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MarketScreener Homepage  >  Equities  >  OTC Bulletin Board - Other OTC  >  Hertz Global Holdings, Inc.    HTZGQ

HERTZ GLOBAL HOLDINGS, INC.

(HTZGQ)
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HERTZ GLOBAL : MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (form 10-Q)

11/09/2020 | 04:27pm EST

Hertz Global Holdings, Inc. (together with its consolidated subsidiaries and variable interest entities, "Hertz Global") is a holding company and its principal, wholly-owned subsidiary is The Hertz Corporation (together with its consolidated subsidiaries and variable interest entities, "Hertz"). 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 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. Please refer to the defined terms in the Notes to the Condensed Consolidated Financial Statements in Part I, Item 1 of this Quarterly Report on Form 10-Q when reviewing the MD&A.

This MD&A should be read in conjunction with the MD&A presented in our 2019 Form 10-K together with the sections entitled "Cautionary Note Regarding Forward-Looking Statements," Part II, Item 1A, "Risk Factors," and our unaudited condensed consolidated financial statements and accompanying notes included in Part I, Item 1 of this Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2020 (this "Report"), which include additional information about our accounting policies, practices and the transactions underlying our financial results. The preparation of our unaudited condensed consolidated financial statements in conformity with U.S. GAAP requires us to make estimates and assumptions that affect the reported amounts in our unaudited condensed consolidated financial statements and the accompanying notes including revenue earning vehicle depreciation and various claims and contingencies related to lawsuits, taxes and other matters arising during the normal course of business. We apply our best judgment, our knowledge of existing facts and circumstances and our knowledge of actions that we may undertake in the future in determining the estimates that will affect our unaudited condensed consolidated financial statements. We evaluate our estimates on an ongoing basis using our historical experience, as well as other factors we believe to be appropriate under the circumstances, such as current economic conditions, and adjust or revise our estimates as circumstances change. As future events and their effects cannot be determined with precision, actual results may differ from these estimates.

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 them 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.

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                  HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
                     THE HERTZ CORPORATION AND SUBSIDIARIES
                            (DEBTORS-IN-POSSESSION)

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

•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 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 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.

OUR COMPANY

Hertz Holdings was incorporated in Delaware in 2015 to serve as the top-level holding company for Rental Car Intermediate Holdings, LLC, which wholly owns Hertz, Hertz Global's primary operating company. Hertz was incorporated in Delaware in 1967 and is a successor to corporations that have been engaged in the vehicle rental and leasing business since 1918. 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. We operate our vehicle rental business globally from company-owned, licensee and franchisee locations in North America, Europe, Latin America, Africa, Asia, Australia, the Caribbean, the Middle East and New Zealand.

OVERVIEW OF OUR BUSINESS AND OPERATING ENVIRONMENT

Overview of the Impact from COVID-19 on our Business

The outbreak of COVID-19 was declared a pandemic in March 2020 and has spread to 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 outbreak of COVID-19, many governments around the world initially placed significant restrictions on travel, individuals voluntarily reduced their air travel in attempts to avoid of the outbreak, and many businesses announced closures and imposed travel restrictions. There is continued uncertainty about the magnitude and 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 private businesses.

In response to the outbreak of 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, the majority of which were previously furloughed, (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, the majority of which were delivered during the second quarter of 2020.

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.

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                  HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
                     THE HERTZ CORPORATION AND SUBSIDIARIES
                            (DEBTORS-IN-POSSESSION)

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

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 Part I, Item 1 of this Quarterly Report on Form 10-Q in Note 1, "Background" 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 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, a third party bankruptcy claims and noticing agent. The information on this web site is not incorporated by reference and does not constitute part of this Form 10-Q.

Liquidity Considerations Following the Chapter 11 Filing

On July 24, 2020, per the terms of the Interim Lease Order entered on July 24, 2020, the Debtors were directed, among other things, to (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, will 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 are reimbursable by the Debtors; and (iv) suspend litigation relating to the Operating Lease until January 15, 2021 with all parties reserving all rights with respect to future litigation claims. For the period from June 1, 2020 through September 30, 2020, we disposed of approximately 165,000 vehicles which are associated with the Interim Lease Order. Also, refer to "Liquidity and Capital Resources" section below.

As a result of the Lease Rejection Orders approved by the Bankruptcy Court in September 2020, 257 off airport and 15 airport locations with unexpired leases were authorized for rejection in our U.S. RAC segment. In October 2020, the Bankruptcy Court approved the October Lease Rejection Orders comprised of 29 airport and 24 off airport locations in our U.S. RAC segment. These rejections did not materially change the minimum fixed obligations for operating leases as disclosed in Part II, Item 7, "Contractual Obligations" included in our 2019 Form 10-K.

