What changed in this filing

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Item 7. Management’s Discussion and Analysis

2021-02-26 compared with 2020-02-25 · 402 added, 39 removed, 85 unchanged (84% of the section changed)

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

under almost all of our revolving credit facilities was terminated, as disclosed in Note 6, "Debt," to the Notes to our consolidated financial statements under the caption Item 8, "Financial Statements and Supplementary Data” included in this 2020 Annual Report.

Consequently, the sales proceeds from 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 and are not otherwise available to fund our operations.

Additionally, we are precluded from accessing any of our 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.

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 to be 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 were reimbursable by the Debtors;

and (iv) suspend 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, we disposed of approximately 198,000 lease vehicles pursuant to or otherwise in satisfaction of our vehicle disposition obligations under the Interim Lease Order.

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 $250 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 disclosed in Note 6, "Debt," to the Notes to our consolidated financial statements under the caption Item 8, "Financial Statements and Supplementary Data” included in this 2020 Annual Report.

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.

As of December 31, 2020, we drew $250 million from the DIP Credit Agreement.

Refer to Note 6, "Debt," to the Notes to our consolidated financial statements under the caption Item 8, "Financial Statements and Supplementary Data” included in this 2020 Annual Report 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 further described in Note 6, "Debt," to the Notes to our consolidated financial statements under the caption Item 8, "Financial Statements and Supplementary Data” included in this 2020 Annual Report.

In 2020, the Bankruptcy Court entered the Lease Rejection Orders which applied, in the aggregate, to 359 off airport and 66 airport locations in our U.S.

RAC segment, as further disclosed in Note 10, "Leases," to the Notes to

HERTZ GLOBAL HOLDINGS, INC.

AND SUBSIDIARIES

THE HERTZ CORPORATION AND SUBSIDIARIES

(DEBTORS-IN-POSSESSION)

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

our consolidated financial statements under the caption Item 8, "Financial Statements and Supplementary Data” included in this 2020 Annual Report.

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.

On January 28, 2021, Hertz subsidiary, TCL Funding Limited Partnership, entered into the Funding LP Series 2021-A Notes which provide for aggregate maximum borrowings of CAD$350 million on a revolving basis, subject to availability.

The initial draw of CAD$120 million was used, in part, to pay the outstanding obligations under the Funding LP Series 2015-A Notes, including any unpaid default interest, as disclosed in Note 6, "Debt," to the Notes to our consolidated financial statements under the caption Item 8, "Financial Statements and Supplementary Data” included in this 2020 Annual Report.

Our inability to retain any proceeds from the sale of vehicles under our U.S.

ABS programs means that our sources of liquidity are primarily our unrestricted cash and unrestricted cash equivalents on hand, cash generated from our operations and availability under our DIP Credit Agreement.

As of December 31, 2020, we 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 we believe will be sufficient to fund our operations through approximately December 31, 2021, assuming we do not experience any unforeseen liquidity needs before then, which could result in the utilization of the liquidity in advance of December 31, 2021.

We currently have waivers related to the filing of the Chapter 11 Cases under our European ABS and U.K.

Fleet Financing facility that are currently set to expire on March 5, 2021, as disclosed in Note 6, "Debt," to the Notes to our consolidated financial statements under the caption Item 8, "Financial Statements and Supplementary Data” included in this 2020 Annual Report.

As a result of our actions to eliminate costs in 2020, we (i) negotiated rent concessions in the form of abatement and payment deferrals of fixed and variable rent payments for our airport and off airport locations in the amount of approximately $300 million which substantially represents amounts previously due in 2020;

(ii) reduced our revenue earning vehicle expenditures by $8.2 billion, or 60%, in 2020 compared to 2019;

(iii) reduced our non-vehicle capital asset expenditures by $126 million, or 56%, in 2020 compared to 2019;

and (iv) sold 308,000, or 6%, more vehicles in our U.S.

RAC segment in 2020 compared to 2019 due primarily to the Interim Lease Order.

We continue to review our cost structure and fleet size to align with expected rental car volumes.

HERTZ GLOBAL HOLDINGS, INC.

AND SUBSIDIARIES

THE HERTZ CORPORATION AND SUBSIDIARIES

(DEBTORS-IN-POSSESSION)

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

Cash Flows - Hertz

As of December 31, 2020 and 2019, Hertz had unrestricted cash and unrestricted cash equivalents of $1.1 billion and $865 million, respectively, and restricted cash and restricted cash equivalents of $383 million and $495 million, respectively.

The following table summarizes the net change in cash, cash equivalents, restricted cash and restricted cash equivalents for the periods shown:

Years Ended December 31, 2020 vs.

2019 2019 vs.

(In millions) 2020 2019 2018 $ Change $ Change

Cash provided by (used in):

Operating activities $ 956 $ 2,907 $ 2,563 $ (1,951) $ 344

Investing activities 4,591 (4,425) (4,197) 9,016 (228)

Financing activities (5,403) 1,467 1,554 (6,870) (87)

Effect of exchange rate changes 46 1 (14) 45 15

Net change in cash, cash equivalents, restricted cash and restricted cash equivalents $ 190 $ (50) $ (94) $ 240 $ 44

Year ended December 31, 2020 compared with year ended December 31, 2019

In 2020, cash flows from operating activities decreased by $2.0 billion year over year due primarily to the $1.8 billion change in net loss driven by the impact of COVID-19 discussed above, partially offset by the associated reduction of $331 million in working capital requirements.

