 2013-A Notes representing approximately 77 % in aggregate principal amount of the Series 2013-A Notes. Pursuant to the Forbearance Agreement that became effective against all VFN 113 Table of Contents Noteholders, the VFN Noteholders agreed to forbear from exercising their liquidation remedies. The Forbearance Agreement with the VFN Noteholders expired on May 22, 2020. Concurrently with entering into the Forbearance Agreement, on May 4, 2020, Hertz entered into limited waiver agreements (collectively, the “Waiver Agreements”) with certain of the lenders (the “Lenders”) under its (i) Senior RCF/senior term loan facility, (ii) letter of credit facility, (iii) alternative letter of credit facility and (iv) U.S. Vehicle RCF (collectively, the “Facilities”). Pursuant to the Waiver Agreements, the Lenders agreed to (a) waive any default or event of default that could have resulted from the above referenced missed payment under the Operating Lease, (b) waive any default or event of default that had arisen as a result of Hertz’s failure to deliver its 2020 operating budget on a timely basis in accordance with the Facilities and (c) extend the grace period to cure a default with respect to Hertz’s obligation to reimburse drawings that occurred under certain letters of credit during the waiver period. The Waiver Agreements which were effective across the Facilities expired on May 22, 2020. In accordance with the Forbearance Agreement and the Waiver Agreements, the Company made a payment of approximately $ 30 million reflecting certain variable payment elements of monthly rent under the Operating Lease, including an interest component on May 5, 2020. Voluntary Petitions for Bankruptcy In connection with the expiration of the Forbearance Agreement and the Waiver Agreements described above and the continuing economic impact from COVID-19, on the Petition Date, the Debtors filed Petitions under Chapter 11 of the Bankruptcy Code in the Bankruptcy Court. The Chapter 11 Cases are being jointly administered by the Bankruptcy Court under the caption In re The Hertz Corporation, et al., Case No. 20-11218 (MFW) . In May 2020, the Bankruptcy Court approved motions filed by the Debtors that were designed primarily to mitigate the impact of the Chapter 11 Cases on the Company’s operations, customers and employees. The Debtors are authorized to conduct their business activities in the ordinary course, and pursuant to orders entered by the Bankruptcy Court, the Debtors are authorized to, among other things and subject to the terms and conditions of such orders (i) pay employees’ wages and related obligations; (ii) pay certain taxes; (iii) pay critical vendors and certain fees to airport authorities and provide adequate protection; (iv) continue to maintain certain customer programs; (v) maintain insurance programs; (vi) use certain cash collateral on an interim basis; (vii) honor certain obligations to franchisees; and (viii) maintain existing cash management systems. Per the terms of the Interim Lease Order entered on July 24, 2020, the Debtors were directed to, among other things, (i) make $ 650 million of base rent payments under the Operating Lease to the HVF trustee in the amount of six equal monthly payments of approximately $ 108 million commencing in July 2020 through December 2020; (ii) dispose of at least 182,521 lease vehicles between June 1, 2020 and December 31, 2020, inclusive, where the proceeds of the dispositions, subject to certain exclusions set forth in the Interim Lease Order, were used to make payments under the Operating Lease; (iii) fund interest payments on the Operating Lease from draws on certain existing letters of credit, which are reimbursable by the Debtors; and (iv) suspended litigation relating to the Operating Lease until January 15, 2021 with all parties reserving all rights with respect to future litigation claims. For the period from June 1, 2020 through December 31, 2020, the Company disposed of approximately 198,000 lease vehicles pursuant to or otherwise in satisfaction of its vehicle disposition obligations under the Interim Lease Order. In 2020, the Bankruptcy Court entered the Lease Rejection Orders which applied, in the aggregate, to 359 off airport and 66 airport locations in the Company's U.S. RAC segment. See Note 10, "Leases" for further information. On January 20, 2021, the Bankruptcy Court authorized the Second Lease Order, which extended the forbearance period related to the Operating Lease to September 30, 2021, provided that the Debtors dispose of 121,510 lease vehicles, at least 113,381 of which will be non-program vehicles, and reach a minimum cumulative vehicle disposition proceeds of $ 2.0 billion by September 30, 2021. Additionally, the Second Lease Order directed the Debtors to (i) have no more than 157,262 lease vehicles by September 30, 2021 and (ii) make $ 756 million of base rent payments under the Operating Lease to the HVF trustee in the amount of nine equal monthly payments of $ 84 million commencing in January 2021 through September 2021. 114 Table of Contents HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES THE HERTZ CORPORATION AND SUBSIDIARIES (DEBTORS-IN-POSSESSION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Debtors-In-Possession The Debtors are currently operating as debtors-in-possession under the jurisdiction of the Bankruptcy Court and in accordance with the applicable provisions of the Bankruptcy Code and orders of the Bankruptcy Court. In general, as debtors-in-possession under the Bankruptcy Code, the Debtors are authorized to continue to operate as an ongoing business but may not engage in transactions outside the ordinary course of business without the prior approval of the Bankruptcy Court. Automatic Stay Subject to certain specific exceptions under the Bankruptcy Code, the Debtors' bankruptcy petitions automatically stayed most judicial or administrative actions against the Debtors and efforts by creditors to collect on or otherwise exercise rights or remedies with respect to obligations of the Debtors incurred prior to the Petition Date. Substantially all of the Debtors’ Pre-petition liabilities are subject to resolution as provided in the Bankruptcy Code. Potential Claims The Debtors have filed with the Bankruptcy Court schedules and statements setting forth, among other things, the assets and liabilities of each of the Debtors, subject to the assumptions filed in connection therewith. These schedules and statements may be subject to further amendment or modification after filing. As part of the Chapter 11 Cases, parties believing that they have claims or causes of action against the Debtors may file proofs of claim evidencing such claims. Certain holders of Pre-petition claims that are not governmental units were required to file proofs of claim by the deadline for general claims, which was on October 21, 2020, the Bar Date. As of December 31, 2020, the Debtors have received approximately 14,600 proofs of claim in the aggregate asserted amount of approximately $ 104.5 billion. Such amount includes duplicate claims across multiple debtor legal entities. These claims are in the process of being reconciled to amounts recorded in the Company's accounting records. Differences in amounts recorded and claims filed by creditors will be investigated and resolved, including through the filing of objections with the Bankruptcy Court, where appropriate. The Company may ask the Bankruptcy Court to disallow claims that the Company believes are duplicative, have been later amended or superseded, are without merit, are overstated or should be disallowed for other reasons. Additional amounts may be included in liabilities subject to compromise in future periods if the Company elects to reject executory contracts, tax claims, unexpired leases and/or other claims asserted as part of the Chapter 11 Cases. Due to the uncertain nature of many of the potential claims, the magnitude of potential claims not reasonably estimable at this time and potential claims not considered to be probable as of the balance sheet date, these claims are not currently included in liabilities subject to compromise in the accompanying consolidated balance sheet. As of the date of the issuance of this 2020 Annual Report, the Company’s assessment of the validity of claims received has not been completed. In light of the substantial number of claims filed, and expected to be filed, the claims resolution process may take considerable time to complete and likely will continue after the Debtors emerge from bankruptcy. Borrowing Capacity and Availability The filing of the Chapter 11 Cases constituted defaults, termination events and/or amortization events with respect to certain of the Company's existing debt obligations. As a result of the filing of the Chapter 11 Cases, the remaining capacity under almost all of the Company's revolving credit facilities was terminated, as disclosed in Note 6, "Debt." Consequently, the proceeds of sales of vehicles which serve as collateral for such vehicle finance facilities must be applied to the payment of the related indebtedness of the Non-Debtor Financing Subsidiaries (as defined in Note 6, "Debt") and are not otherwise available to fund the Company’s operations. Additionally, the Company is precluded from accessing any of its subordinated investment in the vehicle collateral until the related defaults are waived or the third party funding under those facilities has been retired, either through the monetization of the underlying collateral or the refinancing of the related indebtedness. Proceeds from vehicle receivables, excluding manufacturer rebates, as of December 31, 2020 and ongoing vehicle sales must be applied to vehicle debt in amortization. The Company currently has waivers related to the filing of the Chapter 11 Cases under its European ABS and U.K. Fleet Financing facility that were extended to March 5, 2021, as disclosed in Note 6, "Debt." 115 Table of Contents HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES THE HERTZ CORPORATION AND SUBSIDIARIES (DEBTORS-IN-POSSESSION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) On October 12, 2020, the Bankruptcy Court entered an order authorizing Hertz and Donlen to enter into certain agreements in connection with a new asset-based securitization facility with a newly formed non-Debtor special purpose entity, DFLF. On October 16, 2020, DFLF issued the Series 2020-1 Notes in an aggregate principal amount up to $ 400 million pursuant to this new facility, as disclosed in Note 6, "Debt." On October 29, 2020, the Bankruptcy Court entered an order authorizing the Debtors to obtain certain debtor-in-possession financing. In accordance with the Bankruptcy Court’s order, on October 30, 2020, Hertz, as borrower, and Hertz Global and certain of its subsidiaries located in the U.S. and Canada, in each case that are debtors in these Chapter 11 Cases, as guarantors, entered into the DIP Credit Agreement. The DIP Credit Agreement provides for DIP Loans in an aggregate amount of up to $ 1.65 billion, of which (i) up to $ 1.0 billion can be used as equity for new interim fleet financing, giving the Debtors the ability to replenish their vehicle fleet in the future, and (ii) up to $ 800 million can be used for working capital and general corporate purposes. The DIP Loans are available in multiple draws of at least (i) $ 250 million each, or (ii) the remaining available commitments if such commitments are less than $ 250 million. The DIP Loans bear interest at a rate of LIBOR plus 7.25 % (subject to a 1.00 % floor), which is reduced to LIBOR plus 6.75 % upon a significant repayment of Pre-petition first lien debt. See Note 6, "Debt" for further details. On February 16, 2021, Hertz borrowed an additional $ 250 million as per the minimum draw requirement of the DIP Credit Agreement. On November 24, 2020, the Bankruptcy Court entered an order authorizing the formation of HVIF and for the Debtors to obtain interim fleet financing. In accordance with the Bankruptcy Court's order, on November 25, 2020, HVIF issued the Series 2020-1 Notes in an aggregate principal amount up to $ 4.0 billion, as disclosed in Note 6, "Debt." On January 13, 2021, the Bankruptcy Court entered an order authorizing the Debtors to enter into a Canadian fleet financing facility up to CAD$ 400 million. On January 28, 2021, TCL Funding Limited Partnership, a bankruptcy remote, indirect, wholly-owned, special purpose subsidiary of Hertz, entered into the Funding LP Series 2021-A which provides for aggregate maximum borrowings of CAD$ 350 million on a revolving basis. Subject to initial availability, the initial draw of CAD$ 120 million was used to pay the outstanding obligations under the Funding LP Series 2015-A Notes, including any unpaid default interest. The Company's inability to retain any proceeds from the sale of vehicles under its U.S. ABS programs means that its sources of liquidity are primarily its unrestricted cash and unrestricted cash equivalents on hand, cash generated from its operations and up to $ 800 million from its DIP Credit Agreement. As of December 31, 2020, the Company had $ 1.1 billion of unrestricted cash and unrestricted cash equivalents and approximately $ 1.1 billion of availability under the DIP Credit Agreement, net of the $ 275 million minimum liquidity requirement, for a total liquidity of $ 2.2 billion which the Company believes will be sufficient to fund its operations through approximately December 31, 2021, assuming it does not experience any unforeseen liquidity needs before then, which could result in the utilization of the liquidity in advance of December 31, 2021. Going Concern The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern and contemplate the realization of assets and the satisfaction of liabilities in the normal course of business. The Company’s ability to continue as a going concern is contingent upon its ability to successfully implement a plan of reorganization, among other factors, and the realization of assets and the satisfaction of liabilities are subject to uncertainty. Further, any plan of reorganization could materially change the amounts of assets and liabilities reported in the accompanying consolidated financial statements. The accompanying consolidated financial statements do not include any adjustments that might be necessary should the Company be unable to continue as a going concern or as a consequence of the Chapter 11 Cases. As a result of the Company's financial condition, defaults under certain debt agreements as disclosed in Note 6, "Debt," and the risks and uncertainties surrounding the Chapter 11 Cases, substantial doubt exists that the Company will be able to continue as a going concern for one year from the issuance date of this 2020 Annual Report. 116 Table of Contents HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES THE HERTZ CORPORATION AND SUBSIDIARIES (DEBTORS-IN-POSSESSION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) NYSE Delisting and Transfer to the OTC Market On May 26, 2020, the Company received a letter from the staff of NYSE Regulation, Inc. that it had determined to commence proceedings to delist the common stock of Hertz Global from the NYSE in light of the Company’s disclosure on May 22, 2020 that it had commenced voluntary petitions for reorganization under Chapter 11. The Company appealed the determination in a timely manner and requested a hearing before the NYSE. On October 15, 2020, the NYSE heard the Company’s appeal. On October 29, 2020, the NYSE informed Hertz Global that its common stock was no longer suitable for listing on the NYSE and that the NYSE suspended trading of Hertz Global common stock (NYSE ticker symbol: HTZ) after the market close on October 29, 2020. Hertz Global common stock began trading exclusively on the OTC market on October 30, 2020 under the symbol "HTZGQ." On October 30, 2020, the NYSE applied to the SEC pursuant to Form 25 to remove the common stock of Hertz Global from listing and registration on the NYSE at the opening of business on November 10, 2020. Hertz Global common stock was delisted on November 10, 2020. Upon deregistration of Hertz Global common stock under Section 12(b) of the Exchange Act, Hertz Global common stock remains registered under Section 12(g) of the Exchange Act. Note 2— Significant Accounting Policies Accounting Principles The Company’s consolidated financial statements have been prepared in accordance with U.S. GAAP. Reclassifications Certain prior period amounts have been reclassified to conform with current period presentation. Principles of Consolidation The consolidated financial statements of Hertz Global include the accounts of Hertz Global, its wholly owned and majority owned U.S. and international subsidiaries, and its VIEs, as applicable. The consolidated financial statements of Hertz include the accounts of Hertz, its wholly owned and majority owned U.S. and international subsidiaries, and its VIEs, as applicable. The Company consolidates a VIE when it is deemed the primary beneficiary. The Company accounts for its investment in joint ventures using the equity method when it has significant influence but not control and is not the primary beneficiary. All significant intercompany transactions have been eliminated in consolidation. Accounting Standards Codification 852 - Reorganizations Effective on the Petition Date, the Company applied accounting standards applicable to reorganizations, Accounting Standards Codification 852 - Reorganizations, in preparing the accompanying consolidated financial statements as of and for the year ended December 31, 2020, which requires the financial statements, for periods subsequent to the commencement of the Chapter 11 Cases, to distinguish transactions and events that are directly associated with the reorganization from the ongoing operations of the business. Accordingly, Pre-petition obligations of the Debtors that may be impacted by the Chapter 11 Cases have been classified as liabilities subject to compromise in the accompanying consolidated balance sheet as of December 31, 2020. These liabilities are reported at the amounts the Company anticipates will be allowed by the Bankruptcy Court, even if they may be settled for lesser amounts. See Note 19, "Liabilities Subject to Compromise," for additional information. In addition, certain charges related to the Chapter 11 Cases are recorded as reorganization items, net in the accompanying consolidated statements of operations for the year ended December 31, 2020. See Note 20, "Reorganization Items, Net," for additional information. 117 Table of Contents HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES THE HERTZ CORPORATION AND SUBSIDIARIES (DEBTORS-IN-POSSESSION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Use of Estimates and Assumptions The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and footnotes. Actual results could differ materially from those estimates. Significant estimates inherent in the preparation of the consolidated financial statements include depreciation of revenue earning vehicles, reserves for litigation and other contingencies, accounting for income taxes and related uncertain tax positions, pension and postretirement benefit costs, the recoverability of long-lived assets, useful lives and impairment of long-lived tangible and intangible assets including goodwill, valuation of stock-based compensation, self-insured liabilities, allowance for doubtful accounts, the retail value of loyalty points, and fair value of financial instruments, among others. Revenue Earning Vehicles Revenue earning vehicles are stated at cost, net of related discounts and incentives from manufacturers. Holding periods typically range from six to thirty-six months. Generally, when revenue earning vehicles are acquired outside of a vehicle repurchase program, the Company estimates the period that the Company will hold the asset, primarily based on historical measures of the amount of rental activity (e.g., automobile mileage). The Company also estimates the residual value of the applicable revenue earning vehicles at the expected time of disposal, taking into consideration factors such as make, model and options, age, physical condition, mileage, sale location, time of the year and channel of disposition (e.g., auction, retail, dealer direct) and market conditions. Depreciation is recorded over the estimated holding period. Depreciation rates are reviewed on a quarterly basis based on management's ongoing assessment of present and estimated future market conditions, their effect on residual values at the expected time of disposal and the estimated holding periods. Gains and losses on the sale of vehicles, including the costs associated with disposals, are included in depreciation of revenue earning vehicles and lease charges in the accompanying consolidated statements of operations. For program vehicles, the manufacturers agree to repurchase program vehicles at a specified price or guarantee the depreciation rate on the vehicles during established repurchase or auction periods, subject to, among other things, certain vehicle condition, mileage and holding period requirements. Guaranteed depreciation programs guarantee on an aggregate basis the residual value of the program vehicle upon sale according to certain parameters which include the holding period, mileage and condition of the vehicles. The Company records a provision in accumulated depreciation for excess mileage and vehicle condition, as necessary, during the holding period. Donlen's revenue earning vehicles are leased under long term agreements with its customers. These leases contain provisions whereby Donlen has a contracted residual value guaranteed by the lessee, such that it does not bear the risk of any gains or losses on the disposal of these vehicles. Donlen accounts for its lease contracts using the appropriate lease classifications. The Company continually evaluates revenue earning vehicles to determine whether events or changes in circumstances have occurred that may warrant revision of the residual value or holding period. Self-insured Liabilities Self-insured liabilities in the accompanying consolidated balance sheets include public liability, property damage, general liability, liability insurance supplement, personal accident insurance, and worker's compensation. These represent an estimate for both reported accident claims not yet paid, and claims incurred but not yet reported and are recorded on an undiscounted basis. Reserve requirements are based on rental volume and actuarial evaluations of historical accident claim experience and trends, as well as future projections of ultimate losses, expenses and administrative costs. The adequacy of the liability is regularly monitored based on evolving accident claim history and insurance related state legislation changes. If the Company's estimates change or if actual results differ from these assumptions, the amount of the recorded liability is adjusted to reflect these results. 118 Table of Contents HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES THE HERTZ CORPORATION AND SUBSIDIARIES (DEBTORS-IN-POSSESSION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Recoverability of Goodwill and Indefinite-lived Intangible Assets The Company tests the recoverability of its goodwill and indefinite-lived intangible assets by performing an impairment analysis on an annual basis, as of October 1, and at interim periods when circumstances require as a result of a triggering event. A goodwill impairment charge is calculated as the amount by which a reporting unit's carrying amount exceeds its fair value. For goodwill, fair value is determined using an income approach based on the discounted cash flows of each reporting unit. A reporting unit is an operating segment or a business one level below that operating segment (the component level) if discrete financial information is prepared and regularly reviewed by segment management. Components are aggregated into a single reporting unit when they have similar economic characteristics. The Company has four reporting units: U.S. Rental Car, Europe Rental Car, Other International Rental Car and Donlen. The fair values of the reporting units are estimated using the net present value of discounted cash flows generated by each reporting unit and incorporate various assumptions related to discount rates, growth rates, cash flow projections, tax rates and terminal value rates specific to the reporting unit to which they are applied. Discount rates are set by using the Weighted-Average Cost of Capital (“WACC”) methodology. The Company’s discounted cash flows are based upon reasonable and appropriate assumptions about the underlying business activities of the Company’s reporting units. In the impairment analysis for an indefinite-lived intangible asset, the Company compares the carrying value of the asset to its estimated fair value and recognizes an impairment charge whenever the carrying amount of the asset exceeds its estimated fair value. The estimated fair value for a tradename utilizes a relief-from-royalty income approach, which includes the Company’s revenue projections for each asset, along with assumptions for royalty rates, tax rates and WACC. Subrogation Receivables The Company records receivables for vehicle damage caused while a vehicle is on rent with a customer based on billed and unbilled recoveries and represents the amount of damage the Company expects to recover. Amounts recorded are estimated using a combination of actual historical data with respect to damage expense and collections and other facts and circumstances. Subrogation receivables are recorded as a contra-expense (i.e. a credit to direct vehicle and operating expense in the accompanying consolidated statements of operations) in the period in which the expense was incurred. The Company had net subrogation receivables of $ 67 million and $ 109 million which are included in non-vehicle receivables, net in the accompanying consolidated balance sheets as of December 31, 2020 and 2019, respectively. Income Taxes The Company recognized the effects of the TCJA enacted on December 22, 2017, which created the global intangible low-tax income ("GILTI") provision that imposes U.S. tax on certain earnings of foreign subsidiaries that are subject to foreign tax below a certain threshold. GILTI taxes are recorded in current income tax expense as incurred. In 2018 and 2019, the Company asserted indefinite reinvestment on certain of its foreign earnings. As of December 31, 2020, the Company no longer asserts permanent reinvestment of foreign earnings, due to the impact from COVID-19, as disclosed in Note 1, "Background." The Company does not anticipate that the change in its assertion will have a material impact on its cash flows during the next twelve months. Valuation Allowances The Company’s current and future provision for income taxes is impacted by the initial recognition of and changes in valuation allowances in certain jurisdictions. The Company intends to maintain these allowances until it is more likely than not that the deferred tax assets will be realized. The Company’s future provision for income taxes will include no tax benefit with respect to losses incurred in these jurisdictions. Accordingly, income taxes are impacted by changes in valuation allowances and the mix of earnings among jurisdictions. 