Filing Compare · HERTZ CORP

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2016
For the quarterly period ended June 30, 2016
OR
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number 001-07541

THE HERTZ CORPORATION

(Exact name of registrant as specified in its charter)



Delaware (State or other jurisdiction of incorporation or organization)		13-1938568 (I.R.S. Employer Identification Number)

8501 Williams Road

Estero, Florida 33928

(239) 301-7000

(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 x No o

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 x No o

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	¨	Accelerated filer	o	Non-accelerated filer	x	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 ~~May~~August 28, 2016, 100 shares of common stock (par value $0.01) of the registrant were outstanding and owned by its affiliate, ~~Hertz~~Rental ~~Investors~~Car Intermediate Holdings, ~~Inc~~LLC.

Table of Contents

THE HERTZ CORPORATION AND SUBSIDIARIES

INDEX

		Page
PART I. FINANCIAL INFORMATION
ITEM 1.	Condensed Consolidated Financial Statements (Unaudited)	1
	Condensed Consolidated Balance Sheets as of March 31, 2016 and December 31, 2015	1
	Condensed Consolidated Balance Sheets as of June 30, 2016 and December 31, 2015	1
	Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2016 and 2015	2
	Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2016 and 2015	2
	Condensed Consolidated Statements of Comprehensive Income (Loss) for the Three Months Ended March 31, 2016 and 2015	3
	Condensed Consolidated Statements of Comprehensive Income (Loss) for the Three and Six Months Ended June 30, 2016 and 2015	3
	Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2016 and 2015	4
	Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2016 and 2015	4
	Notes to Condensed Consolidated Financial Statements	6
	Condensed Consolidated Statement of Changes in Equity for the Six Months Ended June 30, 2016	6
ITEM 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	32
	Notes to Condensed Consolidated Financial Statements	7
ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk	50
ITEM 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	46
ITEM 4.	Controls and Procedures	51
ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk	72
ITEM 4.	Controls and Procedures	72
PART II. OTHER INFORMATION
ITEM 1.	Legal Proceedings	5273
ITEM 1A.	Risk Factors	5273
ITEM 2.	Unregistered Sales of Securities and Use of Proceeds	5286
ITEM 3.	Defaults Upon Senior Securities	5286
ITEM 4.	Mine Safety Disclosures	5287
ITEM 5.	Other Information	5287
ITEM 6.	Exhibits	5287
SIGNATURE		5388
EXHIBIT INDEX		5489

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PART I—FINANCIAL INFORMATION

ITEM l. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

THE HERTZ CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

Unaudited

(In millions, except par value and share data)

	March 31, 2016			December 31, 2015
	June 30, 2016			December 31, 2015
ASSETS
Cash and cash equivalents	$	~~856~~1,285		$	~~479~~474
Restricted cash and cash equivalents	353			349
Restricted cash and cash equivalents:
Receivables, net of allowance of $70 and $60, respectively	1,518			2,074
Vehicle	272			289
Inventories, net	53			51
Non-vehicle	46			44
Prepaid expenses and other assets	651			775
Total restricted cash and cash equivalents	318			333
Revenue earning equipment:
Receivables:
Vehicles	14,484			13,441
Vehicle	480			1,137
Less accumulated depreciation - vehicles	(2,620		)	(2,695		)
Non-vehicle, net of allowance of $45 and $36, respectively	843			649
Equipment	3,543			3,526
Total receivables, net	1,323			1,786
Less accumulated depreciation - equipment	(1,182		)	(1,144		)
Inventories, net	43			29
Revenue earning equipment, net	14,225			13,128
Prepaid expenses and other assets	594			966
Property and other equipment:
Revenue earning vehicles:
Land, buildings and leasehold improvements	1,335			1,347
Vehicles	15,418			13,441
Service equipment and other	1,089			1,075
Less accumulated depreciation	(2,609		)	(2,695		)
Less accumulated depreciation	(1,210		)	(1,174		)
Total revenue earning vehicles, net	12,809			10,746
Property and other equipment, net	1,214			1,248
Property and equipment:
Other intangible assets, net	3,804			3,822
Land, buildings and leasehold improvements	1,152			1,171
Goodwill	1,353			1,354
Service equipment and other	758			809
Total assets	$	24,027		$	23,280
Less accumulated depreciation	(998		)	(978		)
Total property and equipment, net	912			1,002
Other intangible assets, net	3,479			3,522
Goodwill	1,257			1,261
Assets of discontinued operations	—			3,390
Total assets	$	22,020		$	23,509
LIABILITIES AND EQUITY
Accounts payable	$	1,382		$	875
Accounts payable:
Accrued liabilities	1,090			1,106
Vehicle	$	647		$	207
Accrued taxes, net	166			172
Non-vehicle	592			559
Debt	16,072			15,834
Total accounts payable	1,239			766
Public liability and property damage	413			402
Accrued liabilities	1,037			1,035
Deferred taxes on income, net	2,934			2,943
Accrued taxes, net	179			128
Total liabilities	22,057			21,332
Debt:
Vehicle	10,801			9,823
Non-vehicle	4,591			5,947
Total debt	15,392			15,770
Public liability and property damage	410			394
Deferred taxes on income, net	2,154			2,168
Liabilities of discontinued operations	—			1,300
Total liabilities	20,411			21,561
Commitments and contingencies
Equity:
Common Stock, $0.01 par value, 3,000 shares authorized, 100 shares issued and outstanding	—			—
Additional paid-in capital	3,~~589~~134			3,583
Due from affiliate	(334		)	(345		)
Due to (from) affiliate	66			(345		)
Accumulated deficit	(1,~~094~~470		)	(1,045		)
Accumulated other comprehensive income (loss)	(~~191~~121		)	(245		)
Total equity	1,~~970~~609			1,948
Total liabilities and equity	$	2422,~~027~~020		$	23,~~280~~509

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

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THE HERTZ CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

Unaudited

(In millions)

	Three Months EndedMarch 31,
	Three Months EndedJune 30,						Six Months EndedJune 30,
	2016			2015			2016			2015
Revenues:
Worldwide car rental	$	1,839		$	1,956
Worldwide vehicle rental	$	2,124		$	2,171		$	3,963		$	4,127
Worldwide equipment rental	328			355
All other operations	146			146			290			288
All other operations	144			143
Total revenues	2,270			2,317			4,253			4,415
Total revenues	2,311			2,454
Expenses:
Expenses:
Direct vehicle and operating	1,267			1,290			2,425			2,492
Direct operating	1,341			1,408
Depreciation of revenue earning vehicles and lease charges, net	629			597			1,245			1,228
Depreciation of revenue earning equipment and lease charges, net	706			707
Selling, general and administrative	234			251			459			471
Selling, general and administrative	267			266
Interest expense, net:
Interest expense, net	154			154
Vehicle	72			62			140			123
Other (income) expense, net	(91		)	5
Non-vehicle	102			87			185			173
Total expenses	2,377			2,540
Total interest expense, net	174			149			325			296
Income (loss) before income taxes	(66		)	(86		)
Other (income) expense, net	1			(8		)	(89		)	(1		)
(Provision) benefit for taxes on income (loss)	17			16
Total expenses	2,305			2,279			4,365			4,486
Net income (loss)	$	(49	)	$	(70	)
Income (loss) from continuing operations before income taxes	(35		)	38			(112		)	(71		)
(Provision) benefit for taxes on income (loss) of continuing operations	7			(25		)	32			6
Net income (loss) from continuing operations	(28		)	13			(80		)	(65		)
Net income (loss) from discontinued operations	(15		)	23			(11		)	32
Net income (loss)	$	(43	)	$	36		$	(91	)	$	(33	)

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

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THE HERTZ CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

Unaudited

(In millions)

