Item 5. Market for Registrant’s Common Equity
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
HERTZ GLOBAL
In June 2020, subsequent to approval from the Bankruptcy Court and pursuant to a prospectus supplement to the Registration Statement on Form S-3 declared filed and effective by the SEC in June 2019 (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 (the "ATM Program"). 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. See Note 17, "Equity and Earnings (Loss) Per Share - Hertz Global," 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.
As a result of the filing of the Chapter 11 Cases, 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. On October 30, 2020, Hertz Global common stock began trading exclusively on the over-the-counter market under the symbol "HTZGQ". Also 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. Pursuant to Form 25, Hertz Global common stock was delisted from the NYSE 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. As a result of trading on the over-the-counter market, quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not necessarily represent actual transactions. As of February 22, 2021, there were 1,219 holders of record of Hertz Holdings common stock.
Hertz Holdings paid no cash dividends on its common stock in 2020 or 2019, and it does not expect to pay dividends on its common stock for the foreseeable future.
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, there was $295 million available for use for repurchases under this program.
Since Hertz Holdings does not conduct business itself, it primarily funds dividends on, and 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 Hertz's ability to make dividends and certain payments, including payments to Hertz Holdings for dividends on Hertz Holdings' common stock or for share repurchases.
HERTZ
There is no established public trading market for the common stock of Hertz. Rental Car Intermediate Holdings, LLC, which is wholly-owned by Hertz Holdings, owns all of the outstanding common stock of Hertz.
Hertz did not pay dividends to Hertz Holdings in 2020 or 2019. The 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 to Hertz Holdings.
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THE HERTZ CORPORATION AND SUBSIDIARIES
(DEBTORS-IN-POSSESSION)
ITEM 6. SELECTED FINANCIAL DATA
Not applicable.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Hertz Global Holdings, Inc. is a holding company and its principal, wholly-owned subsidiary is The Hertz Corporation. Hertz Global consolidates Hertz for financial statement purposes, and Hertz comprises approximately the entire balance of Hertz Global’s assets, liabilities and operating cash flows. In addition, Hertz’s operating revenues and operating expenses comprise nearly 100% of Hertz Global’s revenues and operating expenses. As such, Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") that follows herein is for Hertz and also applies to Hertz Global in all material respects, unless otherwise noted. Differences between the operations and results of Hertz and Hertz Global are separately disclosed and explained. We sometimes use the words “we,” “our,” “us,” and the “Company” in this MD&A for disclosures that relate to all of Hertz and Hertz Global.
The statements in this MD&A regarding industry outlook, our expectations regarding the performance of our business and the other non-historical statements are forward-looking statements. These forward-looking statements are subject to numerous risks and uncertainties, including, but not limited to, the risks and uncertainties described in Item 1A, "Risk Factors.” The following MD&A provides information that we believe to be relevant to an understanding of our consolidated financial condition and results of operations. Our actual results may differ materially from those contained in or implied by any forward-looking statements. You should read the following MD&A together with the sections entitled “Cautionary Note Regarding Forward-Looking Statements,” Item 1A, "Risk Factors,” and our consolidated financial statements and related notes included in this 2020 Annual Report under the caption Item 8, "Financial Statements and Supplementary Data.”
In this MD&A we refer to the following non-GAAP measure and key metrics:
• Adjusted Corporate EBITDA - important non-GAAP measure to management because it allows management to assess the operational performance of our business, exclusive of certain items, and allows management to assess the performance of the entire business on the same basis as the segment measure of profitability. Management believes that it is important to investors for the same reasons it is important to management and because it allows investors to assess our operational performance on the same basis that management uses internally. Adjusted EBITDA, the segment measure of profitability and accordingly a GAAP measure, is calculated exclusive of certain items which are largely consistent with those used in the calculation of Adjusted Corporate EBITDA.
• Depreciation Per Unit Per Month - important key metric to management and investors as depreciation of revenue earning vehicles and lease charges is one of our largest expenses for the vehicle rental business and is driven by the number of vehicles, expected residual values at the expected time of disposal and expected hold period of the vehicles. Depreciation Per Unit Per Month is reflective of how we are managing the costs of our vehicles and facilitates a comparison with other participants in the vehicle rental industry.
• Total Revenue Per Transaction Day ("Total RPD," also referred to as "pricing") - important key metric to management and investors as it represents a measurement of the changes in underlying pricing in the vehicle rental business and encompasses the elements in vehicle rental pricing that management has the ability to control.
• Total Revenue Per Unit Per Month ("Total RPU") - important key metric to management and investors as it provides a measure of revenue productivity relative to the total number of vehicles in our fleet whether owned or leased ("Average Vehicles" or "fleet capacity").
• Transaction Days - important key metric to management and investors as it represents the number of revenue generating days ("volume"). It is used as a component to measure Total RPD and Vehicle Utilization. Transaction Days represent the total number of 24-hour periods, with any partial period counted
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THE HERTZ CORPORATION AND SUBSIDIARIES
(DEBTORS-IN-POSSESSION)
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
as one Transaction Day, that vehicles were on rent (the period between when a rental contract is opened and closed) in a given period. Thus, it is possible for a vehicle to attain more than one Transaction Day in a 24-hour period.
• Vehicle Utilization - important key metric to management and investors because it is the measurement of the proportion of our vehicles that are being used to generate revenues relative to fleet capacity. Higher Vehicle Utilization means more vehicles are being utilized to generate revenues.
Our non-GAAP measure and key metrics should not be considered in isolation and should not be considered superior to, or a substitute for, financial measures calculated in accordance with U.S. GAAP. The above non-GAAP measure and key metrics are defined, and the non-GAAP measure is reconciled to its most comparable U.S. GAAP measure, in the "Footnotes to the Results of Operations and Selected Operating Data by Segment Tables" section of this MD&A.