119 Table of Contents HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES THE HERTZ CORPORATION AND SUBSIDIARIES (DEBTORS-IN-POSSESSION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) The Company evaluates the realizability of its deferred tax assets on a quarterly basis. In completing this evaluation, the Company considers all available evidence in order to determine whether, based on the weight of the evidence, a valuation allowance for its deferred tax assets is necessary. Such evidence includes the evaluation of historical cumulative earnings and losses in recent years, future reversals of deferred tax liabilities, the availability of carry forwards and the remaining period of the respective carry forward, future taxable income (exclusive of the reversal of temporary differences and carryforwards), and any applicable tax-planning strategies that are available. If, based on the weight of the evidence, it is more likely than not that all or a portion of the Company’s deferred tax assets will not be realized, a valuation allowance is recorded. If operating results improve or decline on a continual basis in a particular jurisdiction, the Company’s decision regarding the need for a valuation allowance could change resulting in either the initial recognition or reversal of a valuation allowance in that jurisdiction, which could have a significant impact on income tax expense in the period recognized and subsequent periods. In determining the provision for income taxes for financial statement purposes, the Company makes certain estimates and judgments, which affect its evaluation of the carrying value of its deferred tax assets, as well as its calculation of certain tax liabilities. Uncertain Tax Positions The calculation of the Company’s gross unrecognized tax benefits and liabilities includes uncertainties in the application of, and changes in, complex tax regulations in a multitude of jurisdictions across its global operations. The Company recognizes tax benefits and liabilities based on its estimates of whether, and the extent to which, additional taxes will be due. The Company adjusts these benefits and liabilities based on changing facts and circumstances; however, due to the complexity of these uncertainties and the impact of tax audits, the ultimate resolutions may differ significantly from the Company’s estimates. Revenue Recognition In February 2016, the FASB issued guidance that replaced the existing lease guidance in U.S. GAAP and in 2018 and 2019 issued amendments and updates to the new lease standard (collectively "Topic 842"). Upon adoption of Topic 842, on January 1, 2019, the Company accounts for revenue earned from vehicle rentals and rental related activities wherein an identified asset is transferred to the customer and the customer has the ability to control that asset under Topic 842. Prior to the adoption of Topic 842, the Company accounted for such revenue under Revenue from Contracts with Customers ("Topic 606"). As such, vehicle rental and rental related revenue is recognized under Topic 842 for the years ended December 31, 2020 and December 31, 2019, and under Topic 606 for the year ended December 31, 2018. The policy that follows herein is applicable under Topics 842 and 606 unless otherwise noted. The Company recognizes two types of revenue: (i) lease revenue; and (ii) revenue from contracts with customers. The Company reports revenues for taxes or non-concession fees collected from customers on behalf of governmental authorities on a net basis. Vehicle Rental and Rental Related Revenues The Company recognizes revenue from its vehicle rental operations when persuasive evidence of a contract exists, the performance obligations have been satisfied, the transaction price is fixed or determinable and collection is reasonably assured. Performance obligations associated with vehicle rental transactions are satisfied over the rental period, except for the portion associated with loyalty points, as further described below. Rental periods are short term in nature. Performance obligations associated with rental related activities, such as charges to the customer for the fueling of vehicles and value-added services such as loss damage waivers, insurance products, navigation units, supplemental equipment and other consumables, are also satisfied over the rental period. Revenue from charges that are charged to the customer, such as gasoline, vehicle licensing and airport concession fees, is recorded on a gross basis with a corresponding charge to direct vehicle and operating expense. Sales commissions paid to third parties are generally expensed when incurred due to the short-term nature of the related transaction on which the commission was earned and are recorded within selling, general and administrative 120 Table of Contents HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES THE HERTZ CORPORATION AND SUBSIDIARIES (DEBTORS-IN-POSSESSION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) expense. Payments are due from customers at the completion of the rental, except for customers with negotiated payment terms, generally net 30 days or less, which are invoiced and remain as accounts receivable until collected. Loyalty Programs - The Company offers loyalty programs, primarily Hertz Gold Plus Rewards, wherein customers are eligible to earn loyalty points that are redeemable for free rental days or can be converted to loyalty points for redemption of products and services under loyalty programs of other companies. Upon adoption of Topic 606, each transaction that generates loyalty points results in the deferral of revenue equivalent to the retail value at the date the points are earned. The associated revenue is recognized when the customer redeems the loyalty points at some point in the future. The retail value of loyalty points is estimated based on the current retail value measured as of the date the loyalty points are earned, less an estimated amount representing loyalty points that are not expected to be redeemed (“breakage”). Breakage is reviewed on a quarterly basis and includes significant assumptions such as historical breakage trends and internal Company forecasts. Customer Rebates - The Company has business customers that rent vehicles based on terms that have been negotiated through contracts with their employers, or other entities with which they are associated (“commercial contracts”), which can differ substantially from the terms on which the Company rents vehicles to the general public. Some of the commercial contracts contain provisions which allow for rebates to the entity based on achieving a specific rental volume threshold. Rebates are treated as lease incentives under Topic 842 and variable consideration under Topic 606, and are recognized as a reduction of revenue at the time of the rental based on the rebate expected to be earned by the entity. Licensee Revenue The Company has franchise agreements which allow an independent entity to rent their vehicles under the Company’s brands, primarily Hertz, Dollar or Thrifty, for a franchise fee. Franchise fees are earned over time for the duration of the franchise agreement and are typically based on the larger of a minimum payment or an amount representing a percentage of net sales of the franchised business. Under Topic 606 franchise fees are recognized as earned and when collectability is reasonably assured. Franchise fees that relate to a future contract term, such as initial fees or renewal fees, are deferred and recognized over the term of the franchise agreement. Ancillary Retail Vehicle Sales Revenue Ancillary retail vehicle sales represent revenues generated from the sale of warranty contracts, financing and title fees, and other ancillary services associated with vehicles disposed of at the Company’s retail outlets. These revenues are recorded at the point in time when the Company sells the product or provides the service to the customer. These revenues exclude the sale price of the vehicle which is a component of the gain or loss on the disposition and is included in depreciation of revenue earning vehicles and lease charges in the accompanying consolidated statements of operations. Fleet Leasing and Fleet Management Revenue The Company's Donlen subsidiary generates revenue from various fleet leasing and fleet management services. Donlen’s operating leases for fleets have lease periods that are typically for twelve months, after which the lease converts to a month-to-month lease, allowing the vehicle to be surrendered any time thereafter. The Company's fleet leases contain a terminal rental adjustment clause ("TRAC") where, upon sale of the vehicle following the termination of the lease, a TRAC adjustment may result through which the lessee is credited or charged with the gain or loss on the vehicle's disposal. Such TRAC adjustments are considered variable charges. Fleet management services are comprised of fuel purchasing and management, preventive vehicle maintenance, repair consultation, toll management and accident management. Fleet management revenue is recognized net of any fees collected from customers on behalf of third-party service providers, as services are rendered. 121 Table of Contents HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES THE HERTZ CORPORATION AND SUBSIDIARIES (DEBTORS-IN-POSSESSION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Contract Balances The Company recognizes receivables and liabilities resulting from its contracts with customers. Contract receivables primarily consist of receivables from customers for vehicle rentals. Contract liabilities primarily consist of obligations to customers for prepaid vehicle rentals and related to the Company’s points-based loyalty programs. Cash, Cash Equivalents, Restricted Cash and Restricted Cash Equivalents Cash and cash equivalents include cash on hand and highly liquid investments with an original maturity of three months or less. The Company's cash and cash equivalents are invested in various investment grade institutional money market funds, and bank money market and interest bearing accounts. Restricted cash and restricted cash equivalents includes cash and cash equivalents that are not readily available for use in the Company's operating activities. Restricted cash and restricted cash equivalents are primarily comprised of proceeds from the disposition of vehicles pledged under the terms of vehicle debt financing arrangements and is restricted for the purchase of revenue earning vehicles and other specified uses under the vehicle debt facilities, cash utilized as credit enhancement under those arrangements, and certain cash accounts supporting regulatory reserve requirements related to the Company's self-insurance. As a result of the filing of the Chapter 11 Cases, the Company has multiple segregated bank accounts, some of which can only be accessed upon approval by the Bankruptcy Court, and cash collateral accounts for certain purposes. These funds are primarily held in demand deposit and money market accounts or in highly rated money market funds with investments primarily in government and corporate obligations. Deposits held at financial institutions may exceed the amount of insurance provided on such deposits. Generally, these deposits may be redeemed upon demand and are maintained with financial institutions with reputable credit and therefore bear minimal credit risk. The Company limits exposure relating to financial instruments by diversifying the financial instruments among various counterparties, which consist of major financial institutions. Receivables, Net of Allowance Receivables are stated net of allowances and primarily represent credit extended to vehicle manufacturers, customers that satisfy defined credit criteria, and amounts due from customers resulting from damage to rental vehicles. The estimate of the allowance for doubtful accounts is based on the Company's future expected losses and its judgement as to the likelihood of ultimate payment. Actual receivables are written-off against the allowance for doubtful accounts when the Company determines the balance will not be collected. Estimates for future credit memos are based on historical experience and are reflected as reductions to revenue, while bad debt expense is reflected as a component of direct vehicle and operating expense in the accompanying consolidated statements of operations. 122 Table of Contents HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES THE HERTZ CORPORATION AND SUBSIDIARIES (DEBTORS-IN-POSSESSION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Property and Equipment, Net The Company's property and equipment, net consists of the following: (In millions) December 31, 2020 December 31, 2019 Land, buildings and leasehold improvements $ 1,277 $ 1,271 Service vehicles, equipment and furniture and fixtures 761 798 Less: accumulated depreciation ( 1,372 ) ( 1,312 ) Total property and equipment, net $ 666 $ 757 Land is stated at cost and reviewed annually for impairment as further disclosed above in "Long-lived Assets, Including Finite-lived Intangible Assets." Property and equipment are stated at cost and are depreciated utilizing the straight-line method over the estimated useful lives of the related assets. Useful lives are as follows: Buildings 1 to 50 years Furniture and fixtures 1 to 5 years Service vehicles and equipment 1 to 25 years Leasehold improvements The lesser of the economic life or the lease term Depreciation expense for property and equipment, net for the years ended December 31, 2020, 2019 and 2018 was $ 129 million, $ 122 million and $ 129 million, respectively. The Company follows the practice of charging maintenance and repair costs for service vehicles, furniture and fixtures, and equipment, including the cost of minor replacements, to maintenance expense. Long-lived Assets, Including Finite-lived Intangible Assets Finite-lived intangible assets include concession agreements, technology, customer relationships and other intangibles. Long-lived assets and intangible assets with finite lives, including technology-related intangibles, are amortized using the straight-line method over the estimated economic lives of the assets, which range from one to fifty years and two to twenty years , respectively. Long-lived assets and intangible assets with finite lives are reviewed for impairment whenever events or changes in circumstances indicate that the carrying value of such assets may not be recoverable. Determination of recoverability is based on an estimate of undiscounted future cash flows resulting from the use of the asset and its eventual disposition. Measurement of an impairment loss for long-lived assets that management expects to hold and use is based on the estimated fair value of the asset. Long-lived assets to be disposed of are reported at the lower of carrying value or estimated fair value less costs to sell. Stock-Based Compensation The Company measures the cost of employee services received in exchange for an award of equity instruments based on the grant date fair value of the award. That cost is to be recognized over the period during which the employee is required to provide service in exchange for the award. Forfeitures are accounted for when they occur. The Company has estimated the fair value of options issued at the date of grant using a Black-Scholes option-pricing model, which includes assumptions related to volatility, expected term, dividend yield and risk-free interest rate. The Company accounts for restricted stock unit and performance stock unit awards as equity classified awards. For restricted stock units ("RSUs") the expense is based on the grant-date fair value of the stock and the number of shares that vest, recognized over the service period. For performance stock units ("PSUs") and performance stock awards ("PSAs"), the expense is based on the grant-date fair value of the stock, recognized over a two to four year 123 Table of Contents HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES THE HERTZ CORPORATION AND SUBSIDIARIES (DEBTORS-IN-POSSESSION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) service period depending upon the applicable performance condition. For PSUs and PSAs, the Company re-assesses the probability of achieving the applicable performance condition quarterly and adjusts the recognition of expense accordingly. The Company includes the excess tax benefit within income tax expense in the accompanying consolidated statements of operations when realized. Fair Value Measurements Generally accepted accounting principles define fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants in the principal market or, if none exists, the most advantageous market, for the specific asset or liability at the measurement date (referred to as the "exit price"). Fair value is a market-based measurement that is determined based upon assumptions that market participants would use in pricing an asset or liability, including consideration of nonperformance risk. The Company assesses the inputs used to measure fair value using the three-tier hierarchy promulgated under U.S. GAAP. This hierarchy indicates the extent to which inputs used in measuring fair value are observable in the market. Level 1: Inputs that reflect quoted prices for identical assets or liabilities in active markets that are observable. Level 2: Inputs other than quoted prices included in Level 1 that are observable either directly or indirectly, including quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; or model-derived valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data. Level 3: Inputs that are unobservable to the extent that observable inputs are not available for the asset or liability at the measurement date and include management's judgment about assumptions market participants would use in pricing the asset or liability. Financial Instruments The Company is exposed to a variety of market risks, including the effects of changes in interest rates, gasoline and diesel fuel prices and foreign currency exchange rates. The Company manages exposure to these market risks through regular operating and financing activities and, when deemed appropriate, through the use of financial instruments. Financial instruments are viewed as risk management tools and have not been used for speculative or trading purposes. In addition, financial instruments are entered into with a diversified group of major financial institutions in order to manage the Company's exposure to counterparty nonperformance on such instruments. The Company measures all financial instruments at their fair value and does not offset the derivative assets and liabilities in its accompanying consolidated balance sheets. As the Company does not have financial instruments that are designated and qualify as hedging instruments, the changes in their fair value are recognized currently in the Company's operating results. Foreign Currency Translation and Transactions Assets and liabilities of international subsidiaries whose functional currency is the local currency are translated at the rate of exchange in effect on the balance sheet date; income and expenses are translated at the average exchange rates throughout the year. The related translation adjustments are reflected in accumulated other comprehensive income (loss) in the accompanying consolidated balance sheets. Foreign currency exchange rate gains and losses resulting from transactions are included in selling, general and administrative expense in the accompanying consolidated statements of operations. Advertising Advertising and sales promotion costs are expensed the first time the advertising or sales promotion takes place. Advertising costs are reflected as a component of selling, general and administrative expenses in the accompanying 124 Table of Contents HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES THE HERTZ CORPORATION AND SUBSIDIARIES (DEBTORS-IN-POSSESSION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) consolidated statements of operations and for the years ended December 31, 2020, 2019 and 2018 were $ 112 million, $ 318 million and $ 238 million, respectively. Divestitures The Company classifies long-lived assets and liabilities to be disposed of as held for sale in the period in which they are available for immediate sale in their present condition and the sale is probable and expected to be completed within one year. The Company initially measures assets and liabilities held for sale at the lower of their carrying value or fair value less costs to sell and assesses their fair value quarterly until disposed. When the divestiture represents a strategic shift that has (or will have) a major effect on the Company's operations and financial results, the disposal is presented as a discontinued operation. Recently Issued Accounting Pronouncements Adopted Measurement of Credit Losses on Financial Instruments In June 2016, the FASB issued guidance that sets forth a current expected credit loss impairment model for financial assets, which replaces the current incurred loss model, and issued amendments and updates to the new standard in 2018 and 2019. This model requires a financial asset (or group of financial assets), including trade receivables, measured at amortized cost to be presented at the net amount expected to be collected with an allowance for credit losses deducted from the amortized cost basis. The allowance for credit losses should reflect management’s current estimate of credit losses that are expected to occur over the remaining life of a financial asset. The Company adopted this guidance when effective, on January 1, 2020, using a modified retrospective transition method. The adoption of this guidance did not have a material impact on the Company's financial position, results of operations or cash flows. Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement In August 2018, the FASB issued guidance on a customer's accounting for implementation fees paid in a cloud computing service contract arrangement that addresses which implementation costs to capitalize as an asset and which costs to expense. Capitalized implementation fees are to be expensed over the term of the cloud computing arrangement, and the expense is required to be recognized in the same line item in the income statement as the associated hosting service expenses. The entity is also required to present the capitalized implementation fees on the balance sheet in the same line item as the prepayment for hosting service fees associated with the cloud computing arrangement. The Company adopted this guidance when effective, on January 1, 2020, using a prospective transition method. The adoption of this guidance did not have a material impact on the Company's financial position, results of operations or cash flows. The Company has hosting arrangements in connection with its Enterprise Resource Planning systems. Prior to the adoption of this guidance, the Company capitalized certain implementation costs for its hosting arrangements in intangible assets, net, in the accompanying consolidated balance sheet as of December 31, 2019. Subsequent to the adoption of this guidance on January 1, 2020, the Company records implementation fees incurred in connection with its hosting arrangements in prepaid expenses and other assets in the accompanying consolidated balance sheet as of December 31, 2020. Simplifying the Accounting for Income Taxes In December 2019, the FASB issued guidance that simplifies the accounting for income taxes by removing certain exceptions in existing guidance and improves consistency in application by clarifying and amending existing guidance. This guidance is effective for annual periods beginning after December 15, 2020, and interim periods within those annual periods. On July 1, 2020, the Company adopted this guidance early, as permitted, on a 125 Table of Contents HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES THE HERTZ CORPORATION AND SUBSIDIARIES (DEBTORS-IN-POSSESSION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) prospective basis, where adjustments as of January 1, 2020 were not material; therefore, adoption of this guidance had no material impact on the Company's financial position, results of operations or cash flows. Facilitation of the Effects of Reference Rate Reform In March 2020, the FASB issued guidance that provides optional expedients and exceptions for contracts, hedging relationships and other transactions that reference LIBOR or another reference rate expected to be discontinued due to reference rate reform initiatives. This guidance is effective beginning March 12, 2020 through December 31, 2022 where the transition method varies depending upon the specific expedient or exception. On December 31, 2020, the Company early adopted on a prospective basis, as permitted, the optional practical expedient for contract modification for all debt and lease agreements under Topics 470 and 842. The Company continues to work with its lenders in identifying reference rate transition options and expected timing for new rates to be implemented into existing agreements. At the time of this filing, the adoption of this guidance had no material impact on the Company's financial position, results of operations or cash flows. Note 3— Divestitures Donlen Asset Sale In November 2020, the Company entered into a stock and asset purchase agreement (the "Purchase Agreement") with Freedom Acquirer LLC (the "Buyer"), an affiliate of Athene Holding Ltd., to sell substantially all of the assets of its wholly-owned subsidiary Donlen. At the closing, the Buyer will pay approximately $ 825 million in cash, subject to adjustments based on the level of assumed indebtedness, working capital and fleet equity. Within three business days of the execution of the Purchase Agreement, the Buyer made a good faith deposit of $ 82.5 million into a deposit escrow that will either (i) be credited to the purchase price payable at the closing and released to the Company, (ii) be released to the Company upon termination of the Purchase Agreement in certain circumstances in which the Buyer has breached the Purchase Agreement or (iii) be released to the Buyer if the Purchase Agreement is terminated for other reasons. A hearing is scheduled on March 1, 2021 with the Bankruptcy Court for final approval of the sale. The assets and liabilities of Donlen, included in the Company's All Other Operations segment, to be included in the sale have been classified as held for sale in the accompanying consolidated balance sheet as of December 31, 2020. Assets and liabilities classified as held for sale are required to be recorded at the lower of the carrying value 126 Table of Contents HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES THE HERTZ CORPORATION AND SUBSIDIARIES (DEBTORS-IN-POSSESSION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) or fair value less any costs to sell. The major classes of assets and liabilities held for sale as of December 31, 2020 are presented below at their carrying value. (in millions) December 31, 2020 ASSETS Cash and cash equivalents $ 3 Restricted cash and cash equivalents 68 Receivables, net 207 Prepaid expenses and other assets 28 Revenue earning vehicles, net 1,432 Property and equipment, net 6 Operating lease right-of-use assets 2 Intangible assets, net 29 Goodwill 36 Total assets held for sale $ 1,811 LIABILITIES Accounts payable $ 76 Accrued liabilities 19 Accrued taxes, net 3 Vehicle debt 1,327 Operating lease liabilities 6 Total liabilities held for sale $ 1,431 Sale of Non-vehicle Capital Assets In 2019, the Company completed the sale of certain non-vehicle capital assets in its U.S. Rental Car segment (the "Non-Vehicle Asset Sale") and recognized a $ 39 million pre-tax gain on the sale which is included in other (income) expense, net in the accompanying consolidated statement of operations for the year ended December 31, 2019. In 2020, the Company received additional cash from the Non-Vehicle Asset Sale and recognized an additional $ 20 million pre-tax gain on the sale, which is included in other (income) expense, net in the accompanying consolidated statement of operations for the year ended December 31, 2020. Sale of Marketable Securities In 2020, the Company sold marketable securities for $ 74 million and recognized an immaterial gain on the sale in its corporate operations, which is included in other (income) expense, net in the accompanying consolidated statement of operations for the year ended December 31, 2020. 