Edgar Filing: HERTZ GLOBAL HOLDINGS INC

10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

_______________________________________________________________________________

FORM 10-Q/A

Amendment No. 1



x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2015
OR
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number 001-33139

HERTZ GLOBAL HOLDINGS, INC.

(Exact name of registrant as specified in its charter)



Delaware (State or other jurisdiction of incorporation or organization)		20-3530539 (I.R.S. Employer Identification Number)

999 Vanderbilt Beach Road - 3rd Floor

Naples, Florida 34108

(239) 552-5800

(Address, including Zip Code, and telephone number,

including area code, of registrant's principal executive offices)

Not Applicable

(Former name, former address and former fiscal year,

if changed since last report.)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes o No x

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No x

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.



Large accelerated filer	x	Accelerated filer	o	Non-accelerated filer	o	Smaller reporting company	o
				(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

As of November 2, 2015, 444,358,703 shares of the registrant's common stock, par value $0.01 per share, were outstanding.

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HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES

INDEX




		Page
EXPLANATORY NOTE		i
PART I. FINANCIAL INFORMATION
ITEM 1.	Condensed Consolidated Financial Statements (Unaudited)	1
	Condensed Consolidated Balance Sheets as of June 30, 2015 and December 31, 2014	1
	Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2015 and 2014	2
	Condensed Consolidated Statements of Comprehensive Income (Loss) for the Three and Six Months Ended June 30, 2015 and 2014	3
	Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2015 and 2014	4
	Notes to Condensed Consolidated Financial Statements	6
ITEM 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	32
ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk	56
ITEM 4.	Controls and Procedures	56
PART II. OTHER INFORMATION
ITEM 1.	Legal Proceedings	58
ITEM 1A.	Risk Factors	58
ITEM 2.	Unregistered Sales of Securities and Use of Proceeds	58
ITEM 3.	Defaults Upon Senior Securities	58
ITEM 4.	Mine Safety Disclosures	58
ITEM 5.	Other Information	58
ITEM 6.	Exhibits	58
SIGNATURE		59
EXHIBIT INDEX		60

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HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES

EXPLANATORY NOTE

Amendment

The purpose of this Amendment No. 1 to our Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2015, filed with the Securities and Exchange Commission on August 10, 2015 (the “Quarterly Report”) is to restate our previously issued condensed consolidated financial statements to correct an error related to the depreciation of vehicles sold through our retail car sales locations. As a result of this error, our depreciation expense during the three and six months ended June 30, 2015 was overstated by $21 million and $18 million, respectively. The impact of this error to the three months ended March 31, 2015 was a $3 million understatement of depreciation expense which we deemed immaterial and therefore has been reflected as an out of period adjustment in our restated results for the three months ended June 30, 2015. In addition to the depreciation expense error, in this amendment we have corrected for an error in direct operating expenses that resulted in a $3 million overstatement of direct operating expenses for the three and six months ended June 30, 2015. The correction of the errors described above resulted in an increase of $21 million to pre-tax income and $13 million to net income (loss) for the three and six months ended June 30, 2015. Management identified errors that impacted the second quarter 2015 balance sheet classification of tax accounts. As a result, as of June 30, 2015, prepaid expenses and other assets, deferred taxes on income, net, and accrued taxes, net, were understated by $26 million, $5 million and $21 million, respectively. See Note 2, “Restatement,” to our condensed consolidated financial statements for additional information. This Amendment amends and restates our unaudited condensed consolidated financial statements and related disclosures in “Part I - Item 1. Financial Statements” for the three and six months ended June 30, 2015, as well as related disclosures in “Part I - Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations” and “Part I - Item 4. Controls and Procedures” to reflect the correction of these errors. This Amendment speaks as of the original filing date of the Quarterly Report, does not reflect events that may have occurred subsequent to the original filing date, and does not modify or update in any way disclosures made in the Quarterly Report, except as noted above.

Annual and Quarterly Filings

As described in additional detail in the Explanatory Note to our Annual Report on Form 10-K for the year ended December 31, 2014 (the "2014 Form 10-K"), during the preparation of our Form 10-Q for the first quarter of 2014, misstatements were identified in our previous financial statements relating to the capitalization and timing of depreciation for certain non-fleet assets, allowances for doubtful accounts in Brazil, as well as other items. These misstatements, in combination with misstatements previously identified in the revision included in our 2013 10-K/A related to vehicle vendor allowances for marketing and misstatements related to the Brazil operations, resulted in the Audit Committee of our Board of Directors (the “Audit Committee” and the “Board”), in consultation with our management, concluding on June 3, 2014 that our financial statements for 2011 should no longer be relied upon, and would require restatement.

On November 10, 2014, the Audit Committee, in consultation with our management, concluded that additional proposed adjustments arising out of the review were material to our 2012 and 2013 financial statements and that, as a result, our 2012 and 2013 financial statements also would require restatement. Those restated financial statements are included in Item 8 of the 2014 Form 10-K.

Due to the length of the review of our historical financial statements, we were unable to file the 2014 Form 10-K until July 16, 2015. In the 2014 Form 10-K we restated our financial statements for the years ended December 31, 2012 and 2013, including the 2013 interim periods. In addition, we also included restated unaudited selected financial data for the year ended December 31, 2011. We also included in the 2014 Form 10-K the financial data for the three and six months ended June 30, 2014 and management's discussion and analysis for the quarterly period then ended that would typically be disclosed in a Form 10-Q. We have not, and do not intend to file our Quarterly Report on Form 10‑Q for the quarterly period ended June 30, 2014.

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HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES

PART I—FINANCIAL INFORMATION

ITEM l. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

Unaudited

(In millions, except par value)



	June 30, 2015 (Restated)			December 31, 2014
ASSETS
Cash and cash equivalents	$	537		$	490
Restricted cash and cash equivalents	421			571
Receivables, net of allowance of $73 and $67, respectively	1,390			1,597
Inventories, net	75			67
Prepaid expenses and other assets	964			917
Revenue earning equipment:
Cars	16,393			14,622
Less accumulated depreciation - cars	(2,986		)	(3,411		)
Equipment	3,781			3,613
Less accumulated depreciation - equipment	(1,174		)	(1,171		)
Revenue earning equipment, net	16,014			13,653
Property and other equipment:
Land, buildings and leasehold improvements	1,364			1,268
Service equipment and other	1,075			1,148
Less accumulated depreciation	(1,129		)	(1,094		)
Property and other equipment, net	1,310			1,322
Other intangible assets, net	3,945			4,009
Goodwill	1,360			1,359
Total assets	$	26,016		$	23,985
LIABILITIES AND EQUITY
Accounts payable	$	1,431		$	1,008
Accrued liabilities	1,128			1,148
Accrued taxes, net	123			134
Debt	17,682			15,993
Public liability and property damage	384			385
Deferred taxes on income, net	2,868			2,853
Total liabilities	23,616			21,521
Commitments and contingencies
Equity:
Preferred Stock, $0.01 par value, 200 shares authorized, no shares issued and outstanding	—			—
Common Stock, $0.01 par value, 2,000 shares authorized, 463 and 463 shares issued and 459 and 459 shares outstanding	5			5
Additional paid-in capital	3,330			3,325
Accumulated deficit	(698		)	(664		)
Accumulated other comprehensive income (loss)	(150		)	(115		)
	2,487			2,551
Treasury Stock, at cost, 4 shares and 4 shares	(87		)	(87		)
Total equity	2,400			2,464
Total liabilities and equity	$	26,016		$	23,985

The accompanying notes are an integral part of these financial statements.