	Three Months EndedMarch 31,
	Three Months EndedJune 30,						Six Months EndedJune 30,
	2016			2015			2016			2015
Net income (loss)	$	(4943	)	$	~~(70~~36	)	$	(91	)	$	(33	)
Other comprehensive income (loss):
Foreign currency translation adjustments	36(18		)	~~(48~~9		)	18			(39		)
Unrealized holding gains (losses) on securities	17(8		)	—			9			—
Reclassification from other comprehensive income (loss) to selling, general and administrative expense for amortization of actuarial (gains) losses on defined benefit pension plans	2			2
Net gain (loss) on defined benefit pension plans	(34		)	—			(34		)	—
Total other comprehensive income (loss) before income taxes	55			(46		)
Reclassification from other comprehensive income (loss) to selling, general and administrative expense for amortization of actuarial (gains) losses on defined benefit pension plans	2			4			4			6
Income tax (provision) benefit related to reclassified amounts of net periodic costs on defined benefit pension plans	(1		)	—
Total other comprehensive income (loss) before income taxes	(58		)	13			(3		)	(33		)
Total other comprehensive income (loss)	54			(46		)
Income tax (provision) benefit related to net gains and losses on defined benefit pension plans	14			—			14			—
Total comprehensive income (loss)	$	5		$	(116	)
Income tax (provision) benefit related to reclassified amounts of net periodic costs on defined benefit pension plans	(1		)	(2		)	(2		)	(2		)
Total other comprehensive income (loss)	(45		)	11			9			(35		)
Total comprehensive income (loss)	$	(88	)	$	47		$	(82	)	$	(68	)

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

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THE HERTZ CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Unaudited

(In millions)

	Three Months EndedMarch 31,
	Six Months EndedJune 30,
	2016			2015
Cash flows from operating activities:
Net income (loss)	$	(4991	)	$	(7033	)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Less: Net income (loss) from discontinued operations	(11		)	32
Depreciation of revenue earning equipment, net	691			689
Net income (loss) from continuing operations	(80		)	(65		)
Depreciation and amortization, non-fleet	77			86
Adjustments to reconcile net income (loss) from continuing operations to net cash provided by (used in) operating activities:
Amortization and write-off of deferred financing costs	14			15
Depreciation of revenue earning vehicles, net	1,212			1,191
Amortization and write-off of debt discount (premium)	1			1
Depreciation and amortization, non-vehicle	128			131
Stock-based compensation charges	6			4
Amortization and write-off of deferred financing costs	22			29
Provision for receivables allowance	23			6
Amortization and write-off of debt discount (premium)	3			(2		)
Deferred taxes on income	(10		)	(16		)
Loss on extinguishment of debt	20			—
Impairment charges and asset write-downs	—			20
Stock-based compensation charges	12			8
Provision for receivables allowance	24			16
Deferred taxes on income	(49		)	8
Impairment charges and asset write-downs	3			20
(Gain) loss on sale of shares in equity method investment	(75		)	—
Other	(64		)	(56		)
Changes in assets and liabilities
Receivables	(49		)	(13		)
Non-vehicle receivables	(214		)	(168		)
Inventories, prepaid expenses and other assets	(1748		)	(6561		)
Accounts payable	(7		)	18
Non-vehicle accounts payable	43			36
Accrued liabilities	(1915		)	9221
Accrued taxes	(614		)	21(8		)
Public liability and property damage	618			—11
Net cash provided by (used in) operating activities	~~580~~1,014			~~783~~1,161
Cash flows from investing activities:
Net change in restricted cash and cash equivalents	(2		)	154
Net change in restricted cash and cash equivalents, vehicle	18			137
Revenue earning equipment expenditures	(3,627		)	(3,438		)
Net change in restricted cash and cash equivalents, non-vehicle	(2		)	(4		)
Proceeds from disposal of revenue earning equipment	3,010			2,289
Revenue earning vehicles expenditures	(7,268		)	(7,639		)
Capital asset expenditures, non-fleet	(53		)	(97		)
Proceeds from disposal of revenue earning vehicles	5,168			4,816
Proceeds from disposal of property and other equipment	22			22
Capital asset expenditures, non-vehicle	(72		)	(121		)
Acquisitions, net of cash acquired	—			(96		)
Proceeds from disposal of property and other equipment	39			44
Acquisitions, net of cash acquired	—			(95		)
Purchases of shares in equity method investment	(45		)	—
Sales of shares in equity method investment	233			—
Advances to Hertz Global Holdings, Inc.	—			(5		)
Advances to Old Hertz Holdings	—			(6		)
Net cash provided by (used in) investing activities	(~~417~~1,929		)	(12,~~171~~868		)

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

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THE HERTZ CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (~~Continued~~CONTINUED)

Unaudited

(In millions)

	Three Months EndedMarch 31,
	Six Months EndedJune 30,
	2016			2015
Cash flows from financing activities:
Proceeds from issuance of long-term debt	12,~~000~~185			—1,069
Repayments of long-term debt	(~~185~~2,404		)	(1,~~027~~032		)
Short-term borrowings:
Proceeds	~~151~~312			~~175~~383
Payments	(~~132~~263		)	(~~142~~258		)
Proceeds under the revolving lines of credit	15,~~663~~058			35,~~326~~307
Payments under the revolving lines of credit	(25,~~296~~253		)	(13,~~828~~683		)
Payment of financing costs	(1051		)	(18		)
Repayments from Hertz Global Holdings, Inc.	11			—
Transfers from discontinued entities	2,122			—
Net cash provided by (used in) financing activities	202			503
Other	12			(1		)
Effect of foreign exchange rate changes on cash and cash equivalents	12			(20		)
Net cash provided by (used in) financing activities	1,718			1,777
Net increase (decrease) in cash and cash equivalents during the period	377			95
Effect of foreign exchange rate changes on cash and cash equivalents from continuing operations	8			(16		)
Cash and cash equivalents at beginning of period	479			490
Net increase (decrease) in cash and cash equivalents during the period from continuing operations	811			54
Cash and cash equivalents at end of period	$	856		$	585
Cash and cash equivalents at beginning of period	474			474
Supplemental disclosures of cash information:
Cash and cash equivalents at end of period	$	1,285		$	528
Cash flows from discontinued operations:
Cash flows provided by operating activities	$	207		$	292
Cash flows used in investing activities	(77		)	(295		)
Cash flows used in financing activities	(94		)	(3		)
Effect of foreign exchange rate changes on cash and cash equivalents	—			(1		)
Net increase (decrease) in cash and cash equivalents during the period from discontinued operations	$	36		$	(7	)
Supplemental disclosures of cash information for continuing operations:
Cash paid during the period for:
Interest	$	102		$	97
Interest, vehicle	$	115		$	93
Income taxes, net of refunds	16			3
Interest, non-vehicle	167			188
Income taxes, net of refunds	25			12
Supplemental disclosures of non-cash information:
Purchases of revenue earning equipment included in accounts payable and accrued liabilities	$	636		$	633
Purchases of revenue earning vehicles included in accounts payable and accrued liabilities	$	560		$	386
Sales of revenue earning equipment included in receivables	471			293
Sales of revenue earning vehicles included in receivables	392			150
Purchases of property and other equipment included in accounts payable	2019			7147
Sales of property and other equipment included in receivables	1317			245
Non-cash dividend paid to affiliate	334			—

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

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THE HERTZ CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

Unaudited

(In millions)