127 Table of Contents HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES THE HERTZ CORPORATION AND SUBSIDIARIES (DEBTORS-IN-POSSESSION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Note 4— Revenue Earning Vehicles The components of revenue earning vehicles, net are as follows: December 31, (In millions) 2020 2019 Revenue earning vehicles $ 7,492 $ 16,626 Less accumulated depreciation ( 1,467 ) ( 3,159 ) 6,025 13,467 Revenue earning vehicles held for sale, net (1) 37 322 Revenue earning vehicles, net $ 6,062 $ 13,789 (1) Represents the carrying amount of vehicles currently placed on the Company's retail lots for sale or actively in the process of being sold through other disposition channels. Note 5— Goodwill and Intangible Assets, Net Technology-related Intangible and Other Assets Due to uncertainty surrounding the Company's financial ability to complete certain information technology projects as a result of COVID-19 and the filing of the Chapter 11 Cases, as disclosed in Note 1, "Background," the Company concluded in the second quarter of 2020 that there was an impairment of such technology-related intangible assets and capitalized cloud computing implementation costs. In the second quarter of 2020, the Company recorded an impairment charge of $ 193 million in its corporate operations, representing an impairment of the carrying value of the abandoned portion of such assets as of June 30, 2020 of $ 124 million and $ 69 million of technology-related intangible assets and other assets, respectively. Recoverability of Goodwill and Indefinite-lived Intangible Assets The Company tests the recoverability of its goodwill and indefinite-lived intangible assets by performing an impairment analysis on an annual basis, as of October 1, and at interim periods when circumstances require as a result of a triggering event, as defined by ASC 350. The Company considered factors such as, but not limited to, its expectations of projected revenues, expenses and cash flows, reflecting the expected duration and extent of impact to its business, customers, economy and the travel industry from COVID-19, and the impact of the Chapter 11 Cases. The Company performed the goodwill impairment analyses using the income approach, a measurement using level 3 inputs under the U.S. GAAP fair value hierarchy. In performing the impairment analyses, the weighted-average cost of capital used in the discounted cash flow model was calculated based upon the fair value of the Company's debt and stock price with a debt to equity ratio comparable to the vehicle rental car industry. This present value model requires management to estimate future cash flows and forecasted earnings before interest, taxes, depreciation and amortization ("EBITDA") margins and capital investments of each reporting unit. The assumptions the Company used to estimate future cash flows and EBITDA margins are consistent with the assumptions that the reporting units use for internal planning purposes, which the Company believes would be generally consistent with that of a market participant. The discount rate used for each reporting unit ranged from 12.5 % to 14.0 %. All reporting units that have goodwill were noted to have a fair value that exceeded their carrying values. Each of the Company's reporting units had fair values that exceeded their respective carrying values by more than 20 %. The Company performed the intangible impairment analyses for indefinite-lived intangible assets using the relief-from-royalty income approach, a measurement using level 3 inputs under the U.S. GAAP fair value hierarchy. The Company considered consistent factors as described above related to goodwill in addition to royalty rates. The assumptions the Company uses to estimate royalty rates are consistent with the assumptions that the reporting units use for internal planning purposes, which the Company believes would be generally consistent with that of a market participant. The discount rate used for each indefinite-lived intangible ranged from 13 % to 14.0 %. All 128 Table of Contents HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES THE HERTZ CORPORATION AND SUBSIDIARIES (DEBTORS-IN-POSSESSION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) indefinite-lived intangibles were noted to have a fair value that exceeded their carrying values, except for the Hertz tradename in the Company's International RAC segment where the Company recorded an impairment charge of $ 20 million. Each of the Company's other indefinite-lived intangible assets had fair values that exceeded their respective carrying values by more than 10 %, except in the Company’s U.S. RAC segment which was in excess by 7 % of the carrying value of $ 934 million. Further deterioration in the general economic conditions in the travel industry, the Company’s cash flows and the Company's ability to obtain future financing to maintain its fleet or the weighted average cost of capital assumptions may result in an impairment charge to earnings in future quarters. The Company will continue to closely monitor actual results versus its expectations as well as any significant changes in market events or conditions, including the impact of COVID-19 on the Company's business and the travel industry, and the resulting impact to its assumptions about future estimated cash flows and the weighted average cost of capital. If the Company's expectations of the operating results, both in magnitude or timing, do not materialize, or if its weighted average cost of capital increases, the Company may be required to record goodwill and indefinite-lived intangible asset impairment charges, which could be material. Goodwill The following summarizes the changes in the Company's goodwill, by segment: (In millions) U.S. Rental Car International Rental Car All Other Operations Total Balance as of January 1, 2020 Goodwill $ 1,029 $ 236 $ 36 $ 1,301 Accumulated impairment losses — ( 218 ) — ( 218 ) 1,029 18 36 1,083 Goodwill acquired and other changes during the period (1) — ( 2 ) ( 36 ) ( 38 ) — ( 2 ) ( 36 ) ( 38 ) Balance as of December 31, 2020 Goodwill 1,029 236 — 1,265 Accumulated impairment losses — ( 220 ) — ( 220 ) $ 1,029 $ 16 $ — $ 1,045 (1) Goodwill associated with the Company's All Other Operations segment, was classified as held for sale as of December 31, 2020, as disclosed in Note 3, "Divestitures." (In millions) U.S. Rental Car International Rental Car All Other Operations Total Balance as of January 1, 2019 Goodwill $ 1,029 $ 236 $ 36 $ 1,301 Accumulated impairment losses — ( 218 ) — ( 218 ) 1,029 18 36 1,083 Goodwill acquired and other changes during the period — — — — — — — — Balance as of December 31, 2019 Goodwill 1,029 236 36 1,301 Accumulated impairment losses — ( 218 ) — ( 218 ) $ 1,029 $ 18 $ 36 $ 1,083 129 Table of Contents HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES THE HERTZ CORPORATION AND SUBSIDIARIES (DEBTORS-IN-POSSESSION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Intangible Assets, Net Intangible assets, net, consisted of the following major classes: December 31, 2020 (In millions) Gross Carrying Amount Accumulated Amortization Net Carrying Value Amortizable intangible assets: Customer-related $ 268 $ ( 268 ) $ — Concession rights 414 ( 371 ) 43 Technology-related intangibles (1) 359 ( 232 ) 127 Other (2) 60 ( 56 ) 4 Total 1,101 ( 927 ) 174 Indefinite-lived intangible assets: Tradenames 2,794 — 2,794 Other (3) 24 — 24 Total 2,818 — 2,818 Total intangible assets, net $ 3,919 $ ( 927 ) $ 2,992 December 31, 2019 (In millions) Gross Carrying Amount Accumulated Amortization Net Carrying Value Amortizable intangible assets: Customer-related $ 333 $ ( 313 ) $ 20 Concession rights 414 ( 324 ) 90 Technology-related intangibles (1) 515 ( 236 ) 279 Other (2) 74 ( 64 ) 10 Total 1,336 ( 937 ) 399 Indefinite-lived intangible assets: Tradenames 2,814 — 2,814 Other (3) 25 — 25 Total 2,839 — 2,839 Total intangible assets, net $ 4,175 $ ( 937 ) $ 3,238 (1) Technology-related intangibles include software not yet placed into service. (2) Other amortizable intangible assets primarily include reacquired franchise rights. (3) Other indefinite-lived intangible assets primarily consist of reacquired franchise rights. Years Ended December 31, (In millions) 2020 2019 2018 Amortization of intangible assets $ 96 $ 81 $ 89 130 Table of Contents HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES THE HERTZ CORPORATION AND SUBSIDIARIES (DEBTORS-IN-POSSESSION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) The following table summarizes the Company's expected amortization expense based on its amortizable intangible assets as of December 31, 2020: (In millions) 2021 $ 85 2022 33 2023 24 2024 17 2025 7 After 2025 8 Total expected amortization expense $ 174 Note 6— Debt The Company's debt, including its available credit facilities, consists of the following ($ in millions): Facility Weighted-Average Interest Rate as of December 31, 2020 Fixed or Floating Interest Rate Maturity December 31, 2020 December 31, 2019 Non-Vehicle Debt Senior Term Loan (1) Floating 6/2023 $ — $ 660 Senior RCF (1) Floating 6/2021 — — Senior Notes (1)(2) Fixed 10/2022-1/2028 — 2,700 Senior Second Priority Secured Notes (1) Fixed 6/2022 — 350 Senior Secured Superpriority Debtor-in-Possession Credit Agreement 8.53 % Floating 12/2021 250 — Promissory Notes (1) Fixed 1/2028 — 27 Other Non-Vehicle Debt 7.26 % Fixed Various 18 18 Unamortized Debt Issuance Costs and Net (Discount) Premium ( 25 ) ( 34 ) Total Non-Vehicle Debt Not Subject to Compromise 243 3,721 Non-Vehicle Debt Subject to Compromise Senior Term Loan 3.50 % Floating 6/2023 656 — Senior RCF 3.41 % Floating 6/2021 615 — Senior Notes (2) 6.11 % Fixed 10/2022-1/2028 2,700 — Senior Second Priority Secured Notes 7.63 % Fixed 6/2022 350 — Promissory Notes 7.00 % Fixed 1/2028 27 — Alternative Letter of Credit Facility (6) 5.25 % Floating 11/2023 114 — Senior RCF Letter of Credit Facility 5.50 % Floating 6/2021 17 — Unamortized Debt Issuance Costs and Net (Discount) Premium ( 36 ) — Total Non-Vehicle Debt Subject to Compromise 4,443 — Vehicle Debt HVF II U.S. ABS Program HVF II U.S. Vehicle Variable Funding Notes HVF II Series 2013-A (3)(6) 3.39 % Floating 3/2022 1,940 2,644 1,940 2,644 131 Table of Contents HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES THE HERTZ CORPORATION AND SUBSIDIARIES (DEBTORS-IN-POSSESSION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Facility Weighted-Average Interest Rate as of December 31, 2020 Fixed or Floating Interest Rate Maturity December 31, 2020 December 31, 2019 HVF II U.S. Vehicle Medium Term Notes HVF II Series 2015-1 (3) N/A N/A N/A — 780 HVF II Series 2015-3 (3) 3.64 % Fixed 9/2020 163 371 HVF II Series 2016-2 (3) 3.98 % Fixed 3/2021 263 595 HVF II Series 2016-4 (3) 3.65 % Fixed 7/2021 187 424 HVF II Series 2017-1 (3) 3.91 % Fixed 10/2020 199 450 HVF II Series 2017-2 (3) 4.31 % Fixed 10/2022 164 350 HVF II Series 2018-1 (3) 3.86 % Fixed 2/2023 468 1,000 HVF II Series 2018-2 (3) 4.31 % Fixed 6/2021 94 200 HVF II Series 2018-3 (3) 4.62 % Fixed 7/2023 95 200 HVF II Series 2019-1 (3) 4.37 % Fixed 3/2022 330 700 HVF II Series 2019-2 (3) 3.98 % Fixed 5/2024 354 750 HVF II Series 2019-3 (3) 3.22 % Fixed 12/2024 352 800 2,669 6,620 Donlen U.S. ABS Program HFLF U.S. ABS Program HFLF Variable Funding Notes HFLF Series 2013-2 (4)(6) 6.12 % Floating 1/2021-6/2022 — 286 — 286 HFLF Medium Term Notes HFLF Series 2016-1 (4) N/A N/A N/A — 34 HFLF Series 2017-1 (4) 2.94 % Both 1/2021-8/2022 — 229 HFLF Series 2018-1 (4) 2.74 % Both 1/2021-8/2022 — 462 HFLF Series 2019-1 (4) 2.31 % Both 1/2021-8/2022 — 650 — 1,375 Vehicle Debt - Other U.S. Vehicle RCF N/A N/A N/A — 146 European Vehicle Notes (5) 5.07 % Fixed 10/2021-3/2023 888 810 European ABS (3) 1.60 % Floating 11/2021 263 766 Hertz Canadian Securitization (3)(6) 3.67 % Floating 3/2021 53 241 Donlen Canadian Securitization (3) 1.54 % Floating 12/2022 — 24 Australian Securitization (3) 1.67 % Floating 6/2021 97 177 New Zealand RCF 2.91 % Floating 6/2021 35 50 U.K. Financing Facility 3.01 % Floating 1/2021-11/2023 105 247 Other Vehicle Debt 3.52 % Floating 1/2021-11/2024 37 29 1,478 2,490 Unamortized Debt Issuance Costs and Net (Discount) Premium ( 63 ) ( 47 ) Total Vehicle Debt Not Subject to Compromise 6,024 13,368 Total Debt Not Subject to Compromise $ 6,267 $ 17,089 N/A - Not applicable (1) As a result of filing the Chapter 11 Cases, certain debt was classified as liabilities subject to compromise in the accompanying consolidated balance sheet as of December 31, 2020. The weighted-average interest rate for such debt is disclosed in subsequent rows under "non-vehicle debt subject to compromise." 132 Table of Contents HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES THE HERTZ CORPORATION AND SUBSIDIARIES (DEBTORS-IN-POSSESSION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (2) References to the "Senior Notes" include the series of Hertz's unsecured senior notes set forth in the table below which are included in liabilities subject to compromise in the accompanying consolidated balance sheet as of December 31, 2020. Outstanding principal amounts for each such series of the Senior Notes is also specified below: (In millions) Outstanding Principal Senior Notes December 31, 2020 December 31, 2019 6.250 % Senior Notes due October 2022 $ 500 $ 500 5.500 % Senior Notes due October 2024 800 800 7.125 % Senior Notes due August 2026 500 500 6.000 % Senior Notes due January 2028 900 900 $ 2,700 $ 2,700 (3) Maturity reference is to the earlier "expected final maturity date" as opposed to the subsequent "legal final maturity date." The expected final maturity date is the date by which Hertz and investors in the relevant indebtedness originally expected the outstanding principal of the relevant indebtedness to be repaid in full. The legal final maturity date is the date on which the outstanding principal of the relevant indebtedness is legally due and payable in full. While HVF II remains in an amortization event, as described below, the expected maturity will deviate from its stated, contractual maturity date during amortization as payoff is based on the sale of the underlying vehicles and the pro-rata application of those proceeds across all outstanding HVF II Series of Notes in accordance with their seniority. During the amortization event, the ultimate maturity of the notes will depend upon the length of time the underlying vehicle collateral is sold or the timing of the refinancing of the notes. (4) In the case of the HFLF Medium Term Notes, such notes are repayable from cash flows derived from third-party leases comprising the underlying HFLF collateral pool. As a result of the Chapter 11 Cases and the resulting amortization events, as described below, the revolving period for all series was terminated and are amortizing monthly by an amount equal to the lease collections payable to that series and the maturity date referenced for each series of HFLF Medium Term Notes represents the date by which Hertz expects such series of notes to be repaid in full, which is based upon the contractual amortization of the underlying leases as well as the assumed rate of prepayments of such leases. Such maturity reference is to the “expected final maturity date” as opposed to the subsequent “legal final maturity date.” The legal final maturity date is the date on which the relevant indebtedness is legally due and payable. Although the underlying lease cash flows that support the repayment of the HFLF Medium Term Notes may vary, the cash flows generally are expected to approximate a straight-line amortization of the related notes from the initial maturity date through the expected final maturity date. (5) References to the "European Vehicle Notes" include the series of Hertz Holdings Netherlands B.V.'s, an indirect wholly-owned subsidiary of Hertz organized under the laws of the Netherlands ("Hertz Netherlands"), unsecured senior notes (converted from Euros to U.S. dollars at a rate of 1.22 to 1 and 1.12 to 1 as of December 31, 2020 and 2019, respectively) set forth in the table below. Outstanding principal amounts for each such series of the European Vehicle Notes is also specified below: (In millions) Outstanding Principal European Vehicle Notes December 31, 2020 December 31, 2019 4.125 % Senior Notes due October 2021 $ 276 $ 251 5.500 % Senior Notes due March 2023 612 559 $ 888 $ 810 (6) Includes default interest which is comprised of an increase in the contractual spread. Chapter 11 As a result of filing the Chapter 11 Cases, as disclosed in Note 1, "Background," and as noted in the table above, the Company reclassified certain of its non-vehicle debt instruments, net of deferred financing costs, discounts and premiums, as applicable, to liabilities subject to compromise in the accompanying consolidated balance sheet as of December 31, 2020. The Company has suspended accruing and paying interest and amortizing deferred financing costs, discounts and premiums, as applicable, on the Senior Notes, Promissory Notes and Alternative Letter of Credit Facility, as of the Petition Date. The Company is continuing to pay in cash an amount equal to the monthly interest at the non-default rate for the Senior Term Loan and Senior RCF (collectively, "the First Lien Facilities"), and has suspended amortizing the associated deferred financing costs, discounts and premiums for the First Lien Facilities, as applicable, as of the Petition Date. On November 3, 2020, as directed by the Bankruptcy Court in an order dated October 29, 2020, the Company paid in cash an amount equal to the monthly interest that would have accrued on the First Lien Facilities during the period May 1, 2020 through June 30, 2020 upon entry of the DIP Order as defined below. On December 1, 2020, as directed by the Bankruptcy Court in an order dated August 25, 2020, the Company paid in cash an amount equal to half of the interest that would have accrued on the Senior Second Priority Secured Notes during the period July 1, 2020 through November 30, 2020 with the remaining half paid in kind as of December 31, 2020. On February 4, 2021, as directed by the Bankruptcy Court, the Company will continue to pay half of the interest on the Senior Second Priority Secured Notes with the remaining half paid in kind. 133 Table of Contents HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES THE HERTZ CORPORATION AND SUBSIDIARIES (DEBTORS-IN-POSSESSION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) The filing of the Chapter 11 Cases constituted an event of default that accelerated the Debtors’ obligations under the Senior Term Loan, the Senior RCF, the U.S. Vehicle RCF, the Letter of Credit Facility and the Alternative Letter of Credit Facility. Additionally, the filing triggered defaults, termination events and/or amortization events under certain obligations of (i) Hertz International Limited, Hertz Netherlands and the direct and indirect subsidiary companies located outside of the U.S. and Canada (collectively the "International Subsidiaries") (some of which were waived or amended, subject to certain time limitations, as disclosed further below), and (ii) HVF, HVF II, HFLF and certain other vehicle financing subsidiaries (collectively the "Non-Debtor Financing Subsidiaries"). Non-Vehicle Debt Senior Secured Superpriority Debtor-in-Possession Credit Agreement On October 15, 2020, Hertz entered into a commitment letter for debtor-in-possession financing with the holders of a majority in aggregate outstanding amount of its Pre-petition first-lien debt (collectively, the “Initial Commitment Parties”) pursuant to which the Initial Commitment Parties committed to backstop the DIP Credit Agreement in an aggregate amount of $ 1.65 billion, subject to the terms and conditions set forth in the initial commitment letter. The initial commitment letter was amended on October 28, 2020 to add certain additional commitment parties. On October 29, 2020, the Bankruptcy Court entered an order authorizing the Debtors to obtain certain debtor-in-possession financing (the "DIP Order"). In accordance with the Bankruptcy Court’s order, on October 30, 2020, Hertz, as borrower, and Hertz Global and certain of its subsidiaries located in the U.S. and Canada, in each case that are debtors in these Chapter 11 Cases, as guarantors (collectively, the "DIP Debtors"), entered into the DIP Credit Agreement with the financial institutions identified therein as lenders and Barclays Bank PLC as administrative agent. The DIP Credit Agreement provides for DIP Loans, of which (i) up to $ 1.0 billion can be used as equity for new interim fleet financing, giving the DIP Debtors the ability to replenish their vehicle fleet in the future, and (ii) up to $ 800 million can be used for working capital and general corporate purposes. The DIP Loans are available in multiple draws of at least (i) $ 250 million each, or (ii) the remaining available commitments if such commitments are less than $ 250 million. The DIP Loans bear interest at a rate of LIBOR plus 7.25 % (subject to a 1.00 % floor), which is reduced to LIBOR plus 6.75 % upon a significant repayment of Pre-petition first lien debt. The DIP Credit Agreement matures on December 31, 2021 and has limited covenants and events of default, including one milestone requiring the filing of a plan of reorganization by August 1, 2021. The DIP Credit Agreement will be secured by first priority liens on substantially all of the DIP Debtors’ assets (subject to certain exclusions) and has the support of the requisite majority of the DIP Debtors’ first lien Pre-petition debt to allow for consensual priming of existing liens. The DIP Credit Agreement does not contain a roll-up or cross-collateralization of Pre-petition debt or otherwise dictate how Pre-petition claims will be addressed in a plan of reorganization. The DIP Credit Agreement includes customary negative covenants for debtor-in-possession loan agreements of this type, including covenants limiting the loan parties and their subsidiaries’ ability to, among other things, incur additional indebtedness, create liens on assets, make investments, loans or advances, engage in mergers, consolidations, sales of assets and acquisitions, pay dividends and distributions and make payments in respect of junior or Pre-petition indebtedness, in each case subject to customary exceptions for debtor-in-possession loan agreements of this type. The DIP Credit Agreement also includes conditions precedent, representations and warranties, mandatory prepayments, affirmative covenants and events of default customary for financings of this type. Certain bankruptcy-related events are also events of default, including, but not limited to, the dismissal by the Bankruptcy Court of any of the Chapter 11 Cases, the conversion of any of the Chapter 11 Cases to a case under chapter 7 of the Bankruptcy Code, the appointment of a trustee pursuant to Chapter 11, and certain other events related to the impairment of the lenders’ rights or liens granted under the DIP Credit Agreement. In November 2020, the Company drew $ 250 million from the DIP Credit Agreement and Hertz utilized $ 50 million of the draw to make a capital contribution to HVIF in order to pay fees associated with the issuance of the HVIF Series 2020-1 Notes, as defined below. On February 16, 2021, Hertz borrowed an additional $ 250 million as per the minimum draw requirements of the DIP Credit Agreement. 134 Table of Contents HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES THE HERTZ CORPORATION AND SUBSIDIARIES (DEBTORS-IN-POSSESSION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Senior Notes In August 2019, Hertz issued $ 500 million in aggregate principal amount of 7.125 % Senior Notes due August 2026 (the "2026 Notes"). Hertz utilized proceeds from the issuance of the 2026 Notes, together with net proceeds from the Rights Offering, as described in Note 17, "Equity and Earnings (Loss) Per Share - Hertz Global," to redeem all $ 700 million of the outstanding 5.875 % Senior Notes due 2020 and all $ 500 million of the outstanding 7.375 % Senior Notes due 2021. In November 2019, Hertz issued $ 900 million in aggregate principal amount of 6.000 % Senior Notes due January 2028 (the "2028 Notes"). Hertz utilized proceeds from the issuance of the 2028 Notes, together with available cash, to redeem $ 900 million in aggregate principal amount of its outstanding 7.625 % Senior Second Priority Secured Notes due 2022 (the "Senior Second Priority Secured Notes"). Vehicle Debt The governing documents of certain of the vehicle debt financing arrangements specified below contain covenants that, among other things, significantly limit or restrict (or upon certain circumstances may significantly restrict or prohibit) the ability of the borrowers/issuers, and the guarantors if applicable, to make certain restricted payments (including paying dividends, redeeming stock, making other distributions, loans or advances) to Hertz Holdings and Hertz, whether directly or indirectly. To the extent applicable, aggregate maximum borrowings are subject to borrowing base availability. There is subordination within certain series of vehicle debt based on class. Proceeds from the issuance of vehicle debt is typically used to acquire or refinance vehicles or to repay portions of outstanding principal amounts of vehicle debt with an earlier maturity. HVF II U.S. ABS Program HVF II, a bankruptcy remote, indirect, wholly-owned, special purpose subsidiary of Hertz, is the issuer of variable funding notes and medium term notes under the HVF II U.S. ABS Program. HVF II has entered into a base indenture that permits it to issue term and revolving rental vehicle asset-backed securities, secured by one or more shared or segregated collateral pools consisting primarily of portions of the rental vehicles used in the Company's U.S. vehicle rental operations and contractual rights related to such vehicles that have been allocated as the ultimate indirect collateral for HVF II's financings. Within each series of HVF II U.S. Vehicle Medium Term Notes there is subordination based on class. The assets of HVF II and HVF II GP Corp. are owned by HVF II and HVF II GP Corp., respectively, and are not available to satisfy the claims of Hertz’s general creditors. As a result of the failure to make the full rent payments on April 27, 2020, an amortization event was in effect as of May 5, 2020 for all series of notes issued by HVF II and a liquidation event was in effect with respect to the Series 2013-A Notes issued by HVF II. As a result of the amortization event, proceeds from the sales of vehicles that collateralize the notes issued by HVF II must be primarily applied to the payment of principal and are allocated on what approximates a pro rata basis to the reduction of principal on the basis of seniority by class. As disclosed in Note 1, "Background," per the terms of the Interim Lease Order entered on July 24, 2020, the Debtors, as directed, made $ 650 million of base rent payments under the Operating Lease to the HVF trustee in the amount of six equal monthly payments of approximately $ 108 million commencing in July 2020 through December 2020. On January 20, 2021, the Bankruptcy Court entered the Second Lease Order, which directed the Debtors, among other things, to make $ 756 million of base rent payments under the Operating Lease to the HVF trustee in the amount of nine equal monthly payments of $ 84 million commencing in January 2021 through September 2021. The parties have agreed to defer litigation related to the Operating Lease until September 30, 2021. HVF II is accruing default interest on the HVF II Variable Funding Notes and accruing non-default interest on the U.S. Vehicle Medium Term Notes. Non-default interest is being paid on the HVF II Variable Funding Notes and the U.S. Vehicle Medium Term Notes from funds drawn on existing letter of credit facilities, as described below. HVF II U.S. Vehicle Variable Funding Notes HVF II Series 2013-A Notes: In February 2019, HVF II extended the maturities of $ 3.4 billion of existing commitments under the HVF II Series 2013-A Notes from March 2020 to March 2021, added $ 400 million in new 135 Table of Contents HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES THE HERTZ CORPORATION AND SUBSIDIARIES (DEBTORS-IN-POSSESSION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) commitments and terminated the HVF II Series 2013-B Notes, transitioning $ 300 million in commitments to the HVF II Series 2013-A Notes. In May 2019, HVF II increased the commitments of the HVF II Series 2013 Notes by $ 40 million such that after giving effect to such commitments the maximum principal amount was approximately $ 4.1 billion. In February 2020, HVF II extended the maturity of the Series 2013-A Notes from March 2021 to March 2022 and increased the commitments thereunder by $ 750 million. After giving effect to the transactions, the aggregate maximum principal amount of the Series 2013-A Notes was $ 4.9 billion, where $ 0.2 billion of commitments have a maturity of March 2021. HVF II U.S. Vehicle Medium Term Notes HVF II Series 2019-1 Notes: In February 2019, HVF II issued the Series 2019-1 Rental Car Asset Backed Notes, Class A, Class B, Class C and Class D in an aggregate principal amount of $ 745 million. HVF II Series 2019-2 Notes: In May 2019, HVF II issued the Series 2019-2 Rental Car Asset Backed Notes, Class A, Class B, Class C and Class D in an aggregate principal amount of $ 799 million. HVF II Series 2019-3 Notes: In November 2019, HVF II issued the Series 2019-3 Rental Car Asset Backed Notes, Class A, Class B, Class C and Class D in an aggregate principal amount of $ 800 million. The Class D notes initially were purchased by an affiliate of HVF II and in December 2019, were sold to a third party. HVF II Series 2017-2 and Various Series 2018 and 2019 Class D Notes : In March 2020, HVF II sold the below notes to third parties, which it had acquired at the time of the respective initial offerings and which were previously eliminated in consolidation. (In millions) Aggregate Principal Amount HVF II Series 2017-2 Class D Notes $ 20 HVF II Series 2018-1 Class D Notes 58 HVF II Series 2018-2 Class D Notes 13 HVF II Series 2018-3 Class D Notes 13 HVF II Series 2019-1 Class D Notes 45 HVF II Series 2019-2 Class D Notes 49 Total $ 198 HVIF U.S. ABS Program On November 24, 2020, the Bankruptcy Court entered an order authorizing the Debtors to obtain interim fleet financing and the formation of HVIF. In accordance with the Bankruptcy Court's order, on November 25, 2020, HVIF issued the Series 2020-1 Rental Car Asset Backed Notes, Class A and Class B (collectively, the "HVIF Series 2020-1 Notes") in an aggregate principal amount of $ 4.0 billion to unaffiliated third parties. The HVIF Series 2020-1 Notes are comprised of $ 3.5 billion aggregate principal amount of Series 2020-1 3.00 % Class A Notes and $ 500 million aggregate principal of Series 2020-1 3.75 % Class B Notes. The HVIF Series 2020-1 Notes have a maturity date of November 24, 2021. The Class B Notes are subordinated to the Class A Notes. There were no notes issued as of December 31, 2020. 