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HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

Unaudited

(In millions, except per share data)



	Three Months Ended June 30,						Six Months Ended June 30,
	2015 (Restated)			2014			2015 (Restated)			2014
Revenues:
Worldwide car rental	$	2,171		$	2,304		$	4,127		$	4,343
Worldwide equipment rental	375			384			730			743
All other operations	146			142			288			280
Total revenues	2,692			2,830			5,145			5,366
Expenses:
Direct operating	1,502			1,594			2,910			3,037
Depreciation of revenue earning equipment and lease charges, net	678			708			1,385			1,434
Selling, general and administrative	295			264			560			541
Interest expense, net	156			164			310			320
Other (income) expense, net	(10		)	(21		)	(4		)	(24		)
Total expenses	2,621			2,709			5,161			5,308
Income (loss) before income taxes	71			121			(16		)	58
(Provision) benefit for taxes on income (loss)	(35		)	(49		)	(18		)	(56		)
Net income (loss)	$	36		$	72		$	(34	)	$	2
Weighted average shares outstanding:
Basic	459			452			459			450
Diluted	461			465			459			457
Earnings (loss) per share:
Basic	$	0.08		$	0.16		$	(0.07	)	$	—
Diluted	$	0.08		$	0.15		$	(0.07	)	$	—

The accompanying notes are an integral part of these financial statements.

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HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

Unaudited

(In millions)



	Three Months Ended June 30,						Six Months Ended June 30,
	2015 (Restated)			2014			2015 (Restated)			2014
Net income (loss)	$	36		$	72		$	(34	)	$	2
Other comprehensive income (loss):
Foreign currency translation adjustments	9			21			(39		)	18
Unrealized holding gains (losses) on securities	—			—			—			(14		)
Reclassification of net unrealized gains on securities to prepaid expense and other assets	—			(7		)	—			(7		)
Reclassification from other comprehensive income (loss) to selling, general and administrative expense for amortization of actuarial losses on defined benefit pension plans	4			(1		)	6			(1		)
Total other comprehensive income (loss) before income taxes	13			13			(33		)	(4		)
Income tax (provision) benefit related to items of other comprehensive income (loss)	(2		)	(1		)	(2		)	(2		)
Total other comprehensive income (loss)	11			12			(35		)	(6		)
Total comprehensive income (loss)	$	47		$	84		$	(69	)	$	(4	)

The accompanying notes are an integral part of these financial statements.

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HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Unaudited

(In millions)



	Six Months Ended June 30,
	2015 (Restated)			2014
Cash flows from operating activities
Net income (loss)	$	(34	)	$	2
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation of revenue earning equipment, net	1,349			1,393
Depreciation and amortization, non-fleet	169			180
Amortization and write-off of deferred financing costs	31			27
Amortization and write-off of debt discount (premium)	(2		)	(2		)
Stock-based compensation charges	9			13
Provision for receivables allowance	35			32
Deferred taxes on income	19			21
Impairment charges and asset write-downs	20			10
Other	(7		)	(4		)
Changes in assets and liabilities
Receivables	(164		)	(284		)
Inventories, prepaid expenses and other assets	(68		)	(51		)
Accounts payable	57			32
Accrued liabilities	24			(2		)
Accrued taxes	3			7
Public liability and property damage	10			28
Net cash provided by (used in) operating activities	1,451			1,402
Cash flows from investing activities
Net change in restricted cash and cash equivalents	144			143
Revenue earning equipment expenditures	(7,991		)	(5,996		)
Proceeds from disposal of revenue earning equipment	4,909			3,717
Capital asset expenditures, non-fleet	(170		)	(151		)
Proceeds from disposal of property and other equipment	47			45
Acquisitions, net of cash acquired	(95		)	(6		)
Net cash provided by (used in) investing activities	(3,156		)	(2,248		)

The accompanying notes are an integral part of these financial statements.

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HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

Unaudited

(In millions)



	Six Months Ended June 30,
	2015 (Restated)			2014
Cash flows from financing activities
Proceeds from issuance of long-term debt	1,069			414
Repayments of long-term debt	(1,032		)	(97		)
Short-term borrowings:
Proceeds	383			269
Payments	(258		)	(369		)
Proceeds under the revolving lines of credit	5,307			2,779
Payments under the revolving lines of credit	(3,688		)	(2,017		)
Payment of financing costs	(8		)	(6		)
Other	(4		)	4
Net cash provided by (used in) financing activities	1,769			977
Effect of foreign exchange rate changes on cash and cash equivalents	(17		)	(2		)
Net increase (decrease) in cash and cash equivalents during the period	47			129
Cash and cash equivalents at beginning of period	490			411
Cash and cash equivalents at end of period	$	537		$	540

Supplemental disclosures of cash information:
Cash paid during the period for:
Interest, net of amounts capitalized	$	291		$	272
Income taxes, net of refunds	19			33
Supplemental disclosures of non-cash information:
Purchases of revenue earning equipment included in accounts payable and accrued liabilities	$	533		$	865
Sales of revenue earning equipment included in receivables	189			156
Purchases of property and other equipment included in accounts payable	63			52
Sales of property and other equipment included in receivables	16			8
Conversion of Convertible Senior Notes included in debt, common stock and additional paid-in capital	—			84

The accompanying notes are an integral part of these financial statements.

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HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Unaudited

Note 1—Background

Hertz Global Holdings, Inc. ("Hertz Holdings," and together with its subsidiaries, the "Company") was incorporated in Delaware in 2005 to serve as the top-level holding company for Hertz Investors, Inc. which wholly owns The Hertz Corporation ("Hertz"), Hertz Holdings' primary operating company. The Company's common stock trades on the New York Stock Exchange under the symbol "HTZ".

In March 2014, the Company announced that its Board of Directors approved plans to separate Hertz Holdings into two independent, publicly traded companies. One of the companies will continue to operate the Hertz, Dollar, Thrifty and Firefly rental car businesses as well as Donlen; and the other will operate the Hertz Equipment Rental Corporation ("HERC"). The separation is planned to be in the form of a tax-free spin-off to Hertz Holdings' shareholders (the "HERC spin-off") and the Company expects to separate the businesses in a tax-efficient manner.