	Common Stock Shares	Common Stock Amount		Additional Paid-In Capital			Due From Affiliate			Accumulated Deficit			Accumulated Other Comprehensive Income (Loss)			Total Equity
Balance at:	Common Stock Shares	Common Stock Amount		Additional Paid-In Capital			Due From Affiliate			Accumulated Deficit			Accumulated Other Comprehensive Income (Loss)			Total Equity
December 31, 2015	100	$	—	$	3,583		$	(345	)	$	(1,045	)	$	(245	)	$	1,948
Net income (loss)	—	—		—			—			(91		)	—			(91		)
Due from affiliate	—	—		—			77			—			—			77
Dividends paid to Old Hertz Holdings	—	—		—			334			(334		)	—			—
Other comprehensive income (loss)	—	—		—			—			—			9			9
Stock-based employee compensation charges	—	—		13			—			—			—			13
Old Hertz Holdings common shares issued to directors	—	—		1			—			—			—			1
Distribution of Herc Rentals Inc.	—	—		(463		)	—			—			115			(348		)
June 30, 2016	100	$	—	$	3,134		$	66		$	(1,470	)	$	(121	)	$	1,609

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

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THE HERTZ CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Unaudited

Note 1—Background

The Hertz Corporation (together with its subsidiaries, (the "Company" or "Hertz") was incorporated in Delaware in 1967. ~~All~~and ofis a successor to corporations that have been engaged in the ~~Company's~~vehicle ~~outstanding~~rental ~~common~~and ~~stock~~leasing isbusiness ~~owned~~since by1918. Hertz ~~Investors, Inc.~~operates ~~which~~its isvehicle ~~wholly~~rental ~~owned~~business byprimarily through the Hertz, ~~Global~~Dollar ~~Holdings~~and Thrifty brands from company-owned, ~~Inc.~~licensee ~~("Hertz~~and ~~Holdings")~~franchisee locations in the U.S., ~~Hertz~~Africa, isAsia, Australia, Canada, Europe, Latin America, the ~~primary~~Middle ~~operating~~East ~~company~~and ~~for~~New Zealand. Through its Donlen subsidiary, Hertz ~~Holdings~~provides vehicle leasing and fleet management services.

InAll ~~March 2014, Hertz Holdings announced that its Board~~ of ~~Directors~~the ~~approved~~Company's ~~plans~~outstanding tocommon ~~separate~~stock ~~Hertz~~is ~~Holdings~~owned ~~into~~by ~~two independent, publicly traded companies. One of the companies, Hertz~~ Rental Car ~~Holding~~Intermediate ~~Company~~Holdings, ~~Inc.~~LLC, ~~("HRCHC")~~which ~~will~~is ~~continue~~wholly toowned ~~operate~~by ~~the~~ Hertz, ~~Dollar,~~Global ~~Thrifty and Firefly car rental businesses as well as Donlen; and the other, HERC~~ Holdings, Inc. ("~~HERC Holdings") will operate the~~ Hertz ~~Equipment Rental Corporation (~~Global"~~HERC"~~). ~~The~~Hertz ~~Company~~is ~~expects to separate~~ the ~~businesses~~primary inoperating acompany ~~tax-efficient~~for ~~manner.~~Hertz ~~In respect of the separation, in December 2015 HRCHC filed a registration statement on Form 10 with the U~~Global.~~S. Securities and Exchange Commission ("SEC") which was amended in February and April 2016.~~

On June 30, 2016, former Hertz Global Holdings, Inc., the former top level holding company for Hertz (for periods on or prior to June 30, 2016, “Old Hertz Holdings” and for periods after June 30, 2016, “Herc Holdings”) completed a spin-off (the “Spin-Off”) of its global vehicle rental business through a dividend to stockholders of record of Old Hertz Holdings as of the close of business on June 22, 2016, the record date for the distribution, of all of the issued and outstanding common stock of Hertz Rental Car Holding Company, Inc. (“New Hertz”), which was re-named Hertz Global Holdings, Inc. in connection with the Spin-Off, on a one-to-five basis. Hertz Global is now an independent public company and trades on the New York Stock Exchange under the symbol "HTZ". Herc Holdings, which changed its name to Herc Holdings Inc. on June 30, 2016, trades on the New York Stock Exchange under the symbol “HRI”.

Despite the fact that Hertz Global was spun off from Old Hertz Holdings in the Spin-Off and was the legal spinnee in the transaction, for accounting purposes, due to the relative significance of New Hertz to Old Hertz Holdings, Hertz Global is considered the spinnor or divesting entity and Herc Holdings is considered the spinnee or divested entity. As a result, despite the legal form of the transaction, New Hertz, or Hertz Global, is the “accounting successor” to Old Hertz Holdings. As such, the historical financial information of the Company reflects the financial information of the equipment rental business as a discontinued operation. See Note 3, "Discontinued Operations," for additional information.

Note 2—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 consolidated balance sheet data of the Company was derived from audited financial statements, but does not include all disclosures required by U.S. GAAP. The information included in this Form 10-‑Q should be read in conjunction with information included in the Company’s Form 10-‑K for the year ended December 31, 2015, as filed with the Securities and Exchange Commission ("SEC") on February 29, 2016 (the "2015 Form 10-‑K"), and as amended on March 4, 2016 (the "2015 Form 10-‑K/A").

As described in Note 1, "Background" and Note 3, "Discontinued Operations", Hertz Global is the accounting successor to Old Hertz Holdings. As such, the historical financial information of the Company reflects the financial information of the equipment rental business as a discontinued operation. Unless noted otherwise, information disclosed in these notes to the condensed consolidated financial statements of the Company pertain to its continuing operations.

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THE HERTZ CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Unaudited

As disclosed below in "Recently Issued Accounting Pronouncements," the Company retrospectively adopted the guidance "Simplifying the Presentation of Debt Issuance Costs" on January 1, 2016.

Principles of Consolidation

The unaudited condensed consolidated financial statements include the accounts of Hertz 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 condensed consolidated financial statements. The Company accounts for its 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.

Recently Issued Accounting Pronouncements

Adopted

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 Company adopted this guidance prospectively on January 1, 2016 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.

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THE HERTZ CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Unaudited

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 Company adopted this guidance prospectively on January 1, 2016 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.

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 Company adopted this guidance prospectively on January 1, 2016 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.

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 Company adopted this guidance retrospectively on January 1, 2016, 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.

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. In August 2015, the FASB issued guidance clarifying that debt issuance costs related to line-of-credit and other revolving debt arrangements may be deferred and presented as an asset. The Company adopted this guidance retrospectively on January 1, 2016 in accordance with the effective date. ~~The impact of adopting this above guidance as of December 31, 2015 was as follows (in millions):~~

	Prepaid expenses and other assets			Total assets			Debt			Total liabilities			Total liabilities and equity
As previously reported	$	848		$	23,353		$	15,907		$	21,405		$	23,353
Reclass from asset to debt liability	(73		)	(73		)	(73		)	(73		)	(73		)
As adjusted	$	775		$	23,280		$	15,834		$	21,332		$	23,280

Adoption of this guidance required the Company to reclassify $73 million of debt issuance costs from prepaid expenses and other assets to debt in its condensed consolidated balance sheet as of December 31, 2015. Adoption of this new guidance did not impact the Company’s results of operations or cash flows.

~~Adoption of this new guidance did not impact the Company’s equity, results of operations or cash flows.~~8

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. The Company adopted this guidance prospectively on January 1, 2016 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.

Simplifying the Accounting for Measurement Period Adjustments for Business Combinations

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~~accordance with the effective date. Adoption of this new guidance did not impact the Company~~Customer’s ~~financial~~Accounting ~~position,~~for ~~results~~Fees ofPaid ~~operations~~in ora ~~cash~~Cloud ~~flows.~~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. The Company adopted this guidance prospectively on January 1, 2016, 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.