Our primary investing activities relate to the acquisition and disposal of revenue earning vehicles.

However, Hertz disposed of approximately 198,000 lease vehicles between June 1, 2020 and December 31, 2020, pursuant to or otherwise in satisfaction of our vehicle disposition obligations under the Interim Lease Order, where the proceeds from the dispositions were used to make payments under the Operating Lease.

There was a $9.0 billion decrease in the use of cash for investing activities year over year.

Cash outflows for revenue earning vehicles decreased $8.2 billion as we reduced our commitments to purchase vehicles, primarily in our U.S.

RAC segment, due to the impact from COVID-19 and a $612 million increase of cash proceeds from disposals of revenue earning vehicles as we accelerated the disposition of vehicles due to the Interim Lease Order.

Net financing cash outflows were $5.4 billion in 2020 compared to cash inflows of $1.5 billion in 2019 primarily due to a $8.5 billion reduction in vehicle debt borrowings as we reduced our commitments to purchase vehicles, partially offset by a $1.7 billion reduction in non-vehicle repayments, net of new borrowings, primarily resulting from the Chapter 11 Cases.

Year ended December 31, 2019 compared with year ended December 31, 2018

In 2019, cash flows from operating activities, adjusted for non-cash, non-operating items and the net impact from operating leases, decreased by $111 million year over year due to a decrease in accrued liabilities for operational expenses, partially offset by an increase in cash primarily due to the timing of value added tax receivables in our International RAC segment.

Our primary investing activities relate to the acquisition and disposal of revenue earning vehicles.

There was a $228 million increase in the use of cash for investing activities year over year.

Net cash outflows for revenue earning vehicles increased $187 million primarily due to a higher volume of vehicles acquired, net of disposals in our International RAC segment.

Additionally, there was a $71 million increase in net cash outflows for the purchase of non-vehicle capital assets primarily in our corporate operations for our information technology and finance transformation programs.

HERTZ GLOBAL HOLDINGS, INC.

AND SUBSIDIARIES

THE HERTZ CORPORATION AND SUBSIDIARIES

(DEBTORS-IN-POSSESSION)

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

Net financing cash inflows were $1.5 billion in 2019 compared to $1.6 billion in 2018 driven by a reduction in net vehicle debt borrowings.

Net proceeds from the Rights Offering in 2019 were used to redeem non-vehicle debt resulting in a $702 million increase in net non-vehicle debt repayments.

Cash Flows - Hertz Global

As of December 31, 2020 and 2019, Hertz Global had unrestricted cash and unrestricted cash equivalents of $1.1 billion and $865 million, respectively, and restricted cash and restricted cash equivalents of $411 million and $495 million, respectively.

The following table summarizes the net change in cash, cash equivalents, restricted cash and restricted cash equivalents for Hertz Global for the periods shown:

Years Ended December 31, 2020 vs.

2019 2019 vs.

(In millions) 2020 2019 2018 $ Change $ Change

Cash provided by (used in):

Operating activities $ 953 $ 2,900 $ 2,556 $ (1,947) $ 344

Investing activities 4,591 (4,425) (4,197) 9,016 (228)

Financing activities (5,372) 1,474 1,561 (6,846) (87)

Effect of exchange rate changes 46 1 (14) 45 15

Net change in cash, cash equivalents, restricted cash and restricted cash equivalents $ 218 $ (50) $ (94) $ 268 $ 44

Fluctuations in operating, investing and financing cash flows from period to period are due to the same factors as those disclosed for Hertz above, with the exception of any cash inflows or outflows related to the master loan agreement between Hertz and Hertz Global and proceeds from the issuance of stock under the ATM Program as disclosed in Note 17, "Equity and Earnings (Loss) Per Share - Hertz Global," to the Notes to our consolidated financial statements under the caption Item 8, "Financial Statements and Supplementary Data” included in this 2020 Annual Report.

Refer to Note 6, "Debt," to the Notes to our consolidated financial statements included in this 2020 Annual Report under the caption Item 8, "Financial Statements and Supplementary Data" for information on our outstanding debt obligations and our borrowing capacity and availability under our revolving credit facilities as of December 31, 2020.

Cash paid for interest during 2020 was $109 million for interest on non-vehicle debt and $335 million for interest on vehicle debt.

Cash paid for interest during 2019 was $272 million for interest on non-vehicle debt and $431 million for interest on vehicle debt.

The $163 million reduction in non-vehicle debt interest is primarily due to suspending interest payments on certain debt due to the filing of the Chapter 11 Cases.

Our corporate liquidity, which excludes unused commitments under our vehicle debt, was as follows:

(In millions) As of December 31, 2020 As of December 31, 2019

Cash and cash equivalents $ 1,096 $ 865

Availability under the Senior RCF — 526

Corporate liquidity $ 1,096 $ 1,391

HERTZ GLOBAL HOLDINGS, INC.