OVERVIEW OF OUR BUSINESS AND OPERATING ENVIRONMENT
Impact of COVID-19 on our Business
In March 2020, the World Health Organization declared COVID-19 a pandemic, affecting multiple global regions. The impact of this pandemic has been and will likely continue to be extensive in many aspects of society, which has resulted in, and will likely continue to result in, significant disruptions to the global economy, as well as businesses around the world. In an effort to halt the spread of COVID-19, many governments around the world placed significant restrictions on travel, individuals voluntarily reduced their air and other travel in attempts to avoid the outbreak and many businesses announced closures and imposed travel restrictions. There is continued uncertainty about the duration of the negative impact from COVID-19 and the length and scope of travel restrictions and business closures imposed by governments of impacted countries and voluntarily undertaken by private businesses.
In response to COVID-19, we began aggressively managing costs and (i) initiated a restructuring program affecting approximately 11,000 employees in our U.S. RAC segment and U.S. corporate operations; (ii) actively negotiated to abate or defer our airport rent and concession payments; (iii) substantially reduced capital expenditures; (iv) eliminated discretionary marketing spend; and (v) reduced our commitments to purchase vehicles by approximately $4.0 billion from original commitments in our U.S. RAC segment.
Although we took aggressive action to eliminate costs, we faced significant ongoing monthly expenses, including monthly payments under our Operating Lease, pursuant to which Hertz leases vehicles which we use in our U.S. RAC rental car operations. On April 27, 2020, Hertz did not make certain payments in accordance with the Operating Lease, and as a result, 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. Refer to Note 1, "Background," 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 additional information on the Forbearance Agreement and Waiver Agreements which expired on May 22, 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) . Additional information about the Chapter 11 Cases, including access to documents filed with the Bankruptcy Court, is available online at https://restructuring.primeclerk.com/hertz, a website administered by Prime Clerk. The information on this website is not incorporated by reference and does not constitute part of this 2020 Annual Report.
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THE HERTZ CORPORATION AND SUBSIDIARIES
(DEBTORS-IN-POSSESSION)
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Liquidity Considerations Following the Chapter 11 Filing
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 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. Also, refer to the "Liquidity and Capital Resources" section below.
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 DFLF for the purposes of new interim fleet financing. 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," 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 a superpriority secured debtor-in-possession credit facility comprised of the DIP Loans, 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, Hertz drew down $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 approved the Lease Rejection Orders which were comprised of 359 off airport locations and 66 airport locations in our U.S. RAC segment, as further disclosed in Note 10, "Leases," 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. As a result of the Lease Rejection Orders, we have been consolidating our off airport rental locations and will continue to do so in 2021.
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
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THE HERTZ CORPORATION AND SUBSIDIARIES
(DEBTORS-IN-POSSESSION)
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
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.
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 primarily due to a reduction in information technology and finance transformation program costs; and (iv) sold approximately 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.
NYSE Delisting
As a result of the filing of the Chapter 11 Cases, on October 29, 2020, the NYSE informed us that Hertz Global 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 over-the-counter market on October 30, 2020 under the symbol HTZGQ and was delisted from the NYSE on November 10, 2020 pursuant to Form 25. 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.
Our Business
We are engaged principally in the business of renting vehicles primarily through our Hertz, Dollar and Thrifty brands. In addition to vehicle rental, we provide integrated vehicle leasing and fleet management solutions through our Donlen subsidiary, where in the fourth quarter of 2020, we entered into a stock and asset purchase agreement to sell substantially all of the Donlen Assets as discussed below. Our profitability is primarily a function of the volume, mix and pricing of rental transactions and the utilization of vehicles, the related ownership cost of vehicles and other operating costs. Significant changes in the purchase price or residual values of vehicles or interest rates can have a significant effect on our profitability depending on our ability to adjust pricing for these changes. We continue to balance our mix of non-program and program vehicles based on market conditions, including residual values. Our business requires significant expenditures for vehicles, and as such, we require substantial liquidity to finance such expenditures. However, as a result of the Interim Lease Order, Hertz was directed to dispose of at least 182,521 lease vehicles between June 1, 2020 and December 31, 2020, where the proceeds from the dispositions were to be used to make payments under the Operating Lease. 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. Additionally, under the Second Lease Order issued in January 2021, Hertz was directed to dispose of an additional 121,510 lease vehicles between January 1, 2021 and September 30, 2021, where the proceeds from the dispositions will be used to make payments under the Operating Lease. See the "Liquidity and Capital Resources" section of this MD&A for further information.
Our strategy includes optimization of our vehicle rental operations, disciplined performance management and evaluation of all locations and the pursuit of same-store sales growth.
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THE HERTZ CORPORATION AND SUBSIDIARIES
(DEBTORS-IN-POSSESSION)
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Our total revenues are primarily derived from rental and related charges and consist of:
• Worldwide vehicle rental revenues - revenues from all company-operated vehicle rental operations, including charges to customers for the reimbursement of costs incurred relating to airport concession fees and vehicle license fees, the fueling of vehicles and revenues associated with value-added services, including the sale of loss or collision damage waivers, theft protection, liability and personal accident/effects insurance coverage, premium emergency roadside service and other products and fees. Also included are ancillary revenues associated with retail vehicle sales and certain royalty fees from our franchisees (such fees are less than 2% of total revenues each period); and
• All other operations revenues - revenues from vehicle leasing and fleet management services by our Donlen business and other business activities, which in the fourth quarter of 2020, we entered into a stock and asset purchase agreement to sell substantially all of the Donlen Assets as discussed below.
Our expenses primarily consist of:
• Direct vehicle and operating expense ("DOE"), primarily wages and related benefits; commissions and concession fees paid to airport authorities, travel agents and others; facility, self-insurance and reservation costs; and other costs relating to the operation and rental of revenue earning vehicles, such as damage, maintenance and fuel costs;
• Depreciation expense and lease charges relating to revenue earning vehicles, including costs associated with the disposal of vehicles;
• Selling, general and administrative expense ("SG&A"), which includes costs for advertising costs and administrative personnel costs, along with information technology and finance transformation programs;
• Interest expense, net; and
• Reorganization items, net, which includes charges associated with the Chapter 11 Cases, primarily professional fees.