136 Table of Contents HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES THE HERTZ CORPORATION AND SUBSIDIARIES (DEBTORS-IN-POSSESSION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) The HVIF Series 2020-1 Notes are restricted to be drawn upon if the utilization of the vehicles that serve as collateral falls below 55 %. Donlen U.S. ABS Program HFLF, a bankruptcy remote, indirect, wholly-owned, special purpose subsidiary of Donlen is the issuer under the Donlen U.S. ABS Program. HFLF has entered into a base indenture that permits it to issue term and revolving vehicle lease asset-backed securities. Donlen utilizes the HFLF securitization platform to finance its U.S. vehicle leasing operations. The notes issued by HFLF are ultimately backed by a special unit of beneficial interest in a pool of leases and the related vehicles. References to the “Donlen U.S. ABS Program” include HFLF’s Variable Funding Notes together with HFLF’s Medium Term Notes. The filing of the Chapter 11 Cases triggered an amortization event under the HFLF Variable Funding Notes and the HFLF Medium Term Notes. As a result, the remaining commitments under the HFLF Series 2013-2 Notes were terminated and, while the amortization events continue, proceeds from lease payments and from the sales of vehicles that collateralize the notes issued by HFLF must be applied to the reduction of principal and payment of interest on the notes. The principal will be allocated on approximately a pro rata basis and distributed to the note holders on the basis of seniority by class. HFLF is accruing default interest on the HFLF Variable Funding Notes, while non-default interest is being paid on the HFLF Variable Funding Notes and the HFLF Medium Term Notes. HFLF Variable Funding Notes In February 2020, HFLF amended the HFLF Series 2013-2 Notes to extend the end of the revolving period from March 2021 to March 2022 and increased the commitments thereunder by $ 100 million, such that the aggregate maximum borrowings of the HFLF Series 2013-2 Notes increased to $ 600 million. As a result of the pending sale of the Donlen Assets, the amount outstanding of $ 316 million has been classified as liabilities held for sale in the accompanying consolidated balance sheet as of December 31, 2020, as disclosed in Note 3, "Divestitures." HFLF Medium Term Notes HFLF Series 2019-1 Notes : In May 2019, HFLF issued the Series 2019-1 Asset Backed Notes, Class A, Class B, Class C, Class D and Class E in an aggregate principal amount of $ 650 million. The HFLF Series 2019-1 Notes are fixed rate, except for the Class A-1 Notes, which are floating rate and carry an interest rate based upon a spread to one-month LIBOR. As a result of the pending sale of the Donlen Assets, the amount outstanding of $ 734 million has been classified as liabilities held for sale in the accompanying consolidated balance sheet as of December 31, 2020, as disclosed in Note 3, "Divestitures." DFLF Variable Funding Notes On October 12, 2020, the Bankruptcy Court entered an order authorizing Hertz and Donlen to enter into certain agreements in connection with DFLF. On October 16, 2020, DFLF issued the Series 2020-1 Notes to offset funding needs created by the amortization of the HFLF Variable Funding Notes, where DFLF will fund lease originations going forward. As of December 31, 2020, DFLF has access to up to $ 400 million of available funding, subject to certain conditions, and $ 300 million of committed funding available which increases by a minimum of $ 50 million per month, subject to the payment of incremental up-front fees. As a result of the pending sale of the Donlen Assets, the amount outstanding of $ 250 million has been classified as liabilities held for sale in the accompanying consolidated balance sheet as of December 31, 2020, as disclosed in Note 3, "Divestitures." Vehicle Debt-Other The filing of the Chapter 11 Cases constituted defaults, termination events and/or amortization events with respect to certain of the Company's existing debt obligations, as described below. 137 Table of Contents HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES THE HERTZ CORPORATION AND SUBSIDIARIES (DEBTORS-IN-POSSESSION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) U.S. Vehicle Revolving Credit Facility In August 2020, Hertz terminated the U.S. vehicle revolving credit facility by utilizing available cash to pay in full amounts outstanding of $ 93 million. European Vehicle Notes The European Vehicle Notes are the primary vehicle financing facility for the Company's vehicle rental operations in Italy, Belgium and Luxembourg and finances a portion of its assets in the United Kingdom, France, The Netherlands, Spain and Germany. The agreements governing the European Vehicle Notes contain covenants that apply to the Hertz credit group similar to those for the Senior Notes. The terms of the European Vehicle Notes permit Hertz Netherlands to incur additional indebtedness that would be pari passu with the European Vehicle Notes. Hertz Netherlands and certain other international subsidiaries entered into a limited forbearance and lock-up agreement (the “Lock-up Agreement”), as extended, in respect of the European Vehicle Notes pursuant to which the majority noteholders agreed not to take action in respect of any default or event of default that could have resulted from the Chapter 11 Cases, in order to support a transaction set-forth in the Lock-up Agreement, and to be implemented by a scheme of arrangement (subject to conditions and approvals), subsequent to the waiver expiration on December 31, 2020. The transaction set out in the Lock-up Agreement is intended to be implemented by a UK Scheme of Arrangement and is expected to comprise (i) an issuance of € 250.0 million in new notes to certain European Vehicle Notes lenders for cash by Hertz International Limited (the “HIL Notes”); (ii) an on-lending of the proceeds from the HIL Notes to Hertz Netherlands; (iii) a bifurcation of the existing guarantee claims under the European Vehicle Notes, which would then be auctioned, and the amount owing on the European Vehicle Notes would be reduced by the proceeds from the sale of the existing guarantee claims; and (iv) an extension of the maturity and an alteration of the European Vehicle Notes terms which may include a further reduction of amounts owing (amounts and final terms are dependent upon the level of participation of existing European Vehicle Notes holders in the lending for the HIL Notes). The UK Scheme of Arrangement was approved by the requisite majority of European Vehicle Notes creditors. The guarantee bifurcation from Hertz is subject to approval by the Bankruptcy Court and the intention is to have the UK Scheme of Arrangement recognized in the U.S. under Chapter 15 of the Bankruptcy Code. A Bankruptcy Court hearing has been scheduled for March 2021. European ABS The European ABS is the primary vehicle financing facility for the Company's vehicle rental operations in France, the Netherlands, Germany and Spain. The lenders under the European ABS have been granted a security interest in the owned rental vehicles used in the Company's vehicle rental operations in these countries and certain contractual rights related to such vehicles. An amortization event, that would have arisen under the European ABS as a result of filing the Chapter 11 Cases, was waived in May 2020 as International Fleet Financing No.2 B.V (“IFF No. 2”) entered into a waiver agreement as extended which expires on March 5, 2021 or earlier if certain conditions are not met (the "European Waiver"). Under the European Waiver, aggregate maximum borrowings were not to exceed (i) € 201 million from January 29, 2021 to February 11, 2021, (ii) € 187 million from February 12, 2021 to February 18, 2021 and (iii) € 180 million from and including February 19, 2021. Hertz Canadian Securitization TCL Funding Limited Partnership, a bankruptcy remote, indirect, wholly-owned, special purpose subsidiary of Hertz (“Funding LP”), is the issuer under the Hertz Canadian Securitization. The Hertz Canadian Securitization was established to facilitate financing activities relating to the vehicles used by the Company in the Canadian daily vehicle rental operations. The lenders under the Hertz Canadian Securitization have been granted a security interest primarily in the owned rental vehicles used in the Company's vehicle rental operations in Canada and certain contractual rights related to such vehicles as well as certain other assets owned by the Hertz entities 138 Table of Contents HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES THE HERTZ CORPORATION AND SUBSIDIARIES (DEBTORS-IN-POSSESSION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) connected to the financing. In connection with the establishment of the Hertz Canadian Securitization, Funding LP issued the Series 2015-A Variable Funding Rental Car Asset Backed Notes (the “Funding LP Series 2015-A Notes”) that provided for aggregate maximum borrowings of CAD$ 350 million on a revolving basis. The filing of the Chapter 11 Cases triggered an amortization event under the Hertz Canadian Securitization. As a result, the remaining committed available borrowings were terminated and proceeds from the sales of vehicles and receipt of vehicle receivables that collateralize the Hertz Canadian Securitization must be applied to the payment of principal. On September 23, 2020, Funding LP entered into an interim agreement under the Hertz Canadian Securitization in which default interest will be paid. On January 13, 2021, the Bankruptcy Court entered an order authorizing the Debtors to enter into a new series under the Hertz Canadian Securitization, Funding LP Series 2021-A Notes. On January 27, 2021, Funding LP entered into aggregate maximum borrowings of CAD$ 350 million on a revolving basis, subject to availability under the borrowing base limitation. The initial draw was used, in part, to pay outstanding obligations under the Funding LP Series 2015-A Notes, including any unpaid default interest. As a result of the payoff of the Funding LP Series 2015-A Notes, the Hertz Canadian Securitization amortization event ceased to exist. Donlen Canadian Securitization In December 2019, Donlen established a new securitization platform (the "Donlen Canadian Securitization") to finance its Canadian vehicle leasing operations. The Donlen Canadian Securitization provides for aggregate maximum borrowings of CAD$ 50 million on a revolving basis and a maturity of December 2022. As a result of the pending sale of the Donlen Assets, the amount outstanding of $ 27 million has been classified as liabilities held for sale in the accompanying consolidated balance sheet as of December 31, 2020, as disclosed in Note 3, "Divestitures." The filing of the Chapter 11 Cases triggered an event of default under the Donlen Canadian Securitization. Donlen entered into a waiver agreement, as extended, under the Donlen Canadian Securitization with an expiration date of the earlier of April 27, 2021 or the closing of the Donlen Asset Sale, in which the aggregate maximum borrowings were reduced from CAD$ 50 million to CAD$ 37 million. Australian Securitization HA Fleet Pty Limited, an indirect wholly-owned subsidiary of Hertz, is the issuer under the Australian Securitization. The Australian Securitization is the primary fleet financing facility for Hertz's vehicle rental operations in Australia. The lender under the Australian Securitization has been granted a security interest primarily in the owned rental vehicles used in its vehicle rental operations in Australia and certain contractual rights related to such vehicles. An amortization event that would have arisen under the Australian Securitization as a result of filing the Chapter 11 Cases was waived in May 2020 as HA Fleet Pty Limited, an indirect, wholly-owned subsidiary of Hertz, entered into a permanent waiver agreement under the Australian Securitization such that the aggregate maximum borrowing capacity was reduced from AUD$ 270 million to AUD$ 210 million. New Zealand Revolving Credit Facility Hertz New Zealand Holdings Limited, an indirect wholly-owned subsidiary of Hertz, is the borrower under a credit agreement that provides for aggregate maximum borrowings on a revolving basis under an asset-based revolving credit facility (the “New Zealand RCF”). The New Zealand RCF is the primary vehicle financing facility for its vehicle rental operations in New Zealand. In September 2019, Hertz New Zealand Holdings Limited amended the New Zealand RCF to increase the aggregate maximum borrowings from NZD$ 60 million to NZD$ 75 million and extended the maturity from March 2020 to June 2021. 139 Table of Contents HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES THE HERTZ CORPORATION AND SUBSIDIARIES (DEBTORS-IN-POSSESSION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) U.K. Financing Facility In May 2019, Hertz U.K. Limited amended its credit agreement ("U.K. Financing Facility") to, among other things, extend the maturity of the aggregate maximum borrowing capacity of £ 250 million to March 2021. In April 2020, the aggregate maximum borrowing capacity under the U.K. Financing Facility was reduced from £ 250 million to £ 200 million as a result of a downgrade in the credit rating of Hertz. Events of default that would have arisen under the U.K. Financing Facility as a result of filing the Chapter 11 Cases were waived as Hertz U.K. Limited entered into a waiver agreement, as extended, which expires on March 5, 2021, or earlier if certain conditions are not met (the "UK Waiver"). Under the UK Waiver, the aggregate maximum borrowing capacity under the U.K. Financing Facility was reduced to £ 85 million. Loss on Extinguishment of Debt The Company incurred losses in the form of early redemption premiums and/or the write-off of deferred financing costs associated with certain redemptions, terminations and waiver agreements. Losses on extinguishment of debt are presented in vehicle and non-vehicle interest expense, net, as applicable in the accompanying statements of operations. The following table reflects the amount of losses for each respective redemption/termination: Years Ended December 31, Redemption/Termination (in millions) 2020 2019 2018 Non-Vehicle Debt: 5.875 % Senior Notes due 2020 $ — $ 2 $ — 7.375 % Senior Notes due 2021 — 2 — 7.625 % Senior Second Priority Secured Notes due 2022 — 39 — Total Non-Vehicle Debt — 43 — Vehicle Debt: HVF II Series 2017-A — — 2 4.375 % European Vehicle Notes due 2019 — — 20 European ABS 5 — — Total Vehicle Debt 5 — 22 Total Loss on Extinguishment of Debt $ 5 $ 43 $ 22 Maturities As of December 31, 2020, the nominal amounts of maturities of debt, including non-vehicle debt subject to compromise, for each of the years ending December 31 are as follows: (In millions) 2021 2022 2023 2024 2025 After 2025 Non-Vehicle Debt (1) $ 1,016 $ 870 $ 633 $ 801 $ — $ 1,427 Vehicle Debt (2) 1,732 2,466 1,183 706 — — Total $ 2,748 $ 3,336 $ 1,816 $ 1,507 $ — $ 1,427 (1) Includes Non-Vehicle Debt of $ 4.4 billion included in liabilities subject to compromise in the accompanying consolidated balance sheet as of December 31, 2020, and as the expected maturity date is subject to the outcome of the Chapter 11 Cases, the original, legal maturity dates are reflected in this table. (2) The stated, contractual maturity dates are reflected in this table except for $ 362 million of notes where the maturity date has expired as of December 31, 2020 and as such, is included in the 2021 column in this table. As HVF II is in an amortization event, its expected maturity dates may change as described above. As of December 31, 2020, $ 1.0 billion of non-vehicle debt, of which $ 760 million is included in liabilities subject to compromise in the accompanying consolidated balance sheet as of December 31, 2020, and $ 1.7 billion of vehicle 140 Table of Contents HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES THE HERTZ CORPORATION AND SUBSIDIARIES (DEBTORS-IN-POSSESSION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) debt is set to mature in 2021 which does not reflect any potential changes to the Company's debt that may result from the Chapter 11 Cases. Borrowing Capacity and Availability Borrowing capacity and availability comes from the Company's revolving credit facilities. As a result of the filing of the Chapter 11 Cases, almost all of the Company's revolving credit facilities were terminated, as disclosed in the following table. The remaining revolving credit facilities are a combination of cash flow based revolving credit facilities and asset-based revolving credit facilities. Creditors under each such asset-backed securitization facility and asset-based revolving credit facility have a claim on a specific pool of assets as collateral. With respect to each such asset-backed securitization facility and asset-based revolving credit facility, the Company refers to the amount of debt it can borrow given a certain pool of assets as the borrowing base. The Company refers to "Remaining Capacity" as the maximum principal amount of debt permitted to be outstanding under the respective facility (i.e., with respect to a variable funding asset-backed securitization facility or asset-based revolving credit facility, the amount of debt the Company could borrow assuming it possessed sufficient assets as collateral) less the principal amount of debt then-outstanding under such facility. With respect to a variable funding asset-backed securitization facility or asset-based revolving credit facility, the Company refers to "Availability Under Borrowing Base Limitation" as the lower of Remaining Capacity or the borrowing base less the principal amount of debt then-outstanding under such facility (i.e., the amount of debt that can be borrowed given the collateral possessed at such time). The following facilities were available to the Company as of December 31, 2020 and are presented net of any outstanding letters of credit: (In millions) Remaining Capacity Availability Under Borrowing Base Limitation Non-Vehicle Debt Senior RCF (1) $ — $ — Senior Secured Superpriority Debtor-in-Possession Credit Agreement 1,400 1,400 Letter of Credit Facility (1) — — Alternative Letter of Credit Facility (1) — — Total Non-Vehicle Debt 1,400 1,400 Vehicle Debt HVF II U.S. Vehicle Variable Funding Notes (1) — — HVIF Series 2020-1 4,000 10 European ABS 471 — Hertz Canadian Securitization (1) — — Australian Securitization 63 2 U.K. Financing Facility 44 1 New Zealand RCF 19 2 Total Vehicle Debt 4,597 15 Total $ 5,997 $ 1,415 (1) As a result of the filing of the Chapter 11 Cases, there is no longer remaining capacity or availability under these facilities, as such unused commitments were terminated. Letters of Credit The Letter of Credit Facility consists of $ 400 million of commitments from the issuing banks party thereto and matures on June 30, 2021. The Alternative Letter of Credit Facility consists of $ 250 million of unsecured commitments from the issuing banks party thereto and matures on December 20, 2023. 141 Table of Contents HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES THE HERTZ CORPORATION AND SUBSIDIARIES (DEBTORS-IN-POSSESSION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) As of December 31, 2020, there were outstanding standby letters of credit totaling $ 740 million. Such letters of credit have been issued primarily to support the Company's insurance programs, vehicle rental concessions and leaseholds as well as to provide credit enhancement for its asset-backed securitization facilities. Of this amount, $ 225 million were issued under the Senior RCF, $ 299 million were issued under the Letter of Credit Facility and $ 200 million were issued under the Alternative Letter of Credit Facility. As of December 31, 2020, $ 17 million and $ 114 million of the issued letters of credit have been drawn upon under the Senior RCF and Alternative Letter of Credit Facility, respectively, to fund interest payments due under the HVF II Notes. The draws remain unreimbursed by the Company, and, except as otherwise set forth in orders from the Bankruptcy Court, as a result are accruing interest at the non-default rate. Special Purpose Entities Substantially all of the Company's revenue earning vehicles and certain related assets are owned by special purpose entities or are encumbered in favor of the lenders under the various credit facilities, other secured financings and asset-backed securities programs. None of the value of such assets (including the assets owned by Hertz Vehicle Financing II LP, HVF II GP Corp., Hertz Vehicle Financing LLC, Rental Car Finance LLC and various international subsidiaries that facilitate the Company's international securitizations) will be available to satisfy the claims of unsecured creditors unless the secured creditors are paid in full. The Company has a 25 % ownership interest in IFF No. 2, whose sole purpose is to provide commitments to lend in various currencies subject to borrowing bases comprised of revenue earning vehicles and related assets of certain of Hertz International, Ltd.'s subsidiaries. IFF No. 2 is a VIE and the Company is the primary beneficiary, therefore, the assets, liabilities and results of operations of IFF No. 2 are included in the accompanying consolidated financial statements. As of December 31, 2020 and 2019, IFF No. 2 had total assets of $ 464 million and $ 1.1 billion, respectively, primarily comprised of loans receivable, and total liabilities of $ 464 million and $ 1.1 billion, respectively, primarily comprised of debt. Covenant Compliance Prior to the filing of the Chapter 11 Cases, Hertz’s consolidated first lien net leverage ratio (the "Leverage Ratio"), as defined in the credit agreements governing the Senior RCF, the Letter of Credit Facility and the Alternative Letter of Credit Facility, as of the last day of any fiscal quarter may not exceed a ratio of 3.00 to 1.00. As a result of the filing of the Chapter 11 Cases, the Company is currently in default under its Senior RCF, the Letter of Credit Facility and the Alternative Letter of Credit Facility, and the Company is in breach of the Leverage Ratio. The DIP Credit Agreement requires a liquidity maintenance test of $ 275 million, as defined in the DIP Credit Agreement, as of each month end period. As of December 31, 2020, Hertz was in compliance with the liquidity maintenance test. Accrued Interest As of December 31, 2020 and 2019, accrued interest was $ 136 million and $ 61 million, respectively, which is included in accrued liabilities in the accompanying consolidated balance sheets. There was $ 70 million of accrued interest included in liabilities subject to compromise in the accompanying consolidated balance sheet as of December 31, 2020 related to the filing of the Chapter 11 Cases as disclosed above. Restricted Net Assets As a result of the contractual restrictions on Hertz's or its subsidiaries' ability to pay dividends (directly or indirectly) under various terms of its debt, as of December 31, 2020, the restricted net assets of the subsidiaries of Hertz and Hertz Global exceed 25 % of their total consolidated net assets, respectively. Note 7 — Revenue from Contracts with Customers 142 Table of Contents HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES THE HERTZ CORPORATION AND SUBSIDIARIES (DEBTORS-IN-POSSESSION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) In the Revenue Recognition section of Note 2, “Significant Accounting Policies”, the Company discloses that revenue earned from vehicle rentals and from other forms of rental related activities wherein an identified asset is transferred to the customer and the customer has the ability to control that asset, are accounted for under Topic 842, which the Company adopted in accordance with the effective date on January 1, 2019. Prior to the adoption of Topic 842, the Company accounted for such revenue under Topic 606 for the year ended December 31, 2018. The following disclosures are in accordance with Topic 606 for the year ended December 31, 2018. See Note 10, "Leases" for disclosures in accordance with Topic 842 for the years ended December 31, 2020 and 2019. The Company operates at airport rental locations in the U.S. and internationally ("airport") and at off airport locations also in the U.S. and internationally ("off airport"). The Company's airport rental customers are primarily airline travelers; whereas the Company's off airport rental customers include people who prefer to rent vehicles closer to their home or place of work for business or leisure purposes, as well as those needing to travel to or from airports. The Company's off airport customers also include people who have been referred by, or whose rental costs are being wholly or partially reimbursed by, insurance companies following accidents in which their vehicles were damaged, those expecting to lease vehicles that are not yet available from their leasing companies and replacement renters. In addition, the Company's off airport customers include TNC drivers. The following table presents revenues from contracts with customers by reportable segment and disaggregated by product/service and type of location and customer for the year ended December 31, 2018: Year Ended December 31, 2018 (In millions) U.S. Rental Car International Rental Car All Other Operations Consolidated Vehicle rental and rental related: Airport $ 4,465 $ 1,288 $ — $ 5,753 Off airport 1,881 842 — 2,723 Total vehicle rental and rental related 6,346 2,130 — 8,476 Other: Licensee revenue 32 145 — 177 Ancillary retail vehicle sales 102 1 — 103 Fleet management — — 45 45 Total other 134 146 45 325 Total revenue from contracts with customers $ 6,480 $ 2,276 $ 45 $ 8,801 The Company recognizes receivables and liabilities resulting from its contracts with customers. Contract receivables primarily consist of receivables from customers for vehicle rentals. Contract liabilities primarily consist of obligations to customers for prepaid vehicle rentals and related to the Company’s points-based loyalty programs. The contract liability balance as of December 31, 2018 is $ 341 million and is included in accrued liabilities in the accompanying consolidated balance sheet. The revenue recognized during the year ended December 31, 2018 for such contract liabilities is $ 127 million. Additionally, the Company elected to apply the practical expedient where the value of unsatisfied performance obligations for sales-based royalty fees from franchisees is not disclosed. During the year ended December 31, 2018, based on the net impact of loyalty points earned and redeemed by customers, the Company recorded a net revenue deferral of $ 7 million. As of December 31, 2018, the value of unredeemed loyalty points is $ 272 million, which is recorded as a contract liability in accrued liabilities in the accompanying consolidated balance sheet. 143 Table of Contents HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES THE HERTZ CORPORATION AND SUBSIDIARIES (DEBTORS-IN-POSSESSION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Note 8— Employee Retirement Benefits The Company sponsors multiple domestic and international employee retirement benefit plans. Benefits are based upon years of service and compensation. The Hertz Corporation Account Balance Defined Benefit Pension Plan (the “Hertz Retirement Plan”) is a U.S. cash balance plan which was amended in 2014 to permanently discontinue future benefit accruals and participation under the plan for non-union employees. Additionally, the Company sponsors the Hertz Corporation Benefit Equalization Plan ("BEP") and the Hertz Corporation Supplemental Executive Retirement Plans (together with the BEP, the "Supplemental Plans"), where benefit accruals and participation under the Supplemental Plans were discontinued by the Company effective December 31, 2014. Some of the Company’s international subsidiaries have defined benefit retirement plans or participate in various insured or multiemployer plans. In certain countries, when the subsidiaries make the required funding payments, they have no further obligations under such plans. The Company's benefit plans are generally funded, except for certain non-qualified U.S. defined benefit plans and in Germany, France and Italy, where unfunded liabilities are recorded. The Company also sponsors defined contribution plans for certain eligible U.S. and non-U.S. employees, where contributions are matched based on specific guidelines in the plans. The Company also sponsors postretirement health care and life insurance benefits for a limited number of employees with hire dates prior to January 1, 1990. Management makes certain assumptions relating to discount rates, salary growth, long-term return on plan assets, retirement rates, mortality rates and other factors when determining amounts to be recognized. These assumptions are reviewed annually by management, assisted by the enrolled actuary, and updated as warranted. The Company uses a December 31 measurement date for all of the plans and utilizes fair value to calculate the market-related value of pension assets for purposes of determining the expected return on plan assets and accounting for asset gains and losses. Actual results that differ from the Company's assumptions are accumulated and amortized over future periods and, therefore, significant differences in actual experience or significant changes in assumptions would affect the Company's pension costs and obligations. The Company recognizes an asset for each over funded plan and a liability for each underfunded plan in the consolidated balance sheets. Pension plan liabilities are revalued annually based on updated assumptions and information about the individuals covered by the plan. For pension plans, if accumulated actuarial gains and losses are in excess of a 10 percent corridor, the excess is amortized on a straight-line basis over the average remaining service period of active participants. Prior service cost is amortized on a straight-line basis from the date recognized over the average remaining service period of active participants, when applicable. As a result of filing the Chapter 11 Cases, as disclosed in Note 1, "Background," participants of the Supplemental Plans are no longer entitled to benefit payments and are considered general creditors of the Company. As such, the Company classified $ 24 million of its U.S. pension benefit obligation as liabilities subject to compromise in the accompanying consolidated balance sheet as of December 31, 2020. 