AND SUBSIDIARIES

THE HERTZ CORPORATION AND SUBSIDIARIES

(DEBTORS-IN-POSSESSION)

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

Significant financing activities during the year ended December 31, 2020 for our non-vehicle and vehicle debt, including the issuance of equity, were as follows:

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.

Non-vehicle 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 a superpriority secured debtor-in-possession credit facility comprised of delayed-draw term 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.

In November 2020, Hertz drew $250 million from the DIP Credit Agreement and utilized $50 million 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.

Letters of Credit

In January 2020, under the terms of the Alternative Letter of Credit Facility, Hertz increased the commitments thereunder by $100 million, such that after giving effect to such increase, there are $200 million of standby letters of credit issued under the 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 and, as a result, are accruing interest at the non-default rate, except as otherwise set forth in orders from the Bankruptcy Court.

We organize our discussion of significant vehicle debt financing facilities below by reportable segment.

• The aggregate principal amount of medium term notes outstanding decreased from $6.6 billion to $2.7 billion as a result of an amortization event in effect as of May 5, 2020 for all series of notes issued by HVF II in which proceeds from the sales of vehicles that collateralize the notes issued by HVF II must be primarily

HERTZ GLOBAL HOLDINGS, INC.

AND SUBSIDIARIES

THE HERTZ CORPORATION AND SUBSIDIARIES

(DEBTORS-IN-POSSESSION)

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

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;

• The aggregate principal amount of variable term notes outstanding decreased from $2.6 billion to $1.9 billion as a result of an amortization event in effect for all series of notes issued by HVF II as described in the preceding paragraph;

• There is no remaining capacity under the various U.S.

RAC revolving vehicle debt financing facilities as unused commitments were terminated as a result of the filing of the Chapter 11 Cases;

• 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.

All Other Operations - Donlen

In the fourth quarter of 2020, we entered into a stock and asset purchase agreement to sell substantially all of the Donlen Assets.

The sale is expected to close in the first quarter of 2021.

See Note 3, "Divestitures," to the Notes to our consolidated financial statements under the caption Item 8, "Financial Statements and Supplementary Data” included in this 2020 Annual Report for further information.

Additionally,

• The aggregate principal amount of HFLF medium term notes outstanding decreased from $1.4 billion to $734 million as a result of an amortization event where 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 while the amortization events continue;

• 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 in an aggregate principal amount up to $400 million pursuant to this new facility.

Substantially all of our revenue earning vehicles and certain related assets are owned by special purpose entities or are encumbered in favor of our lenders under our 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, HFLF and various international subsidiaries that facilitate our international securitizations) will be available to satisfy the claims of unsecured creditors unless the secured creditors are paid in full.

For a discussion of additional risks associated with COVID-19, see Item 1A, "Risk Factors" in this 2020 Annual Report.

Approximately $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 debt will mature during the twelve months following the issuance of this 2020 Annual Report, which does not reflect any potential changes to the Company's debt that may result from the Chapter 11 Cases.

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, we are currently in default under our Senior RCF, the Letter of Credit Facility and the Alternative Letter of Credit Facility, and we are in breach of the Leverage Ratio.

As defined in the DIP Credit Agreement, a liquidity maintenance test is required as of each month end period.

As of December 31, 2020, we were in compliance with the liquidity maintenance test.

HERTZ GLOBAL HOLDINGS, INC.

AND SUBSIDIARIES

THE HERTZ CORPORATION AND SUBSIDIARIES

(DEBTORS-IN-POSSESSION)

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

Summarized Financial Information - Hertz

The following tables present the summarized financial information as combined for The Hertz Corporation, ("Parent”), and the Parent's subsidiaries that guarantee the Senior Notes issued by the Parent ("Guarantor Subsidiaries").

The Guarantor Subsidiaries are 100% owned by the Parent and all guarantees are full and unconditional and joint and several.

Additionally, substantially all of the assets of the Guarantor Subsidiaries are pledged under the Senior Facilities and Senior Second Priority Secured Notes and the value of such assets will not be available to satisfy the claims of the unsecured creditors of Hertz until the claims of secured creditors are paid in full.

During the first quarter of 2020, we early adopted Rule 13-01 of the SEC's Regulation S-X that simplifies the existing disclosure requirements for the Guarantor Subsidiaries and allows for the simplified disclosure to be included within Part II, Item 7, "Management’s Discussion and Analysis of Financial Condition and Results of Operations." In lieu of providing separate unaudited financial statements for the Guarantor Subsidiaries, Hertz has included the accompanying summarized financial information based on Rule 13-01 of the SEC's Regulation S-X.

Management of Hertz does not believe that separate financial statements of the Guarantor Subsidiaries are material to Hertz's investors;

therefore, separate financial statements and other disclosures concerning the Guarantor Subsidiaries are not presented.

Summarized financial information for the Guarantor Subsidiaries is as follows:

(In millions) December 31,

2020 December 31,

Due from affiliates $ 67,023 $ 3,562

Total assets 67,056 25,964

Due to affiliates (1)

Total liabilities 63,282 16,982

(1) Due to affiliates of $53.5 billion is classified as liabilities subject to compromise as of December 31, 2020.