Note 2 - Restatement

During the preparation of the Company's Form 10-Q for the third quarter 2015, an error related to the depreciation of vehicles sold through the Company's retail car sales locations was identified that impacted the financial statements filed in the Company's Form 10-Q for the second quarter 2015 and had an immaterial impact on the first quarter 2015. As a result of this error, our depreciation expense during the three and six months ended June 30, 2015 was overstated by $21 million and $18 million, respectively. The impact of this error to the three months ended March 31, 2015 was a $3 million understatement of depreciation expense which we deemed immaterial and therefore has been reflected as an out of period adjustment in our restated results for the three months ended June 30, 2015. In addition to the depreciation expense error, in this amendment we have corrected for an error in direct operating expenses that resulted in a $3 million overstatement of direct operating expenses for the three and six months ended June 30, 2015. The correction of the errors resulted in an increase of $21 million to pre-tax income and $13 million to net income (loss) for the three and six months ended June 30, 2015. The correction also increased diluted earnings per share for the three months ended June 30, 2015, and decreased diluted loss per share for the six months ended June 30, 2015, by $0.03. Management identified errors that impacted the second quarter 2015 balance sheet classification of tax accounts. As a result, as of June 30, 2015, prepaid expenses and other assets, deferred taxes on income, net, and accrued taxes, net, were understated by $26 million, $5 million and $21 million, respectively.

The impact of the adjustments to previously reported financial statements is shown in the following tables.

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HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Unaudited



CONDENSED CONSOLIDATED BALANCE SHEET
(In millions, except par value)
	June 30, 2015
	As Previously Reported			Restatement Adjustment		As Restated
ASSETS
Cash and cash equivalents	$	537		$	—	$	537
Restricted cash and cash equivalents	421			—		421
Receivables, net of allowance of $73 and $67, respectively	1,390			—		1,390
Inventories, net	75			—		75
Prepaid expenses and other assets	938			26		964
Revenue earning equipment:
Cars	16,393			—		16,393
Less accumulated depreciation - cars	(3,004		)	18		(2,986		)
Equipment	3,781			—		3,781
Less accumulated depreciation - equipment	(1,174		)	—		(1,174		)
Revenue earning equipment, net	15,996			18		16,014
Property and other equipment:
Land, buildings and leasehold improvements	1,364			—		1,364
Service equipment and other	1,072			3		1,075
Less accumulated depreciation	(1,129		)	—		(1,129		)
Property and other equipment, net	1,307			3		1,310
Other intangible assets, net	3,945			—		3,945
Goodwill	1,360			—		1,360
Total assets	$	25,969		$	47	$	26,016
LIABILITIES AND EQUITY
Accounts payable	$	1,431		$	—	$	1,431
Accrued liabilities	1,128			—		1,128
Accrued taxes, net	102			21		123
Debt	17,682			—		17,682
Public liability and property damage	384			—		384
Deferred taxes on income, net	2,855			13		2,868
Total liabilities	23,582			34		23,616
Commitments and contingencies
Equity:
Preferred Stock, $0.01 par value, 200 shares authorized, no shares issued and outstanding	—			—		—
Common Stock, $0.01 par value, 2,000 shares authorized, 463 and 463 shares issued and 459 and 459 shares outstanding	5			—		5
Additional paid-in capital	3,330			—		3,330
Accumulated deficit	(711		)	13		(698		)
Accumulated other comprehensive income (loss)	(150		)	—		(150		)
	2,474			13		2,487
Treasury Stock, at cost, 4 shares and 4 shares	(87		)	—		(87		)
Total equity	2,387			13		2,400
Total liabilities and equity	$	25,969		$	47	$	26,016

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HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Unaudited



CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(In millions, except per share data)
	Three Months Ended June 30, 2015
	As Previously Reported			Restatement Adjustment			As Restated
Revenues:
Worldwide car rental	$	2,171		$	—		$	2,171
Worldwide equipment rental	375			—			375
All other operations	146			—			146
Total revenues	2,692			—			2,692
Expenses:
Direct operating	1,505			(3		)	1,502
Depreciation of revenue earning equipment and lease charges, net	696			(18		)	678
Selling, general and administrative	295			—			295
Interest expense, net	156			—			156
Other (income) expense, net	(10		)	—			(10		)
Total expenses	2,642			(21		)	2,621
Income (loss) before income taxes	50			21			71
(Provision) benefit for taxes on income (loss)	(27		)	(8		)	(35		)
Net income (loss)	$	23		$	13		$	36
Weighted average shares outstanding:
Basic	459			459			459
Diluted	461			461			461
Earnings (loss) per share:
Basic	$	0.05		$	0.03		$	0.08
Diluted	$	0.05		$	0.03		$	0.08

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HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Unaudited



CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(In millions, except per share data)
	Six Months Ended June 30, 2015
	As Previously Reported			Restatement Adjustment			As Restated
Revenues:
Worldwide car rental	$	4,127		$	—		$	4,127
Worldwide equipment rental	730			—			730
All other operations	288			—			288
Total revenues	5,145			—			5,145
Expenses:
Direct operating	2,913			(3		)	2,910
Depreciation of revenue earning equipment and lease charges, net	1,403			(18		)	1,385
Selling, general and administrative	560			—			560
Interest expense, net	310			—			310
Other (income) expense, net	(4		)	—			(4		)
Total expenses	5,182			(21		)	5,161
Income (loss) before income taxes	(37		)	21			(16		)
(Provision) benefit for taxes on income (loss)	(10		)	(8		)	(18		)
Net income (loss)	$	(47	)	$	13		$	(34	)
Weighted average shares outstanding:
Basic	459			459			459
Diluted	459			461			459
Earnings (loss) per share:
Basic	$	(0.10	)	$	0.03		$	(0.07	)
Diluted	$	(0.10	)	$	0.03		$	(0.07	)

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HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Unaudited



CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(In millions)
	Six Months Ended June 30, 2015
	As Previously Reported			Restatement Adjustment			As Restated
Cash flows from operating activities
Net income (loss)	$	(47	)	$	13		$	(34	)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation of revenue earning equipment, net	1,367			(18		)	1,349
Depreciation and amortization, non-fleet	169			—			169
Amortization and write-off of deferred financing costs	31			—			31
Amortization and write-off of debt discount (premium)	(2		)	—			(2		)
Stock-based compensation charges	9			—			9
Provision for receivables allowance	35			—			35
Deferred taxes on income	11			8			19
Impairment charges and asset write-downs	20			—			20
Other	(4		)	(3		)	(7		)
Changes in assets and liabilities				—
Receivables	(164		)	—			(164		)
Inventories, prepaid expenses and other assets	(42		)	(26		)	(68		)
Accounts payable	57			—			57
Accrued liabilities	24			—			24
Accrued taxes	(23		)	26			3
Public liability and property damage	10			—			10
Net cash provided by (used in) operating activities	1,451			—			1,451
Cash flows from investing activities
Net change in restricted cash and cash equivalents	144			—			144
Revenue earning equipment expenditures	(7,991		)	—			(7,991		)
Proceeds from disposal of revenue earning equipment	4,909			—			4,909
Capital asset expenditures, non-fleet	(170		)	—			(170		)
Proceeds from disposal of property and other equipment	47			—			47
Acquisitions, net of cash acquired	(95		)	—			(95		)
Net cash provided by (used in) investing activities	(3,156		)	—			(3,156		)