Our Business Segments
We have identified three reportable segments, which are organized based on the products and services provided by our operating segments and the geographic areas in which our operating segments conduct business, as follows:
• U.S. RAC - Rental of vehicles, as well as sales of value-added services, in the U.S.;
• International RAC - Rental and leasing of vehicles, as well as sales of value-added services, internationally; and
• All Other Operations - Comprised primarily of our Donlen business, which provides vehicle leasing and fleet management services, and other business activities. In the fourth quarter of 2020, we entered into a stock and asset purchase agreement to sell substantially all of the Donlen Assets. Accordingly, the Donlen Assets have been classified as held for sale in the accompanying consolidated balance sheet as of December 31, 2020. 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.
In addition to the above reportable segments, we have Corporate operations. We assess performance and allocate resources based upon the financial information for our operating segments.
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THE HERTZ CORPORATION AND SUBSIDIARIES
(DEBTORS-IN-POSSESSION)
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Revenue Earning Vehicles
Revenue earning vehicles used in our rental and leasing operations are recorded at cost, net of related discounts and incentives from manufacturers. Holding periods typically range from six to thirty-six months. Also included in revenue earning vehicles are vehicles placed on our retail lots for sale or actively in the process of being sold through other disposition channels.
Program vehicles are purchased under repurchase or guaranteed depreciation programs with vehicle manufacturers wherein 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 the residual value of the program vehicle upon sale, subject to, among other things, certain vehicle condition, mileage and holding period requirements. Program vehicles generally provide us with flexibility to increase or reduce the size of our fleet based on market demand. When we increase the percentage of program vehicles, the average age of our fleet decreases since the average holding period for program vehicles is shorter than that for non-program vehicles.
When a revenue earning vehicle is acquired outside of a vehicle repurchase program, 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). We also estimate the residual value of the applicable revenue earning vehicles at the expected time of disposal, considering 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. The vehicle is depreciated using a rate based on these estimates. 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 period of the vehicle. Differences between actual residual values and those estimated result in an adjustment to depreciation upon disposition of the vehicle. Our depreciation of revenue earning vehicles and lease charges also includes costs associated with the disposal of vehicles and rents paid for vehicles leased.
We dispose of our non-program vehicles via auction, dealer-direct and our retail locations. Non-program vehicles disposed of through our retail locations allow us the opportunity for value-added revenue, such as warranty, financing and title fees. We periodically review and adjust the mix between program and non-program vehicles in our fleet based on contract negotiations and the economic environment pertaining to our industry in an effort to optimize the mix of vehicles. Additionally, the use of program vehicles reduces the volatility associated with residual value estimation.
2020 Operating Overview
COVID-19 has caused a substantial reduction to airline travel during 2020. As a large portion of our business is generated at airport locations, these disruptions have had, and we expect it to continue to have, a material adverse impact on our results of operations until such travel returns to historic levels.
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THE HERTZ CORPORATION AND SUBSIDIARIES
(DEBTORS-IN-POSSESSION)
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
The following charts provide several key factors influencing our results for the years ended December 31, 2020 , 2019 and 2018.
(1) Includes impact of foreign currency exchange at average rates ("fx").
(2) Results shown are in constant currency as of December 31, 2019.
(3) The percentages shown in this chart reflect Vehicle Utilization versus period-over-period change.
For more information on the above, see the discussion of our results on a consolidated basis and by segment that follows herein. In this MD&A, certain amounts in the following tables are denoted as in millions. Amounts such as percentages are calculated from the underlying numbers in thousands, and as a result, may not agree to the amount when calculated from the tables in millions.
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THE HERTZ CORPORATION AND SUBSIDIARIES
(DEBTORS-IN-POSSESSION)
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
CONSOLIDATED RESULTS OF OPERATIONS - HERTZ
Years Ended December 31, Percent Increase/(Decrease)
($ In millions) 2020 2019 2018 2020 vs. 2019 2019 vs. 2018
Total revenues $ 5,258 $ 9,779 $ 9,504 (46)% 3%
Direct vehicle and operating expenses 3,627 5,486 5,355 (34) 2
Depreciation of revenue earning vehicles and lease charges
2,032 2,565 2,690 (21) (5)
Selling, general and administrative expenses
664 969 1,017 (31) (5)
Interest expense, net:
Vehicle
455 494 448 (8) 10
Non-vehicle
151 304 284 (50) 7
Interest expense, net
606 798 732 (24) 9
Intangible and other asset impairments 213 — — NM —
Write-off of intercompany loan 133 — — NM —
Other (income) expense, net
(9) (59) (40) (85) 48
Reorganization items, net 175 — — NM —
Income (loss) before income taxes (2,183) 20 (250) NM NM
Income tax (provision) benefit
328 (65) 28 NM NM
Net income (loss) (1,855) (45) (222) NM (80)
Net (income) loss attributable to noncontrolling interests
9 (8) 2 NM NM
Net income (loss) attributable to Hertz
$ (1,846) $ (53) $ (220) NM (76)
Adjusted Corporate EBITDA (a)
$ (995) $ 649 $ 433 NM 50
Footnotes to the table above are shown at the end of the Results of Operations and Selected Operating Data by Segment section of this MD&A.
NM - Not meaningful
Year Ended December 31, 2020 Compared with Year Ended December 31, 2019
Total revenues decreased $4.5 billion in 2020 compared to 2019 due to reduced demand related to the impact from COVID-19 where there were decreases of $3.3 billion and $1.2 billion in our U.S. RAC and International RAC segments, respectively. U.S. RAC revenues decreased due primarily to lower volume. Excluding a $5 million impact of fx, revenues for our International RAC segment decreased $1.2 billion also due primarily to lower volume and pricing.
DOE decreased $1.9 billion in 2020 compared to 2019 due primarily to decreases of $1.3 billion and $570 million in our U.S. RAC and International RAC segments, respectively. The decrease in our U.S. RAC segment is due primarily to lower volume driven by the impact from COVID-19 on total revenues described above, lower personnel costs and other cost elimination initiatives. Excluding the $3 million impact of fx, DOE for International RAC decreased $573 million due primarily to lower volume driven by the impact from COVID-19 on total revenues described above and lower personnel costs due to employee furloughs and associated government support across Europe related to COVID-19.