(In millions) Year Ended December 31, 2020

Total revenues $ 3,565

Income (loss) before income taxes and equity in earnings (losses) of subsidiaries (1)

Net income (loss) (1,846)

Net income (loss) attributable to Hertz (1,846)

(1) Includes $2.7 billion of intercompany vehicle lease charges from non-guarantor subsidiaries.

Vehicle Financing Risks

Our program vehicles are subject to repurchase by vehicle manufacturers under contractual repurchase or guaranteed depreciation programs.

Under these programs, vehicle manufacturers agree to repurchase vehicles at a specified price or guarantee the depreciation rate on the vehicles during a specified time period, typically subject to certain vehicle condition and mileage requirements.

We use values derived from this specified price or guaranteed depreciation rate to calculate financing capacity under certain asset-backed and asset-based financing arrangements.

In the event of a bankruptcy of a vehicle manufacturer, our liquidity could be impacted by several factors including reductions in fleet residual values and the risk that we would be unable to collect outstanding receivables due to us from such bankrupt manufacturer.

In addition, the program vehicles manufactured by any such company would

HERTZ GLOBAL HOLDINGS, INC.

AND SUBSIDIARIES

THE HERTZ CORPORATION AND SUBSIDIARIES

(DEBTORS-IN-POSSESSION)

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

need to be removed from our financing facilities or re-designated as non-program vehicles, which would require us to furnish additional credit enhancement associated with these program vehicles.

We rely significantly on asset-backed and asset-based financing arrangements to purchase vehicles for our U.S.

and international vehicle rental fleet.

As a result of the Chapter 11 Cases, asset-backed and asset-based financing arrangements available to us are subject to the risks and uncertainties associated with bankruptcy, which include our ability to obtain Bankruptcy Court approval, our ability to comply with and operate under the requirements and constraints of the Bankruptcy Code and, in the event of such financings, our ability to comply with the terms of such financings.

There continues to be uncertainty regarding the potential impact of various SEC rules and regulations governing asset-backed securities and additional requirements contained in the Dodd-Frank Wall Street Reform and Consumer Protection Act (including risk retention requirements) and the Basel III regulatory capital rules, a global regulatory standard on bank capital adequacy, stress testing and market liquidity risk.

While we will continue to monitor these developments and their impact on our ABS program, such rules and regulations may impact our ability and/or desire to engage in asset-backed financings in the future.

For further information concerning our asset-backed financing programs and our indebtedness, see Note 6, "Debt," to the Notes to our consolidated financial statements included in this 2020 Annual Report under the caption Item 8, "Financial Statements and Supplementary Data." For a discussion of the risks associated with our reliance on asset-backed and asset-based financing and the significant amount of indebtedness, see Item 1A, "Risk Factors" in this 2020 Annual Report.

Capital Expenditures

Revenue Earning Vehicles Expenditures and Disposals

The table below sets forth our revenue earning vehicles expenditures and related disposal proceeds for the annual periods shown:

Cash inflow (cash outflow) Revenue Earning Vehicles

(In millions) Capital

Expenditures Disposal

Proceeds Net Capital Proceeds (Expenditures)

2020 $ (5,542) $ 10,098 $ 4,556

2019 (13,714) 9,486 (4,228)

2018 (12,493) 8,452 (4,041)

The table below sets forth expenditures for revenue earning vehicles, net of proceeds from disposal, by segment:

Cash inflow (cash outflow) Years Ended December 31, 2020 vs.

2019 2019 vs.

($ in millions) 2020 2019 2018 $ Change % Change $ Change % Change

Rental Car $ 3,786 $ (3,013) $ (2,992) $ 6,799 (226) % $ (21) 1 %

International Rental Car 1,046 (528) (422) 1,574 (298) (106) 25

All Other Operations (276) (687) (627) 411 (60) (60) 10

Total $ 4,556 $ (4,228) $ (4,041) $ 8,784 (208) $ (187) 5

Year ended December 31, 2020 compared with year ended December 31, 2019

In 2020, net expenditures on revenue earning vehicles decreased by $8.8 billion, primarily in our U.S.

RAC segment, as we reduced our commitments to purchase vehicles due to the impact from COVID-19, partially offset by an increase of cash proceeds from disposals of revenue earning vehicles as we accelerated the disposition of vehicles due to the Interim Lease Order.

HERTZ GLOBAL HOLDINGS, INC.

AND SUBSIDIARIES

THE HERTZ CORPORATION AND SUBSIDIARIES

(DEBTORS-IN-POSSESSION)

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

Non-Vehicle Capital Asset Expenditures and Disposals

The table below sets forth our non-vehicle capital asset expenditures, and related disposal proceeds from non-vehicle capital assets disposed of or to be disposed of for the annual periods shown:

Cash inflow (cash outflow) Non-Vehicle Capital Assets

(In millions) Capital

Expenditures Disposal

Proceeds Net Capital

2020 $ (98) $ 60 $ (38)

2019 (224) 27 (197)

2018 (177) 51 (126)

The table below sets forth non-vehicle capital asset expenditures, net of disposal proceeds, by segment:

Cash inflow (cash outflow) Years Ended December 31, 2020 vs.