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HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Unaudited



CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(In millions)
	Six Months Ended June 30, 2015
	As Previously Reported			Restatement Adjustment		As Restated
Cash flows from financing activities
Proceeds from issuance of long-term debt	1,069			—		1,069
Repayments of long-term debt	(1,032		)	—		(1,032		)
Short-term borrowings:
Proceeds	383			—		383
Payments	(258		)	—		(258		)
Proceeds under the revolving lines of credit	5,307			—		5,307
Payments under the revolving lines of credit	(3,688		)	—		(3,688		)
Payment of financing costs	(8		)	—		(8		)
Other	(4		)	—		(4		)
Net cash provided by (used in) financing activities	1,769			—		1,769
Effect of foreign exchange rate changes on cash and cash equivalents	(17		)	—		(17		)
Net increase (decrease) in cash and cash equivalents during the period	47			—		47
Cash and cash equivalents at beginning of period	490			—		490
Cash and cash equivalents at end of period	$	537		$	—	$	537

Note 3—Basis of Presentation and Recently Issued Accounting Pronouncements

Basis of Presentation

The Company prepares its unaudited condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”). In the opinion of management, the unaudited condensed consolidated financial statements reflect all adjustments of a normal recurring nature that are necessary for a fair presentation of the results for the interim periods presented. Interim results are not necessarily indicative of results for a full year.

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and footnotes. Actual results could differ materially from those estimates.

The year-end condensed balance sheet data was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America. The information included in this Form 10-Q/A should be read in conjunction with information included in the Company’s Form 10-K for the year ended December 31, 2014 filed with the U.S. Securities and Exchange Commission on July 16, 2015 (the "2014 Form 10-K").

In the 2014 Form 10-K, the Company filed its 2014 annual financial statements along with its restated annual financial statements for 2013 and 2012, as well as unaudited restated selected financial data for 2011. In lieu of filing quarterly reports on Form 10-Q for 2014, quarterly financial information and management's discussion and analysis for 2014 was included in the 2014 Form 10-K.

Principles of Consolidation

The unaudited condensed consolidated financial statements include the accounts of Hertz Holdings and its wholly and majority owned domestic and international subsidiaries. In the event that the Company is a primary beneficiary of a variable interest entity, the assets, liabilities, and results of operations of the variable interest entity are included in the Company's consolidated financial statements. The Company accounts for its investment in CAR, Inc. and other

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Unaudited

immaterial investments in joint ventures using the equity method when it has significant influence but not control and is not the primary beneficiary. All significant intercompany transactions have been eliminated in consolidation.

Recent Accounting Pronouncements

Adopted

Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity

In April 2014, the Financial Accounting Standards Board ("FASB") issued guidance that changes the criteria for reporting discontinued operations. As a result of this guidance, only disposals of a component that represent a strategic shift that have, or will have, a major effect on the Company’s operations and financial results will be reported as a discontinued operation. Expanded disclosures are required for discontinued operations and for individually significant components that do not qualify for discontinued operations reporting. The Company adopted this guidance on January 1, 2015 in accordance with the effective date. Adoption of this new guidance did not impact the Company's financial position, results of operations or cash flows.

Not yet adopted

Revenue from Contracts with Customers

In May 2014, the FASB issued guidance that will replace most existing revenue recognition guidance in U.S. GAAP. The core principle of the guidance is that an entity should recognize revenue for the transfer of goods or services equal to the amount that it expects to be entitled to receive for those goods or services. The guidance requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments. The new guidance may be adopted on either a full or modified retrospective basis. As issued, the guidance is effective for annual reporting periods beginning after December 15, 2016, including interim periods within those reporting periods. In July 2015, the FASB agreed to defer the effective date of the guidance until annual and interim reporting periods beginning after December 15, 2017. The Company is in the process of determining the method of adoption and assessing the potential impacts of adopting this guidance on its financial position, results of operations and cash flows.

Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could be Achieved after the Requisite Service Period

In June 2014, the FASB issued guidance that requires that a performance target in a share-based payment award that affects vesting and that can be achieved after the requisite service period is completed is to be accounted for as a performance condition; therefore, compensation cost should be recognized in the period in which it becomes probable that the performance target will be achieved, and the amount of compensation cost recognized should be based on the portion of the service period fulfilled. The guidance is effective either prospectively or retrospectively for annual periods beginning after December 15, 2015 and interim periods within those annual periods. The Company is in the process of determining the method of adoption and assessing the potential impacts of adopting this guidance on its financial position, results of operations and cash flows.

Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items

In January 2015, the FASB issued guidance that eliminates the concept of an event or transaction that is unusual in nature and occurs infrequently being treated as an extraordinary item. The guidance is effective for annual periods beginning after December 15, 2015 and interim periods within those annual periods. The Company has assessed the potential impacts from future adoption of this guidance and has determined that there will be no impact on its financial position, results of operations and cash flows.

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Amendments to the Consolidation Analysis

In February 2015, the FASB issued guidance that changes the analysis that a reporting entity must perform to determine whether it should consolidate certain types of legal entities. The new guidance may be applied using a full or modified retrospective approach. The guidance is effective for annual periods beginning after December 15, 2015 and interim periods within those annual periods. The Company is in the process of determining the method of adoption and assessing the potential impacts of adopting this guidance on its financial position, results of operations and cash flows.

Simplifying the Presentation of Debt Issuance Costs

In April 2015, the FASB issued guidance requiring debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability. The guidance is effective retrospectively for annual periods beginning after December 15, 2015 and interim periods within those annual periods. The Company is in the process of determining the method of adoption and assessing the potential impacts of adopting this guidance on its financial condition, results of operations and cash flows.

Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement

In April 2015, the FASB issued guidance for customers about whether a cloud computing arrangement includes a software license. If a cloud computing arrangement includes a software license, then the customer should account for the software license element of the arrangement consistent with the acquisition of other software licenses. If a cloud computing arrangement does not include a software license, the customer should account for the arrangement as a service contract. This new guidance is effective for annual periods, including interim periods within those annual periods, beginning after December 15, 2015. Adoption of this guidance is not expected to have a material impact on the Company’s financial condition, results of operations or cash flows.

Note 4—Acquisitions and Divestitures

Acquisition

In February 2015, the Company acquired substantially all of the assets of certain Hertz-branded franchises, including existing fleets and contract and concession rights, for $87 million. The franchises acquired include on airport locations in Indianapolis, South Bend and Ft. Wayne, Indiana and in Memphis, Tennessee, as well as several smaller off airport locations. The acquisition was part of a strategic decision to increase the number of Hertz-owned locations and capitalize on certain benefits of ownership not available under a franchise agreement.