144 Table of Contents HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES THE HERTZ CORPORATION AND SUBSIDIARIES (DEBTORS-IN-POSSESSION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) The following tables set forth the funded status and the net periodic pension cost of the Hertz Retirement Plan and other U.S. based retirement plans, other postretirement benefit plans including health care and life insurance plans covering domestic (i.e. U.S.) employees and the retirement plans for international operations (“Non-U.S.”), together with amounts included in the accompanying consolidated balance sheets and statements of operations: Pension Benefits Postretirement U.S. Non-U.S. Benefits (U.S.) (In millions) 2020 2019 2020 2019 2020 2019 Change in Benefit Obligation Benefit obligation as of January 1 $ 559 $ 516 $ 286 $ 246 $ 12 $ 12 Service cost — — 1 1 — — Interest cost 15 21 5 6 — — Plan curtailments ( 2 ) — — — — — Plan settlements ( 88 ) ( 33 ) ( 5 ) — — — Benefits paid ( 3 ) ( 4 ) ( 6 ) ( 5 ) ( 1 ) ( 1 ) Foreign currency exchange rate translation — — 17 5 — — Actuarial loss (gain) 41 59 42 33 1 1 Benefit obligation as of December 31 (1) $ 522 $ 559 $ 340 $ 286 $ 12 $ 12 Change in Plan Assets Fair value of plan assets as of January 1 $ 503 $ 452 $ 228 $ 192 $ — $ — Actual return (loss) gain on plan assets 74 84 28 29 — — Company contributions 2 4 4 5 1 1 Plan settlements ( 88 ) ( 33 ) ( 5 ) — — — Benefits paid ( 3 ) ( 4 ) ( 6 ) ( 5 ) ( 1 ) ( 1 ) Foreign currency exchange rate translation — — 9 7 — — Fair value of plan assets as of December 31 $ 488 $ 503 $ 258 $ 228 $ — $ — Funded Status of the Plan Plan assets less than benefit obligation $ ( 34 ) $ ( 56 ) $ ( 82 ) $ ( 58 ) $ ( 12 ) $ ( 12 ) (1) Participants of the Supplemental Plans are no longer entitled to benefit payments and are considered general creditors of the Company. As such, the Company classified $ 24 million of its U.S. pension benefit obligation as liabilities subject to compromise in the accompanying consolidated balance sheet as of December 31, 2020. In 2020 and 2019, discount rates decreased, resulting in actuarial losses for the U.S. and Non-U.S. pension and postretirement plans. In addition, an increase in the inflation assumption in 2020 resulted in an actuarial loss in the Non-U.S. pension plans. 145 Table of Contents HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES THE HERTZ CORPORATION AND SUBSIDIARIES (DEBTORS-IN-POSSESSION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Pension Benefits Postretirement U.S. Non-U.S. Benefits (U.S.) ($ in millions) 2020 2019 2020 2019 2020 2019 Amounts recognized in balance sheets: Prepaid expenses and other assets $ — $ — $ 14 $ 25 $ — $ — Accrued liabilities ( 34 ) ( 56 ) ( 96 ) ( 83 ) ( 12 ) ( 12 ) Net obligation recognized in the balance sheets $ ( 34 ) $ ( 56 ) $ ( 82 ) $ ( 58 ) $ ( 12 ) $ ( 12 ) Prior service credit $ — $ — $ ( 2 ) $ ( 2 ) $ — $ — Net gain (loss) ( 47 ) ( 73 ) ( 93 ) ( 70 ) ( 1 ) 1 Accumulated other comprehensive income (loss) ( 47 ) ( 73 ) ( 95 ) ( 72 ) ( 1 ) 1 Funded/(Unfunded) accrued pension or postretirement benefit 13 17 13 14 ( 11 ) ( 13 ) Net obligation recognized in the balance sheets $ ( 34 ) $ ( 56 ) $ ( 82 ) $ ( 58 ) $ ( 12 ) $ ( 12 ) Total recognized in other comprehensive (income) loss $ ( 26 ) $ ( 13 ) $ 23 $ 13 $ 1 $ 1 Total recognized in net periodic benefit cost and other comprehensive (income) loss $ ( 20 ) $ ( 3 ) $ 25 $ 12 $ 1 $ 1 Accumulated Benefit Obligation as of December 31 (1) $ 522 $ 559 $ 338 $ 284 N/A N/A Weighted-average assumptions as of December 31 Discount rate 2.3 % 3.1 % 1.4 % 1.9 % 2.3 % 3.2 % Expected return on assets 4.5 % 4.8 % 3.0 % 3.2 % N/A N/A Average rate of increase in compensation 4.3 % 4.3 % 2.1 % 2.2 % N/A N/A Interest crediting rate 3.8 % 3.8 % N/A N/A N/A N/A Initial health care cost trend rate N/A N/A N/A N/A 5.5 % 5.8 % Ultimate health care cost trend rate N/A N/A N/A N/A 4.5 % 4.5 % Number of years to ultimate trend rate N/A N/A N/A N/A 18 19 N/A - Not applicable (1) Participants of the Supplemental Plans are no longer entitled to benefit payments and are considered general creditors of the Company. As such, the Company classified $ 24 million of its U.S. pension benefit obligation as liabilities subject to compromise in the accompanying consolidated balance sheet as of December 31, 2020. The discount rate used to determine the December 31, 2020 and 2019 benefit obligations for U.S. pension plans is based on the rate from the Mercer Pension Discount Curve-Above Mean Yield that is appropriate for the duration of the Company's plan liabilities. For its plans outside the U.S., the discount rate reflects the market rates for an optimized subset of high-quality corporate bonds currently available. The discount rate in a country was determined based on a yield curve constructed from high quality corporate bonds in that country. The rate selected from the yield curve has a duration that matches its plan. The expected return on plan assets for each funded plan is based on expected future investment returns considering the target investment mix of plan assets. 146 Table of Contents HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES THE HERTZ CORPORATION AND SUBSIDIARIES (DEBTORS-IN-POSSESSION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) The following table sets forth the net periodic pension and postretirement (including health care, life insurance and auto) expense charged to net income (loss). The components of net periodic pension expense (benefit), other than service cost, are included in other (income) expense, net in the accompanying consolidated statements of operations. Pension Benefits Postretirement Benefits (U.S.) U.S. Non-U.S. Years Ended December 31, ($ in millions) 2020 2019 2018 2020 2019 2018 2020 2019 2018 Components of Net Periodic Pension and Postretirement Expense (Benefit) Service cost $ — $ — $ 1 $ 1 $ 1 $ 1 $ — $ — $ — Interest cost 15 21 19 5 6 7 — — 1 Expected return on plan assets ( 20 ) ( 22 ) ( 28 ) ( 7 ) ( 9 ) ( 11 ) — — — Net amortizations 2 6 1 1 1 1 — — — Settlement loss 9 5 3 2 — — — — — Net pension and postretirement expense (benefit) $ 6 $ 10 $ ( 4 ) $ 2 $ ( 1 ) $ ( 2 ) $ — $ — $ 1 Weighted-average discount rate for expense (January 1) 3.1 % 4.2 % 3.6 % 1.9 % 2.7 % 2.4 % 3.2 % 4.2 % 3.5 % Weighted-average assumed long-term rate of return on assets (January 1) 4.8 % 6.3 % 6.3 % 3.2 % 4.8 % 5.2 % N/A N/A N/A Weighted-average interest crediting rate for expense 3.8 % 3.8 % 3.8 % N/A N/A N/A N/A N/A N/A Initial health care cost trend rate N/A N/A N/A N/A N/A N/A 5.8 % 6.1 % 6.4 % Ultimate health care cost trend rate (rate to which cost trend is expected to decline) N/A N/A N/A N/A N/A N/A 4.5 % 4.5 % 4.5 % Number of years to ultimate trend rate N/A N/A N/A N/A N/A N/A 18 19 20 N/A - Not applicable The net of tax loss in accumulated other comprehensive income (loss) as of December 31, 2020 and 2019 relating to pension benefits of the Hertz Retirement Plan was $ 122 million and $ 118 million, respectively. The provisions charged to net income (loss) for the years ended December 31, 2020, 2019 and 2018 for all other pension plans were approximately $ 6 million, $ 11 million and $ 10 million, respectively. The provisions charged to net income (loss) for the years ended December 31, 2020, 2019 and 2018 for the defined contribution plans were approximately $ 11 million, $ 27 million and $ 26 million, respectively. Plan Assets The Company has a long-term investment outlook for the assets held in the Company sponsored plans, which is consistent with the long-term nature of each plan's respective liabilities. The Company has two major plans which reside in the U.S. and the United Kingdom. 147 Table of Contents HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES THE HERTZ CORPORATION AND SUBSIDIARIES (DEBTORS-IN-POSSESSION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) The U.S. Plan The U.S. Plan (the “Plan”) has a target asset allocation mix of 65 % in investments intended to hedge the impact of capital market movements ("Immunizing Portfolio Investments"), comprised primarily of fixed income securities, and 35 % in investments intended to earn more than the pension liability growth over the long-term ("Growth Portfolio Investments"). The Growth Portfolio Investments are primarily invested in passively managed equity funds, international and emerging market funds that are actively managed and non-investment grade fixed income funds. The overall strategy and the Immunizing Portfolio Investments are managed by professional investment managers. The investments within these asset classes are diversified in order to minimize the risk of large losses. The Plan assumes a 4.5 % expected long-term annual weighted-average rate of return on assets. The fair value measurements of the Company's U.S. pension plan assets are based upon inputs that reflect quoted prices for identical assets or liabilities in active markets that are observable (Level 1) and significant observable inputs (Level 2) that reflect quoted prices for similar assets or liabilities in active markets. The fair value measurements of the U.S. pension plan assets relate to common collective trusts and other pooled investment vehicles consisting of the following asset categories: (In millions) December 31, 2020 December 31, 2019 Asset Category Level 1 Level 2 Measured at NAV (1) Level 1 Level 2 Measured at NAV (1) Cash $ 6 $ — $ — $ 10 $ — $ — Short Term Investments — 28 — — 36 — Equity Funds (2) : U.S. Large Cap — 66 — — 70 — U.S. Small Cap — 11 — — 10 — International Large Cap — 36 — — 38 — International Small Cap — 7 — — 7 — International Emerging Markets — 6 9 — 8 8 Fixed Income Securities: U.S. Treasuries — 18 — — 1 — Corporate Bonds — 245 — — 247 — Government Bonds — 9 — — 24 — Municipal Bonds — 10 — — 11 — Derivatives - Interest Rate 3 — — ( 3 ) — — Derivatives - Credit — — — — 1 — Non-Investment Grade Fixed Income (2) — 34 — — 35 — Total fair value of pension plan assets $ 9 $ 470 $ 9 $ 7 $ 488 $ 8 (1) Includes certain investments where the fair value measurement utilizes the net asset value (NAV) and as such, are not classified in the fair value levels above. (2) The Level 2 investments relate to investment funds that publish daily NAV per unit. The daily NAV is available to participants in the funds and redemptions can be made daily at the current NAV. The fair value and units are determined and published, and are the basis for current transactions. The investments are not eligible for the NAV practical expedient. However, they are measured at the published NAV because the quoted NAV per unit represents the price at which the investment would be sold in a transaction between independent market participants. The U.K. Plan The Company's United Kingdom defined benefit pension plan (the "U.K. Plan") has a target allocation of 30 % actively managed diversified growth and multi-asset credit funds, 10 % passive equity funds and 60 % protection portfolio that consists of liability driven investments, Sterling liquidity fund and United Kingdom corporate bonds. The actively managed diversified growth and multi-asset credit funds are intended to deliver a long-term equity-like 148 Table of Contents HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES THE HERTZ CORPORATION AND SUBSIDIARIES (DEBTORS-IN-POSSESSION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) return but with reduced levels of volatility. The protection portfolio is designed to partially hedge the interest rate and inflation expectation exposure of the liabilities which are measured on a local regulatory basis. The amount that is required to be invested in each fund to maintain target hedge ratios will vary over time as the value of the liabilities change and the allocations within the protection portfolio will be allowed to vary accordingly. All of the invested assets of the U.K. Plan are held via pooled funds managed by professional investment managers. The U.K. Plan assumes a 3.0 % expected long-term weighted-average rate of return on assets for the Plan in total. The Company's U.K. Plan accounts for $ 251 million of the $ 258 million in fair value of Non-U.S. plan assets as of December 31, 2020 and accounts for $ 221 million of the $ 228 million in fair value of Non-U.S. plan assets as of December 31, 2019. The fair value measurements of the Company's U.K. Plan assets are based upon inputs that reflect quoted prices for identical assets or liabilities in active markets that are observable (Level 1) and significant observable inputs that reflect quoted prices for similar assets or liabilities in active markets (Level 2). The fair value measurements of the U.K. Plan assets relate to common collective trusts and other pooled investment vehicles consisting of the following asset categories: (In millions) December 31, 2020 December 31, 2019 Asset Category Level 1 Level 2 Measured at NAV (1) Level 1 Level 2 Measured at NAV (1) Actively Managed Multi-Asset Funds: Diversified Growth Funds (2) $ — $ 39 $ — $ — $ 42 $ — Multi Asset Credit — — 37 — — 36 Passive Equity Funds: U.K. Equities (2) — 12 — — 11 — Overseas Equities (2) — 14 — — 14 — Passive Bond Funds: Corporate Bonds — 27 — — 24 — Liability Driven Investments (2) — 98 — — 48 — Liquidity Fund 24 — — 46 — — Total fair value of pension plan assets $ 24 $ 190 $ 37 $ 46 $ 139 $ 36 (1) Includes certain investments where the fair value measurement utilizes the net asset value (NAV) and as such, are not classified in the fair value levels above. (2) The Level 2 investments relate to investment funds that publish daily NAV per unit. The daily NAV is available to participants in the funds and redemptions can be made daily at the current NAV. The fair value and units are determined and published, and are the basis for current transactions. The investments are not eligible for the NAV practical expedient. However, they are measured at the published NAV because the quoted NAV per unit represents the price at which the investment would be sold in a transaction between independent market participants. Contributions The Company's policy for funded plans is to contribute annually, at a minimum, amounts required by applicable laws, regulations and union agreements. From time to time, the Company makes contributions beyond those legally required. In 2020 and 2019, the Company did not make any cash contributions to its U.S. qualified pension plan. In 2020 and 2019, the Company made contributions to its U.S. non-qualified pension plans of $ 2 million and $ 4 million, respectively. The Company made discretionary contributions of $ 3 million to its U.K. Plan during the years ended December 31, 2020 and 2019. The Company does not anticipate contributing to the U.S. qualified pension plan during 2021. For the U.K. Plan the Company anticipates contributing $ 3 million during 2021 and does not anticipate contributing any significant amounts to its other international plans. The level of 2021 and future contributions will vary, and is dependent on a number of factors including investment returns, interest rate fluctuations, plan demographics, funding regulations and the results of the final actuarial valuation. 149 Table of Contents HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES THE HERTZ CORPORATION AND SUBSIDIARIES (DEBTORS-IN-POSSESSION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Estimated Future Benefit Payments The following table presents estimated future benefit payments: (In millions) Pension Benefits Postretirement Benefits (U.S.) 2021 $ 34 $ 1 2022 33 1 2023 36 1 2024 38 1 2025 40 1 After 2025 217 3 $ 398 $ 8 Multiemployer Pension Plans The Company contributes to several multiemployer defined benefit pension plans under collective bargaining agreements that cover certain of its union-represented employees. The risks of participating in such plans are different from the risks of a single-employer plan, in the following respects: a) Assets contributed to a multiemployer plan by one employer may be used to provide benefits to employees of other participating employers. b) If a participating employer ceases to contribute to the plan, the unfunded obligations of the plan may be borne by the remaining participating employers. c) If the Company ceases to have an obligation to contribute to the multiemployer plan in which the Company had been a contributing employer, the Company may be required to pay to the plan an amount based on the underfunded status of the plan and on the history of its participation in the plan prior to the cessation of its obligation to contribute. The amount that an employer that has ceased to have an obligation to contribute to a multiemployer plan is required to pay to the plan is referred to as a withdrawal liability. Amounts accrued for benefit payments under the Company's multiemployer pension plans of $ 2 million have been classified as liabilities subject to compromise in the accompanying consolidated balance sheet as of December 31, 2020. The Company's participation in multiemployer plans is outlined in the table below. For plans that are not individually significant to the Company, the total amount of contributions is presented in the aggregate. EIN /Pension Plan Number Pension Protection Act Zone Status FIP / RP Status Pending /Implemented (1) Contributions by The Hertz Corporation (In millions) Surcharge Imposed Expiration Dates of Collective Bargaining Agreements Pension Fund 2020 2019 2020 2019 2018 Western Conference of Teamsters 91-6145047 Green Green N/A $ 5 $ 8 $ 7 N/A 9/30/2021 Other Plans (2) 2 4 3 Total Contributions $ 7 $ 12 $ 10 N/A Not applicable (1) Indicates whether a Funding Improvement Plan, as required under the Code to be adopted by plans in the “yellow” zone, or a Rehabilitation Plan, as required under the Code to be adopted by plans in the “red” zone, is pending or has been implemented as of the end of the plan year that ended in 2020. (2) Included in the Other Plans are contributions to the Local 1034 Pension Fund. The amount contributed by Hertz to the Local 1034 Pension Fund was reported as being more than 5 % of total contributions to the plan on the fund's Form 5500 for the year ended December 31, 2019. 150 Table of Contents HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES THE HERTZ CORPORATION AND SUBSIDIARIES (DEBTORS-IN-POSSESSION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Note 9— Stock-Based Compensation The stock-based compensation expense associated with the Hertz Holdings stock-based compensation plans is pushed down from Hertz Global and recorded on the books at the Hertz level. Plans In May 2016, Old Hertz Holdings board of directors adopted the Hertz Global Holdings, Inc. 2016 Omnibus Incentive Plan (the “Omnibus Plan”), which was amended by its stockholders at the annual meeting of stockholders held on May 24, 2019 to increase the number of shares which can be granted under the plan by 2,490,000 shares. As amended, the Omnibus Plan contains 11,767,723 shares which can be granted pursuant to the terms and conditions of the Omnibus Plan. In connection with the Rights Offering, as disclosed in Note 17, “Equity and Earnings (Loss) Per Share - Hertz Global”, and pursuant to the Omnibus Plan, the number of shares which can be granted under the plan was increased by an additional 453,741 shares in 2019. The Omnibus Plan provides for grants of both equity and cash awards, including non-qualified stock options, incentive stock options, stock appreciation rights, performance awards (shares and units), restricted stock, restricted stock units and deferred stock units to key executives, employees and non-management directors. The shares of common stock to be delivered under the Omnibus Plan may consist, in whole or in part, of common stock held in treasury or authorized but unissued shares of common stock, not reserved for any other purpose. As of December 31, 2020, the Company had 2,694,399 shares underlying awards outstanding under the Omnibus Plan. Shares subject to any award (other than distribution awards) granted under the Omnibus Plan that for any reason are canceled, terminated, forfeited, settled in cash or otherwise settled without the issuance of common stock after the effective date of the Omnibus Plan will generally be available for future grants under the Omnibus Plan. A summary of the total compensation expense and associated income tax benefits recognized, including the cost of stock options, RSUs, PSUs, and PSAs is as follows: Years Ended December 31, (In millions) 2020 2019 2018 Compensation expense $ ( 2 ) $ 18 $ 14 Income tax benefit — ( 2 ) ( 3 ) Total $ ( 2 ) $ 16 $ 11 As of December 31, 2020, there was approximately $ 8 million of total unrecognized compensation cost related to non-vested stock options, RSUs, PSUs and PSAs granted. The total unrecognized compensation cost is expected to be recognized over the remaining 1.1 years, on a weighted average basis, of the requisite service period that began on the grant dates. Stock Options and Stock Appreciation Rights All stock options and stock appreciation rights granted under the Omnibus Plan will have a per-share exercise price of not less than the fair market value of one share of Hertz Global's common stock on the grant date. Stock options and stock appreciation rights will vest based on a minimum period of service or the occurrence of events (such as a change in control, as defined in the Omnibus Plan) specified by the Compensation Committee of the Company's Board. No stock options or stock appreciation rights will be exercisable after a maximum of ten years from the grant date. The Company accounts for options as equity-classified awards and recognizes compensation cost on a straight-line basis over the vesting period. The value of each option award is estimated on the grant date using a Black-Scholes option valuation model that incorporates the assumptions noted in the following table. 151 Table of Contents HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES THE HERTZ CORPORATION AND SUBSIDIARIES (DEBTORS-IN-POSSESSION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) The Company calculates the expected volatility based on the historical movement of its stock price. Grants Assumption 2020 (1) 2019 (2) 2018 Expected volatility — % 68.5 % 56.7 % Expected dividend yield — % — % — % Expected term (years) 0 7 5 Risk-free interest rate — % 1.93 % 2.57 % Weighted-average grant date fair value $ — $ 9.19 $ 8.92 (1) There were no options approved to be granted by the Company's Compensation Committee in 2020. (2) Options granted in 2019 are solely related to the incremental grants awarded as part of the Rights Offering, as disclosed in Note 17, "Equity and Earnings (Loss) Per Share - Hertz Global." A summary of option activity as of December 31, 2020 is presented below: Options Shares Weighted Average Exercise Price Weighted- Average Remaining Contractual Term (years) Aggregate Intrinsic Value (In millions) Outstanding as of January 1, 2020 1,055,954 $ 28.36 4.0 $ — Granted — — — — Exercised — — — — Forfeited or Expired ( 956,916 ) 27.70 — — Outstanding as of December 31, 2020 99,038 34.76 2.3 — Exercisable as of December 31, 2020 98,194 35.35 1.4 — A summary of non-vested option activity as of December 31, 2020 is presented below: Non-vested Shares Weighted- Average Exercise Price Weighted-Average Grant-Date Fair Value Non-vested as of January 1, 2020 477,438 $ 18.31 $ 9.35 Granted — — — Vested ( 19,664 ) 17.97 8.93 Forfeited ( 434,525 ) 18.34 9.39 Non-vested as of December 31, 2020 23,249 18.07 9.06 Additional information pertaining to option activity under the plans is as follows: Years Ended December 31, (In millions) 2020 2019 2018 Aggregate intrinsic value of stock options exercised $ — $ — $ — Cash received from the exercise of stock options — — — Fair value of options that vested — 5 3 Tax benefit realized on exercise of stock options — — — Performance Stock Awards, Performance Stock Units, Restricted Stock and Restricted Stock Units PSAs and PSUs granted under the Omnibus Plan will vest based on the achievement of pre-determined performance goals over performance periods determined by the Compensation Committee. Each of the units 152 Table of Contents HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES THE HERTZ CORPORATION AND SUBSIDIARIES (DEBTORS-IN-POSSESSION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) granted represent the right to receive one share of Hertz Global's common stock on a specified future date. In the event of an employee's death or disability, a pro rata portion of the employee's PSAs and PSUs will vest to the extent performance goals are achieved at the end of the performance period. Restricted stock and RSUs granted under the Omnibus Plan will vest based on a minimum period of service or the occurrence of events (such as a change in control, as defined in the Omnibus Plan) specified by the Compensation Committee. On August 4, 2020, in recognition of the Chapter 11 Cases, all long-term incentive plans were frozen and as such, no shares will be distributed upon vesting (the "Equity Vesting Event"). As a result, none of the 2018, 2019 or 2020 unvested PSA, PSU and RSU equity awards will vest. The 2020 threshold performance achievement set forth in these 2018, 2019 and 2020 PSU awards also failed to be met due to the COVID-19 pandemic impact on our financial results, and as a result, no PSU shares will be distributed upon vesting. A summary of the PSU and PSA activity as of December 31, 2020 is presented below: Shares Weighted- Average Fair Value Aggregate Intrinsic Value (In millions) Outstanding as of January 1, 2020 2,247,643 $ 19.08 $ 21 Granted 1,482,197 22.18 — Vested ( 75,288 ) 20.15 — Forfeited or Expired ( 1,841,247 ) 22.05 — Outstanding as of December 31, 2020 1,813,305 16.47 2 A summary of RSU activity as of December 31, 2020 is presented below: Shares Weighted- Average Fair Value Aggregate Intrinsic Value (In millions) Outstanding as of January 1, 2020 1,044,269 $ 18.43 $ 16 Granted 757,294 12.18 — Vested ( 396,749 ) 19.07 — Forfeited or Expired ( 622,758 ) 14.50 — Outstanding as of December 31, 2020 782,056 15.11 1 Additional information pertaining to RSU activity is as follows: Years Ended December 31, 2020 2019 2018 Total fair value of awards that vested (In millions) $ 8 $ 12 $ 5 Weighted-average grant date fair value of awards 12.18 18.66 17.40 Compensation expense for PSUs, PSAs and RSUs is based on the grant date fair value, and is recognized ratably over the vesting period. For grants in 2020, 2019 and 2018, the vesting period is three years . In addition to the service vesting condition, the PSUs and PSAs had an additional vesting condition which called for the number of units that will be awarded being based on achievement of a certain level of Operating Income, Adjusted Corporate EBITDA or other performance measures over the applicable measurement period. As a result of the Equity Vesting Event, none of the 2018, 2019 or 2020 unvested PSA, PSU and RSU shares will be distributed upon vesting. Note 10— Leases The Company adopted Topic 842 in accordance with the effective date on January 1, 2019. In the Revenue Recognition section of Note 2, “Significant Accounting Policies, the Company discloses that revenue earned from 153 Table of Contents HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES THE HERTZ CORPORATION AND SUBSIDIARIES (DEBTORS-IN-POSSESSION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) vehicle rentals and from other forms of rental related activities wherein an identified asset is transferred to the customer and the customer has the ability to control that asset, is accounted for under Topic 842. Prior to the adoption of Topic 842, the Company accounted for such revenue under Topic 606 for the year ended December 31, 2018. The Company enters into certain agreements as a lessor under which it rents vehicles and leases fleets to customers. The Company enters into certain agreements as a lessee to rent real estate, vehicles and other equipment and to conduct its vehicle rental operations under concession agreements. If any of the following criteria are met, the Company classifies the lease as a financing lease (as a lessee) or as a direct financing or sales-type lease (both as a lessor): • The lease transfers ownership of the underlying asset to the lessee by the end of the lease term; • The lease grants the lessee an option to purchase the underlying asset that the Company is reasonably certain to exercise; • The lease term is for 75 % or more of the remaining economic life of the underlying asset, unless the commencement date falls within the last 25 % of the economic life of the underlying asset; • The present value of the sum of the lease payments equals or exceeds 90 % of the fair value of the underlying asset; or • The underlying asset is of such a specialized nature that it is expected to have no alternative use to the lessor at the end of the lease term. Leases that do not meet any of the above criteria are accounted for as operating leases. The Company combines lease and non-lease components in its contracts under Topic 842, when permissible. The following further describes the Company's leasing transactions. Lessor The Company's operating leases for vehicle rentals have rental periods that are typically short term (e.g., daily or weekly) and can generally be extended for up to one month or terminated at the customer's discretion. Rental charges are computed on a limited or unlimited mileage rate, or on a time rate plus a mileage charge. In connection with the vehicle rental, the Company offers supplemental equipment rentals (e.g., child seats and ski racks) which are deemed lease components. The Company also offers value-added services in connection with the vehicle rental, which are deemed non-lease components, such as loss or collision damage waiver, theft protection, liability and personal accident/effects insurance coverage, premium emergency roadside service and satellite radio. Additionally, the Company charges for variable services primarily consisting of tolls and refueling charges incurred during the rental period and for fees associated with the early or late termination of the vehicle lease. The Company mitigates residual value risk of its revenue earning vehicles by utilizing manufacturer repurchase and guaranteed depreciation programs, using sophisticated vehicle diagnostic and repair equipment to maintain the condition of its vehicles and through periodic reviews of vehicle depreciation rates based on management's ongoing assessment of present and estimated future market conditions. The Company's operating leases for fleets have lease periods that are typically for twelve months, after which the lease converts to a month-to-month lease, allowing the vehicle to be surrendered any time thereafter. The Company's fleet leases contain a terminal rental adjustment clause which are considered variable charges. The following table summarizes the amount of operating lease income and other income included in total revenues in the accompanying consolidated statements of operations for the years ended December 31, 2020 and 2019: 154 Table of Contents HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES THE HERTZ CORPORATION AND SUBSIDIARIES (DEBTORS-IN-POSSESSION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (In millions) 2020 2019 Operating lease income from vehicle rentals $ 4,320 $ 8,579 Operating lease income from fleet leasing 639 674 Variable operating lease income 30 164 Revenue accounted for under Topic 842 4,989 9,417 Revenue accounted for under Topic 606 269 362 Total revenues $ 5,258 $ 9,779 Lessee As a lessee, the Company has the following types of operating leases: • Concession agreements which grant the Company the right to conduct its vehicle rental operations at airports, hotels and train stations and to use building space such as terminal counters and parking garages; • Real estate leases for its off airport vehicle rental locations and other premises; • Revenue earning vehicle leases; and • Other equipment leases. The Company's lease terms generally range from one month to thirty-five years and a number of agreements contain escalation clauses, which increase the payment obligation based on a fixed or variable rate and renewal options. The length of renewals vary and may result in different payment terms. Payment terms are based on fixed rates explicit in the lease, including guaranteed minimums and/or variable rates based on: • Operating expenses, such as common area charges, real estate taxes and insurance; • A percentage of revenues or sales arising at the relevant premises; and/or • Periodic inflation adjustments. The Company recognizes a right-of-use asset and lease liability in its accompanying consolidated balance sheets for leases with a term greater than twelve months. Options to extend or terminate a lease are included in the Company's right-of-use asset and lease liability when it is reasonably certain that such options will be exercised. The Company does not recognize right-of-use assets or lease liabilities for short-term leases (i.e., those with a term of twelve months or less) and recognizes lease expense on a straight-line basis over the lease term, as applicable. To determine the present value of its lease payments, the Company utilizes the interest rate implicit in the lease agreement. If the implicit interest rate cannot be determined in the lease agreement, the Company utilizes the Company's collateralized incremental borrowing rate as of the date of adoption, January 1, 2019, or the commencement date of the lease, whichever is later. As a result of the impact from COVID-19 as disclosed in Note 1, "Background," the Company received rent concessions in the form of abatement and payment deferrals of fixed and variable rent payments for its airport and off airport locations in the amount of approximately $ 300 million during the year ended December 31, 2020, which substantially represents amounts previously due in 2020. The Company elected to apply the accounting relief provided by the FASB and elected to not evaluate whether the concession is a modification. The Company will account for the concession as if it were part of the existing contract. In 2020, the Bankruptcy Court entered the Lease Rejection Orders which applied, in the aggregate, to 359 off airport and 66 airport locations in the Company's U.S. RAC segment. 