2019 2019 vs.

($ in millions) 2020 2019 2018 $ Change % Change $ Change % Change

Rental Car $ 9 $ (65) $ (35) $ 74 (114) % $ (30) 86 %

International Rental Car (10) (19) (14) 9 (47) (5) 36

All Other Operations (4) (4) (4) — — — —

Corporate (33) (109) (73) 76 (70) (36) 49

Total $ (38) $ (197) $ (126) $ 159 (81) $ (71) 56

Year ended December 31, 2020 compared with year ended December 31, 2019

In 2020, net expenditures for non-vehicle capital assets decreased by $76 million in our corporate operations primarily due to a reduction in information technology and finance transformation program costs.

Share Repurchase Program - Hertz Global

As of December 31, 2020, approximately $295 million of s hares remain available for purchase under the share repurchase program .

No shares were repurchased by Hertz Holdings under the program during 2020, 2019 or 2018 and we do not expect to repurchase shares in 2021 and are unable to do so during the Chapter 11 Cases.

Hertz Holdings primarily funds repurchases of its common stock through dividends from Hertz or amounts borrowed under the master loan agreement.

Credit agreements governing Hertz's Senior Facilities, Letter of Credit Facility, Alternative Letter of Credit Facility and DIP Credit Agreement restrict Hertz's ability to make dividends and certain payments, including payments to Hertz Holdings for share repurchases.

HERTZ GLOBAL HOLDINGS, INC.

AND SUBSIDIARIES

THE HERTZ CORPORATION AND SUBSIDIARIES

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

CONTRACTUAL OBLIGATIONS

The following table details our contractual cash obligations as of December 31, 2020 which does not include contractual obligations of Donlen due to the pending Donlen Asset Sale or reflect any potential changes to our contractual obligations that may result from the Chapter 11 Cases:

Payments Due by Period

(In millions) Total 2021 2022 to 2023 2024 to 2025 After 2025

Debt obligation (1)

$ 6,087 $ 1,732 $ 3,649 $ 706 $ —

Interest on debt (2)

378 209 152 17 —

Debt obligation (3)

4,747 1,016 1,503 801 1,427

Interest on debt (2)

1,016 320 343 218 135

Minimum fixed obligations for operating leases 2,650 449 699 441 1,061

Commitments to purchase vehicles (4)

3,904 3,904 — — —

Purchase obligations and other (5)

194 87 80 4 23

Total $ 18,976 $ 7,717 $ 6,426 $ 2,187 $ 2,646

(1) 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.

See Note 6, "Debt," to the Notes to our consolidated financial statements included in this 2020 Annual Report under the caption Item 8, "Financial Statements and Supplementary Data" for further details.

(2) Amounts represent the estimated commitment fees and interest payments based on the principal amounts, minimum non-cancelable maturity dates and interest rates on the debt as of December 31, 2020.

As HVF II is in an amortization event, certain interest rates also include default interest.

Additionally, interest payments for certain facilities have been excluded as a result of the Chapter 11 Cases where interest is not being paid.

(3) Includes $4.4 billion of Non-Vehicle Debt 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.

See Note 6, "Debt." to the Notes to our consolidated financial statements included in this 2020 Annual Report under the caption Item 8, "Financial Statements and Supplementary Data." for further details.

(4) Represents fleet purchases where contracts have been signed or are pending with committed orders under the terms of such arrangements.

(5) Represents agreements to purchase goods or services that are legally binding on us and that specify all significant terms, including fixed or minimum quantities;

fixed, minimum or variable price provisions;

and the approximate timing of the transaction, as well as liabilities for uncertain tax positions and other liabilities, and excludes any obligations to employees.

Only the minimum non-cancelable portion of purchase agreements and related cancellation penalties are included as obligations.

In the case of contracts that state minimum quantities of goods or services, amounts reflect only the stipulated minimums;

all other contracts reflect estimated amounts.

Purchase obligations include $23 million representing our tax liability for uncertain tax positions and related net accrued interest and penalties.

The table excludes our pension and other postretirement benefit obligations as disclosed in Note 8, "Employee Retirement Benefits," to the Notes to our consolidated financial statements included in this 2020 Annual Report under the caption Item 8, "Financial Statements and Supplementary Data."

OFF BALANCE SHEET COMMITMENTS AND ARRANGEMENTS

Indemnification Obligations

In the ordinary course of business, we execute 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.

Performance under these indemnification obligations would generally be triggered by a breach of terms of the contract or by a third-party claim.

We regularly evaluate the

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probability of having to incur costs associated with these indemnification obligations and have accrued for expected losses that are probable and estimable.

The types of indemnification obligations for which payments are possible include the following:

Certain former Stockholders;

We have entered into indemnification agreements with each of our directors and certain of our executive officers.

Hertz entered into customary indemnification agreements with Hertz Holdings pursuant to which Hertz Holdings and Hertz will indemnify those entities and certain of our former stockholders and their affiliates 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.

We do not believe that these indemnifications are reasonably likely to have a material impact on us.