Depreciation of revenue earning vehicles and lease charges decreased $533 million in 2020 compared to 2019 due primarily to decreases of $333 million and $165 million in our U.S. RAC and International RAC segments, respectively. The decreases in our U.S. RAC and International RAC segments are due primarily to a reduction in fleet size in response to pandemic-related declines in consumer demand.
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THE HERTZ CORPORATION AND SUBSIDIARIES
(DEBTORS-IN-POSSESSION)
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
SG&A decreased $305 million in 2020 compared to 2019 due primarily to lower marketing costs in our U.S. and International RAC segments, lower personnel costs in our U.S. RAC segment and lower information technology and finance transformation costs in our corporate operations.
Vehicle interest expense, net decreased $38 million in 2020 compared to 2019 due primarily to lower vehicle debt levels primarily in our U.S. RAC segment.
Non-vehicle interest expense, net decreased $154 million in 2020 compared to 2019 due primarily to lower debt levels, lower market interest rates and the suspension of interest on certain non-vehicle debt as a result of filing the Chapter 11 Cases.
We incurred charges of $213 million for impairment of intangible and other assets in 2020 due primarily to $124 million impairment of technology-related intangible assets and $69 million impairment of capitalized cloud computing implementation costs in our corporate operations 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. Additionally, we incurred a charge of $20 million for impairment of the Hertz tradename in our International RAC segment as a result of our annual testing of the recoverability of our indefinite-lived intangible assets.
We incurred a charge of $133 million in 2020 in our corporate operations resulting from the full write-off of the 2019 Master Loan with Hertz Holdings due to the filing of the Chapter 11 Cases.
Other income of $9 million in 2020 was primarily comprised of a $20 million gain due to additional cash received from the sale of non-vehicle capital assets, primarily offset by $11 million in pension-related settlement charges. Other income of $59 million in 2019 was primarily comprised of a $30 million gain on marketable securities and a $39 million gain on non-vehicle capital assets.
We incurred $175 million of net reorganization charges in 2020 in our corporate operations for professional fees and other costs associated with the Chapter 11 Cases.
The effective tax rate in 2020 was 15% compared to 326% in 2019. We recorded a tax benefit of $328 million in 2020 compared to a tax provision of $65 million in 2019. The effective income tax rate and related tax benefit in 2020 compared to 2019 were driven by increased losses on our operations due to the effects of COVID-19, primarily offset by the impact of valuation allowances on net deferred tax assets for certain foreign and domestic jurisdictions.
Year Ended December 31, 2019 Compared with Year Ended December 31, 2018
Total revenues increased $276 million in 2019 compared to 2018 due to an increase of $459 million in our U.S. RAC segment, partially offset by a decrease of $107 million and $76 million in our International RAC and our All Other Operations segments, respectively. U.S. RAC revenues increased due to a 4% increase in volume and a 2% increase in Total RPD. Excluding the impact of fx, revenues for our International RAC segment were flat. The decrease in All Other Operations was due to the impact of a change in presentation for certain leased vehicles beginning in the first quarter of 2019.
DOE increased $131 million in 2019 compared to 2018 primarily due to an increase of $132 million and $7 million in our U.S. RAC and International RAC segments, respectively, partially offset by a $9 million decrease in our All Other Operations segment. The increase in U.S. RAC DOE was driven by increased volume. Excluding the $69 million impact of fx, DOE for International RAC increased $76 million driven primarily by an increase in vehicle-related expenses.
Depreciation of revenue earning vehicles and lease charges decreased $125 million in 2019 compared to 2018 primarily due to a decrease of $95 million and $22 million in our All Other Operations and U.S. RAC segments, respectively. The decrease in our All Other Operations segment was due to the impact of a change in presentation
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THE HERTZ CORPORATION AND SUBSIDIARIES
(DEBTORS-IN-POSSESSION)
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
for certain leased vehicles beginning in the first quarter of 2019. The decrease in our U.S. RAC segment was primarily due to our vehicle acquisition strategy and continued strength in residual values.
SG&A decreased $47 million in 2019 compared to 2018 primarily due to a decrease in personnel-related expenses in our Corporate operations and International RAC segment and the impact from fx in our International RAC segment, partially offset by increased marketing charges in our U.S. RAC segment and increased information technology and finance transformation charges in our Corporate operations.
Vehicle interest expense, net increased $45 million in 2019 compared to 2018 primarily due to an increase in debt levels resulting from higher average fleet primarily in our U.S. RAC segment and higher market interest rates. Additionally, there was a $20 million loss on extinguishment of debt recorded in our International RAC segment in 2018 with no comparable charge in 2019.
Non-vehicle interest expense, net increased $20 million in 2019 compared to 2018 primarily due to a $43 million loss on extinguishment of debt primarily associated with the partial redemption of the Senior Second Priority Secured Notes in 2019 with no comparable charges in 2018, partially offset by lower levels of non-vehicle debt in 2019 due to net proceeds from the Rights Offering which were used to redeem the 2020 and 2021 Notes.
Other income of $59 million in 2019 was primarily comprised of a $30 million gain on marketable securities and a $39 million gain on non-vehicle capital assets. Other income of $40 million in 2018 was primarily comprised of a $20 million gain on marketable securities, $10 million of net pension benefit income and a $6 million legal settlement related to an oil spill in the Gulf of Mexico in 2010.
The effective tax rate in 2019 was 326% compared to 11% in 2018. We recorded a tax provision of $65 million in 2019 compared to a tax benefit of $28 million in 2018. The effective income tax rate and related tax provision in 2019 are greater than 2018 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.
CONSOLIDATED RESULTS OF OPERATIONS - HERTZ GLOBAL
The above discussion for Hertz also applies to Hertz Global.