The acquisition was accounted for utilizing the acquisition method of accounting where the purchase price of the reacquired franchises was allocated based on estimated fair values of the assets acquired and liabilities assumed. The excess of the purchase price over the estimated fair value of the net tangible and intangible assets acquired was recorded as goodwill. The purchase price was allocated as follows:



(In millions)	U.S. Car Rental
Revenue earning equipment	$	71
Property and other equipment	6
Other intangible assets	9
Goodwill	1
Total	$	87

Divestiture

In June 2015, the Company signed a letter of intent for the sale of its HERC France and Spain businesses. The proposed transaction includes 60 locations in France and two in Spain. The proposed transaction is subject to receipt of the requisite works council opinions, the signing of the sale agreements and obtaining required corporate and regulatory approvals.

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Note 5—Revenue Earning Equipment

The components of revenue earning equipment, net are as follows:



(In millions)	June 30, 2015 (Restated)			December 31, 2014
Revenue earning equipment	$	19,734		$	17,837
Less: Accumulated depreciation	(4,042		)	(4,427		)
	15,692			13,410
Revenue earning equipment held for sale, net	322			243
Revenue earning equipment, net	$	16,014		$	13,653

Depreciation of revenue earning equipment and lease charges, net includes the following:



	Three Months Ended June 30,					Six Months Ended June 30,
(In millions)	2015 (Restated)			2014		2015 (Restated)		2014
Depreciation of revenue earning equipment	$	662		$	685	$	1,337	$	1,353
(Gain) loss on disposal of revenue earning equipment^(a)	(2		)	2		12		40
Rents paid for vehicles leased	18			21		36		41
Depreciation of revenue earning equipment and lease charges, net	$	678		$	708	$	1,385	$	1,434

(a) (Gain) loss on disposal of revenue earning equipment by segment is as follows:



	Three Months Ended June 30,						Six Months Ended June 30,
(In millions)	2015			2014			2015			2014
U.S. Car Rental	$	5		$	11		$	25		$	54
International Car Rental	(1		)	(4		)	(1		)	(3		)
Worldwide Equipment Rental	(6		)	(5		)	(12		)	(11		)
Total	$	(2	)	$	2		$	12		$	40

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 time of disposal and the estimated holding periods for the fleet and equipment. Depreciation rate changes impacted the following segments:



Increase (decrease)	Three Months Ended June 30,				Six Months Ended June 30,
(In millions)	2015		2014		2015		2014
U.S. Car Rental	$	27	$	37	$	57	$	76
International Car Rental	—		1		—		1
Total	$	27	$	38	$	57	$	77

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Note 6—Debt

The Company's debt consists of the following (in millions):



Facility	Average Interest Rate at June 30, 2015	Fixed or Floating Interest Rate	Maturity	June 30, 2015		December 31, 2014
Corporate Debt
Senior Term Facility	3.68%	Floating	3/2018	$	2,072	$	2,083
Senior ABL Facility	2.42%	Floating	3/2016 - 3/2017	547		344
Senior Notes⁽¹⁾	6.58%	Fixed	4/2018–10/2022	3,900		3,900
Promissory Notes	7.00%	Fixed	1/2028	27		27
Other Corporate Debt	3.86%	Floating	Various	69		74
Unamortized Net (Discount) Premium (Corporate)				3		3
Total Corporate Debt				6,618		6,431
Fleet Debt
HVF U.S. Fleet Medium Term Notes
HVF Series 2009-2	N/A	N/A	N/A	—		404
HVF Series 2010-1⁽²⁾	4.23%	Fixed	2/2014–2/2018	490		490
HVF Series 2011-1⁽²⁾	3.51%	Fixed	3/2015–3/2017	230		414
HVF Series 2013-1⁽²⁾	1.68%	Fixed	8/2016–8/2018	950		950
				1,670		2,258
RCFC U.S. ABS Program
RCFC U.S. Fleet Medium Term Notes
RCFC Series 2011-1 Notes	N/A	N/A	N/A	—		167
RCFC Series 2011-2 Notes	N/A	N/A	N/A	—		266
				—		433
HVF II U.S. ABS Program
HVF II U.S. Fleet Variable Funding Notes
HVF II Series 2013-A⁽²⁾	1.12%	Floating	10/2016	1,374		1,999
HVF II Series 2013-B⁽²⁾	1.12%	Floating	10/2016	1,400		976
HVF II Series 2014-A⁽²⁾	1.42%	Floating	10/2016	2,446		869
				5,220		3,844
HVF II U.S. Fleet Medium Term Notes
HVF II Series 2015-1⁽²⁾	2.93%	Fixed	3/2020	780		—
				780		—
Donlen ABS Program
HFLF Variable Funding Notes
HFLF Series 2013-2 Notes⁽²⁾	1.05%	Floating	9/2016	160		247
				160		247

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Facility	Average Interest Rate at June 30, 2015	Fixed or Floating Interest Rate	Maturity	June 30, 2015			December 31, 2014
HFLF Medium Term Notes
HFLF Series 2013-3 Notes⁽²⁾	0.83%	Floating	9/2016–11/2016	370			500
HFLF Series 2014-1 Notes⁽²⁾	0.71%	Floating	12/2016–3/2017	368			400
HFLF Series 2015-1 Notes⁽²⁾	0.83%	Floating	3/2018–5/2018	289			—
				1,027			900
Other Fleet Debt
U.S. Fleet Financing Facility	2.94%	Floating	3/2017	190			164
European Revolving Credit Facility	2.55%	Floating	10/2017	380			304
European Fleet Notes	4.375%	Fixed	1/2019	475			517
European Securitization⁽²⁾	1.90%	Floating	10/2016	365			270
Hertz-Sponsored Canadian Securitization⁽²⁾	1.93%	Floating	10/2016	142			105
Dollar Thrifty-Sponsored Canadian Securitization⁽²⁾	1.95%	Floating	10/2016	61			40
Australian Securitization⁽²⁾	3.71%	Floating	12/2016	93			112
Brazilian Fleet Financing Facility	17.55%	Floating	10/2015	9			11
Capitalized Leases	3.19%	Floating	2/2015 - 10/2017	501			364
Unamortized Net (Discount) Premium (Fleet)				(9		)	(7		)
				2,207			1,880
Total Fleet Debt				11,064			9,562
Total Debt				$	17,682		$	15,993

N/A - Not Applicable


(1)	References to the "Senior Notes" include the series of Hertz's unsecured senior notes. Outstanding principal amounts for each such series of the Senior Notes is specified below:



(In millions)	Outstanding Principal
Senior Notes	June 30, 2015		December 31, 2014
4.25% Senior Notes due April 2018	$	250	$	250
7.50% Senior Notes due October 2018	700		700
6.75% Senior Notes due April 2019	1,250		1,250
5.875% Senior Notes due October 2020	700		700
7.375% Senior Notes due January 2021	500		500
6.25% Senior Notes due October 2022	500		500
	$	3,900	$	3,900

(2)

Maturity reference is to the "expected final maturity date" as opposed to the subsequent "legal maturity date." The expected final maturity date is the date by which Hertz and investors in the relevant indebtedness expect the relevant indebtedness to be repaid, which in the case of the HFLF Medium Term Notes was based upon various assumptions made at the time of the pricing of such notes. The legal final maturity date is the date on which the relevant indebtedness is legally due and payable.