Environmental

We have 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 we may be held responsible could be substantial.

The probable expenses that we expect to incur for such matters have been accrued, and those expenses are reflected in our consolidated financial statements within accrued liabilities.

Amounts accrued represent the estimated cost to study potential environmental issues at sites deemed to require investigation or clean-up activities, and the estimated cost to implement remediation actions, including on-going maintenance, as required.

Initial cost estimates are based on historical experience at similar sites and are refined over time on the basis of in-depth studies of the sites.

For many sites, the remediation costs and other damages for which we ultimately may be responsible cannot be reasonably estimated because of uncertainties with respect to factors such as our connection to the site, the materials there, the involvement of other potentially responsible parties, the application of laws and other standards or regulations, site conditions, and the nature and scope of investigations, studies, and remediation to be undertaken (including the technologies to be required and the extent, duration, and success of remediation).

EMPLOYEE RETIREMENT BENEFITS

We sponsor defined benefit pension plans worldwide.

Pension obligations give rise to expenses that are dependent on assumptions discussed in Note 8, "Employee Retirement Benefits," to the Notes to our consolidated financial statements included in this 2020 Annual Report under the caption Item 8, "Financial Statements and Supplementary Data." As a result of filing the Chapter 11 Cases, participants of the Supplemental Plans are no longer entitled to benefit payments and are considered general creditors, as further disclosed in Note 8, "Employee Retirement Benefits," to the Notes to our consolidated financial statements included in this 2020 Annual Report under the caption Item 8, "Financial Statements and Supplementary Data." As such, we classified $24 million of our U.S.

pension benefit obligation as liabilities subject to compromise in the accompanying consolidated balance sheet as of December 31, 2020.

Our 2020 worldwide net periodic pension expense included in the accompanying consolidated statement of operations for the year ended December 31, 2020 is $8 million, which is comparable to 2019.

The funded status (i.e., the dollar amount by which the projected benefit obligations exceeded the market value of pension plan assets) of the Hertz Retirement Plan, as defined in Note 8, "Employee Retirement Benefits," to the Notes to our consolidated financial statements included in this 2020 Annual Report under the caption Item 8, "Financial Statements and Supplementary Data," in which most domestic employees participate, improved in December 31, 2020 compared with December 31, 2019 primarily due to lower actuarial losses.

We did not contribute to the Hertz Retirement Plan during 2020, and we do not anticipate contributing to the Hertz Retirement

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Plan during 2021.

For the international plans, we anticipate contributing $3 million during 2021.

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.

We participate in several "multiemployer" pension plans.

Amounts accrued for benefit payments under our 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 .

In the event that we withdraw from participation in one of these plans, then applicable law could require us to make an additional lump-sum contribution to the plan, payable in installments over a minimum of twenty years, which would be reflected as a liability on a discounted basis on our consolidated balance sheet.

Our withdrawal liability for any multiemployer plan would depend on the extent of the plan's funding of vested benefits.

Our multiemployer plans could have significant underfunded liabilities.

Such underfunding may increase in the event other employers become insolvent or withdraw from the applicable plan or upon the inability or failure of withdrawing employers to pay their withdrawal liability.

In addition, such underfunding may increase as a result of lower than expected returns on pension fund assets or other funding deficiencies.

The occurrence of any of these events could have a material adverse effect on our consolidated financial position, results of operations or cash flows.

For a discussion of the risks associated with our pension plans, see Item 1A, "Risk Factors” in this 2020 Annual Report.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Our discussion and analysis of financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America.

The preparation of the consolidated financial statements requires management to make estimates and judgments that affect the reported amounts in our consolidated financial statements and accompanying notes.

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and International vehicle rental fleets were vehicles purchased under repurchase or guaranteed depreciation programs with vehicle manufacturers, or program vehicles.

Under our vehicle repurchase programs, the manufacturers agree to repurchase 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.

Under our vehicle repurchase programs, the manufacturers agree to repurchase vehicles at a specified price or guarantee the depreciation rate on the vehicles during established repurchase 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 vehicles covered by the programs upon sale according to certain parameters which include the holding period, mileage and condition of the vehicles.

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For all other vehicles, we use historical experience, industry residual value guidebooks and the monitoring of market conditions to set depreciation rates.

Generally, when revenue earning vehicles are acquired outside of a vehicle repurchase program, (i.e., non-program vehicles) we estimate the period that we will hold the asset, primarily based on historical measures of the amount of rental activity (e.g., automobile mileage) and the targeted age of vehicles at the time of disposal.

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the time of disposal.

We also estimate the residual value of the applicable revenue earning vehicles at the expected time of disposal.

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Donlen accounts for its lease contracts using the appropriate lease classifications.

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COVID-19 may have a significant impact on the used-vehicle market, resulting in a material deterioration of residual values.

This deterioration could impact our current fleet and sales plans resulting in changes to the holding period of our vehicles as well as our ability to dispose of vehicles in the period originally anticipated.

As a result of the Chapter 11 Cases, the Bankruptcy Court may issue additional orders directing us to dispose of vehicles sooner than anticipated.

Changes in any or all of these variables could cause a material change in our estimates regarding depreciation expense.