Simplifying the Accounting for Measurement Period Adjustments for Business Combinations

In September 2015, the FASB issued guidance that requires adjustments to provisional amounts during the measurement period of a business combination to be recognized in the reporting period in which the adjustments are determined, rather than retrospectively. The Company adopted this guidance prospectively on January 1, 2016 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 new guidance applies to all contracts with customers except for leases, insurance contracts, financial instruments, certain nonmonetary exchanges and certain guarantees. The core principle of the guidance is that an entity should recognize revenue from customers 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 new principles-based revenue recognition model requires an entity to perform five steps: 1) identify the contract(s) with a customer, 2) identify the performance obligations in the contract, 3) determine the transaction price, 4) allocate the transaction price to the performance obligations in the contract, and 5) recognize revenue when (or as) the entity satisfies a performance obligation. Under the new guidance, performance obligations in a contract will be separately identified, which may impact the timing of recognition of the revenue allocated to each obligation. The measurement of revenue recognized may also be impacted by identification of new performance obligations and other provisions, such as collectability and variable consideration. The guidance will impact the Company’s accounting for certain contracts and its Hertz #1 Gold Plus Rewards liability. Also, additional disclosures are required 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 originally 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~~ deferred the effective date of the guidance until annual and interim reporting periods beginning after December 15, 2017. In March 2016, the FASB issued clarifying guidance on assessing whether an entity is a principal or an agent in a revenue transaction, which impacts whether an entity reports revenue on a gross or net basis. The Company is in the process of determining the method and timing of adoption and assessing the overall impacts of adopting this guidance on its financial position, results of operations and cash flows.

In March 2016, the FASB issued clarifying guidance on assessing whether an entity is a principal or an agent in a revenue transaction, which impacts whether an entity reports revenue on a gross or net basis. In April 2016, the FASB issued guidance that reduces the complexity for identifying performance obligations and clarifies the implementation guidance on licensing for intellectual property. In May 2016, the FASB issued guidance that clarifies the collectability criterion, the presentation of sales taxes, and noncash consideration, and provides additional implementation practical expedients. The Company is in the process of determining the method and timing of adoption and assessing the overall impacts of adopting this guidance on its financial position, results of operations and cash flows.

Recognition and Measurement of Financial Assets and Financial Liabilities

In January 2016, the FASB issued guidance that makes several changes to the manner in which financial assets and liabilities are accounted for, including, among other things, a requirement to measure most equity investments at fair value with changes in fair value recognized in net income (with the exception of investments that are consolidated or accounted for using the equity method or a fair value practicability exception), and amends certain disclosure requirements related to fair value measurements and financial assets and liabilities. This guidance is effective for annual periods beginning after December 15, 2017 and interim periods within those annual periods using a modified retrospective transition method for most of the requirements. The Company is in the process of assessing the potential impacts of adopting this guidance on its financial position, results of operations and cash flows.

~~Leases~~9

In February 2016, the FASB issued guidance that replaces the existing lease guidance. The new guidance establishes a right-of-use (“ROU”) model that requires a lessee to record a ROU asset and lease liability on the balance sheet for all leases with terms longer than 12 months. The guidance will impact leases of our rental locations, as we own approximately 3% of the locations from which we operate our car rental businesses, in addition to leases of other assets. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. This guidance also expands the requirements for lessees to record leases embedded in other arrangements and the required quantitative and qualitative disclosures surrounding leases. Accounting guidance for lessors is largely unchanged. This guidance is effective for annual periods beginning after December 15, 2018 and interim periods within those annual periods using a modified retrospective transition approach. The Company is in the process of assessing the potential impacts of adopting this guidance on its financial position, results of operations and cash flows.

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requirements related to fair value measurements and financial assets and liabilities. This guidance is effective for annual periods beginning after December 15, 2017 and interim periods within those annual periods using a modified retrospective transition method for most of the requirements. Based on current operations, no material impact to the Company’s financial position, results of operations and cash flows is expected upon adoption of this guidance.

Leases

In February 2016, the FASB issued guidance that replaces the existing lease guidance. The new guidance establishes a right-of-use (“ROU”) model that requires a lessee to record a ROU asset and lease liability on the balance sheet for all leases with terms longer than 12 months. The guidance will impact leases of our rental locations, as we own approximately 3% of the locations from which we operate our vehicle rental business, in addition to leases of other assets. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. This guidance also expands the requirements for lessees to record leases embedded in other arrangements and the required quantitative and qualitative disclosures surrounding leases. Accounting guidance for lessors is largely unchanged. This guidance is effective for annual periods beginning after December 15, 2018 and interim periods within those annual periods using a modified retrospective transition approach. The Company is in the process of assessing the potential impacts of adopting this guidance on its financial position, results of operations and cash flows.

Simplifying the Transition to the Equity Method of Accounting

In March 2016, the FASB issued guidance that eliminates the requirement to apply the equity method of accounting retrospectively when significant influence over a previously held investment is obtained. Rather, the guidance requires the investor to add the cost of acquiring the additional interest in the investee to the current basis of the investor’s previously held interest and adopt the equity method of accounting as of the date the investment becomes qualified for equity method of accounting. This guidance is effective prospectively for annual periods beginning after December 15, 2016 and interim periods within those annual periods. Based on current operations, no material impact to the Company’s financial position, results of operations and cash flows is expected upon adoption of this guidance. ~~However, the Company will reassess the impacts of this guidance upon adoption.~~

Improvements to Employee Share-Based Payment Accounting

In March 2016, the FASB issued guidance that simplifies several areas of employee share-based payment accounting, including income taxes, forfeitures, minimum statutory withholding requirements, and classifications within the statement of cash flows. Most significantly, the new guidance eliminates the need to track tax “windfalls” in a separate pool within additional paid-in capital; instead, excess tax benefits and tax deficiencies will be recorded within income tax expense. This will result in the Company reclassifying excess tax benefits from additional paid-in capital to retained earnings on the balance sheet. The new guidance also gives entities the ability to elect whether to estimate forfeitures or account for them as they occur. Different adoption methods are required for the various aspects of the new guidance, including the retrospective, modified retrospective and prospective approaches, effective for annual periods beginning after December 15, 2016 and interim periods within those annual periods. The Company is in the process of assessing the impacts of adopting this guidance on its financial position, results of operations and cash flows.

~~Note~~Measurement ~~3—Acquisitions~~of ~~and~~Credit ~~Divestitures~~Losses on Financial Instruments

In June 2016, the FASB issued guidance that sets forth a current expected credit loss (“CECL”) impairment model for financial assets, which replaces the current incurred loss model. This model requires a financial asset (or group of financial assets), including trade receivables, measured at amortized cost to be presented at the net amount expected to be collected with an allowance for credit losses deducted from the amortized cost basis. The allowance for credit losses should reflect management’s current estimate of credit losses that are expected to occur over the remaining life of a financial asset. This guidance is effective for annual periods beginning after December 15, 2019 and interim periods within those annual periods using a modified retrospective transition method. The Company is in the process of assessing the potential impacts of adopting this guidance on its financial position, results of operations and cash flows.

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Note 3—Discontinued Operations

As further described in Note 1, "Background," on June 30, 2016, the separation of Old Hertz Holdings' global vehicle rental and equipment rental businesses was completed. In connection with the Spin-Off, Hertz Global and Herc Holdings have entered into multiple agreements that provide a framework for the relationships between the parties going forward. As the primary operating company for Hertz Global, the agreements that follow also apply to Hertz directly.

Separation and Distribution Agreement

Hertz Global entered into a separation and distribution agreement (the “Separation Agreement”) with Herc Holdings which, among other things, sets forth other agreements that govern the aspects of the relationship as follows:

Internal Reorganization and Related Financing Transactions - Provides for the transfers of entities and assets and the assumption of liabilities necessary to complete the Spin-Off, including the series of internal reorganization transactions such that Hertz Global holds the entities associated with Old Hertz Holdings’ global vehicle rental business, including Hertz, and Herc Holdings holds the entities associated with Old Hertz Holdings’ global equipment rental business, including Herc Rentals Inc. (“Herc”, formerly known as Hertz Equipment Rental Corporation, or “HERC”).