Fleet Debt

RCFC U.S. Fleet Medium Term Notes: Rental Car Finance Corp. ("RCFC"), a bankruptcy remote, indirect, wholly-owned, special purpose subsidiary of Hertz was the issuer under the RCFC U.S. ABS Program. In 2011, RCFC issued Series 2011-1 Rental Car Asset-Backed Notes in an aggregate original principal amount of $500 million and issued Series 2011-2 Rental Car Asset-Backed Notes in an aggregate original principal amount of $400 million (collectively, the "RCFC U.S. Fleet Medium Term Notes"). In February 2015, the RCFC U.S. Fleet Medium Term Notes were paid in full as scheduled in accordance with their terms.

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HVF II U.S. Fleet Medium Term Notes: In April 2015, HVF II issued the Series 2015-1 Rental Car Asset-Backed Notes, Class A, Class B, and Class C, or the “HVF II Series 2015-1 Notes”, collectively, in an aggregate principal amount of $780 million. The expected maturity of the HVF II Series 2015-1 Notes is March 2020. The HVF II Series 2015-1 Notes are comprised of $622 million aggregate principal amount of 2.73% Rental Car Asset-Backed Notes, Class A, $119 million aggregate principal amount of 3.52% Rental Car Asset-Backed Notes, Class B, and $39 million aggregate principal amount of 4.35% Rental Car Asset-Backed Notes, Class C. The net proceeds from the sale of the HVF II Series 2015-1 Notes were used (i) to repay a portion of the outstanding principal amount of HVF II's Series 2013-A Notes and HVF II's Series 2014-A Notes and (ii) to make loans to HVF for HVF to acquire or refinance vehicles to be leased to the Company or DTG Operations, Inc. for use in their daily rental operations.

Capitalized Leases: In May 2015, the U.K. Leveraged Financing was amended to provide for aggregate maximum leasing capacity (subject to asset availability) of up to £300 million during the peak season and at the same time amended and increased the ongoing core facility to £250 million.

European Revolving Credit Facility: In May 2015, HHN BV amended the European Revolving Credit Facility to provide for aggregate maximum borrowings of up to €340 million during the peak season, subject to borrowing base availability, for a seasonal commitment period through December 2015.

HFLF Medium Term Notes: In June 2015, HFLF issued $300 million in aggregate principal amount of Series 2015-1 Floating Rate Asset-Backed Notes, Class A, Class B, Class C, Class D, and Class E, or the “HFLF Series 2015-1 Notes,” collectively. The net proceeds from the issuance of the HFLF Series 2015-1 Notes were used (i) to repay a portion of amounts then-outstanding under the HFLF Series 2014-1 Notes and the HFLF Series 2013-2 Notes and (ii) to make loans to DNRS II. The HFLF Series 2015-1 Notes are floating rate and carry an interest rate based upon a spread to one-month LIBOR. An affiliate of HFLF purchased the Class E Notes, therefore, $11 million of the obligation is eliminated in consolidation.

Borrowing Capacity and Availability

The following facilities were available to the Company as of June 30, 2015:



(In millions)	Remaining Capacity		Availability Under Borrowing Base Limitation
Corporate Debt
Senior ABL Facility	$	1,093	$	1,027
Total Corporate Debt	1,093		1,027
Fleet Debt
HVF II U.S. Fleet Variable Funding Notes	1,355		—
HFLF Variable Funding Notes	240		—
European Revolving Credit Facility	—		—
European Securitization	82		—
Hertz-Sponsored Canadian Securitization	12		—
Dollar Thrifty-Sponsored Canadian Securitization	61		—
Australian Securitization	99		—
Capitalized Leases	12		5
Total Fleet Debt	1,861		5
Total	$	2,954	$	1,032

As of June 30, 2015, the Senior ABL Facility had $984 million available under the letter of credit facility sublimit, subject to borrowing base restrictions.

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Letters of Credit

As of June 30, 2015, there were outstanding standby letters of credit totaling $676 million. Of this amount, $662 million was issued under the Senior Term Facility and the Senior ABL Facility (together, the “Senior Credit Facilities”). As of June 30, 2015, none of these letters of credit have been drawn upon.

Cash Restrictions

Certain amounts of cash and cash equivalents are restricted for the purchase of revenue earning vehicles and other specified uses under the Fleet Debt facilities and the Like-Kind Exchange Program ("LKE Program"). As of June 30, 2015 and December 31, 2014, the portion of total restricted cash and cash equivalents that was associated with the Fleet Debt facilities was $378 million and $515 million, respectively. Restricted cash balances fluctuate based on the timing of purchases and sales of revenue earning vehicles and could also be impacted by the occurrence of an amortization event.

Special Purpose Entities

Substantially all of the revenue earning equipment and certain related assets are owned by special purpose entities, or are encumbered in favor of the lenders under the various credit facilities, other secured financings and asset-backed securities programs. None of such assets (including the assets owned by Hertz Vehicle Financing II LP, Hertz Vehicle Financing LLC, Rental Car Finance Corp., DNRS II LLC, HFLF, Donlen Trust and various international subsidiaries that facilitate the Company's international securitizations) are available to satisfy the claims of general creditors.

Some of these special purpose entities are consolidated variable interest entities, of which the Company is the primary beneficiary, whose sole purpose is to provide commitments to lend in various currencies subject to borrowing bases comprised of rental vehicles and related assets of certain of Hertz International, Ltd.'s subsidiaries. As of June 30, 2015 and December 31, 2014, the Company's International Fleet Financing No. 1 B.V., International Fleet Financing No. 2 B.V. and HA Funding Pty, Ltd. variable interest entities had total assets of $549 million and $427 million, respectively, primarily comprised of loans receivable and revenue earning equipment, and total liabilities of $549 million and $426 million, respectively, primarily comprised of debt.

Financial Covenant Compliance

Under the terms of the Senior Term Facility and Senior ABL Facility, the Company is not subject to ongoing financial maintenance covenants; however, under the Senior ABL Facility, failure to maintain certain levels of liquidity will subject the Company to a contractually specified fixed charge coverage ratio of not less than 1:1 for the four quarters most recently ended. As of June 30, 2015, the Company was not subject to the fixed charge coverage ratio test.

Waivers

Due to the Company's accounting restatement, investigation and remediation activities, the Company failed to file certain quarterly and annual reports and certain of its subsidiaries failed to file statutory financial statements within certain time periods set forth in the documentation of various of its (and/or its special purpose subsidiaries') financing facilities which resulted in the occurrence of various potential and/or actual defaults and potential amortization events under certain of such financing facilities.