Self-insured Liabilities

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If our estimates change or if actual results differ from these assumptions, the amount of the recorded liability is adjusted to reflect these results.

Recoverability of Goodwill and Indefinite-lived Intangible Assets

On an annual basis as of October 1, and at interim periods when circumstances require as a result of a triggering event, we test the recoverability of our goodwill and indefinite-lived intangible assets by performing an impairment analysis.

Recoverability of Goodwill and Definite and Indefinite-lived Intangible Assets

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 Accounting Standards Codification 350 – Intangibles, Goodwill and Other ("ASC 350"), we test the recoverability of our goodwill and indefinite-lived intangible assets by performing an impairment analysis.

An impairment is deemed to exist if the carrying value of goodwill or indefinite-lived intangible assets exceed their fair value as determined using level 3 inputs under the GAAP fair value hierarchy.

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Components are aggregated into a single reporting unit when they have similar economic characteristics.

The Company has four reporting units:

We have four reporting units:

Rental Car, Europe Rental Car, Other International Rental Car and Donlen.

Key assumptions used in the discounted cash flow valuation model include discount rates, growth rates, cash flow projections, tax rates and terminal value rates.

Key assumptions used in the discounted cash flow valuation model include discount rates, growth rates, cash flow

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projections, tax rates and terminal value rates.

Discount rates are set by using the Weighted-Average Cost of Capital (“WACC”) methodology.

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Our indefinite-lived intangible assets primarily consist of the Hertz and Dollar Thrifty tradenames.

For tradenames, we determine the fair value using a relief from royalty approach, which utilizes our revenue projections for each asset along with assumptions for royalty rates, tax rates and the WACC.

For tradenames, we determine the fair value using a relief-from-royalty income approach, which utilizes our revenue projections for each asset along with assumptions for royalty rates, tax rates and the WACC.

A significant decline in either projected revenues, projected cash flows or increased discount rates (the WACC) used to determine fair value could result in an impairment charge.

In 2017, as a result of declines in revenue and profitability of the Company and a decline in the share price of Hertz Global's common stock, the Company tested the recoverability of its goodwill and indefinite-lived intangible assets as of June 30, and concluded that there was an impairment of the Dollar Thrifty tradename in its U.S.

Rental Car segment and recorded a charge of $86 million .

The impairment was largely due to a decrease in long-term revenue projections coupled with an increase in the weighted-average cost of capital.

Subsequent to recording the impairment charge, the carrying value of the Dollar Thrifty tradename was approximately $934 million , representing its estimated fair value.

A change of one percentage point to the weighted-average cost of capital assumption used in the impairment analysis would have impacted the impairment charge by approximately $80 million .

The Company also tested the recoverability of its goodwill and indefinite-lived intangible assets as of its annual test dates of October 1, 2018 and 2019, the results of which indicated that the estimated fair value of each reporting unit

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and tradenames was in excess of its carrying value by more than 10% in all instances, therefore, the Company concluded there was no impairment.

In 2020, due to the impact related to COVID-19, our reduction in cash flow projections, the filing of the Chapter 11 Cases and declines in the stock price of Hertz Global, we tested the recoverability of our goodwill and indefinite-lived intangible assets as of June 30, 2020, and based on the quantitative test, no impairment was recorded.

Due to uncertainty surrounding our financial ability to complete certain information technology projects as a result of COVID-19 and the filing of the Chapter 11 Cases, we concluded in the second quarter of 2020 that there was an impairment of such technology-related intangible assets and capitalized cloud computing implementation costs, and recorded an impairment charge of $193 million in our corporate operations, representing a full impairment of the carrying value of such assets as of June 30, 2020 of $124 million and $69 million of technology-related intangible assets and other assets, respectively.

We also tested the recoverability of our goodwill and indefinite-lived intangible assets as of our annual test date of October 1, 2020 and concluded that there was an impairment of the Hertz tradename in our International RAC segment and recorded charges of $20 million as of December 31, 2020.

In 2019 the results of the annual impairment test as of October 1, 2019, indicated that the estimated fair value of each reporting unit and tradenames were in excess of their carrying value by more than 10% in all instances;

therefore, we concluded there was no impairment in 2019.

Further deterioration in the general economic conditions in the travel industry, our cash flows and our ability to obtain future financing to maintain our fleet or the weighted average cost of capital assumptions may result in an impairment charge to earnings in future periods.

We will continue to closely monitor actual results versus our expectations as well as any significant changes in market events or conditions, including the impact of COVID-19 on our business and the travel industry, and the resulting impact to our assumptions about future estimated cash flows, and the weighted average cost of capital.

If our expectations of the operating results, both in magnitude or timing, do not materialize, or if our weighted average cost of capital increases, we may be required to record goodwill and indefinite-lived intangible asset impairment charges, which could be material.

Subrogation Receivables

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We estimate recoveries based on the relationship between historical collection data from subrogation claims and total damage expense, as well as other inputs, such as historical recovery periods, average recovery rates, average recovery dollars and other qualitative facts and circumstances.

The impact of COVID-19 could result in a deterioration of the credit worthiness of our customers and third-parties regarding our subrogation receivables, and as a result we could incur material write-offs or a reduction in future collections.