As a result of our ongoing actions to eliminate costs, in the third quarter of 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 $84 million which represent amounts previously due in the period between July 1, 2020 and September 30, 2020; (ii) reduced our revenue earning vehicle expenditures by $2.4 billion, or 91%, in the third quarter of 2020 compared to 2019; (iii) reduced our non-vehicle capital asset expenditures by $35 million, or 67%, in the third quarter of 2020 compared to 2019 primarily due to a reduction in information technology and finance transformation program costs; and (iv) sold 56,000, or 72%, more vehicles in our U.S. RAC segment in the third quarter of 2020 compared to 2019 due to the Interim Lease Order and strength in residual values. We are continuing to review our cost structure and fleet size to align with expected rental car volumes.

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 United States and Canada, in each case that are debtors in these Chapter 11 Cases, as guarantors, entered into the DIP Credit Agreement. The DIP Credit Agreement provides for a superpriority secured debtor-in-possession credit facility comprised of delayed-draw term loans in an aggregate amount of up to $1.65 billion, of which (i) up to $1.0 billion can be used as equity for new

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                  HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
                     THE HERTZ CORPORATION AND SUBSIDIARIES
                            (DEBTORS-IN-POSSESSION)

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

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. Refer to Part I, Item 1 of this Quarterly Report on Form 10-Q in Note 6, "Debt" for further details.

On November 5, 2020, Hertz Global issued a press release announcing that it secured commitments for fleet financing totaling $4 billion and has filed a motion for approval of Hertz entering into the documentation for the financing by the Bankruptcy Court. Upon approval, and together with the up to $1 billion of our debtor-in-possession financing that may be used for equity in our fleet financing subsidiary, we will have access to up to $5 billion in total funding to support its fleet financing needs.

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 is no longer suitable for listing on the NYSE and that the NYSE has suspended trading in Hertz Global's common stock (NYSE ticker symbol: HTZ) after the market close on October 29, 2020. As a result of the suspension and expected delisting, Hertz Global's common stock began trading exclusively on the OTC market on October 30, 2020 under the symbol HTZGQ.

Our Business

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. 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 will dispose of at least 182,521 lease vehicles between June 1, 2020 and December 31, 2020, 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.


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.
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
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                  HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
                     THE HERTZ CORPORATION AND SUBSIDIARIES
                            (DEBTORS-IN-POSSESSION)

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

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 advertising costs and administrative personnel costs, along with costs for 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 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.

Seasonality

Our vehicle rental operations are a seasonal business, with decreased levels of business in the winter months and heightened activity during the spring and summer months ("our peak season") for the majority of countries where we generate our revenues. To accommodate increased demand, we typically increase our available fleet and staff during the second and third quarters of the year. However, as a result of the COVID-19 mitigation actions, we initiated a restructuring program in the second quarter of 2020 affecting approximately 11,000 employees in our U.S. RAC segment and U.S. corporate operations. Additionally, as a result of the Interim Lease Order, Hertz will dispose of at least 182,521 lease vehicles between June 1, 2020 and December 31, 2020, where the proceeds from the dispositions will be used to make payments under the Operating Lease. A number of our other major operating costs, including airport concession fees, commissions and vehicle liability expenses, are directly related to revenues or transaction volumes. In addition, our management expects to utilize enhanced process improvements, including utilization initiatives and the use of our information technology systems, to help manage our variable costs. We also maintain a flexible workforce, with a significant number of part-time and seasonal workers. Certain operating expenses, including real estate taxes, rent, insurance, utilities, maintenance and other facility-related expenses, the costs of operating our information technology systems and minimum staffing costs, remain fixed and cannot be adjusted for seasonal demand. As a result of the Lease Rejection Orders in September 2020, 257 off airport and 15 airport locations with unexpired leases were authorized for rejection in our U.S. RAC segment. Additionally, in October 2020, the Bankruptcy Court approved the October Lease Rejection Orders comprised of 29 airport and 24 off airport locations in our U.S. RAC segment.

Three and Nine Months Ended September 30, 2020 Operating Overview

The pandemic has continued to cause a substantial reduction to airline travel for the three and nine months ended September 30, 2020. As a large portion of our business is generated at airport locations, these disruptions during our peak season have had, and we expect it to continue to have, a material adverse impact on our results of

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                  HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
                     THE HERTZ CORPORATION AND SUBSIDIARIES
                            (DEBTORS-IN-POSSESSION)

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

operations until such travel returns to historic levels. The following provides an overview of our business and financial performance and key factors influencing our results:


U.S. RAC

•3Q 2020 versus 3Q 2019:
?Total revenues decreased $1.1 billion, or 56%
?Total RPU decreased 35% and Total RPD decreased 1%
?Transaction Days decreased 57%
?Depreciation of revenue earning vehicles and lease charges decreased 57% to
$182 million
?Depreciation Per Unit Per Month decreased 35% to $161
?Vehicle Utilization decreased to 52% from 79%
?DOE as a percentage of total revenues increased to 75% from 56%
?SG&A as a percentage of total revenues decreased to 5% from 6%