In connection with certain refinancings consummated in October and November 2014, the Company and/or certain of its subsidiaries obtained waivers, or extensions of waivers, under certain facilities and the Australian Securitization and various counterparties in respect of derivative transactions, in each case, through June 30, 2015.

In December 2014, Hertz entered into an Amendment and Waiver (the “Amendment and Waiver”) relating to the Senior Term Facility. The waiver set forth in the Amendment and Waiver defers Hertz’s requirement to furnish certain financial statements within certain time periods set forth in the documentation of the Senior Term Facility, as well as waives defaults arising directly or indirectly from (1) the delay in providing such financial statements and (2) the restatement of Hertz’s 2012 and 2013 financial statements. The waiver is effective with respect to the non-delivery of the subject

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financial statements through December 31, 2015, provided that after June 30, 2015 such waiver will terminate if Hertz’s failure to furnish such financial statements results in Hertz being prohibited from drawing funds under the Senior ABL Facility, after giving effect to all amendments and waivers with respect to the Senior ABL Facility in effect as of such date.

The Amendment and Waiver increases the interest rates payable on the term loans and credit linked deposits during the period from December 15, 2014 through but excluding the date on which Hertz has furnished all financial statements then due to be delivered under the terms of the Senior Term Facility. During such period, (A) the Tranche B Term Loans and the Tranche B-1 Term Loans will bear interest at a floating rate measured by reference to, at Hertz’s option, either (i) an adjusted LIBOR not less than 1.00% plus a borrowing margin of 3.00% per annum or (ii) an alternate base rate plus a borrowing margin of 2.00% per annum, and (B) the Tranche B-2 Term Loans will bear interest at a floating rate measured by reference to, at Hertz’s option, either (i) an adjusted LIBOR not less than 0.75% plus a borrowing margin of 2.75% per annum or (ii) an alternate base rate plus a borrowing margin of 1.75% per annum. From and after the date on which Hertz has furnished all financial statements then due to be delivered under the terms of the Senior Term Facility, (A) the Tranche B Term Loans and the Tranche B-1 Term Loans will bear interest at a floating rate measured by reference to, at Hertz’s option, either (i) an adjusted LIBOR not less than 1.00% plus a borrowing margin of 2.75% per annum or (ii) an alternate base rate plus a borrowing margin of 1.75% per annum, and (B) the Tranche B-2 Term Loans will bear interest at a floating rate measured by reference to, at Hertz’s option, either (i) an adjusted LIBOR not less than 0.75% plus a borrowing margin of 2.25% per annum or (ii) an alternate base rate plus a borrowing margin of 1.25% per annum.

In May 2015, the Company obtained waivers from the requisite noteholders of its Senior Notes to amend and waive (the “Senior Notes Amendments and Waiver”) certain provisions of the indentures pursuant to which the Senior Notes were issued (the “Senior Notes Indentures”). The Senior Notes Amendments and Waiver amend, effective as of March 30, 2014, the reporting covenant in each of the Senior Notes Indentures to eliminate any obligation for the Company (or HHN BV as applicable) to deliver to the trustee or the noteholders or file with the SEC (i) its annual report on Form 10-K for the period ended December 31, 2014 and its quarterly reports on Form 10-Q for the periods ended March 31, 2015 and June 30, 2015, in each case prior to September 30, 2015 and (ii) its quarterly reports on Form 10-Q for the periods ended March 31, 2014, June 30, 2014 and September 30, 2014. Pursuant to the Senior Notes Amendments and Waiver, holders also waived any default or event of default under the relevant Senior Notes Indenture that may occur or exist as a result of or in connection with the Company not filing any amendments to previously filed SEC reports or the failure to timely deliver to the trustee or the noteholders, or file with the SEC, the delayed SEC reports.

In May 2015, the Company and HVF obtained waivers from the requisite noteholders of the U.S. Fleet Medium Term Notes to amend and waive (the “HVF Amendments and Waiver”) certain provisions of the operating lease between the Company and HVF that secures the U.S. Fleet Medium Term Notes (the “HVF Legacy Lease”). The HVF Amendments and Waiver amend the HVF Legacy Lease, effective as of March 30, 2014, to eliminate the requirement to furnish (or cause to be furnished) the quarterly reports on Form 10-Q for the periods ended March 31, 2014, June 30, 2014 and September 30, 2014 under the HVF Legacy Lease and in connection with the foregoing the noteholders waived any potential event of default or event of default under the HVF Legacy Lease that may occur or exist as a result, directly or indirectly arising out of or in connection with the failure to furnish (or cause to be furnished) such quarterly reports.

In June 2015, HHN BV obtained waivers from the requisite noteholders of its European Fleet Notes to amend and waive (the “European Fleet Notes Amendments and Waivers”) certain provisions of the indenture pursuant to which the European Fleet Notes were issued (the “European Fleet Notes Indenture”). The European Fleet Notes Amendments and Waiver amend, effective as of March 30, 2014, the reporting covenant in the European Fleet Notes Indenture to eliminate any obligation for the Company (or HHN BV as applicable) to deliver to the trustee or the noteholders or file with the SEC (i) its annual report on Form 10-K for the period ended December 31, 2014 and its quarterly reports on Form 10-Q for the periods ended March 31, 2015 and June 30, 2015, in each case prior to September 30, 2015 and (ii) its quarterly reports on Form 10-Q for the periods ended March 31, 2014, June 30, 2014 and September 30, 2014. Pursuant to the Senior Notes Amendments and Waiver, holders also waived any default or event of default under the European Fleet Notes Indenture that may occur or exist as a result of or in connection with the Company not filing any amendments to previously filed SEC reports or the failure to timely deliver to the trustee or the noteholders, or file with the SEC, the delayed SEC reports.

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Unaudited

In June 2015, the Company and/or certain of its subsidiaries obtained extensions of previously obtained waivers under the Senior ABL Facility, HVF II U.S. Fleet Variable Funding Notes, European Revolving Credit Facility, European Securitization, Hertz-Sponsored Canadian Securitization, Dollar Thrifty-Sponsored Canadian Securitization, Australian Securitization, U.K. Leveraged Financing, our U.S. Fleet Financing Facility, and various derivative transactions, in each case through August 31, 2015. Such lenders permanently waived any of the aforementioned events arising from the failure to file such financial information within the required time periods. The waivers also facilitated the Company filing a comprehensive annual report on Form 10-K for the period ended December 31, 2014, including audited financial statements of the Company for the year ended December 31, 2014 and unaudited financial statements of Hertz for the fiscal quarters ending March 31, 2014, June 30, 2014 and September 30, 2014, to satisfy its 2014 financial statement delivery obligations under such facilities. In addition, the lenders under such facilities have waived any of the aforementioned events that could arise from any restatement of annual and quarterly financial statements previously delivered by the Company and/or certain of its subsidiaries under such facilities.