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Our income tax expense or benefit, deferred tax assets and liabilities and liabilities for unrecognized tax benefits reflect management's best assessment of estimated current and future taxes to be paid.

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Subsequent changes to enacted tax rates and changes to the global mix of operating results will result in changes to the tax rates used to calculate deferred taxes and any related valuation allowances.

We record deferred tax assets for net operating loss carry forwards in various tax jurisdictions when applicable.

Upon utilization of those carry forwards, the taxing authorities may examine the positions that led to the generation of those net operating losses and determine that some of those losses are disallowed, which could result in additional income tax payable to the Company.

We record deferred tax assets for NOL carry forwards in various tax jurisdictions when applicable.

Upon utilization of those carry forwards, the taxing authorities may examine the positions that led to the generation of those NOLs and determine that some of those losses are disallowed, which could result in additional income tax payable to us.

We evaluate our exposures associated with our various tax filing positions and recognize a tax benefit only if it is more likely than not that the tax position will be sustained upon examination by the relevant taxing authorities, including resolutions of any related appeals or litigation processes, based on the technical merits of our position.

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QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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In addition, derivative financial instruments are entered into with a diversified group of major financial institutions in order to manage our exposure to counterparty nonperformance on such instruments.

As a result of our declining credit profile from the impact from COVID-19, we are no longer able to enter into certain derivative financial instruments or renew existing derivative financial instruments in order to mitigate market risks arising from the effects of changes in foreign currency exchange rates and interest rates (including credit spreads).

Interest Rate Risk

We have a significant amount of debt with a mix of fixed and variable rates of interest.

Floating rate debt carries interest based generally on LIBOR, Euro inter-bank offered rate (“EURIBOR”) or their equivalents for local currencies or bank conduit commercial paper rates plus an applicable margin.

Increases in interest rates could therefore significantly increase the associated interest payments that we are required to make on this debt.

See Note 5 , " Debt ," to the Notes to our consolidated financial statements included in this 2019 Annual Report under the caption Item 8, "Financial Statements and Supplementary Data.”

We have assessed our exposure to changes in interest rates by analyzing the sensitivity to our operating results assuming various changes in market interest rates.

Assuming a hypothetical increase of one percentage point in interest rates on our debt portfolio and cash equivalents and investments as of December 31, 2019 , our pre-tax operating results would decrease by an estimated $52 million over a twelve-month period.

From time to time, we may enter into interest rate swap agreements and/or interest rate cap/floor agreements to manage interest rate risk and our mix of fixed and floating rate debt.

As of December 31, 2019 , we do not have material exposures resulting from our interest rate swap agreements or interest rate cap/floor agreements.

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

Consistent with the terms of certain agreements governing the respective debt obligations, we may be required to hedge a portion of the floating rate interest exposure under the various debt facilities to provide protection in respect of such exposure.

We were party to various interest rate caps (the "Interest Rate Caps") and an interest rate swap which have been unwound or terminated.

The Interest Rate Caps were used to mitigate the cost at inception of purchased caps (the "Purchased Caps") on our variable rate HVF II U.S.

ABS program debt.

The Purchased Caps remain in place and provide protection against increases in rates on our variable rate HVF II U.S.

As a result of terminating the Interest Rate Caps, we are no longer exposed to their associated market risk.

We were also party to an interest rate swap to receive fixed-pay floating rates (the "Interest Rate Swap") to better match the mix of fixed and floating rate on our Donlen U.S.

ABS program debt to the mix of fixed and floating rate assets (i.e.

vehicle leases in our All Other Operations segment).

The termination of the Interest Rate Swap may result in decreased earnings from variable rate leases in a declining rate environment, and as such, variable rate vehicle leases are now supported by a fixed rate cost of debt.

Foreign Currency Exchange Rate Risk

We have exposure to foreign currency exchange rate fluctuations worldwide and primarily with respect to the Euro, Canadian dollar, Australian dollar and British pound.

We manage our foreign currency exchange rate risk primarily by incurring, to the extent practicable, operating and financing expenses in the local currency in the countries in which we operate, including making fleet purchases and borrowing locally.

Also, we have purchased foreign currency exchange rate options to manage exposure to fluctuations in foreign currency exchange rates for selected cross currency marketing programs.

Our risks with respect to foreign currency exchange rate options are limited to the premium paid for the right to exercise the option and the future performance of the option's counterparty.

We also manage exposure to fluctuations in currency risk on cross currency intercompany loans we make to certain of our subsidiaries by entering into foreign currency forward contracts at the time the loans are entered which are intended to offset the impact of foreign currency movements on the underlying intercompany loan obligations.

As noted above, we are no longer able to enter into certain derivative financial instruments or renew existing derivative financial instruments.

As a result, we have exposure to foreign currency exchange rate fluctuations on cross currency obligations, primarily intercompany loans.

Assuming a hypothetical change of one percentage point to the foreign currency exchange rates on our intercompany loan balance as of December 31, 2020, our pre-tax operating results would increase (decrease) by approximately $4 million.

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

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

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

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

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

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

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Item 7. Management’s Discussion and Analysis