155 Table of Contents HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES THE HERTZ CORPORATION AND SUBSIDIARIES (DEBTORS-IN-POSSESSION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) The following table summarizes the amount of lease costs incurred by the Company: Years ended December 31, (In millions) 2020 2019 2018 Minimum fixed lease costs (1) : Short-term lease costs $ 142 $ 130 N/A Operating lease costs 527 545 N/A Total 669 675 $ 577 Variable lease costs 23 326 438 Total lease costs $ 692 $ 1,001 $ 1,015 (1) Topic 842, which was adopted on January 1, 2019, requires the Company to disclose the short-term portion of minimum fixed lease costs. For the year ended December 31, 2018, under the then existing guidance in Topic 840, the Company was only required to disclose minimum fixed costs in total. The following summarizes the weighted-average remaining lease term and weighted-average discount rate for the Company's operating leases as a lessee: December 31, 2020 Weighted-average remaining lease term (in years) 9.5 Weighted-average discount rate 10.6 % The following table summarizes the Company's minimum fixed lease obligations under existing agreements as a lessee, excluding variable concession obligations in excess of minimum annual guarantees and short-term leases, as of December 31, 2020: (In millions) 2021 $ 449 2022 386 2023 313 2024 248 2025 193 After 2025 1,061 Total lease payments 2,650 Interest ( 1,014 ) Operating lease liabilities at December 31, 2020 $ 1,636 Note 11— Restructuring Due to the impact from COVID-19 as disclosed in Note 1, "Background," the Company initiated a restructuring program beginning in April 2020, affecting approximately 11,000 employees in its U.S. Rental Car segment and corporate operations and incurred approximately $ 37 million of charges for termination benefits during the second quarter of 2020, where $ 7 million was classified as liabilities subject to compromise in the accompanying consolidated balance sheet as of December 31, 2020 as disclosed below. This program was substantially completed in the third quarter of 2020. 156 Table of Contents HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES THE HERTZ CORPORATION AND SUBSIDIARIES (DEBTORS-IN-POSSESSION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) The following tables summarize restructuring charges incurred under this program: (In millions) Year Ended December 31, 2020 Termination charges: Direct vehicle and operating $ 25 Selling, general and administrative 12 Total $ 37 (In millions) Year Ended December 31, 2020 Termination charges: U.S. Rental Car Segment $ 34 Corporate operations 3 Total $ 37 The tables above do not include pension-related settlement charges incurred during the year ended December 31, 2020. See Note 8, "Employee Retirement Benefits." The following table summarizes the activity affecting the restructuring accrual, which is recorded in accrued liabilities or was reclassified to liabilities subject to compromise in the accompanying consolidated balance sheet, during the year ended December 31, 2020. (In millions) Termination Benefits Balance as of December 31, 2019 $ 1 Charges incurred 37 Cash payments ( 29 ) Liabilities subject to compromise (1) ( 7 ) Other ( 2 ) Balance as of December 31, 2020 $ — (1) As a result of filing the Chapter 11 Cases, as disclosed in Note 1, "Background," the Company classified $ 7 million of restructuring charges as liabilities subject to compromise in the accompanying consolidated balance sheet as of December 31, 2020. See Note 19, "Liabilities Subject to Compromise. " Note 12— Income Tax (Provision) Benefit On March 27, 2020, the U.S. federal government passed the CARES Act. The Company has considered the income tax provisions of the CARES Act in the tax benefit calculation for the year ended December 31, 2020. Under the CARES Act, Alternative Minimum Tax ("AMT") credit refunds are accelerated and fully refundable in tax returns through the year 2019. As a result of this provision, the Company recovered its remaining AMT credit as a refund in the amount of $ 20 million in the year ended December 31, 2020. The Company also benefited from the provisions of the CARES Act related to the employee retention credit, payroll tax deferral, the increase in the interest expense limitation, and temporary suspension of the NOL percentage utilization limitation. On December 22, 2017, the U.S. enacted the TCJA, which made substantial changes to corporate income tax laws. Among the key provisions were a U.S. corporate tax rate reduction from 35 % to 21 % effective for tax years beginning January 1, 2018; an acceleration of expensing for certain business assets; a repeal of the LKE deferral rules as applicable to personal property, including rental vehicles; a one-time transition tax on the deemed 157 Table of Contents HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES THE HERTZ CORPORATION AND SUBSIDIARIES (DEBTORS-IN-POSSESSION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) repatriation of cumulative earnings from foreign subsidiaries; and changes to U.S. taxation of foreign earnings from a worldwide to a territorial tax system effective for tax years beginning January 1, 2018. The Company has reflected the adoption and impact of TCJA in its financial results for all years following enactment. The components of income (loss) before income taxes for the Company's domestic and foreign operations were as follows: Hertz Global As of December 31, (In millions) 2020 2019 2018 Domestic $ ( 1,692 ) $ 28 $ ( 293 ) Foreign ( 360 ) ( 15 ) 36 Total income (loss) before income taxes $ ( 2,052 ) $ 13 $ ( 257 ) Hertz As of December 31, (In millions) 2020 2019 2018 Domestic $ ( 1,823 ) $ 35 $ ( 286 ) Foreign ( 360 ) ( 15 ) 36 Total income (loss) before income taxes $ ( 2,183 ) $ 20 $ ( 250 ) The total income tax provision (benefit) consists of the following: Hertz Global and Hertz As of December 31, (In millions) 2020 2019 2018 Current: Federal $ — $ — $ ( 3 ) Foreign 18 20 32 State and local 4 16 7 Total current 22 36 36 Deferred: Federal ( 356 ) 1 ( 66 ) Foreign 35 ( 1 ) 11 State and local ( 30 ) 27 ( 11 ) Total deferred ( 351 ) 27 ( 66 ) Total provision (benefit) - Hertz Global ( 329 ) 63 ( 30 ) Federal deferred tax (provision) benefit applicable to Hertz Holdings 1 2 2 Total provision (benefit) - Hertz $ ( 328 ) $ 65 $ ( 28 ) 158 Table of Contents HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES THE HERTZ CORPORATION AND SUBSIDIARIES (DEBTORS-IN-POSSESSION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) The principal items of the U.S. and foreign net deferred tax assets and liabilities are as follows: Hertz Global and Hertz As of December 31, (In millions) 2020 2019 Deferred tax assets: Employee benefit plans $ 44 $ 44 Net operating loss carry forwards 828 2,386 Federal and state tax credit carry forwards 55 43 Accrued and prepaid expenses 124 127 Operating lease liabilities 390 410 Total deferred tax assets 1,441 3,010 Less: valuation allowance ( 651 ) ( 396 ) Total net deferred tax assets 790 2,614 Deferred tax liabilities: Depreciation on tangible assets ( 380 ) ( 2,518 ) Intangible assets ( 723 ) ( 738 ) Operating lease right-of-use assets ( 406 ) ( 422 ) Total deferred tax liabilities ( 1,509 ) ( 3,678 ) Net deferred tax liability - Hertz Global ( 719 ) ( 1,064 ) Deferred tax asset - net operating loss applicable to Hertz Holdings ( 5 ) ( 3 ) Net deferred tax liability - Hertz $ ( 724 ) $ ( 1,067 ) Hertz Global and Hertz In determining valuation allowances, an assessment of positive and negative evidence was performed regarding realization of the deferred tax assets. This assessment included the evaluation of cumulative earnings and losses in recent years, scheduled reversals of deferred tax liabilities, the availability of carry forwards and the remaining period of the respective carry forward, future taxable income and any applicable tax-planning strategies that are available. As of December 31, 2020, the Company has U.S. Federal net operating loss carryforwards ("Federal NOLs") of approximately $ 1.2 billion, $ 252 million tax effected and federal tax credits of approximately $ 23 million. Our Federal NOLs are driven by U.S. operational losses and have an indefinite carryforward period, which may offset 80% of taxable income generated in any future year. The federal tax credits begin expiring in 2035. The Company has not recorded a valuation allowance on its Federal NOLs or federal tax credits as there are adequate U.S. deferred tax liabilities that could be realized within the carry forward periods. As of December 31, 2020, the Company had state net operating loss carry forwards ("State NOLs") of approximately $ 4.1 billion of which $ 550 million have an indefinite utilization period with remaining State NOLs beginning to expire in 2021. The tax effected State NOLs are recorded as a deferred tax asset in the amount of $ 244 million, and are offset, in part, by a valuation allowance totaling $ 236 million. In addition, as of December 31, 2020, the Company has approximately $ 31 million in state tax credits that are fully offset by a valuation allowance. The state tax credits expire over various years beginning in 2021 depending upon when they were generated and the particular jurisdiction. We evaluated the positive and negative evidence supporting realization of the State NOLs and state tax credits on a tax filing basis. We recorded valuation allowances in those jurisdictions with a history of cumulative losses and no other sources of taxable income, including deferred tax liabilities or tax planning strategies, sufficient to conclude the State NOLs and credits are more-likely-than-not to be realized. 159 Table of Contents HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES THE HERTZ CORPORATION AND SUBSIDIARIES (DEBTORS-IN-POSSESSION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) As of December 31, 2020, the Company had foreign net operating loss carry forwards ("Foreign NOLs") of approximately $ 1.3 billion, of which $ 1.1 billion have an indefinite utilization period with the remaining Foreign NOLs beginning to expire in 2024. The tax effected Foreign NOLs are recorded as a deferred tax asset of $ 332 million, and are offset, in part, by valuation allowances totaling $ 303 million. In addition, as of December 31, 2020, the Company has approximately $ 1 million of tax credits in foreign jurisdictions and are fully offset by a valuation allowance. The foreign tax credits have an indefinite utilization period. We evaluated the positive and negative evidence supporting realization of the Foreign NOLs and foreign tax credits on a tax filing basis. We recorded valuation allowances in those jurisdictions with a history of cumulative losses and no other sources of taxable income, including deferred tax liabilities or tax planning strategies, sufficient to conclude the Foreign NOLs or foreign credits were more-likely-than-not to be realized. The Company's Federal, State and Foreign NOLs may be subject to limitations upon an ownership change before or upon emergence from Chapter 11. The significant items in the reconciliation of the statutory and effective income tax rates consisted of the following items in the table below. Percentages are calculated from the underlying numbers in thousands, and as a result, may not agree to the amount when calculated in millions. Hertz Global and Hertz Years Ended December 31, 2020 2019 2018 Statutory federal tax rate 21 % 21 % 21 % Foreign tax rate differential — ( 31 ) ( 1 ) State and local income taxes, net of federal income tax benefit 5 ( 102 ) 7 Change in state apportionment and statutory rates, net of federal income tax benefit 1 ( 17 ) 1 Tax reform — — ( 9 ) Federal and foreign permanent differences — ( 3 ) — Withholding taxes — 62 ( 3 ) Uncertain tax positions — 29 ( 3 ) Change in valuation allowance ( 11 ) 591 ( 5 ) Change in foreign statutory rates — 15 ( 3 ) Tax credits — ( 75 ) 7 Stock option shortfalls — 7 ( 1 ) All other items, net — 3 1 Effective tax rate - Hertz Global 16 500 12 All other items, net rate impact applicable to Hertz Holdings ( 1 ) ( 174 ) ( 1 ) Effective tax rate - Hertz 15 % 326 % 11 % The Company recorded a tax benefit in 2020 versus a tax provision in 2019. The change is primarily due to significant losses in 2020 resulting from the effect of COVID-19, offset, in part, by the impact of valuation allowances on net deferred tax assets. The Company recorded a tax provision in 2019 versus a tax benefit in 2018. The change is primarily due to an increase in the valuation allowance relating to losses in certain U.S. and non-U.S. jurisdictions and an increase in pretax operating results. As of December 31, 2020, total unrecognized tax benefits were $ 53 million and, if settled, $ 36 million would favorably impact the effective tax rate in future periods. However, considering correlative adjustments associated 160 Table of Contents HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES THE HERTZ CORPORATION AND SUBSIDIARIES (DEBTORS-IN-POSSESSION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) with some uncertain tax positions, the net impact on the income tax provision would be approximately $ 4 million if settled. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows: Hertz Global and Hertz Years Ended December 31, (In millions) 2020 2019 2018 Balance as of January 1 $ 48 $ 49 $ 43 Increase (decrease) attributable to tax positions taken during prior periods 5 5 3 Increase (decrease) attributable to tax positions taken during the current year 1 1 5 Decrease attributable to settlements with taxing authorities ( 1 ) ( 7 ) ( 2 ) Balance as of December 31 $ 53 $ 48 $ 49 The Company conducts business globally and, as a result, files tax returns in the U.S. and non-U.S. jurisdictions. In the normal course of business, the Company is subject to examination by taxing authorities throughout the world. The open tax years for these jurisdictions span from 2005 to 2020. During 2020, the IRS proposed transfer pricing adjustments to the Company's 2014 and 2015 tax years, for which the company is pursuing competent authority relief. The IRS continues to audit the Company's 2016 tax year. Previously, 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. This assertion was based on the German Tax Authorities’ belief that certain intercompany charges made by the U.S. to our German entity were overstated. To avoid the double taxation resulting in these tax years from this assessment, the Company pursued U.S. and German competent authority relief. We believe that it is reasonably possible that a decrease of up to $ 25 million in unrecognized tax benefits related to the German assessment may be necessary within the coming year. Additionally, we are under audit in several U.S. states and other non-U.S. jurisdictions, and it is reasonably possible that the amount of unrecognized tax benefits may change as the result of the completion of ongoing examinations, the expiration of the statute of limitations or other unforeseen circumstances. The amount that is reasonably possible to change during the next twelve months is not expected to be significant. Net, after-tax interest and penalties related to tax liabilities are classified as a component of income tax in the accompanying consolidated statements of operations. Income tax expense of $ 1 million and $ 0.4 million was recognized for such interest and penalties during the years ended December 31, 2020 and 2019, respectively, and during the year ended December 31, 2018, a benefit of $ 1 million was recognized for such interest and penalties. Net, after-tax interest and penalties were accrued as a component of tax in the Company's consolidated balance sheet in the amount of $ 9 million and $ 8 million as of December 31, 2020 and 2019, respectively. Hertz Global no longer asserts permanent reinvestment of foreign earnings, due to the impact from COVID-19 as disclosed in Note 1, "Background." This change in assertion did not result in any significant impact to the income tax provision for the period ended December 31, 2020. Note 13— Fair Value Measurements Under U.S. GAAP, entities are allowed to measure certain financial instruments and other items at fair value. The Company has not elected the fair value measurement option for any of its assets or liabilities that meet the criteria for this option. Irrespective of the fair value option previously described, U.S. GAAP requires certain financial and non-financial assets and liabilities of the Company to be measured on either a recurring basis or on a nonrecurring basis. 161 Table of Contents HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES THE HERTZ CORPORATION AND SUBSIDIARIES (DEBTORS-IN-POSSESSION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Assets and Liabilities Measured at Fair Value on a Recurring Basis The fair value of cash, restricted cash, accounts receivable, accounts payable and accrued liabilities, to the extent the underlying liability will be settled in cash, approximates the carrying values because of the short-term nature of these instruments. The Company's assessment of goodwill and other intangible assets for impairment includes an assessment using various Level 2 inputs (earnings before interest, taxes, depreciation and amortization ("EBITDA") multiples and royalty rates) and Level 3 inputs (forecasted cash flows and discount rates). See Note 2, "Significant Accounting Policies — Recoverability of Goodwill and Intangible Assets," for more information on the application of the use of fair value methodology in the Company's assessment. Cash Equivalents, Restricted Cash Equivalents and Investments The Company’s cash equivalents and restricted cash equivalents primarily consist of investments in money market funds and bank money market and interest-bearing accounts. The Company determines the fair value of cash equivalents using a market approach based on quoted prices in active markets (i.e., Level 1 inputs). Investments in equity securities that are measured at fair value on a recurring basis consisted of marketable securities which the Company divested of in 2020. See Note 3, "Divestitures," for further information. The following table summarizes the ending balances of the Company's cash equivalents, restricted cash equivalents and investments: December 31, 2020 December 31, 2019 (In millions) Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total Cash equivalents $ 723 $ — $ — $ 723 $ 531 $ — $ — $ 531 Marketable securities — — — — 74 — — 74 Debt Obligations The fair value of debt is estimated based on quoted market rates as well as borrowing rates currently available to the Company for loans with similar terms and average maturities (i.e., Level 2 inputs). As of December 31, 2020 As of December 31, 2019 (In millions) Nominal Unpaid Principal Balance Aggregate Fair Value (1) Nominal Unpaid Principal Balance Aggregate Fair Value Non-Vehicle Debt (2) $ 4,747 $ 3,382 $ 3,755 $ 3,840 Vehicle Debt 6,087 6,021 13,415 13,529 Total $ 10,834 $ 9,403 $ 17,170 $ 17,369 (1) The decrease in the aggregate fair value of the Company's debt is due to the impact from COVID-19 and the filing of the Chapter 11 Cases, as disclosed in Note 1, "Background." (2) Includes Non-Vehicle Debt included in liabilities subject to compromise in the accompanying consolidated balance sheet as of December 31, 2020. See Note 6, "Debt." Assets and Liabilities Measured at Fair Value on a Non-Recurring Basis Donlen Asset Sale As a result of the impending sale of the Donlen Assets, the associated assets and liabilities have been classified as assets held for sale and liabilities held for sale, respectively as of December 31, 2020. Additionally, the assets and liabilities classified as held for sale were required to be recorded at the lower of carrying value or fair value less any costs to sell. See Note 3, "Divestitures," for additional information. 162 Table of Contents HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES THE HERTZ CORPORATION AND SUBSIDIARIES (DEBTORS-IN-POSSESSION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Note 14— Accumulated Other Comprehensive Income (Loss) Changes in the accumulated other comprehensive income (loss) balance by component (net of tax) are as follows: (In millions) Pension and Other Post-Employment Benefits Foreign Currency Items Unrealized Losses from Currency Translation Adjustments on Terminated Net Investment Hedges Accumulated Other Comprehensive Income (Loss) Balance as of January 1, 2020 $ ( 118 ) $ ( 52 ) $ ( 19 ) $ ( 189 ) Other comprehensive income (loss) before reclassification ( 15 ) ( 19 ) — ( 34 ) Amounts reclassified from accumulated other comprehensive income (loss) 11 — — 11 Balance as of December 31, 2020 $ ( 122 ) $ ( 71 ) $ ( 19 ) $ ( 212 ) (In millions) Pension and Other Post-Employment Benefits Foreign Currency Items Unrealized Losses from Currency Translation Adjustments on Terminated Net Investment Hedges Accumulated Other Comprehensive Income (Loss) Balance as of January 1, 2019 $ ( 115 ) $ ( 58 ) $ ( 19 ) $ ( 192 ) Other comprehensive income (loss) before reclassification ( 12 ) 6 — ( 6 ) Amounts reclassified from accumulated other comprehensive income (loss) 9 — — 9 Balance as of December 31, 2019 $ ( 118 ) $ ( 52 ) $ ( 19 ) $ ( 189 ) Note 15— Contingencies and Off-Balance Sheet Commitments Legal Proceedings Public Liability and Property Damage The Company is currently a defendant in numerous actions and has received numerous claims on which actions have not yet commenced for public liability and property damage arising from the operation of motor vehicles rented from the Company. The obligation for public liability and property damage on self-insured U.S. and international vehicles, as stated in the accompanying consolidated balance sheets, represents an estimate for both reported accident claims not yet paid and claims incurred but not yet reported. The related liabilities are recorded on an undiscounted basis and are based on rental volume and actuarial evaluations of historical accident claim experience and trends, as well as future projections of ultimate losses, expenses, premiums and administrative costs. As of December 31, 2020 and 2019, the Company's liability recorded for public liability and property damage matters is $ 488 million and $ 553 million, respectively. The Company believes that its analysis is based on the most relevant information available, combined with reasonable assumptions. The liability is subject to significant uncertainties. The adequacy of the liability is regularly monitored based on evolving accident claim history and insurance related state legislation changes. If the Company's estimates change or if actual results differ from these assumptions, the amount of the recorded liability is adjusted to reflect these results. Loss Contingencies From time to time the Company is a party to various legal proceedings, typically involving operational issues common to the vehicle rental business, including claims by employees and former employees and governmental 163 Table of Contents HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES THE HERTZ CORPORATION AND SUBSIDIARIES (DEBTORS-IN-POSSESSION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) investigations. The Company has summarized below the most significant legal proceedings to which the Company was and/or is a party during 2020 or the period after December 31, 2020, but before the filing of this 2020 Annual Report. Governmental Investigations - The Company previously identified certain activities in Brazil that raised issues under the Foreign Corrupt Practices Act (the "FCPA") and other federal and local laws, which the Company self-reported to appropriate government entities. The matters associated with the FCPA and other federal matters were previously resolved without further action by the applicable U.S. government entities. The Company entered into a leniency agreement in August 2020 with the Brazilian authorities for a monetary sanction against a Hertz non-Debtor subsidiary and the matters under local Brazilian laws are now closed. In re Hertz Global Holdings, Inc. Securities Litigation - In November 2013, a purported shareholder class action, Pedro Ramirez, Jr. v. Hertz Global Holdings, Inc., et al., was commenced in the U.S. District Court for the District of New Jersey naming Old Hertz Holdings and certain of its officers as defendants and alleging violations of the federal securities laws. The complaint alleged that Old Hertz Holdings made material misrepresentations and/or omissions of material fact in certain of its public disclosures in violation of Section 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended, and Rule 10b-5 promulgated thereunder. The complaint sought an unspecified amount of monetary damages on behalf of the purported class and an award of costs and expenses, including counsel fees and expert fees. The complaint, as amended, was dismissed with prejudice on April 27, 2017 and on September 20, 2018, the Third Circuit affirmed the dismissal of the complaint with prejudice. On February 5, 2019, the plaintiffs filed a motion asking the federal district court to exercise its discretion and allow the plaintiffs to reinstate their claims to include additional allegations from the administrative order