•Nine months 2020 versus Nine months 2019:
?Total revenues decreased $2.5 billion, or 47%
?Total RPU decreased 40% and Total RPD decreased 2%
?Transaction Days decreased 47%
?Depreciation of revenue earning vehicles and lease charges decreased 13% to
$1.1 billion
?Depreciation Per Unit Per Month was flat
?Vehicle Utilization decreased to 49% from 80%
?DOE as a percentage of total revenues increased to 78% from 59%
?SG&A as a percentage of total revenues increased to 8% from 7%

International RAC


•3Q 2020 versus 3Q 2019:
?Total revenues decreased $449 million, or 64%, and decreased $459 million, or
64%, excluding the impact of foreign currency exchange at average rates ("fx")
?Total RPU decreased 29% and Total RPD decreased 13%
?Transaction Days decreased 60%
?Depreciation of revenue earning vehicles and lease charges decreased 53% to $59
million, and decreased $69 million, or 54%, excluding fx
?Depreciation Per Unit Per Month decreased 8% to $183
?Vehicle Utilization decreased to 65% from 80%
?DOE as a percentage of total revenues increased to 71% from 55%
?SG&A as a percentage of total revenues increased to 22% from 9%

•Nine months 2020 versus Nine months 2019:
?Total revenues decreased $939 million, or 55%, and decreased $933 million or
55%, excluding fx
?Total RPU decreased 35% and Total RPD decreased 10%
?Transaction Days decreased 50%
?Depreciation of revenue earning vehicles and lease charges decreased 31% to
$228 million, and decreased $98 million, or 30%, excluding fx
?Depreciation Per Unit Per Month increased 2% to $202
?Vehicle Utilization decreased to 55% from 77%
?DOE as a percentage of total revenues increased to 77% from 59%
?SG&A as a percentage of total revenues increased to 19% from 10%

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

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                  HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
                     THE HERTZ CORPORATION AND SUBSIDIARIES
                            (DEBTORS-IN-POSSESSION)

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

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.

Critical Accounting Estimates

The impacts from COVID-19 could have a material impact to certain critical accounting estimates, and as a result, may have an adverse impact on our future operating results.

Revenue Earning Vehicles

COVID-19 may have a significant impact on the used-vehicle market, resulting in a material deterioration of residual values. This deterioration could impact our current fleet and sales plans resulting in changes to the holding period of our vehicles as well as our ability to dispose of vehicles in the period originally anticipated. As a result of the Chapter 11 Cases, the Bankruptcy Court may issue additional orders directing us to dispose of vehicles sooner than anticipated. Changes in any or all of these variables could cause a material change in our estimates regarding depreciation expense.

Recoverability of Goodwill and Indefinite-lived Intangible Assets

Due to the impact related to COVID-19, our reduction in cash flow projections, the filing of the Chapter 11 Cases and declines in the stock price of Hertz Global, we tested the recoverability of our goodwill and indefinite-lived intangible assets as of June 30, 2020, and based on the quantitative test, no impairment was recorded in the second quarter of 2020. However, the fair values of certain tradenames, which are indefinite-lived intangible assets, in our U.S. RAC and International RAC segments were in excess by 3% and 18% of the carrying values of $934 million and $560 million, respectively.

We test the recoverability of our goodwill and indefinite-lived intangible assets by performing an impairment analysis on an annual basis, as of October 1, and at interim periods when circumstances require as a result of a triggering event as defined by ASC 350. We determined that the projected revenues, expenses and cash flows, reflecting the expected duration and extent of impact to our business, customers, economy and the travel industry from COVID-19, and the impact of the Chapter 11 Cases, were materially consistent with the assumptions utilized in our June 30, 2020 quantitative impairment assessment. As a result of the foregoing considerations, along with the consideration of other indicators noted in ASC 350, we concluded there were no indicators of impairment triggered in accordance with ASC 350 in the third quarter of 2020.

Further deterioration in the general economic conditions in the travel industry, our cash flows and our ability to obtain future financing to maintain our fleet or the weighted average cost of capital assumptions may result in an impairment charge to earnings in future quarters. We will continue to closely monitor actual results versus our expectations as well as any significant changes in market events or conditions, including the impact of COVID-19 on our business and the travel industry, and the resulting impact to our assumptions about future estimated cash flows, and the weighted average cost of capital. If our expectations of the operating results, both in magnitude or timing, do not materialize, or if our weighted average cost of capital increases, we may be required to record goodwill and indefinite-lived intangible asset impairment charges, which could be material.

Subrogation Receivables

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


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                  HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
                     THE HERTZ CORPORATION AND SUBSIDIARIES
                            (DEBTORS-IN-POSSESSION)

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

Tax

We may record additional valuation allowances on our deferred tax assets. Further, in some jurisdictions, we may incur additional cash taxes due to changes in fleet acquisitions and dispositions and limitations on utilization of net operating losses.

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