Pursuant to the Separation Agreement, Herc made certain cash transfers in the total amount of approximately $2.0 billion to Hertz Global and its subsidiaries in June 2016. To fund, among other things, such transfers, in connection with, and prior to, the Spin-Off, Herc issued senior secured second priority notes and entered into a new asset-based revolving credit agreement. Hertz Global and Hertz used the cash proceeds from these transfers to pay off the Senior Term Facility.

Legal Matters and Claims; Sharing of Certain Liabilities - Subject to any specified exceptions, each party to the Separation Agreement has assumed the liability for, and control of, all pending and threatened legal matters related to its own business, as well as assumed or retained liabilities, and has indemnified the other party for any liability arising out of or resulting from such assumed legal matters.

The Separation Agreement provides for certain liabilities to be shared by the parties. Hertz Global and Herc Holdings are each responsible for a portion of these shared liabilities. The division of these shared liabilities are set forth in the Separation Agreement. Hertz Global is responsible for managing the settlement or other disposition of such shared liabilities.

Other Matters - In addition to those matters discussed above, the Separation Agreement, among other things, (i) governs the transfer of assets and liabilities generally, (ii) terminates all intercompany arrangements between Hertz Global and Herc Holdings except for specified agreements and arrangements that follow the Spin-Off, (iii) contains further assurances, terms and conditions that require Hertz Global and Herc Holdings to use commercially reasonable efforts to consummate the transactions contemplated by the Separation Agreement and the ancillary agreements, (iv) releases certain claims between the parties and their affiliates, successors and assigns, (v) contains mutual indemnification clauses and (vi) allocates expenses of the Spin-Off between the parties.

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Transition Services Agreement

Hertz Global entered into a transition services agreement (the “Transition Services Agreement”) pursuant to which Hertz Global or its affiliates, including Hertz, will provide Herc Holdings specified services on a transitional basis for a term of up to two years following the Spin-off, though Hertz Global may request certain transition services to be performed by Herc Holdings. The services to be provided by Hertz Global primarily include information technology and network and telecommunications systems support, human resources, payroll and benefits, accounting and finance, treasury, tax matters and administrative services. With certain exceptions, Hertz Global and Herc Holdings have agreed to charge for the services rendered the allocated costs associated with rendering these services, including a mark-up for certain services, which the Company will record as a reduction to the associated expenses.

Tax Matters Agreement

Hertz Global and Hertz entered into a tax matters agreement (the “Tax Matters Agreement”) with Herc Holdings and Herc that governs the parties’ respective rights, responsibilities and obligations after the Spin-Off with respect to tax liabilities and benefits, tax attributes, tax contests and other tax matters regarding income taxes, other taxes and related tax returns.

Under the Tax Matters Agreement, Herc Holdings, Herc, Hertz Global and Hertz are responsible for their respective tax liabilities. The agreement provides for no compensation due to any change in a tax attribute, such as a net operating loss ("NOL"). Tax attributes are allocated between the entities based on the applicable federal or state income tax law and regulations. The Tax Matters Agreement also requires that an unqualified opinion from a nationally recognized law firm, supplemental ruling from the Internal Revenue Service, or waiver from the other party be obtained upon the occurrence or contemplated occurrence of certain events which could impact the taxability of the transaction under the U.S. federal income tax law. The 2016 tax return when filed will include six months activity of Hertz Global and 12 months activity of Herc Holdings.

Employee Matters Agreement

Hertz Global and Herc Holdings entered into an employee matters agreement (the “Employee Matters Agreement”) to allocate liabilities and responsibilities relating to employment matters, employee compensation, benefit plans and programs and other related matters. The Employee Matters Agreement governs Hertz Global's and Herc Holdings’ obligations with respect to such matters for current and former employees of the vehicle rental business and the equipment rental business.

Intellectual Property Agreement

Hertz Global and Herc Holdings entered into an intellectual property agreement (the “Intellectual Property Agreement”) that provides for ownership, licensing and other arrangements regarding the trademarks and related intellectual property that Hertz Global and Herc Holdings use in conducting their respective businesses. The agreement provides that, following the Spin-Off, Herc Holdings will continue to have the right to use certain intellectual property associated with the Hertz brand for a period of four years on a royalty free basis.

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Results of Discontinued Operations

The following table summarizes the results of the equipment rental business which is presented as discontinued operations. The operations of Hertz that are discontinued are comprised of the Company's former Worldwide Equipment Rental segment.



	Three Months Ended June 30,						Six Months Ended June 30,
(In millions)	2016			2015			2016			2015
Total revenues	$	349		$	375		$	677		$	730
Direct operating expenses	182			212			366			418
Depreciation of revenue earning equipment and lease charges, net	91			81			181			157
Selling, general and administrative	82			45			124			89
Interest expense, net⁽¹⁾	10			6			13			12
Other (income) expense, net	—			(2		)	(1		)	(3		)
Income (loss) from discontinued operations before income taxes	(16		)	33			(6		)	57
(Provision) benefit for taxes on discontinued operations	1			(10		)	(5		)	(25		)
Net income (loss) from discontinued operations	$	(15	)	$	23		$	(11	)	$	32

(1) In addition to interest expense directly associated with Herc Holdings, the Company allocated all interest expense associated with the Senior ABL Facility to discontinued operations as this debt was repaid in connection with the Spin-Off in accordance with requirements as disclosed in Note 6, "Debt." For the three months ended June 30, 2016 and 2015, the amount allocated was $3 million and $4 million, respectively. For the six months ended June 30, 2016 and 2015, the amount allocated was $5 million and $8 million, respectively.

The carrying amounts of the major classes of assets and liabilities of discontinued operations as of December 31, 2015 consisted of the following:



(In millions)	December 31, 2015
ASSETS
Cash and cash equivalents	$	5
Restricted cash and cash equivalents	16
Receivables, net of allowance	288
Inventories, net	22
Prepaid expenses and other assets	38
Revenue earning equipment, net	2,382
Property and other equipment, net	246
Other intangible assets, net	300
Goodwill	93
Total assets of discontinued operations	$	3,390
LIABILITIES
Accounts payable	$	109
Accrued liabilities and other	71
Accrued taxes, net	273
Debt	64
Public liability and property damage	8
Deferred taxes on income, net	775
Total liabilities of discontinued operations	$	1,300

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As a result of the Spin-Off, the Company distributed $348 million in net assets of Herc Holdings, which has been reflected as a reduction to additional paid in capital and accumulated other comprehensive (income) loss in the accompanying condensed consolidated balance sheet and statement of changes in equity as of June 30, 2016. Also in connection with the Spin-Off, there was a $229 million reclassification related to the resulting continuing operations presentation of tax accounts from accrued taxes, net to prepaid expenses and other assets in the accompanying condensed consolidated balance sheets as of December 31, 2015.

Note 4—Acquisitions and Divestitures

Acquisitions

Equity Investment

During the three months ended June 30, 2016, the Company paid $45 million for investments in entities which are accounted for under the equity method. These investments are presented within prepaid expenses and other assets in the accompanying condensed consolidated balance sheets.

Hertz Franchises

In February 2015, the Company acquired substantially all of the assets of certain Hertz-branded franchises, including existing ~~fleets~~vehicles 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 at the time 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 Car
Revenue earning equipment	$	71
Revenue earning vehicles	$	71
Property and equipment	6
Other intangible assets	9
Goodwill	1
Total	$	87

9Divestitures

CAR Inc. Investment

In March 2016, the Company sold 204 million shares of common stock of CAR Inc., a publicly traded company on the Hong Kong Stock Exchange and extended its commercial agreement with CAR Inc. to 2023, in exchange for $240 million, of which $233 million was allocated to the sale of shares based on the fair value of those shares. The sale of shares resulted in a pre-tax gain of $75 million, which has been recognized and recorded in the Company's corporate operations and is included in other (income) expense, net in the accompanying condensed consolidated statements of operations. Additionally, $7 million of the proceeds were allocated to the extension of the commercial agreement which have been deferred and are being recognized over the remaining term of the commercial agreement.