agreed to by the SEC and the Company in December 2018, which was supplemented by reference to the Company’s subsequently filed litigation against former executives (disclosed below). On September 30, 2019, the federal district court of New Jersey denied the plaintiffs’ motion for relief from the April 27, 2017 judgment and a related motion to allow the filing of a proposed fifth amended complaint. On October 30, 2019, the plaintiffs filed a notice of appeal with the U.S. Court of Appeals for the Third Circuit. The parties fully briefed the appeal and oral argument had been scheduled for June 19, 2020. As a result of the Company's bankruptcy, the appeal was stayed as to the Company, but the plaintiffs advocated that the appeal could proceed against the individual defendants. On October 13, 2020, the Third Circuit affirmed the District Court’s dismissal of the plaintiffs’ motion for relief against the individual defendants since the motion was not timely filed. In addition to the matters described above, the Company maintains an internal compliance program through which it from time to time identifies other potential violations of laws and regulations applicable to the Company. When the Company identifies such matters, the Company conducts an internal investigation and otherwise cooperates with governmental authorities, as appropriate. The Company has established reserves for matters where the Company believes that losses are probable and can be reasonably estimated. Other than the aggregate reserve established for claims for public liability and property damage, none of those reserves are material. For matters, including certain of those described above, where the Company has not established a reserve, the ultimate outcome or resolution cannot be predicted at this time, or the amount of ultimate loss, if any, cannot be reasonably estimated. These matters are subject to many uncertainties and the outcome of the individual litigated matters is not predictable with assurance. It is possible that certain of the actions, claims, inquiries or proceedings, including those disclosed above, could be decided unfavorably to the Company or any of its subsidiaries involved. Accordingly, it is possible that an adverse outcome from such a proceeding could exceed the amount accrued in an amount that could be material to the accompanying consolidated financial condition, results of operations or cash flows in any particular reporting period. Other Proceedings Litigation Against Former Executives - The Company filed litigation in federal court in New Jersey against Mark Frissora, Elyse Douglas and John Jefferey Zimmerman on March 25, 2019, and in state court in Florida against Scott Sider on March 28, 2019, all of whom were former executive officers of Old Hertz Holdings. The complaints predominantly allege breach of contract and seek repayment of incentive-based compensation received by the 164 Table of Contents HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES THE HERTZ CORPORATION AND SUBSIDIARIES (DEBTORS-IN-POSSESSION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) defendants in connection with restatements included in the Old Hertz Holdings Form 10-K for the year ended December 31, 2014 and related accounting for prior periods. The Company is also seeking recovery for the costs of the SEC investigation that resulted in an administrative order on December 31, 2018 with respect to events generally involving the restatements included in Old Hertz Holdings Form 10-K for the year ended December 31, 2014 and other damages resulting from the necessity of the restatements. The Company is pursuing these legal proceedings in accordance with its clawback policy and contractual rights. The parties are currently involved in motion practice in the New Jersey action and discovery and depositions have commenced in the Florida action. In October 2019, the Company entered into a confidential Settlement Agreement with Elyse Douglas. In September and October 2020, the judge in the New Jersey action entered orders requiring the parties and applicable insurers to attend and participate in mediation. The attorneys in the Florida action voluntarily agreed to participate in the same mediation which was held on November 30, 2020. The mediation was unsuccessful, but settlement discussions have continued. Pursuant to the agreements governing the separation of Herc Holdings from Hertz Global that occurred on June 30, 2016, Herc Holdings is entitled to 15 % of the net proceeds of any repayment or recovery. Indemnification Obligations In the ordinary course of business, the Company has executed contracts involving indemnification obligations customary in the relevant industry and indemnifications specific to a transaction such as the sale of a business. These indemnification obligations might include claims relating to the following: environmental matters; intellectual property rights; governmental regulations and employment-related matters; customer, supplier and other commercial contractual relationships and financial matters. Specifically, the Company has indemnified various parties for the costs associated with remediating numerous hazardous substance storage, recycling or disposal sites in many states and, in some instances, for natural resource damages. The amount of any such expenses or related natural resource damages for which the Company may be held responsible could be substantial. In addition, Hertz entered into customary indemnification agreements with Hertz Holdings and certain of the Company's stockholders and their affiliates pursuant to which Hertz Holdings and Hertz will indemnify those entities and their respective affiliates, directors, officers, partners, members, employees, agents, representatives and controlling persons, against certain liabilities arising out of performance of a consulting agreement with Hertz Holdings and each of such entities and certain other claims and liabilities, including liabilities arising out of financing arrangements or securities offerings. The Company has entered into customary indemnification agreements with each of its directors and certain of its officers. Performance under these indemnification obligations would generally be triggered by a breach of terms of the contract or by a third-party claim. In connection with the Spin-Off, the Company executed an agreement with Herc Holdings that contains mutual indemnification clauses and a customary indemnification provision with respect to liability arising out of or resulting from assumed legal matters. The Company regularly evaluates the probability of having to incur costs associated with these indemnification obligations and has accrued for expected losses that are probable and estimable. Note 16— Related Party Transactions Transactions and Agreements between Hertz Holdings and Hertz In June 2018, Hertz entered into a master loan agreement with Hertz Holdings for a facility size of $ 425 million with an expiration in June 2019 at an interest rate based on the U.S. Dollar LIBOR rate plus a margin (the "2018 Master Loan"). In June 2019, upon expiration of the 2018 Master Loan, Hertz entered into a new master loan agreement with Hertz Holdings for a facility size of $ 425 million with an expiration in June 2020 (the "2019 Master Loan") where amounts outstanding under the 2018 Master Loan were transferred to the 2019 Master Loan. The interest rate was based on the U.S. Dollar LIBOR rate plus a margin. As of December 31, 2019, the amount outstanding under the 2019 Master loan was $ 129 million, representing advances and any accrued but unpaid interest. Additionally, Hertz had a loan due to an affiliate in the amount of $ 65 million as of December 31, 2019, representing a tax-related liability to Hertz Holdings. The net impact of the above amounts is included in stockholder's equity in the accompanying consolidated balance sheet of Hertz as of December 31, 2019. As a result of filing the Chapter 11 Cases, as disclosed in Note 1, "Background," the full amount outstanding under the 2019 Master Loan was deemed uncollectible, resulting in a charge of $ 133 million during the second quarter of 165 Table of Contents HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES THE HERTZ CORPORATION AND SUBSIDIARIES (DEBTORS-IN-POSSESSION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 2020, which is included in the accompanying consolidated statement of operations for Hertz for the year ended December 31, 2020. Additionally, the loan due to an affiliate, which represents a tax-related liability from Hertz to Hertz Holdings, in the amount of $ 65 million was classified as liabilities subject to compromise in the accompanying consolidated balance sheet of Hertz as of December 31, 2020. See Note 19, "Liabilities Subject to Compromise." On May 23, 2020, Hertz entered into a new master loan agreement with Hertz Holdings for a facility size of $ 25 million with an expiration in May 2021 (the "New Loan"). The interest rate is based on the U.S. Dollar LIBOR rate plus a margin. As of December 31, 2020, there is $ 1 million outstanding under the New Loan representing additional charges incurred during 2020 largely associated with the ATM Program, as disclosed in Note 17, "Equity and Earnings (Loss) Per Share - Hertz Global," paid by Hertz on behalf of Hertz Holdings. Agreements with the Icahn Group In May 2020, Carl C. Icahn, High River Limited Partnership, Hopper Investments LLC, Barberry Corp., Icahn Partners LP, Icahn Partners Master Fund LP, Icahn Enterprises G.P. Inc., Icahn Enterprises Holdings L.P., IPH GP LLC, Icahn Capital LP, Icahn Onshore LP, Icahn Offshore LP, Beckton Corp., Vincent J. Intrieri, Samuel J. Merksamer and Daniel A. Ninivaggi (collectively, the “Icahn Group”) divested all owned shares of Hertz Global common stock (the "Icahn Divestiture"). As a result of the Icahn Divestiture, the Icahn Group is no longer a related party of the Company. Subsequent to the Icahn Divestiture, there continue to be arms-length transactions between the Company and the Icahn Group. In the normal course of business, the Company purchases goods and services and leases property from entities controlled by Carl C. Icahn and his affiliates, including The Pep Boys - Manny, Moe & Jack. During the five months ended May 31, 2020, the Company purchased approximately $ 23 million worth of goods and services from these related parties. During the years ended December 31, 2019 and 2018, the Company purchased approximately $ 57 million and $ 39 million, respectively, worth of goods and services from these related parties. In May 2018, the Company sold approximately $ 36 million of marketable securities to the Icahn Group at the then current market price of such securities. Other Relationships In connection with its vehicle rental businesses, the Company enters into millions of rental transactions every year involving millions of customers. In order to conduct those businesses, the Company also procures goods and services from thousands of vendors. Some of those customers and vendors may be affiliated with members of the Company's Board. The Company believes that all such rental and procurement transactions involved terms no less favorable to the Company than those that it believes would have been obtained in the absence of such affiliation. The Company's Nominating and Governance Committee oversees compliance through our Standards of Business Conduct, reviews conflicts of interest involving directors and determines whether to approve each transaction that involves the Company or any of its affiliates, on one hand, and (directly or indirectly) a director or member of his or her family or any entity managed by any such person, on the other hand. 767 Auto Leasing LLC In January 2018, Hertz entered into a Master Motor Vehicle Lease and Management Agreement (the “767 Lease Agreement”) pursuant to which Hertz granted 767 Auto Leasing LLC (“767”), an entity affiliated with the Icahn Group, the option to acquire certain vehicles from Hertz at rates aligned with the rates at which Hertz sells vehicles to third parties. As disclosed above, due to the Icahn Divestiture, the Icahn Group is no longer a related party of the Company. Hertz leases the vehicles purchased by 767 under the 767 Lease Agreement or from third parties, under a mutually developed fleet plan and Hertz manages, services, repairs, sells and maintains those leased vehicles on behalf of 767. Hertz currently rents the leased vehicles to drivers of TNCs from rental counters within locations leased or owned by affiliates of 767 ("Icahn Locations"), including locations operated under a master lease agreement with The Pep Boys - Manny, Joe & Jack. The 767 Lease Agreement had an initial term, as extended, of 166 Table of Contents HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES THE HERTZ CORPORATION AND SUBSIDIARIES (DEBTORS-IN-POSSESSION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) approximately 22 months, and is subject to automatic six month renewals thereafter, unless terminated by either party (with or without cause) prior to the start of any such six month renewal. 767’s payment obligations under the 767 Lease Agreement are guaranteed by American Entertainment Properties Corp. ("AEPC"), an entity affiliated with the Icahn Group. During 2020, 767 distributed $ 75 million to AEPC and there were no cash contributions from AEPC to 767, except for certain services. During 2019, AEPC contributed $ 49 million to 767 along with certain services. The Company is entitled to 25 % of the profit from the rental of the leased vehicles, as specified in the 767 Lease Agreement, which is variable and based primarily on the rental revenue, less certain vehicle-related costs, such as depreciation, licensing and maintenance expenses. The Company has determined that it is the primary beneficiary of 767 due to its power to direct the activities of 767 that most significantly impact 767's economic performance and the Company's obligation to absorb 25 % of 767's gains/losses. Accordingly, 767 is consolidated by the Company as a VIE. In October 2019, the 767 Lease Agreement was amended such that, among other changes, 767 vehicles will be available for rent from Hertz locations that are opened in replacement of closed Icahn Locations and the 767 vehicles may be available for rent to traditional off airport customers in addition to TNC drivers, when certain conditions apply. Note 17— Equity and Earnings (Loss) Per Share - Hertz Global Equity of Hertz Global Holdings, Inc. As of December 31, 2020 and 2019, there were 40 million shares of Hertz Holdings preferred stock authorized, par value $ 0.01 per share, 400 million shares of Hertz Holdings common stock authorized, par value $ 0.01 per share, and two million shares of treasury stock. Share Repurchase Program Hertz Holdings has a Board-approved share repurchase program that authorizes it to repurchase shares of its common stock through a variety of methods, including in the open market or through privately negotiated transactions, in accordance with applicable securities laws. It does not obligate Hertz Holdings to make any repurchases at any specific time or situation. There were no shares repurchased under this program in 2020 or 2019. As of December 31, 2020, Hertz Holdings has repurchased two million shares for $ 100 million under this program. This amount is included in treasury stock in the accompanying Hertz Global consolidated balance sheets as of December 31, 2020 and 2019, respectively. The timing and extent to which Hertz Holdings repurchases its shares will depend upon, among other things, market conditions, share price, liquidity targets and other factors. Share repurchases may be commenced or suspended at any time or from time to time without prior notice. Since Hertz Holdings does not conduct business itself, it primarily funds repurchases of its common stock using dividends from Hertz or amounts borrowed under the master loan agreement. The credit agreements governing Hertz's Senior Facilities, Letter of Credit Facility, Alternative Letter of Credit Facility and DIP Credit Agreement restrict its ability to make dividends and certain payments, including payments to Hertz Holdings for share repurchases. Earnings (Loss) Per Share Basic earnings (loss) per share has been computed based upon the weighted-average number of common shares outstanding. Diluted earnings (loss) per share has been computed based upon the weighted-average number of common shares outstanding plus the effect of all potentially dilutive common stock equivalents, except when the effect would be anti-dilutive. Rights Offering In June 2019, Hertz Global filed a prospectus supplement to its Registration Statement on Form S-3 declared effective by the SEC on June 12, 2019 for a rights offering to raise gross proceeds of approximately $ 750 million 167 Table of Contents HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES THE HERTZ CORPORATION AND SUBSIDIARIES (DEBTORS-IN-POSSESSION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) and providing for the issuance of up to an aggregate of 57,915,055 new shares of Hertz Global common stock. Upon closing in July 2019, the Rights Offering was fully subscribed resulting in Hertz Global selling 57,915,055 shares of its common stock for gross proceeds of $ 750 million. Basic weighted-average shares outstanding and weighted-average shares used to calculate diluted earnings (loss) per share for 2018 have been adjusted retrospectively to give effect to the Rights Offering. Open Market Sale Agreement In June 2020, subsequent to approval from the Bankruptcy Court and pursuant to a prospectus supplement to the Registration Statement, Hertz Global entered into an open market sale agreement under which it may offer and sell, from time to time, shares of its common stock, par value $ 0.01 per share, having an aggregate offering price of up to $ 500 million. Prior to its suspension on June 15, 2020 and ultimate termination on June 18, 2020, Hertz Global issued 13,912,368 shares under the ATM Program for net proceeds of approximately $ 28 million, which is included in non-vehicle restricted cash in the accompanying consolidated balance sheet as of December 31, 2020. The following table sets forth the computation of basic and diluted earnings (loss) per share: Years Ended December 31, (In millions, except per share data) 2020 2019 2018 Numerator: Net income (loss) attributable to Hertz Global $ ( 1,714 ) $ ( 58 ) $ ( 225 ) Denominator: Basic weighted-average shares outstanding (excluding the impact of the Rights Offering) 150 84 84 Rights Offering adjustment (1) — 33 12 Basic weighted-average shares outstanding 150 117 96 Dilutive stock options, RSUs and PSUs — — — Diluted weighted-average shares outstanding 150 117 96 Antidilutive stock options, RSUs, PSUs and PSAs 2 2 1 Earnings (loss) per share: Basic earnings (loss) per share $ ( 11.44 ) $ ( 0.49 ) $ ( 2.35 ) Diluted earnings (loss) per share $ ( 11.44 ) $ ( 0.49 ) $ ( 2.35 ) (1) Reflects the impact of the Rights Offering subscription period and the weighted-average impact of the issuance of 57,915,055 shares from the Rights Offering on July 18, 2019. Note 18— Segment Information The Company’s chief operating decision maker assesses performance and allocates resources based upon the financial information for the Company’s operating segments. The Company aggregates certain of its operating segments into its reportable segments. The Company has identified three reportable segments, which are organized based on the products and services provided by its operating segments and the geographic areas in which its operating segments conduct business, as follows: • U.S. RAC - rental of vehicles (cars, crossovers and light trucks), as well as sales of value-added services, in the U.S. and consists of the Company's U.S. operating segment; • International RAC - rental and leasing of vehicles (cars, vans, crossovers and light trucks), as well as sales of value-added services, internationally and consists of the Company's Europe and Other International operating segments, which are aggregated into a reportable segment based primarily upon similar economic characteristics, products and services, customers, delivery methods and general regulatory environments; and 168 Table of Contents HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES THE HERTZ CORPORATION AND SUBSIDIARIES (DEBTORS-IN-POSSESSION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) • All Other Operations - primarily consists of the Company's Donlen business, which provides vehicle leasing and fleet management services, together with other business activities which represent less than 1% of revenues and expenses of the segment. In the fourth quarter of 2020, we entered into a stock and asset purchase agreement to sell substantially all the Donlen Assets. See Note 3, "Divestitures," for further information. In addition to the above reportable segments, the Company has Corporate operations which includes general corporate assets and expenses and certain interest expense (including net interest on non-vehicle debt). Corporate includes other items necessary to reconcile the reportable segments to the Company's total amounts. Effective during the three months ended June 30, 2019, the Company changed its segment measure of profitability for its reportable segments to Adjusted EBITDA, as shown in the Adjusted EBITDA reconciliation tables below. This measure better aligns with the way the Company reviews its overall vehicle rental and leasing business and determines management incentive compensation. Prior to the three months ended June 30, 2019, the Company's segment measure of profitability was Adjusted Pre-tax Income (Loss) which included non-vehicle depreciation and amortization, non-vehicle debt interest, net and certain other items. For comparability purposes, the Company has adjusted retrospectively the 2018 segment results to reflect the new segment measure of profitability. The following tables provide significant statements of operations, balance sheets and statements of cash flow information by reportable segment for each of Hertz Global and Hertz, as well as Adjusted EBITDA, the measure used to determine segment profitability. Years Ended December 31, (In millions) 2020 2019 2018 Revenues U.S. Rental Car $ 3,656 $ 6,938 $ 6,480 International Rental Car 972 2,169 2,276 All Other Operations 630 672 748 Total Hertz Global and Hertz $ 5,258 $ 9,779 $ 9,504 Depreciation of revenue earning vehicles and lease charges U.S. Rental Car $ 1,323 $ 1,656 $ 1,678 International Rental Car 274 440 448 All Other Operations 435 469 564 Total Hertz Global and Hertz $ 2,032 $ 2,565 $ 2,690 Depreciation and amortization, non-vehicle assets U.S. Rental Car $ 179 $ 156 $ 159 International Rental Car 22 23 32 All Other Operations 10 10 10 Corporate 14 14 17 Total Hertz Global and Hertz $ 225 $ 203 $ 218 169 Table of Contents HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES THE HERTZ CORPORATION AND SUBSIDIARIES (DEBTORS-IN-POSSESSION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Years Ended December 31, (In millions) 2020 2019 2018 Interest expense, net U.S. Rental Car $ 253 $ 157 $ 144 International Rental Car 86 93 113 All Other Operations 40 31 27 Corporate 229 524 455 Total Hertz Global 608 805 739 Hertz interest income from loan to Hertz Global ( 2 ) ( 7 ) ( 7 ) Total - Hertz $ 606 $ 798 $ 732 Adjusted EBITDA U.S. Rental Car $ ( 791 ) $ 480 $ 226 International Rental Car ( 248 ) 147 231 All Other Operations 93 100 82 Corporate ( 49 ) ( 78 ) ( 106 ) Total Hertz Global and Hertz $ ( 995 ) $ 649 $ 433 As of December 31, (In millions) 2020 2019 Revenue earning vehicles, net U.S. Rental Car $ 4,974 $ 9,820 International Rental Car 1,088 2,319 All Other Operations (1) 1,432 1,650 Total Hertz Global and Hertz $ 7,494 $ 13,789 Property and equipment, net U.S. Rental Car $ 472 $ 541 International Rental Car 96 99 All Other Operations (2) 6 7 Corporate 98 110 Total Hertz Global and Hertz $ 672 $ 757 Total assets U.S. Rental Car $ 11,042 $ 16,459 International Rental Car 2,956 4,563 All Other Operations (3) 1,818 2,115 Corporate 1,092 1,490 Total Hertz Global (4) 16,908 24,627 Corporate - Hertz (5) ( 28 ) — Total Hertz (4) $ 16,880 $ 24,627 (1) Includes $ 1.4 billion of revenue earning vehicles, net classified as held for sale as of December 31, 2020 as disclosed in Note 3, "Divestitures." (2) Includes $ 6 million of property and equipment, net classified as held for sale as of December 31, 2020 as disclosed in Note 3, "Divestitures." (3) Includes $ 1.8 billion of assets classified as held for sale as of December 31, 2020 as disclosed in Note 3, "Divestitures." (4) The consolidated total assets of Hertz Global and Hertz as of December 31, 2020 and 2019 include total assets of VIEs of $ 511 million and $ 1.3 billion, respectively, which can only be used to settle obligations of the VIEs. See "Special Purpose Entities" in Note 6, "Debt," and "767 Auto Leasing LLC" in Note 16, "Related Party Transactions," for further information. (5) Excludes net proceeds from the ATM Program of $ 28 million as disclosed in Note 17, "Equity and Earnings (Loss) Per Share - Hertz Global." 170 Table of Contents HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES THE HERTZ CORPORATION AND SUBSIDIARIES (DEBTORS-IN-POSSESSION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Years Ended December 31, (In millions) 2020 2019 2018 Revenue earning vehicles and non-vehicle capital assets U.S. Rental Car: Expenditures $ ( 3,957 ) $ ( 9,384 ) $ ( 8,597 ) Proceeds from disposals 7,752 6,306 5,570 Net expenditures - Hertz Global and Hertz $ 3,795 $ ( 3,078 ) $ ( 3,027 ) International Rental Car: Expenditures $ ( 1,032 ) $ ( 3,401 ) $ ( 3,191 ) Proceeds from disposals 2,068 2,854 2,755 Net expenditures - Hertz Global and Hertz $ 1,036 $ ( 547 ) $ ( 436 ) All Other Operations: Expenditures $ ( 615 ) $ ( 1,043 ) $ ( 807 ) Proceeds from disposals 335 352 176 Net expenditures - Hertz Global and Hertz $ ( 280 ) $ ( 691 ) $ ( 631 ) Corporate: Expenditures $ ( 36 ) $ ( 110 ) $ ( 75 ) Proceeds from disposals 3 1 2 Net expenditures - Hertz Global and Hertz $ ( 33 ) $ ( 109 ) $ ( 73 ) The Company operates in the U.S. and in international countries. International operations are substantially in Europe. The operations within major geographic areas for each of Hertz Global and Hertz are summarized below: Years Ended December 31, (In millions) 2020 2019 2018 Revenues U.S. $ 4,271 $ 7,596 $ 7,211 International 987 2,183 2,293 Total Hertz Global and Hertz $ 5,258 $ 9,779 $ 9,504 As of December 31, (In millions) 2020 2019 Revenue earning vehicles, net U.S. $ 4,974 $ 11,424 International 1,088 2,365 Total Hertz Global and Hertz $ 6,062 $ 13,789 Property and equipment, net U.S. $ 570 $ 658 International 96 99 Total Hertz Global and Hertz $ 666 $ 757 171 Table of Contents HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES THE HERTZ CORPORATION AND SUBSIDIARIES (DEBTORS-IN-POSSESSION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) As of December 31, (In millions) 2020 2019 Total assets U.S. (1) $ 13,732 $ 19,876 International (2) 3,176 4,751 Total Hertz Global 16,908 24,627 U.S. - Hertz ( 28 ) — Total Hertz $ 16,880 $ 24,627 (1) Includes $ 1.8 billion of assets classified as held for sale as of December 31, 2020 as disclosed in Note 3, "Divestitures." (2) Includes $ 48 million of assets classified as held for sale as of December 31, 2020 as disclosed in Note 3, "Divestitures." Reconciliations of Adjusted EBITDA by segment to consolidated amounts are summarized below: Hertz Global Years Ended December 31, (In millions) 2020 2019 2018 Adjusted EBITDA: U.S. Rental Car $ ( 791 ) $ 480 $ 226 International Rental Car ( 248 ) 147 231 All Other Operations 93 100 82 Total reportable segments ( 946 ) 727 539 Corporate (1) ( 49 ) ( 78 ) ( 106 ) Total Hertz Global ( 995 ) 649 433 Adjustments: Non-vehicle depreciation and amortization ( 225 ) ( 203 ) ( 218 ) Non-vehicle debt interest, net ( 153 ) ( 311 ) ( 291 ) Vehicle debt-related charges (2) ( 50 ) ( 38 ) ( 36 ) Loss on extinguishment of vehicle debt (3) ( 5 ) — ( 22 ) Restructuring and restructuring related charges (4) ( 64 ) ( 14 ) ( 32 ) Intangible and other asset impairments (5) ( 213 ) — — Information technology and finance transformation costs (6) ( 42 ) ( 114 ) ( 98 ) Reorganization items, net (7) ( 175 ) — — Pre-reorganization charges and non-debtor financing charges (8) ( 109 ) — — Other items (9) ( 21 ) 44 7 Income (loss) before income taxes $ ( 2,052 ) $ 13 $ ( 257 ) 172 Table of Contents HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES THE HERTZ CORPORATION AND SUBSIDIARIES (DEBTORS-IN-POSSESSION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Hertz Years Ended December 31, (In millions) 2020 2019 2018 Adjusted EBITDA: U.S. Rental Car $ ( 791 ) $ 480 $ 226 International Rental Car ( 248 ) 147 231 All Other Operations 93 100 82 Total reportable segments ( 946 ) 727 539 Corporate (1) ( 49 ) ( 78 ) ( 106 ) Total Hertz ( 995 ) 649 433 Adjustments: Non-vehicle depreciation and amortization ( 225 ) ( 203 ) ( 218 ) Non-vehicle debt interest, net ( 151 ) ( 304 ) ( 284 ) Vehicle debt-related charges (2) ( 50 ) ( 38 ) ( 36 ) Loss on extinguishment of vehicle debt (3) ( 5 ) — ( 22 ) Restructuring and restructuring related charges (4) ( 64 ) ( 14 ) ( 32 ) Intangible and other asset impairments (5) ( 213 ) — — Write-off of intercompany loan (10) ( 133 ) — — Information technology and finance transformation costs (6) ( 42 ) ( 114 ) ( 98 ) Reorganization items, net (7) ( 175 ) — — Pre-reorganization charges and non-debtor financing charges (8) ( 109 ) — — Other items (9) ( 21 ) 44 7 Income (loss) before income taxes $ ( 2,183 ) $ 20 $ ( 250 ) (1) Represents other reconciling items primarily consisting of general corporate expenses, non-vehicle interest expense, as well as other business activities. (2) Represents vehicle debt-related charges relating to the amortization of deferred financing costs and debt discounts and premiums. (3) In 2020, represents a $ 5 million write-off of deferred financing costs resulting from the European ABS waiver agreements. In 2018, primarily represents $ 20 million of early redemption premium and write-off of deferred financing costs associated with the full redemption of the 4.375 % European Vehicle Senior Notes due January 2019. (4) Represents charges incurred under restructuring actions as defined in U.S. GAAP, excluding impairments and asset write-downs. See Note 11, "Restructuring," for further information. Also includes restructuring related charges such as incremental costs incurred directly supporting business transformation initiatives. In 2018, also includes consulting costs, legal fees and other expenses related to the previously disclosed accounting review and investigation. (5) In 2020, represents a $ 193 million impairment of technology-related intangible and other assets and a $ 20 million impairment of the Hertz tradename, as disclosed in Note 5, "Goodwill and Intangible Assets, Net." (6) Represents costs associated with the Company's information technology and finance transformation programs, both of which are multi-year initiatives to upgrade and modernize the Company's systems and processes. (7) In 2020, represents charges incurred associated with the filing of the Chapter 11 Cases, as disclosed in Note 20, "Reorganization Items, Net." (8) In 2020, represents charges incurred prior to the filing of the Chapter 11 Cases, as disclosed in Note 1, "Background," which are comprised of preparation charges for the reorganization, such as professional fees. Also, includes certain non-debtor financing and professional fee charges. (9) Represents miscellaneous items, including non-cash stock-based compensation charges, and amounts attributable to noncontrolling interests. In 2020, also includes $ 16 million associated with the Donlen Asset Sale, partially offset by $ 18 million for losses associated with certain vehicle damages. In 2019, also includes a $ 30 million gain on marketable securities and a $ 39 million gain on the sale of non-vehicle capital assets. In 2018, also includes a $ 20 million gain on marketable securities, and a $ 6 million legal settlement received related to an oil spill in the Gulf of Mexico in 2010. (10) In 2020, represents the write-off of the 2019 Master Loan between Hertz and Hertz Holdings, as disclosed in Note 16, "Related Party Transactions." 