For so long as the waivers remain effective, any potential and/or actual defaults and potential amortization events ceased to exist and were deemed to have been cured for all purposes of the related transaction documents. On July 16, 2015, the Company filed its 2014 Form 10-K and its Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2015.

Note 7—Employee Retirement Benefits

Effective December 31, 2014, the Company amended the The Hertz Corporation Account Balance Defined Benefit Pension Plan to permanently discontinue future benefit accruals and participation under the plan for non-union employees. The Company also increased employer contributions under the Company’s qualified 401(k) savings plan (the “401(k) Plan”). Effective January 1, 2015, eligible participants under the 401(k) Plan receive a matching employer contribution to their 401(k) Plan account equal to (i) 100% of the first 3% of employee contributions made by such participant and (ii) 50% of the next 2% of employee contributions, with the total amount of such matching employer contribution to be completely vested, subject to applicable limits under the United States Internal Revenue Code. Certain eligible participants under the 401(k) Plan also receive additional employer contribution amounts to their 401(k) Plan account depending on their years of service and age.

The following table sets forth the net periodic pension expense:



	Pension Benefits
	U.S.						Non-U.S.
	Three Months Ended June 30,
(In millions)	2015			2014			2015			2014
Components of Net Periodic Benefit Cost:
Service cost	$	1		$	6		$	—		$	1
Interest cost	7			8			2			2
Expected return on plan assets	(10		)	(10		)	(4		)	(4		)
Net amortizations	1			—			1			—
Settlement loss	1			4			—			—
Net periodic pension expense (benefit)	$	—		$	8		$	(1	)	$	(1	)

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Unaudited



	Pension Benefits
	U.S.						Non-U.S.
	Six Months Ended June 30,
(In millions)	2015			2014			2015			2014
Components of Net Periodic Benefit Cost:
Service cost	$	2		$	14		$	1		$	2
Interest cost	14			16			4			4
Expected return on plan assets	(20		)	(20		)	(8		)	(8		)
Net amortizations	2			1			1			—
Settlement loss	2			4			—			—
Net periodic pension expense (benefit)	$	—		$	15		$	(2	)	$	(2	)

The Company's policy for funded plans is to contribute annually, at a minimum, amounts required by applicable laws, regulations and union agreements. From time to time, the Company makes contributions beyond those legally required. The Company made no contributions to its worldwide pension plans during the three months ended June 30, 2015, and contributed $3 million during the six months ended June 30, 2015, all of which was a discretionary contribution to the United Kingdom defined benefit pension plan (the "U.K. Plan"). For the three and six months ended June 30, 2014, the Company contributed $8 million and $17 million, respectively, to its worldwide pension plans. Amounts contributed during the six months ended June 30, 2014 included $3 million of discretionary contributions to the U.K. Plan. The Company does not anticipate contributing to the worldwide pension plans during the remainder of 2015.

Note 8—Stock-Based Compensation

During the six months ended June 30, 2015, the Company granted 3,223,889 non-qualified stock options to certain executives and employees at a weighted average grant date fair value of $7.43; 814,907 restricted stock units ("RSUs") at a weighted average grant date fair value of $21.07 and 998,870 performance stock units ("PSUs") at a weighted average grant date fair value of $21.34 under the Hertz Global Holdings, Inc. 2008 Omnibus Incentive Plan with vesting terms of three to five years. The stock options are subject to time-based vesting based on the participant’s continued employment.

A summary of the total compensation expense and associated income tax benefits recognized under all plans, including the cost of stock options, RSUs and PSUs, is as follows:



	Three Months Ended June 30,						Six Months Ended June 30,
(In millions)	2015			2014			2015			2014
Compensation expense	$	5		$	5		$	9		$	13
Income tax benefit	(2		)	(2		)	(3		)	(5		)
Total	$	3		$	3		$	6		$	8

As of June 30, 2015, there was $58 million of total unrecognized compensation cost related to non-vested stock options, RSUs and PSUs granted by Hertz Holdings under all plans. The total unrecognized compensation cost is expected to be recognized over the remaining 2.1 years, on a weighted average basis, of the requisite service period that began on the grant dates.

Note 9—Restructuring

As part of its ongoing effort to implement a strategy of reducing operating costs, as well as the integration of Dollar Thrifty, the Company has evaluated its workforce and operations and made adjustments, including headcount reductions and business process re-engineering.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Unaudited

Restructuring charges in the condensed consolidated statements of operations are as follows:



	Three Months Ended June 30,					Six Months Ended June 30,
(In millions)	2015			2014		2015			2014
By Type:
Termination benefits	$	6		$	9	$	12		$	18
Asset write-downs	—			10		1			10
Facility closure and lease obligation costs	14			11		15			17
Other non-cash charges	(1		)	—		(2		)	—
Total	$	19		$	30	$	26		$	45



	Three Months Ended June 30,				Six Months Ended June 30,
(In millions)	2015		2014		2015		2014
By Caption:
Direct operating	$	14	$	20	$	16	$	26
Selling, general and administrative	5		10		10		19
Total	$	19	$	30	$	26	$	45



	Three Months Ended June 30,				Six Months Ended June 30,
(In millions)	2015		2014		2015		2014
By Segment:
U.S. Car Rental	$	14	$	13	$	16	$	18
International Car Rental	5		11		7		15
Worldwide Equipment Rental	—		—		1		3
Corporate	—		6		2		9
Total	$	19	$	30	$	26	$	45

The following table sets forth the activity affecting the restructuring accrual during the six months ended June 30, 2015. The remainder of the restructuring accrual relates to future lease obligations which will be paid over the remaining term of the applicable leases.



(In millions)	Termination Benefits			Other			Total
Balance as of January 1, 2015	$	21		$	22		$	43
Charges incurred	12			14			26
Cash payments	(15		)	(10		)	(25		)
Other non-cash changes	(1		)	(3		)	(4		)
Balance as of June 30, 2015	$	17		$	23		$	40

Note 10—Tangible Asset Impairments

In the first quarter of 2015, the Company recorded a $3 million impairment charge to reduce the carrying value of a held for sale corporate asset to its fair market value, which is included in other (income) expense in the Company's statement of operations. The asset was sold in April 2015.

In the first quarter of 2015, the Company performed an impairment assessment of the Dollar Thrifty headquarters campus in Tulsa, Oklahoma, which the Company is currently marketing for sale, using market and income approaches to value the long-lived assets, including inputs such as expected cash flows and recent comparable transactions.

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HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Unaudited

Based on the impairment assessment, the Company recorded a charge of $6 million which is included in selling, general and administrative expense in the Company's statement of operations.

In the first quarter of 2015, the Company recorded $11 million in charges associated with U.S. Car Rental service equipment and assets deemed to have no future use, of which $4 million is included in direct operating and $7 million is included in other (income) expense in the Company's statement of operations.

During the second quarter of 2014,