The sale of the shares reduced the Company's ownership interest in CAR Inc. to 1.7%. Additionally, the Company is no longer able to exercise significant influence over CAR Inc. and as a result, discontinued the equity method of accounting for this investment and classifies the investment as an available for sale security. This investment is presented within prepaid expenses and other assets in the accompanying condensed consolidated balance sheets.

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~~Divestitures~~See Note 13, "Fair Value Measurements," for the fair value of the Company's available for sale securities at June 30, 2016.

~~CAR~~Note ~~Inc.~~5—Revenue ~~Investment~~Earning Vehicles

In March 2016, the Company sold 204 million shares of common stock of CAR Inc., a publicly traded company on the Hong Kong Stock Exchange and extended its commercial agreement with CAR Inc. to 2023, in exchange for $240 million, of which $233 million was allocated to the sale of shares based on the fair value of those shares. The ~~sale~~components of ~~shares~~revenue ~~resulted~~earning ~~in a pre-tax gain of $75 million~~vehicles, ~~which has been recognized and recorded in the Company's corporate operations and is included in other (income) expense,~~ net inare ~~the~~as Company's condensed consolidated statements of operations. Additionally, $7 million of the proceeds were allocated to the extension of the commercial agreement which have been deferred and will be recognized over the remaining term of the commercial agreement. follows:

The sale of the shares reduced the Company's ownership interest in CAR Inc. to 1.7%. Additionally, the Company is no longer able to exercise significant influence over CAR Inc. and as a result, discontinued the equity method of accounting for this investment. The Company has classified the investment as an available for sale security as of March 31, 2016. This investment is presented within prepaid expenses and other assets in the accompanying condensed consolidated balance sheets. See Note 12, "Fair Value Measurements," for the fair value of the Company's available for sale securities at March 31, 2016.



(In millions)	June 30, 2016			December 31, 2015
Revenue earning vehicles	$	15,081		$	13,242
Less: Accumulated depreciation	(2,502		)	(2,631		)
	12,579			10,611
Revenue earning vehicles held for sale, net	230			135
Revenue earning vehicles, net	$	12,809		$	10,746

~~Note~~Depreciation ~~4—Revenue~~of ~~Earning~~revenue ~~Equipment~~earning vehicles and lease charges, net includes the following:

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



	Three Months Ended June 30,				Six Months Ended June 30,
(In millions)	2016		2015		2016		2015
Depreciation of revenue earning vehicles	$	576	$	575	$	1,135	$	1,167
(Gain) loss on disposal of revenue earning vehicles^(a)	35		4		77		24
Rents paid for vehicles leased	18		18		33		37
Depreciation of revenue earning vehicles and lease charges, net	$	629	$	597	$	1,245	$	1,228

(In millions)	March 31, 2016			December 31, 2015
Revenue earning equipment	$	17,580		$	16,768
Less: Accumulated depreciation	(3,653		)	(3,775		)
	13,927			12,993
Revenue earning equipment held for sale, net	298			135
Revenue earning equipment, net	$	14,225		$	13,128

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

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



	Three Months Ended June 30,						Six Months Ended June 30,
(In millions)	2016			2015			2016			2015
U.S. Rental Car	$	38		$	5		$	81		$	25
International Rental Car	(3		)	(1		)	(4		)	(1		)
Total	$	35		$	4		$	77		$	24

	Three Months EndedMarch 31,
(In millions)	2016		2015
Depreciation of revenue earning equipment	$	640	$	703
(Gain) loss on disposal of revenue earning equipment(a)	51		(14		)
Rents paid for vehicles leased	15		18
Depreciation of revenue earning equipment and lease charges, net	$	706	$	707

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 vehicles. The cumulative impact of depreciation rate changes is as follows:

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



Increase (decrease)	Three Months Ended June 30,				Six Months Ended June 30,
(In millions)	2016		2015		2016		2015
U.S. Rental Car ^(a)	$	19	$	27	$	45	$	57
International Rental Car	1		—		2		—
Total	$	20	$	27	$	47	$	57

	Three Months EndedMarch 31,
(In millions)	2016		2015
U.S. Car Rental	$	43	$	(20	)
International Car Rental	—		—
Worldwide Equipment Rental	8		6
Total	$	51	$	(14	)

(a)

The depreciation rate changes in the U.S. Rental Car operations for the three and six months ended June 30, 2016 include a net increase in depreciation expense of $12 million based on the review completed during the second quarter of 2016. The depreciation rate changes in the U.S. Rental Car operations for the three and six months ended June 30, 2015 include a net increase in depreciation expense of $13 million based on the review completed during the second quarter of 2015.

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~~Depreciation~~Note 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. The cumulative impact of depreciation rate changes is as follows:6—Debt

Increase (decrease)	Three Months EndedMarch 31,
(In millions)	2016		2015
U.S. Car Rental	$	27	$	30
International Car Rental	1		—
Worldwide Equipment Rental	—		—
Total	$	28	$	30

As discussed in Note 3, "Discontinued Operations," on June 30, 2016, the Company completed a Spin-Off of the equipment rental business. Amounts presented herein relate to the debt associated with the vehicle rental business.

~~Note~~The ~~5—Debt~~Company's debt, including its available credit facilities, consists of the following (in millions):

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



Facility	Weighted Average Interest Rate at June 30, 2016	Fixed or Floating Interest Rate	Maturity	June 30, 2016			December 31, 2015
Non-Vehicle Debt
Senior Term Loan	3.50%	Floating	6/2023	$	700		$	—
Senior RCF	N/A	Floating	6/2021	—			—
Senior Term Facility	N/A	N/A	N/A	—			2,062
Senior ABL Facility	N/A	N/A	N/A	—			—
Senior Notes⁽¹⁾	6.58%	Fixed	4/2018–10/2022	3,900			3,900
Promissory Notes	7.00%	Fixed	1/2028	27			27
Other Non-Vehicle Debt	6.71%	Fixed	Various	2			2
Unamortized Debt Issuance Costs and Net (Discount) Premium				(38		)	(44		)
Total Non-Vehicle Debt				4,591			5,947
Vehicle Debt
HVF U.S. Vehicle Medium Term Notes
HVF Series 2010-1⁽²⁾	4.96%	Fixed	2/2018	115			240
HVF Series 2011-1⁽²⁾	3.51%	Fixed	3/2017	230			230
HVF Series 2013-1⁽²⁾	1.81%	Fixed	8/2016–8/2018	733			950
				1,078			1,420
HVF II U.S. ABS Program
HVF II U.S. Vehicle Variable Funding Notes
HVF II Series 2013-A⁽²⁾	1.50%	Floating	10/2017	1,816			980
HVF II Series 2013-B⁽²⁾	1.58%	Floating	10/2017	953			1,308
HVF II Series 2014-A⁽²⁾	2.33%	Floating	10/2016	403			1,737
				3,172			4,025
HVF II U.S. Vehicle Medium Term Notes
HVF II Series 2015-1⁽²⁾	2.93%	Fixed	3/2020	780			780
HVF II Series 2015-2⁽²⁾	2.30%	Fixed	9/2018	250			250
HVF II Series 2015-3⁽²⁾	2.96%	Fixed	9/2020	350			350
HVF II Series 2016-1⁽²⁾	2.72%	Fixed	3/2019	439			—
HVF II Series 2016-2⁽²⁾	3.25%	Fixed	3/2021	561			—
HVF II Series 2016-3⁽²⁾	2.56%	Fixed	7/2019	400			—
HVF II Series 2016-4⁽²⁾	2.91%	Fixed	7/2021	400			—
				3,180			1,380
Donlen ABS Program
HFLF Variable Funding Notes
HFLF Series 2013-2⁽²⁾	1.49%	Floating	9/2017	175			370
				175			370