173 Table of Contents HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES THE HERTZ CORPORATION AND SUBSIDIARIES (DEBTORS-IN-POSSESSION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Note 19— Liabilities Subject to Compromise The accompanying consolidated balance sheet as of December 31, 2020 includes amounts classified as liabilities subject to compromise, which represent Pre-petition liabilities the Company anticipates will be allowed as claims in the Chapter 11 Cases. These amounts represent the Debtors' current estimate of known or potential obligations to be resolved in connection with the Chapter 11 Cases and may differ from actual future settlement amounts. The Company will continue to evaluate these liabilities throughout the Chapter 11 process and adjust amounts as necessary. Such adjustments could be material and will be recorded in reorganization items, net in the accompanying consolidated statements of operations. The following table summarizes liabilities subject to compromise: (In millions) December 31, 2020 Accounts payable $ 267 Accrued liabilities 166 Accrued taxes, net 19 Accrued interest on debt subject to compromise 70 Debt subject to compromise (1) 4,443 Liabilities subject to compromise - Hertz Global 4,965 Due from Affiliate - Hertz (2) 65 Liabilities subject to compromise - Hertz $ 5,030 (1) See Note 6, "Debt" for details of Pre-petition, non-vehicle debt reported as liabilities subject to compromise as of December 31, 2020. (2) See Note 16, "Related Party Transactions" for details of a Pre-petition intercompany loan due to an affiliate reported as liabilities subject to compromise as of December 31, 2020. Note 20— Reorganization Items, Net The Debtors have incurred and will continue to incur costs associated with the reorganization, including professional and consulting fees. Charges associated with the Chapter 11 Cases have been recorded as reorganization items, net in the accompanying consolidated statements of operations for the year ended December 31, 2020. For the year ended December 31, 2020, the Company incurred $ 175 million of charges comprised primarily of professional fees, of which $ 102 million were paid as of December 31, 2020, and $ 46 million and $ 19 million were recorded in accrued liabilities and accounts payable, respectively, in the accompanying consolidated balance sheet as of December 31, 2020. Note 21— Condensed Combined Debtor-in-Possession Financial Information The following financial statements represent the audited condensed combined financial statements of the Debtors. The results of the non-debtor entities are not included in these financial statements. Intercompany transactions among Debtors have been eliminated in the following financial statements. Intercompany transactions among Debtors and non-debtor entities have not been eliminated in the following financial statements. Amounts reported for Hertz Global and Hertz are substantially the same, with the exception of that related to interest expense (income) and tax provision (benefit), as well as activity associated with the master loan agreement between Hertz and Hertz Global and proceeds from the issuance of stock under the ATM Program as disclosed in the Notes to our consolidated financial statements under the caption Item 8, "Financial Statements and Supplementary Data” included in this 2020 Annual Report Note 16, "Related Party Transactions," and Note 17, "Equity and Earnings (Loss) Per Share - Hertz Global," respectively. 174 Table of Contents HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES THE HERTZ CORPORATION AND SUBSIDIARIES (DEBTORS-IN-POSSESSION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) THE DEBTORS CONDENSED COMBINED BALANCE SHEET (in millions) December 31, 2020 ASSETS Cash and cash equivalents $ 492 Restricted cash and cash equivalents 305 Total cash, cash equivalents, restricted cash and restricted cash equivalents 797 Receivables, net 388 Due from non-debtor affiliates 51,638 Prepaid expenses and other assets 183 Revenue earning vehicles, net 37 Property and equipment, net 549 Operating lease right-of-use assets 1,424 Investment in subsidiaries, net 4,527 Intangible assets, net 2,988 Goodwill 488 Assets held for sale (1) 173 Total assets $ 63,192 LIABILITIES AND EQUITY Accounts payable $ 200 Accrued liabilities 412 Accrued taxes, net 48 Debt 242 Operating lease liabilities 1,385 Self-insured liabilities 251 Deferred income taxes, net 887 Total liabilities not subject to compromise 3,425 Liabilities subject to compromise 59,637 Liabilities held for sale (1) 74 Total liabilities 63,136 Total equity attributable to the Debtors 56 Total liabilities and equity $ 63,192 (1) The assets and liabilities of Donlen as of December 31, 2020, have been classified as assets held for sale and liabilities held for sale, respectively. See Note 3, "Divestitures," for additional information. 175 Table of Contents HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES THE HERTZ CORPORATION AND SUBSIDIARIES (DEBTORS-IN-POSSESSION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) THE DEBTORS CONDENSED COMBINED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) (in millions) Year Ended December 31, 2020 Total revenues $ 3,593 Expenses: Direct vehicle and operating 2,896 Depreciation of revenue earning vehicles and lease charges 2,970 Selling, general and administrative 492 Interest (income) expense, net 122 Intangible and other asset impairments 213 Other (income) expense, net ( 35 ) Reorganization items, net 175 Total expenses 6,833 Income (loss) before income taxes and equity in earnings (losses) of non-debtor entities ( 3,240 ) Income tax (provision) benefit 710 Equity in earnings (losses) of non-debtor entities 816 Net income (loss) ( 1,714 ) Total other comprehensive income (loss), net of tax ( 23 ) Comprehensive income (loss) attributable to the Debtors $ ( 1,737 ) 176 Table of Contents HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES THE HERTZ CORPORATION AND SUBSIDIARIES (DEBTORS-IN-POSSESSION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) THE DEBTORS CONDENSED COMBINED STATEMENT OF CASH FLOWS (in millions) Year Ended December 31, 2020 Net cash provided by (used in) operating activities $ ( 738 ) Cash flows from investing activities: Revenue earning vehicles expenditures ( 478 ) Proceeds from disposal of revenue earning vehicles 594 Non-vehicle capital asset expenditures ( 79 ) Proceeds from non-vehicle capital assets disposed of 48 Sales of marketable securities 74 Capital contributions to non-debtor entities ( 835 ) Return of capital from non-debtor entities 838 Loan to non-debtor entity ( 180 ) Loan repayment from non-debtor entity 189 Net cash provided by (used in) investing activities 171 Cash flows from financing activities: Proceeds from issuance of vehicle debt 321 Repayments of vehicle debt ( 467 ) Proceeds from issuance of non-vehicle debt 1,812 Repayments of non-vehicle debt ( 855 ) Proceeds from the issuance of stock, net 28 Other ( 2 ) Net cash provided by (used in) financing activities 837 Effect of foreign currency exchange rate changes on cash, cash equivalents, restricted cash and restricted cash equivalents 1 Net increase (decrease) in cash, cash equivalents, restricted cash and restricted cash equivalents during the period 271 Cash, cash equivalents, restricted cash and restricted cash equivalents at beginning of period 526 Cash, cash equivalents, restricted cash and restricted cash equivalents at end of period $ 797 177 Table of Contents SCHEDULE I CONDENSED FINANCIAL INFORMATION OF REGISTRANT HERTZ GLOBAL HOLDINGS, INC. (DEBTOR-IN-POSSESSION) PARENT COMPANY BALANCE SHEETS (In millions, except par value) December 31, 2020 2019 ASSETS Restricted cash and restricted cash equivalents $ 28 $ — Prepaid expenses and other assets 1 — Investments in subsidiaries, net — 1,765 Deferred income taxes, net 5 4 Due from Hertz 65 — Total assets $ 99 $ 1,769 LIABILITIES AND STOCKHOLDERS' EQUITY Due to Hertz $ 1 $ — Investments in subsidiaries, net 42 — Total liabilities 43 — Preferred stock, $ 0.01 par value, no shares issued and outstanding — — Common stock, $ 0.01 par value, 158,235,410 and 144,153,444 shares issued, respectively and 156,206,478 and 142,124,512 shares outstanding, respectively 2 1 Additional paid-in capital 3,047 3,024 Accumulated deficit ( 2,681 ) ( 967 ) Accumulated other comprehensive income (loss) ( 212 ) ( 189 ) Equity before treasury stock 156 1,869 Treasury stock, at cost, 2,028,932 shares and 2,028,932 shares, respectively ( 100 ) ( 100 ) Total stockholders' equity 56 1,769 Total liabilities and stockholders' equity $ 99 $ 1,769 The accompanying notes are an integral part of these financial statements. PARENT COMPANY STATEMENTS OF OPERATIONS (In millions) Years Ended December 31, 2020 2019 2018 Total Revenues $ — $ — $ — Expenses: Interest expense, net 2 7 7 Write-off of intercompany loan ( 133 ) — — Total expenses ( 131 ) 7 7 Income (loss) before income taxes and equity in earnings (losses) of subsidiaries 131 ( 7 ) ( 7 ) Income tax (provision) benefit 1 2 2 Equity in earnings (losses) of subsidiaries, net of tax ( 1,846 ) ( 53 ) ( 220 ) Net income (loss) $ ( 1,714 ) $ ( 58 ) $ ( 225 ) The accompanying notes are an integral part of these financial statements. 178 Table of Contents SCHEDULE I (Continued) CONDENSED FINANCIAL INFORMATION OF REGISTRANT HERTZ GLOBAL HOLDINGS, INC. (DEBTOR-IN-POSSESSION) PARENT COMPANY STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (In millions) Years Ended December 31, 2020 2019 2018 Net income (loss) $ ( 1,714 ) $ ( 58 ) $ ( 225 ) Total other comprehensive income (loss) ( 23 ) 3 ( 63 ) Total comprehensive income (loss) $ ( 1,737 ) $ ( 55 ) $ ( 288 ) The accompanying notes are an integral part of these financial statements. PARENT COMPANY STATEMENTS OF CASH FLOWS (In millions) Years Ended December 31, 2020 2019 2018 Net cash provided by (used in) operating activities $ ( 3 ) $ ( 7 ) $ ( 7 ) Cash flows from financing activities: Proceeds from loans with Hertz 5 12 9 Proceeds from Rights Offering, net — 748 — Contributions to Hertz — ( 750 ) — Proceeds from issuance of stock, net 28 — — Other ( 2 ) ( 3 ) ( 2 ) Net cash provided by (used in) financing activities 31 7 7 Net increase (decrease) in cash and cash equivalents during the period 28 — — Cash and cash equivalents at beginning of period — — — Cash and cash equivalents at end of period $ 28 $ — $ — The accompanying notes are an integral part of these financial statements. 179 Table of Contents SCHEDULE I (Continued) HERTZ GLOBAL HOLDINGS, INC. (DEBTOR-IN-POSSESSION) NOTES TO PARENT COMPANY FINANCIAL STATEMENTS Note 1— Background and Basis of Presentation Hertz Global Holdings, Inc. ("Hertz Global" when including its subsidiaries and variable interest entities ("VIEs") and "Hertz Holdings" excluding its subsidiaries and VIEs) was incorporated in Delaware in 2015 and wholly owns Rental Car Intermediate Holdings, LLC which wholly owns The Hertz Corporation ("Hertz"), Hertz Global's primary operating company. On May 22, 2020, Hertz Global, Hertz and certain of their direct and indirect subsidiaries in the U.S. and Canada filed voluntary petitions for relief under chapter 11 of the Bankruptcy Code in the U.S. Bankruptcy Court for the District of Delaware. The Chapter 11 Cases are being jointly administered by the Bankruptcy Court under the caption In re The Hertz Corporation, et al., Case No. 20-11218 (MFW) . Refer to Note 1, "Background," to its Notes to the consolidated financial statements included in this 2020 Annual Report under the caption Item 8, "Financial Statements and Supplementary Data," for further information. In November 2020, Hertz Global entered into a stock and asset purchase agreement to sell substantially all of the assets and certain liabilities of Donlen. See Note 3, "Divestitures," to the Notes to its consolidated financial statements included in this 2020 Annual Report under the caption Item 8, "Financial Statements and Supplementary Data," for additional information. These condensed parent company financial statements reflect the activity of Hertz Holdings as the parent company to Hertz and have been prepared in accordance with Rule 12-04, Schedule 1 of Regulation S-X, as the restricted net assets of Hertz exceed 25% of the consolidated net assets of Hertz Holdings. This information should be read in conjunction with the consolidated financial statements of Hertz Global included in this 2020 Annual Report under the caption Item 8, "Financial Statements and Supplementary Data." Note 2— Contingencies For a discussion of the commitments and contingencies of Hertz Holdings, refer to the sections below included in Note 15, "Contingencies and Off-Balance Sheet Commitments," to the Notes to its consolidated financial statements included in this 2020 Annual Report under the caption Item 8, "Financial Statements and Supplementary Data." • In re Hertz Global Holdings, Inc. Securities Litigation • Litigation Against Former Executives The remaining sections of Note 15, "Contingencies and Off-Balance Sheet Commitments," and Note 10, "Leases," to the Notes to its consolidated financial statements included in this 2020 Annual Report under the caption Item 8, "Financial Statements and Supplementary Data," describe the commitments and contingencies of Hertz Holdings, including its subsidiaries. Note 3— Dividends There were no non-cash dividends paid by Hertz in 2020, 2019, or 2018. Note 4— Share Repurchase For a discussion of the share repurchase program of Hertz Holdings, refer to Note 17, "Equity and Earnings (Loss) Per Share - Hertz Global" to the Notes to its consolidated financial statements in this 2020 Annual Report under the caption Item 8, "Financial Statements and Supplementary Data." As of December 31, 2020, Hertz Holdings repurchased two million shares for $ 100 million under this program. This amount is included in treasury stock in the accompanying parent-only balance sheets of Hertz Holdings as of December 31, 2020 and 2019. 180 Table of Contents SCHEDULE I (Continued) HERTZ GLOBAL HOLDINGS, INC. (DEBTOR-IN-POSSESSION) NOTES TO PARENT COMPANY FINANCIAL STATEMENTS (continued) Note 5— Transactions with Affiliates and Investments in Subsidiaries For a discussion of Hertz Holdings transactions with Hertz under the master loan, refer to Note 16, "Related Party Transactions," to the Notes to its consolidated financial statements in this 2020 Annual Report under the caption Item 8, "Financial Statements and Supplementary Data." The amounts related to the master loan transactions are included in investments in subsidiaries in the accompanying parent-only balance sheet of Hertz Holdings for the year ended December 31, 2019. For the year ended December 31, 2020, the negative balance in investments in subsidiaries, net in the accompanying parent-only balance sheet of Hertz Holdings reflects the $ 42 million stockholder's deficit attributable to Hertz. 181 Table of Contents SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES THE HERTZ CORPORATION AND SUBSIDIARIES (DEBTORS-IN-POSSESSION) (In millions) Balance at Beginning of Period Additions Charged to Expense Translation Adjustments Deductions Balance at End of Period Receivables allowances: Year Ended December 31, 2020 $ 35 $ 94 (1) $ — $ ( 83 ) (1)(2) $ 46 Year Ended December 31, 2019 27 53 — ( 45 ) (2) 35 Year Ended December 31, 2018 33 35 ( 1 ) ( 40 ) (2) 27 Tax valuation allowances: Year Ended December 31, 2020 $ 396 $ 218 $ 37 $ — $ 651 Year Ended December 31, 2019 318 75 3 — 396 Year Ended December 31, 2018 305 21 1 ( 9 ) (3) 318 (1) Activity includes allowances associated with Donlen which have been classified as held for sale as of December 31, 2020, as disclosed in Note 3, "Divestitures," to the notes to the Company's consolidated financial statements in this 2020 Annual Report under the caption Item 8, "Financial Statements and Supplementary Data." (2) Amounts written off, net of recoveries. (3) The release of the valuation allowance during 2018 was due to the sales or anticipated sales of properties which would generate capital gain. 182 Table of Contents HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES THE HERTZ CORPORATION AND SUBSIDIARIES (DEBTORS-IN-POSSESSION) ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. ITEM 9A. CONTROLS AND PROCEDURES HERTZ GLOBAL HOLDINGS, INC. Evaluation of Disclosure Controls and Procedures Our senior management has evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined under Exchange Act Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this 2020 Annual Report. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that as of December 31, 2020, due to the identification of a material weakness in our internal control over financial reporting, as further described below, the Company’s disclosure controls and procedures were not effective to provide reasonable assurance that the information required to be disclosed by us in the reports that we file or submit under the Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management as appropriate to allow timely decisions regarding required disclosure. Management’s Report on Internal Control over Financial Reporting Management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Exchange Act Rules 13a-15(f) and 15d-15(f). 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 our annual or interim financial statements will not be prevented or detected on a timely basis. Internal control over financial reporting has inherent limitations. Internal control over financial reporting is a process that involves human diligence and compliance and is subject to lapses in judgment and breakdowns resulting from human failures. Internal control over financial reporting can also be circumvented by collusion or improper management override. Because of such limitations, there is a risk that material misstatements will not be prevented or detected on a timely basis by internal control over financial reporting. Therefore, it is possible to design into the process safeguards to reduce, though not eliminate, this inherent risk. Management, including our Chief Executive Officer and our Chief Financial Officer, assessed the effectiveness of our internal control over financial reporting as of December 31, 2020. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control - Integrated Framework (2013). Based on this assessment, management has concluded that we did not maintain effective internal control over financial reporting as of December 31, 2020 due to the identification of an information technology general controls (“ITGCs”) material weakness in our internal control over financial reporting as discussed below. Material Weakness We 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. Due to the impact from COVID-19, the Company initiated a restructuring program in April 2020, affecting approximately 11,000 employees in the U.S. Additionally, personnel levels in our international operations were reduced to align with reduced vehicle rental demands as a result of COVID-19. As a result of the large number of employees leaving the Company in a condensed time period, we did not maintain an effective ITGC risk assessment, control activities or monitoring in the following areas: 183 Table of Contents HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES THE HERTZ CORPORATION AND SUBSIDIARIES (DEBTORS-IN-POSSESSION) ITEM 9A. CONTROLS AND PROCEDURES (Continued) • Management did not have a sufficient complement of personnel with an appropriate level of knowledge, experience and training commensurate with our ITGC internal controls over financial reporting requirements as a result of the headcount reductions. • Management did not maintain effective monitoring to ensure the operating effectiveness of our ITGCs, to escalate potential issues for resolution or to provide visibility to where resources were insufficient. • Management did not effectively design or execute a plan to timely de-provision system application access for employees impact by these significant headcount reductions. These control deficiencies did not result in a misstatement to the consolidated financial statements, however, the deficiencies when aggregated, could result in misstatements potentially impacting financial statement accounts and disclosures that would not be prevented or detected in a timely manner. Accordingly, management has determined these deficiencies in the aggregate constitute a material weakness. Remediation Our management has been implementing and continues to implement measures designed to ensure that the material weakness is remediated. The remediation actions include, but are not limited to, the following: • Performing an assessment of the IT organization to determine the sufficiency of resources with the appropriate level of knowledge, experience and training commensurate with our ITGC internal controls and executing any recommendations arising from the assessment. • Clarifying and communicating roles for ITGC control owners and SOX project management team. • Re-training ITGC control owners regarding risks, controls and maintaining adequate evidence. • Improved existing de-provisioning controls for timely execution of removal of terminated user access. • Enhancing quarterly reporting on ITGC design and operational effectiveness to the Chief Information Officer and Audit Committee of the Board of Directors. After identification of the material weakness, management performed further analysis and completed additional procedures to confirm that the material weakness did not result in any identified misstatements in the financial statements, and there were no changes to previously issued financial results. Based on these procedures and analysis, and nothwithstanding the material weakness in our internal control over financial reporting, management has concluded that our consolidated financial statements and related notes included in this annual report have been prepared in accordance with GAAP. Our Chief Executive Officer and Chief Financial Officer have certified that, based on each officer’s knowledge, the financial statements, as well as the other financial information included in this Annual Report, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this Annual Report. In addition, Ernst & Young LLP has issued an unqualified opinion on our consolidated financial statements, which is included in Item 8 of this Annual Report. HERTZ CORPORATION Evaluation of Disclosure Controls and Procedures Our senior management has evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined under Exchange Act Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this 2020 Annual Report. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that as of December 31, 2020, due to the identification of a material weakness in our internal control over financial reporting, as further described below, the Company’s disclosure controls and procedures were not effective to provide reasonable assurance that the information required to be disclosed by us in the reports that we file or submit under the Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management as appropriate to allow timely decisions regarding required disclosure. 184 Table of Contents HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES THE HERTZ CORPORATION AND SUBSIDIARIES (DEBTORS-IN-POSSESSION) ITEM 9A. CONTROLS AND PROCEDURES (Continued) Management’s Report on Internal Control over Financial Reporting Management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Exchange Act Rules 13a-15(f) and 15d-15(f). 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 our annual or interim financial statements will not be prevented or detected on a timely basis. Internal control over financial reporting has inherent limitations. Internal control over financial reporting is a process that involves human diligence and compliance and is subject to lapses in judgment and breakdowns resulting from human failures. Internal control over financial reporting can also be circumvented by collusion or improper management override. Because of such limitations, there is a risk that material misstatements will not be prevented or detected on a timely basis by internal control over financial reporting. Therefore, it is possible to design into the process safeguards to reduce, though not eliminate, this inherent risk. Management, including our Chief Executive Officer and our Chief Financial Officer, assessed the effectiveness of our internal control over financial reporting as of December 31, 2020. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control - Integrated Framework (2013). Based on this assessment, management has concluded that we did not maintain effective internal control over financial reporting as of December 31, 2020 due to the identification of an information technology general controls (“ITGCs”) material weakness in our internal control over financial reporting as discussed below. Material Weakness We 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. Due to the impact from COVID-19, the Company initiated a restructuring program in April 2020, affecting approximately 11,000 employees in the U.S. Additionally, personnel levels in our international operations were reduced to align with reduced vehicle rental demands as a result of COVID-19. As a result of the large number of employees leaving the Company in a condensed time period, we did not maintain an effective ITGC risk assessment, control activities or monitoring in the following areas: • Management did not have a sufficient complement of personnel with an appropriate level of knowledge, experience and training commensurate with our ITGC internal controls over financial reporting requirements as a result of the headcount reductions. • Management did not maintain effective monitoring to ensure the operating effectiveness of our ITGCs, to escalate potential issues for resolution or to provide visibility to where resources were insufficient. • Management did not effectively design or execute a plan to timely de-provision system application access for employees impact by these significant headcount reductions. These control deficiencies did not result in a misstatement to the consolidated financial statements, however, the deficiencies when aggregated, could result in misstatements potentially impacting financial statement accounts and disclosures that would not be prevented or detected in a timely manner. Accordingly, management has determined these deficiencies in the aggregate constitute a material weakness. 185 Table of Contents HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES THE HERTZ CORPORATION AND SUBSIDIARIES (DEBTORS-IN-POSSESSION)