Business Context and Reporting Period
Company: Hertz Global Holdings, Inc. (Hertz Holdings)
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: September 30, 2009
Business Overview: Hertz Holdings operates two primary segments: car rental (cars and light trucks) and equipment rental (industrial, construction, and material handling equipment). The company is highly leveraged, with a significant portion of its liquidity needs driven by debt service and capital expenditures for its fleet. The reporting period reflects continued economic downturns impacting consumer spending and travel, leading to reduced rental volumes and pricing pressure.
Key Financial Metrics
| Metric (in millions) | Three Months Ended Sep 30, 2009 | Nine Months Ended Sep 30, 2009 | Dec 31, 2008 (Balance Sheet) |
|---|---|---|---|
| Total Revenues | $2,041.4 | $5,360.8 | - |
| Net Income (Loss) | $69.0 | $(83.7) | - |
| Net Income (Loss) Attributable to Hertz | $64.5 | $(95.1) | - |
| Diluted EPS | $0.15 | $(0.27) | - |
| Operating Cash Flow (9mo) | - | $1,307.2 | - |
| Total Debt | - | - | $10,348.4 |
| Cash and Cash Equivalents | - | - | $926.7 |
| Liquidity Available for Immediate Use | - | - | $2,618.8 |
Note: Balance sheet figures represent the position as of September 30, 2009, compared to December 31, 2008 where applicable.
Material Changes vs. Prior Comparable Period
- Revenue Decline: Total revenues decreased 15.7% for the three months ended September 30, 2009, and 20.4% for the nine months ended September 30, 2009, compared to the prior year periods. This was driven by lower transaction volumes (down 5.8% QoQ and 9.8% YTD) and reduced pricing (Revenue Per Day declined 1.9% QoQ and 2.2% YTD).
- Profitability Shift: While the company reported a net loss of $95.1 million for the nine months ended September 30, 2009 (compared to net income of $11.2 million in the prior year), it returned to profitability in the third quarter with net income of $64.5 million, up from $17.7 million in the third quarter of 2008.
- Expense Reduction: Total expenses decreased 18.0% for the quarter and 18.1% for the nine months, primarily due to reduced fleet levels, lower personnel costs from restructuring, and decreased advertising spend.
- Debt Reduction: Total debt decreased from $10,972.3 million at December 31, 2008, to $10,348.4 million at September 30, 2009. The company successfully refinanced approximately $2.0 billion of maturing fleet debt.
Guidance, Outlook, Risks, and Unusual Items
Management Commentary and Outlook
Management believes it has sufficient liquidity to meet 2010 debt maturities following successful refinancing efforts in the first 10 months of 2009. The company raised approximately $990 million in net proceeds through equity and convertible debt offerings in May and June 2009. Strategic actions include continued cost reductions, fleet right-sizing, and process re-engineering to mitigate revenue declines.
Key Risks and Contingencies
- Debt Maturities: Approximately $1.7 billion of international fleet debt matures in December 2010, requiring refinancing. There is no assurance this can be achieved on comparable terms.
- Monoline Insurer Risk: Credit enhancements for $3.2 billion of 2005 Notes are provided by MBIA and Ambac. If either insurer faces bankruptcy, it could trigger an amortization event requiring fleet liquidation or early repayment.
- Manufacturer Bankruptcy: While General Motors' bankruptcy was managed without material long-term impact, reliance on manufacturer repurchase programs remains a risk. A failure by a major manufacturer (e.g., Ford) to fulfill obligations could reduce financing capacity.
- Legal Proceedings: The company is a defendant in various class actions regarding concession fees, loss damage waivers, and tourism assessments. Management believes potential liabilities are not expected to materially affect financial position.
Unusual Items
- Restructuring Charges: $35.7 million in the third quarter and $87.2 million for the nine months ended September 30, 2009, related to employee terminations, facility closures, and asset impairments.
- Debt Buyback Gain: A gain of $48.5 million was recorded in the nine months ended September 30, 2009, from the open market repurchase of senior notes at a discount.
Investor Verification Checklist
- Refinancing Status: Verify the status of refinancing the $1.7 billion international fleet debt maturing in December 2010.
- Monoline Insurer Solvency: Monitor the credit ratings and financial stability of MBIA and Ambac regarding the $3.2 billion 2005 Notes.
- Liquidity Utilization: Track the usage of the $2.6 billion in immediate liquidity and the $1.0 billion available under the Senior ABL Facility.
- Restructuring Progress: Assess the realization of cost savings from announced headcount reductions and facility closures.
- Legal Exposure: Review developments in pending class action lawsuits regarding concession fees and tourism assessments.