Facility	Weighted Average Interest Rate at March 31, 2016	Fixed orFloatingInterestRate	Maturity	March 31, 2016			December 31, 2015
Corporate Debt
Senior Term Facility	3.26%	Floating	3/2018	$	2,056		$	2,062
Senior ABL Facility	N/A	Floating	3/2016–3/2017	—			—
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	3.92%	Fixed	Various	63			66
Unamortized Debt Issuance Costs and Net (Discount) Premium (Corporate)				(40		)	(44		)
Total Corporate Debt				6,006			6,011
Fleet Debt
HVF U.S. Fleet Medium Term Notes
HVF Series 2010-1(2)	4.96%	Fixed	2/2018	115			240
HVF Series 2011-1(2)	3.51%	Fixed	3/2017	230			230
HVF Series 2013-1(2)	1.70%	Fixed	8/2016–8/2018	896			950
				1,241			1,420
HVF II U.S. ABS Program
HVF II U.S. Fleet Variable Funding Notes
HVF II Series 2013-A	1.51%	Floating	10/2017	1,044			980
HVF II Series 2013-B	1.55%	Floating	10/2017	1,013			1,308
HVF II Series 2014-A	2.26%	Floating	10/2016	1,393			1,737
				3,450			4,025
HVF II U.S. Fleet Medium Term Notes
HVF II Series 2015-1(2)	2.93%	Fixed	3/2020	780			780
HVF II Series 2015-2(2)	2.30%	Fixed	9/2018	250			250
HVF II Series 2015-3(2)	2.96%	Fixed	9/2020	350			350
HVF II Series 2016-1(2)	2.72%	Fixed	3/2019	439			—
HVF II Series 2016-2(2)	3.25%	Fixed	3/2021	561			—
				2,380			1,380

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Unaudited

Facility	Weighted Average Interest Rate at ~~March~~June 3130, 2016	Fixed orFloatingInterestRate	Maturity	~~March~~June 3130, 2016			December 31, 2015
Donlen ABS Program
HFLF Variable Funding Notes
HFLF Series 2013-2 Notes(2)	1.52%	Floating	9/2017	450			370
				450			370
HFLF Medium Term Notes
HFLF Series 2013-3 Notes(2)	1.16%	Floating	9/2016–11/2016	217			270
HFLF Series 2013-3(2)	1.21%	Floating	9/2016–11/2016	171			270
HFLF Series 2014-1 Notes(2)	1.02%	Floating	12/2016–3/2017	245			288
HFLF Series 2014-1(2)	1.06%	Floating	12/2016–3/2017	209			288
HFLF Series 2015-1 Notes(2)	1.11%	Floating	3/2018–5/2018	295			295
HFLF Series 2015-1(2)	1.12%	Floating	3/2018–5/2018	295			295
				757			853
HFLF Series 2016-1(2)	1.80%	Floating	2/2019–4/2019	386			—
Other Fleet Debt
				1,061			853
U.S. Fleet Financing Facility	3.19%	Floating	3/2017	157			190
Other Vehicle Debt
European Revolving Credit Facility	2.41%	Floating	10/2017	283			273
U.S. Vehicle RCF(3)	3.50%	Floating	6/2021	185			—
European Fleet Notes	4.38%	Fixed	1/2019	480			464
U.S. Vehicle Financing Facility	N/A	N/A	N/A	—			190
European Securitization(2)	1.41%	Floating	10/2017	259			267
European Revolving Credit Facility	2.13%	Floating	10/2017	376			273
Canadian Securitization(2)	1.80%	Floating	1/2018	168			148
European Vehicle Notes	4.38%	Fixed	1/2019	470			464
Australian Securitization(2)	3.75%	Floating	12/2016	97			98
European Securitization(2)	1.55%	Floating	10/2018	415			267
Brazilian Fleet Financing Facility	17.93%	Floating	4/2016	8			7
Canadian Securitization(2)	1.88%	Floating	1/2018	253			148
Capitalized Leases	2.67%	Floating	5/2016–3/2020	376			362
Australian Securitization(2)	3.51%	Floating	12/2016	89			98
				1,828			1,809
Brazilian Vehicle Financing Facility	17.63%	Floating	10/2016	9			7
Unamortized Debt Issuance Costs and Net (Discount) Premium (Fleet)				(40		)	(34		)
Capitalized Leases	2.61%	Floating	7/2016–3/2020	383			362
Total Fleet Debt				10,066			9,823
				2,180			1,809
Total Debt				$	16,072		$	15,834
Unamortized Debt Issuance Costs and Net (Discount) Premium				(45		)	(34		)
Total Vehicle Debt				10,801			9,823
Total Debt				$	15,392		$	15,770

N/A - Not Applicable


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

(In millions)	Outstanding Principal
Senior Notes	~~March~~June 3130, 2016		December 31, 2015
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

$700 million of 7.50% Senior Notes due October 2018 were paid in July 2016 as further described in Note 19, "Subsequent Events."

(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.

~~The~~(3) ~~Company~~Approximately is$67 ~~highly~~million ~~leveraged and a substantial portion~~ of ~~its~~the ~~liquidity~~aggregate ~~needs~~maximum ~~arise~~borrowing ~~from~~capacity ~~debt~~under ~~service on its indebtedness and from~~ the ~~funding~~U.S. ofVehicle ~~its~~RCF ~~costs~~is ofscheduled ~~operations,~~to ~~acquisitions~~expire ~~and~~in ~~capital~~January ~~expenditures~~2018. ~~The Company’s~~

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Unaudited

The Company is highly leveraged and a substantial portion of its liquidity needs arise from debt service on its indebtedness and from the funding of its costs of operations, acquisitions and capital expenditures. The Company’s practice is to maintain sufficient liquidity through cash from operations, credit facilities and other financing arrangements, soto ~~that~~mitigate any adverse impact on its operations ~~are~~resulting ~~unaffected~~from by adverse financial market conditions.

~~Fleet~~In ~~Debt~~June 2016, the Company paid off its Senior Term Facilities and refinanced certain vehicle debt, as further disclosed below, and wrote off $20 million in deferred financing costs.

~~HVF~~Non-Vehicle ~~II U.S. Fleet Medium Term Notes~~Debt

InSenior ~~February~~Credit 2016, HVF II issued the Series 2016-1 Rental Car Asset Backed Notes, Class A, Class B, Class C and Class D (collectively, the “HVF II Series 2016-1 Notes”) and Series 2016-2 Rental Car Asset Backed Notes, Class A, Class B, Class C and Class D (collectively, the “HVF II Series 2016-2 Notes”) in an aggregate principal amount of approximately $1.06 billion. The expected maturities of the HVF II Series 2016-1 Notes and the HVF II Series 2016-2 Notes are March 2019 and March 2021, respectively. The HVF II Series 2016-1 Notes are comprised of approximately $333 million aggregate principal amount of 2.32% Rental Car Asset Backed Notes, Class A, $81 million aggregate principal amount of 3.72% Rental Car Asset Backed Notes, Class B, $25 million aggregate principal amount of 4.75% Rental Car Asset Backed Notes, Class C, and $27 million aggregate principal amount of 5.73% Rental Car Asset Backed Notes, Class D. The HVF II Series 2016-2 Notes are comprised of approximately $425 million aggregate principal amount of 2.95% Rental Car Asset Backed Notes, Class A, $104 million aggregate principal amount of 3.94% Rental Car Asset Backed Notes, Class B, $32 million aggregate principal amount of 4.99% Rental Car Asset Backed Notes, Class C, and $34 million aggregate principal amount of 5.97% Rental Car Asset Backed Notes, Class D. The Class B Notes of each series are subordinated to the Class A Notes of such series. The Class C Notes of each series are subordinated to the Class A Notes and the Class B Notes of such series. The Class D Notes of each series are subordinated to the Class A Notes, the Class B Notes and the Class C Notes of such series. An affiliate of HVF II purchased the Class D Notes of each such series, therefore, approximately $61 million of the obligation is eliminated in consolidation.Facilities

~~HVF~~In IIJune ~~U.S.~~2016, ~~Fleet~~in ~~Variable~~connection ~~Funding~~with ~~Notes~~the Spin-Off of the equipment rental business, the Senior Term Facility and the Senior ABL Facility were terminated.