Hertz Global had $2 million, $7 million and $7 million of interest expense, net, during 2020, 2019 and 2018, respectively, that was incremental to the amounts shown for Hertz. These amounts represent interest associated with amounts outstanding under a master loan agreement between the companies. Hertz includes this amount as interest income in its statements of operations, but this amount is eliminated in consolidation for purposes of Hertz Global. In 2020, Hertz Global had $1 million of income tax benefit that was incremental to the amounts shown for Hertz due primarily to the $133 million master loan write-off included in Hertz's consolidated statements of operations. In 2019, Hertz had $2 million of tax provision that was incremental to the amounts shown for Hertz Global. In 2018, Hertz Global had $2 million of income tax benefit that was incremental to the amounts shown for Hertz.
RESULTS OF OPERATIONS AND SELECTED OPERATING DATA BY SEGMENT
U.S. Rental Car
As of December 31, 2020, our U.S. Rental Car operations had a total of approximately 3,900 corporate and franchisee locations, comprised of 1,500 airport and 2,400 off airport locations. The approximate 7% decrease in total locations from 2019 is primarily the product of a location rationalization effort in the Chapter 11 Cases as reflected in the Lease Rejection Orders entered by the Bankruptcy Court. See Note 10, "Leases," to the Notes to our consolidated financial statements under the caption Item 8, "Financial Statements and Supplementary Data” included in this 2020 Annual Report for further details.
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THE HERTZ CORPORATION AND SUBSIDIARIES
(DEBTORS-IN-POSSESSION)
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
U.S. Rental Car operations sold approximately 308,000, 290,000 and 263,000 non-program vehicles during the years ended December 31, 2020, 2019 and 2018, respectively. In 2020, the increase in units sold was due primarily to fleet size reductions in response to pandemic-related volume declines.
Results of operations and our discussion and analysis for our U.S. RAC segment are as follows:
Years Ended December 31, Percent Increase/(Decrease)
($ In millions, except as noted) 2020 2019 2018 2020 vs. 2019 2019 vs. 2018
Total revenues $ 3,656 $ 6,938 $ 6,480 (47)% 7%
Depreciation of revenue earning vehicles and lease charges
$ 1,323 $ 1,656 $ 1,678 (20) (1)
Direct vehicle and operating expenses $ 2,858 $ 4,146 $ 4,014 (31) 3
Direct vehicle and operating expenses as a percentage of total revenues
78 % 60 % 62 %
Selling, general and administrative expenses
$ 275 $ 490 $ 466 (44) 5
Selling, general and administrative expenses as a percentage of total revenues
8 % 7 % 7 %
Vehicle interest expense
$ 323 $ 345 $ 291 (6) 19
Adjusted EBITDA
$ (791) $ 480 $ 226 NM 113
Transaction Days (in thousands) (b)
82,678 155,859 149,463 (47) 4
Average Vehicles (in whole units) (c)
423,992 534,879 506,900 (21) 6
Vehicle Utilization (c)
53 % 80 % 81 %
Total RPD (in whole dollars) (d)
$ 42.88 $ 43.73 $ 42.67 (2) 2
Total RPU Per Month (in whole dollars) (e)
$ 697 $ 1,062 $ 1,049 (34) 1
Depreciation Per Unit Per Month (in whole dollars) (f)
$ 260 $ 258 $ 276 1 (7)
Percentage of program vehicles as of period end
2 % 11 % 9 %
Footnotes to the table above are shown at the end of the Results of Operations and Selected Operating Data by Segment section of this MD&A.
NM - Not meaningful
Year Ended December 31, 2020 Compared with Year Ended December 31, 2019
Total U.S. RAC revenues decreased $3.3 billion in 2020 compared to 2019 due primarily to lower volume. The 47% decrease in Transaction Days was driven by the impact from COVID-19 with declines in leisure and most business categories, excluding delivery services in our off airport locations where volume and pricing increased compared to 2019. Volume decreased in both our airport and off airport locations by 58% and 30%, respectively. Total RPD decreased by 2%. Off airport revenues comprised 44% of total revenues in 2020 as compared to 32% for 2019 due primarily to customer demand changes associated with COVID-19.
Depreciation of revenue earning vehicles and lease charges for U.S. RAC decreased $333 million in 2020 compared to 2019. Average Vehicles decreased 21% due in part to a reduction in fleet size in response to pandemic-related declines in consumer demand. Depreciation Per Unit Per Month was comparable to 2019.
DOE for U.S. RAC decreased $1.3 billion in 2020 compared to 2019 due primarily to lower volume driven by the impact from COVID-19 on total revenues described above, lower personnel costs due to an employee restructuring program that commenced in 2020 in response to COVID-19 and other cost elimination initiatives.
SG&A for U.S. RAC decreased $215 million in 2020 compared to 2019 due primarily to lower marketing and personnel costs in response to COVID-19 and other cost elimination initiatives.
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THE HERTZ CORPORATION AND SUBSIDIARIES
(DEBTORS-IN-POSSESSION)
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Vehicle interest expense for U.S. RAC decreased $22 million in 2020 compared to 2019 due primarily to lower debt levels as a result of vehicle dispositions resulting from the Interim Lease Order.
Year Ended December 31, 2019 Compared with Year Ended December 31, 2018
Total U.S. RAC revenues increased $459 million in 2019 compared to 2018 due to higher volume and pricing. The 4% increase in Transaction Days was driven by growth in retail and TNC rentals. Volume increased in both our off airport and airport locations by 8% and 2%, respectively. Total RPD increased by 2%. Off airport revenues comprised 32% of total revenues in 2019 as compared to 31% for 2018.
Depreciation of revenue earning vehicles and lease charges for U.S. RAC decreased by $22 million in 2019 compared to 2018. Net Depreciation Per Unit Per Month decreased to $258 in 2019 compared to $276 in 2018 primarily due to our vehicle acquisition strategy and continued strength in residual values.
DOE for U.S. RAC increased $132 million in 2019 compared to 2018 driven by volume, partially offset by a decrease in other non-vehicle related charges.
SG&A for U.S. RAC increased $23 million in 2019 compared to 2018 primarily due to increased marketing charges; SG&A as a percentage of revenues was flat year over year.
Vehicle interest expense for U.S. RAC increased $54 million in 2019 compared to 2018 primarily due to higher average fleet and higher market interest rates.
International Rental Car
As of December 31, 2020, our international vehicle rental operations had approximately 8,100 corporate and franchisee locations, comprised of 2,000 airport and 6,100 off airport locations in approximately 160 countries and regions including the countries of Australia, Canada, New Zealand, and in the regions of Africa, Asia, the Caribbean, Europe, Latin America and the Middle East.
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THE HERTZ CORPORATION AND SUBSIDIARIES
(DEBTORS-IN-POSSESSION)
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Results of operations and our discussion and analysis for our International RAC segment are as follows:
Years Ended December 31, Percent Increase/(Decrease)
($ In millions, except as noted) 2020 2019 2018 2020 vs. 2019 2019 vs. 2018
Total revenues $ 972 $ 2,169 $ 2,276 (55)% (5)%
Depreciation of revenue earning vehicles and lease charges
$ 274 $ 440 $ 448 (38) (2)
Direct vehicle and operating expenses $ 742 $ 1,312 $ 1,306 (43) —
Direct vehicle and operating expenses as a percentage of total revenues
76 % 61 % 57 %
Selling, general and administrative expenses
$ 180 $ 221 $ 248 (19) (11)
Selling, general and administrative expenses as a percentage of total revenues
19 % 10 % 11 %
Vehicle interest expense
$ 86 $ 97 $ 114 (11) (15)
Adjusted EBITDA
$ (248) $ 147 $ 231 NM (36)
Transaction Days (in thousands) (b)
24,621 50,139 50,417 (51) (1)
Average Vehicles (in whole units) (c)
116,348 180,723 180,400 (36) —
Vehicle Utilization (c)
58 % 76 % 77 %
Total RPD (in whole dollars) (d)
$ 39.32 $ 43.45 $ 43.21 (10) 1
Total RPU Per Month (in whole dollars) (e)
$ 693 $ 1,005 $ 1,006 (31) —
Net Depreciation Per Unit Per Month (in whole dollars) (f)
$ 197 $ 204 $ 198 (3) 3
Percentage of program vehicles as of period end
28 % 38 % 37 %
Footnotes to the table above are shown at the end of the Results of Operations and Selected Operating Data by Segment section of this MD&A.
NM - Not meaningful
Year Ended December 31, 2020 Compared with Year Ended December 31, 2019
Total revenues for International RAC decreased $1.2 billion in 2020 compared to 2019 due to lower volume and pricing. Transaction Days deceased 51% and Total RPD decreased 10%. Excluding a $5 million fx impact, revenues decreased $1.2 billion due to lower volume and pricing, primarily in Europe, across all leisure and business categories driven by the impact of COVID-19.
Depreciation of revenue earning vehicles and lease charges for International RAC decreased $165 million in 2020 compared to 2019, where the fx impact was immaterial. Average Vehicles for International RAC decreased 36% due to downsizing the fleet as a result of COVID-19. Depreciation Per Unit Per Month for International RAC decreased to $197 from $204 for 2020 versus 2019.
DOE for International RAC decreased $570 million in 2020 compared to 2019. Excluding a $3 million fx impact, DOE decreased $573 million due primarily to lower volume driven by the impact from COVID-19 on total revenues described above and lower personnel costs due to employee furloughs and associated government support across Europe related to COVID-19.
SG&A for International RAC decreased $41 million in 2020 compared to 2019. Excluding a $9 million fx impact, SG&A decreased $51 million due primarily to lower marketing and facility costs.
Vehicle interest expense for International RAC decreased $11 million in 2020 compared to 2019 due primarily to downsizing the fleet as a result of COVID-19 market conditions.
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THE HERTZ CORPORATION AND SUBSIDIARIES
(DEBTORS-IN-POSSESSION)
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Year Ended December 31, 2019 Compared with Year Ended December 31, 2018
Total revenues for International RAC decreased $107 million in 2019 compared to 2018. Excluding a $108 million fx impact, revenues were flat.
Depreciation of revenue earning vehicles and lease charges for International RAC decreased $8 million in 2019 compared to 2018. Excluding a $22 million fx impact, depreciation increased $14 million, or 3%. Depreciation Per Unit Per Month for International RAC increased to $205 from $199 for 2019 versus 2018 due in part to a richer fleet mix in Europe in 2019 versus 2018 and declining residual values year over year.
DOE for International RAC increased $7 million in 2019 compared to 2018. Excluding a $69 million fx impact, DOE increased $76 million, or 6%, primarily driven by vehicle-related expenses.
SG&A for International RAC decreased $27 million in 2019 compared to 2018 due in part to a $12 million fx impact and a decrease in personnel-related expenses.
Vehicle interest expense for International RAC decreased $17 million in 2019 compared to 2018 primarily due to a $20 million loss on extinguishment of debt associated with the redemption of the 4.375% European Vehicle Senior Notes in 2018.
All Other Operations
The All Other Operations segment is primarily comprised of our Donlen business, as such, our discussion is limited to Donlen. In the fourth quarter of 2020, we entered into a stock and asset purchase agreement to sell the Donlen Assets. The sale is expected to close in the first half of 2021. See Note 3, "Divestitures," to the Notes to our consolidated financial statements under the caption Item 8, "Financial Statements and Supplementary Data” included in this 2020 Annual Report for further details.
Results of operations for this segment are as follows:
Years Ended December 31, Percent Increase/(Decrease)
($ In millions) 2020 2019 2018 2020 vs. 2019 2019 vs. 2018
Total revenues $ 630 $ 672 $ 748 (6)% (10)%
Depreciation of revenue earning vehicles and lease charges
$ 435 $ 469 $ 564 (7) (17)
Direct vehicle and operating expenses $ 27 $ 28 $ 37 (4) (24)
Selling, general and administrative expenses $ 20 $ 35 $ 37 (43) (6)
Vehicle interest expense
$ 46 $ 52 $ 43 (11) 19
Adjusted EBITDA $ 93 $ 100 $ 82 (7) 22
Average Vehicles - Donlen
192,900 210,000 188,100 (8) 12
In 2020 compared to 2019, the impact of COVID-19 on our Donlen business was less severe than our car rental operations, where revenues and Adjusted EBITDA decreased 6% and 7% as compared to 2019, respectively.
Donlen had favorable re sults in 2019 compared to 2018. Lower year-over-year revenue and depreciation of revenue earning vehicles and lease charges were driven by the impact of a change in presentation for certain leased vehicles in 2019 versus 2018. Excluding the $79 million reduction in revenues from the change in presentation in 2019 and the $53 million benefit in 2018 of vehicles leased under sales-type leases , revenue grew 8%. The
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THE HERTZ CORPORATION AND SUBSIDIARIES
(DEBTORS-IN-POSSESSION)
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
increase in overall average vehicles in 2019 as compared to 2018 is due to new customer acquisitions and growth in the existing customer portfolio.
Footnotes to the Results of Operations and Selected Operating Data by Segment Tables
(a) Adjusted Corporate EBITDA is calculated as net income (loss) attributable to Hertz or Hertz Global, adjusted for income taxes; non-vehicle depreciation and amortization; non-vehicle debt interest, net; vehicle debt-related charges; loss on extinguishment of vehicle debt; restructuring and restructuring related charges; goodwill, intangible and tangible asset impairments and write-downs; intercompany loan write-offs; information technology and finance transformation costs; reorganization items, net; pre-reorganization items and non-debtor financing charges; and certain other miscellaneous items. When evaluating our operating performance, investors should not consider Adjusted Corporate EBITDA in isolation of, or as a substitute for, measures of our financial performance determined in accordance with U.S. GAAP. The reconciliations to the most comparable consolidated U.S. GAAP measure are presented below:
HERTZ
Years Ended December 31,
(In millions) 2020 2019 2018
Net income (loss) attributable to Hertz $ (1,846) $ (53) $ (220)
Adjustments:
Income tax provision (benefit) (328) 65 (28)
Non-vehicle depreciation and amortization 225 203 218
Non-vehicle debt interest, net 151 304 284
Vehicle debt-related charges (1)
50 38 36
Loss on extinguishment of vehicle debt (2)
5 — 22
Restructuring and restructuring related charges (3)
64 14 32
Intangible and other asset impairment (4)
213 — —
Write-off of intercompany loan (5)
133 — —
Information technology and finance transformation costs (6)
42 114 98
Reorganization items, net (7)
175 — —
Pre-reorganization and non-debtor financing charges (8)
109 — —
Other items (9)
12 (36) (9)
Adjusted Corporate EBITDA $ (995) $ 649 $ 433
HERTZ GLOBAL
Years Ended December 31,
(In millions) 2020 2019 2018
Net income (loss) attributable to Hertz Global $ (1,714) $ (58) $ (225)
Adjustments:
Income tax provision (benefit) (329) 63 (30)
Non-vehicle depreciation and amortization 225 203 218
Non-vehicle debt interest, net 153 311 291
Vehicle debt-related charges (1)
50 38 36
Loss on extinguishment of vehicle debt (2)
5 — 22
Restructuring and restructuring related charges (3)
64 14 32
Intangible and other asset impairment (4)
213 — —
Information technology and finance transformation costs (6)
42 114 98
Reorganization items, net (7)
175 — —
Pre-reorganization and non-debtor financing charges (8)
109 — —
Other items (9)
12 (36) (9)
Adjusted Corporate EBITDA $ (995) $ 649 $ 433
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THE HERTZ CORPORATION AND SUBSIDIARIES
(DEBTORS-IN-POSSESSION)
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
(1) Represents vehicle debt-related charges relating to the amortization of deferred financing costs and debt discounts and premiums.
(2) 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.
(3) Represents charges incurred under restructuring actions as defined in U.S. GAAP, excluding impairments and asset write-downs. 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.
(4) 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," to the Notes to our consolidated financial statements under the caption Item 8, "Financial Statements and Supplementary Data” included in this 2020 Annual Report.
(5) In 2020, represents the write-off of the 2019 Master Loan between Hertz and Hertz Holdings.
(6) Represents costs associated with our information technology and finance transformation programs, both of which are multi-year initiatives to upgrade and modernize our systems and processes.
(7) In 2020, represents charges incurred associated with the filing of the Chapter 11 Cases, as described in Note 20, "Reorganization Items, Net," to the Notes to our consolidated financial statements under the caption Item 8, "Financial Statements and Supplementary Data” included in this 2020 Annual Report.
(8) In 2020, represents charges incurred prior to the filing of the Chapter 11 Cases, 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. 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.
(b) Transaction Days represent the total number of 24-hour periods, with any partial period counted as one Transaction Day, that vehicles were on rent (the period between when a rental contract is opened and closed) in a given period. Thus, it is possible for a vehicle to attain more than one Transaction Day in a 24-hour period.
(c) Average Vehicles are determined using a simple average of the number of vehicles at the beginning and end of a given period. Among other things, Average Vehicles is used to calculate our Vehicle Utilization which represents the portion of our vehicles that are being utilized to generate revenue. Vehicle Utilization is calculated by dividing total Transaction Days by Available Car Days. The calculation of Vehicle Utilization is shown in the table below:
U.S. Rental Car International Rental Car
Years Ended December 31,
2020 2019 2018 2020 2019 2018
Transaction Days (in thousands) 82,678 155,859 149,463 24,621 50,139 50,417
Average Vehicles (in whole units) 423,992 534,879 506,900 116,348 180,723 180,400
Number of days in period (in whole units) 366 365 365 366 365 365
Available Car Days (in thousands) 155,181 195,231 185,019 42,583 65,964 65,846
Vehicle Utilization 53 % 80 % 81 % 58 % 76 % 77 %
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THE HERTZ CORPORATION AND SUBSIDIARIES
(DEBTORS-IN-POSSESSION)
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
(d) Total RPD is calculated as total revenues less ancillary retail vehicle sales revenues, with all periods adjusted to eliminate the effect of fluctuations in foreign currency exchange rates ("Total Rental Revenues"), divided by the total number of Transaction Days. Our management believes eliminating the effect of fluctuations in foreign currency exchange rates is useful in analyzing underlying trends. The calculation of Total RPD is shown below:
U.S. Rental Car International Rental Car
Years Ended December 31,
($ in millions, except as noted) 2020 2019 2018 2020 2019 2018
Total Revenues $ 3,656 $ 6,938 $ 6,480 $ 972 $ 2,169 $ 2,276
Ancillary retail vehicle sales revenues (111) (122) (102) — — —
Foreign currency adjustment (1)
— — — (5) 11 (98)
Total Rental Revenues $ 3,545 $ 6,816 $ 6,378 $ 967 $ 2,180 $ 2,178
Transaction Days (in thousands) 82,678 155,859 149,463 24,621 50,139 50,417
Total RPD (in whole dollars) $ 42.88 $ 43.73 $ 42.67 $ 39.32 $ 43.45 $ 43.21
(1) Based on December 31, 2019 foreign currency exchange rates for all periods presented.
(e) Total RPU Per Month is calculated as Total Rental Revenues divided by the Average Vehicles in each period and then divided by the number of months in the period reported. The calculation of Total RPU Per Month is shown below:
U.S. Rental Car International Rental Car
Years Ended December 31,
($ in millions, except as noted) 2020 2019 2018 2020 2019 2018
Total Rental Revenues $ 3,545 $ 6,816 $ 6,378 $ 967 $ 2,180 $ 2,178
Average Vehicles (in whole units) 423,992 534,879 506,900 116,348 180,723 180,400
Total revenue per unit (in whole dollars) $ 8,361 $ 12,743 $ 12,582 $ 8,311 $ 12,063 $ 12,073
Number of months in period (in whole units) 12 12 12 12 12 12
Total RPU Per Month (in whole dollars) $ 697 $ 1,062 $ 1,049 $ 693 $ 1,005 $ 1,006
(f) Depreciation Per Unit Per Month represents the amount of average depreciation expense and lease charges, per vehicle per month and is calculated as depreciation of revenue earning vehicles and lease charges, with all periods adjusted to eliminate the effect of fluctuations in foreign currency exchange rates, divided by the Average Vehicles in each period and then dividing by the number of months in the period reported. Our management believes eliminating the effect of fluctuations in foreign currency exchange rates is useful in analyzing underlying trends. The calculation of Depreciation Per Unit Per Month is shown below:
U.S. Rental Car International Rental Car
Years Ended December 31,
($ in millions, except as noted) 2020 2019 2018 2020 2019 2018
Depreciation of revenue earning vehicles and lease charges
$ 1,323 $ 1,656 $ 1,678 $ 274 $ 440 $ 448
Foreign currency adjustment (1)
— — — 1 3 (19)
Adjusted depreciation of revenue earning vehicles and lease charges
$ 1,323 $ 1,656 $ 1,678 $ 275 $ 443 $ 429
Average Vehicles (in whole units) 423,992 534,879 506,900 116,348 180,723 180,400
Adjusted depreciation of revenue earning vehicles and lease charges divided by Average Vehicles (in whole dollars)
$ 3,120 $ 3,096 $ 3,310 $ 2,364 $ 2,451 $ 2,378
Number of months in period (in whole units) 12 12 12 12 12 12
Depreciation Per Unit Per Month (in whole dollars) $ 260 $ 258 $ 276 $ 197 $ 204 $ 198
(1) Based on December 31, 2019 foreign currency exchange rates for all periods presented.
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(DEBTORS-IN-POSSESSION)
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
LIQUIDITY AND CAPITAL RESOURCES
Our U.S. and international operations are funded by cash provided by operating activities and by extensive financing arrangements maintained by us in the U.S. and internationally.
As of December 31, 2020, we had $1.1 billion of unrestricted cash and unrestricted cash equivalents and $383 million of restricted cash and restricted cash equivalents. As of December 31, 2020, $479 million of unrestricted cash and unrestricted cash equivalents and $60 million of restricted cash and restricted cash equivalents were held by our subsidiaries outside of the U.S. As a result of the impact of COVID-19 discussed above, we changed our indefinite reinvestment assertion with respect to our non-U.S. earnings, and if not in the form of loan repayments or subject to favorable tax treaties, repatriation of some of these funds under current regulatory and tax law for use in domestic operations could expose us to additional cash taxes.
Liquidity Considerations Related to COVID-19
As discussed above, the outbreak of COVID-19 has spread across the globe, resulting in a global economic slowdown and disruptions of travel and other industries, all of which are continuing to negatively impact our business and industry. In addition, COVID-19 has resulted in our employees, contractors, suppliers, customers and other business partners being prevented from conducting normal business activities temporarily or for an indefinite period of time. This was largely caused by shutdowns that were initially requested or mandated by governmental authorities. Additionally, individuals voluntarily reduced travel in attempts to avoid the outbreak.
Although we took aggressive action to eliminate costs, we faced significant ongoing monthly expenses, including monthly payments under our Operating Lease, pursuant to which Hertz leases vehicles which we use in our U.S. rental car operations. On April 27, 2020, Hertz did not make certain payments in accordance with the Operating Lease, and as a result, 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. Refer to Note 1, "Background," 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 additional information on the Forbearance Agreement and Waiver Agreements which expired on May 22, 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 May 22, 2020, 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) . Additional information about the Chapter 11 Cases, including access to documents filed with the Bankruptcy Court, is available online at https://restructuring.primeclerk.com/hertz, a website administered by Prime Clerk. The information on this website is not incorporated by reference and does not constitute part of this 2020 Annual Report.
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 our operations, customers and employees. The Debtors are authorized to conduct 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.
Borrowing Capacity and Availability
The filing of the Chapter 11 Cases constituted defaults, termination events and/or amortization events with respect to certain of our existing debt obligations. As a result of the filing of the Chapter 11 Cases, the remaining capacity
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Table of Contents
HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
THE HERTZ CORPORATION AND SUBSIDIARIES
(DEBTORS-IN-POSSESSION)