~~The~~Senior net proceeds from the issuance of the HVF II Series 2016-1 Notes and HVF II Series 2016-2 Notes, together with available cash, were used to repay approximately $741 million of the outstanding principal amount of the HVF II Series 2014-A Notes and approximately $264 million of the outstanding principal amount of the HVF II Series 2013-A Notes.Facilities

13In June 2016, in connection with the Spin-Off of the equipment rental business, Hertz, as parent borrower, entered into a credit agreement with respect to a new senior secured term facility (the “Senior Term Loan”) and a new senior secured revolving credit facility (the “Senior RCF”) and, together with the Senior Term Loan, (the “Senior Facilities”). At Hertz’s option and subject to certain conditions, certain of Hertz’s domestic subsidiaries may also become party to the Senior Facilities from time to time, as subsidiary borrowers. The Senior Facilities are comprised of a Senior Term Loan, with a $700 million initial principal balance, and a Senior RCF consisting of a $1.7 billion revolving credit facility, with a portion of the Senior RCF available for the issuance of letters of credit and the issuance of swing line loans. The proceeds from the issuance of the Senior Term Loan were subsequently used to redeem all of the outstanding 7.50% Senior Notes due 2018. Subject to the satisfaction of certain conditions and limitations, the Senior Facilities allow for the addition of incremental term and/or revolving loan commitments and incremental term and/or revolving loans.

The interest rate applicable to the loans under the Senior Term Loan is based on a floating rate (subject to a LIBOR floor of 0.75%) that varies depending on Hertz’s consolidated total net corporate leverage ratio. The interest rates applicable to the loans under the Senior RCF are based on a floating rate that varies depending on Hertz’s consolidated total net corporate leverage ratio and corporate ratings.

Vehicle Debt

HVF II U.S. Vehicle Variable Funding Notes

In June 2016, HVF II terminated $1.8 billion of commitments under the HVF II Series 2014-A Class A Notes, which commitments would have otherwise terminated as previously scheduled in October 2016, such that after giving effect to such termination the aggregate maximum principal amount of the HVF II Series 2014-A Class A Notes was $500 million (subject to borrowing base availability). HVF II also terminated $20 million of commitments under the HVF II Series 2013-B Class B Notes and $20 million of commitments under the HVF II Series 2014-A Class B Notes, such that after giving effect to such terminations the aggregate maximum principal amount of the HVF II Series 2013-B Class B Notes and the HVF II Series 2014-A Class B Notes were $55 million and $20 million, respectively (in each case, subject to borrowing base availability).

In addition, in June 2016 HVF II transitioned approximately $500 million of commitments available under the HVF II Series 2013-B Class A Notes to the HVF II Series 2013-A Class A Notes, such that after giving effect to such transition the aggregate maximum principal amount of the HVF II Series 2013-A Class A Notes and the HVF II Series 2013-B Class A Notes were $2.2 billion and $1.0 billion, respectively (in each case, subject to borrowing base availability).

The net proceeds from the sale of the HVF II Series 2016-3 Notes and HVF II Series 2016-4 Notes (as defined below), together with available cash, were used to repay $820 million of the outstanding principal amount of the HVF II

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (~~Continued~~CONTINUED)

Unaudited

Series 2014-A Notes. The net proceeds from the issuance of the HVF II Series 2016-1 Notes and HVF II Series 2016-2 Notes (as defined below), together with available cash, were used to repay approximately $741 million of the outstanding principal amount of the HVF II Series 2014-A Notes and approximately $264 million of the outstanding principal amount of the HVF II Series 2013-A Notes.

HVF II U.S. Vehicle Medium Term Notes

In June 2016, HVF II issued the Series 2016-3 Rental Car Asset Backed Notes, Class A, Class B, Class C and Class D (collectively, the "HVF II Series 2016-3 Notes") and Series 2016-4 Rental Car Asset Backed Notes, Class A, Class B, Class C and Class D (collectively, the "HVF II Series 2016-4 Notes") in an aggregate principal amount of approximately $848 million. The expected maturities of the Series 2016-3 Notes and the Series 2016-4 Notes are July 2019 and July 2021, respectively. There is subordination within the HVF II Series 2016-3 Notes and the HVF II Series 2016-4 Notes based on class. An affiliate of HVF II purchased the Class D Notes of each such series, and as a result, approximately $48 million of the aggregate principal amount is eliminated in consolidation.

In February 2016, HVF II issued the Series 2016-1 Rental Car Asset Backed Notes, Class A, Class B, Class C and Class D (collectively, the “HVF II Series 2016-1 Notes”) and Series 2016-2 Rental Car Asset Backed Notes, Class A, Class B, Class C and Class D (collectively, the “HVF II Series 2016-2 Notes”) in an aggregate principal amount of approximately $1.06 billion. The expected maturities of the HVF II Series 2016-1 Notes and the HVF II Series 2016-2 Notes are March 2019 and March 2021, respectively. There is subordination within the HVF II Series 2016-1 Notes and the HVF II Series 2016-2 Notes based on class. An affiliate of HVF II purchased the Class D Notes of each such series, and as a result approximately $61 million of the aggregate principal amount is eliminated in consolidation.

HFLF Medium Term Notes

In April 2016, HFLF issued the Series 2016-1 Asset-Backed Notes, Class A, Class B, Class C, Class D, and Class E (collectively, the “HFLF Series 2016-1 Notes”) in an aggregate principal amount of $400 million. The expected maturity of the HFLF Series 2016-1 Notes is February 2019 to April 2019, based upon assumptions made at the time of the pricing of the HFLF Series 2016-1 Notes. The HFLF Series 2016-1 Notes (other than the Class A-2 Notes which are fixed rate) 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, and as a result approximately $15 million of the aggregate principal amount is eliminated in consolidation.

The net proceeds from the issuance of the HFLF Series 2016-1 Notes, together with available cash, were used to repay $400 million of amounts then-outstanding under the HFLF Series 2013-2 Notes.

U.S. Vehicle Revolving Credit Facility

In June 2016, in connection with the Spin-Off, Hertz executed a U.S. Vehicle Revolving Credit Facility of $200 million (the “U.S. Vehicle RCF”). Eligible vehicle collateral for the U.S. Vehicle RCF includes retail vehicle sales inventory, certain vehicles in Hawaii and Kansas and other vehicles owned by certain of the Company’s U.S. operating companies.

U.S. Vehicle Financing Facility

In June 2016, in anticipation of the Spin-Off, the U.S. Vehicle Financing Facility was terminated. Vehicles that, prior to the Spin-Off, would have been financed under the U.S. Vehicle Financing Facility will be financed under the U.S. Vehicle RCF or the HVF II U.S. ABS Program going forward, as applicable.

European Revolving Credit Facility

In June 2016, HHN BV amended the European Revolving Credit Facility to provide for aggregate maximum borrowings (subject to borrowing base availability) of up to €340 million during the peak season, for a seasonal commitment period through December 2016. Following the expiration of the seasonal commitment period, aggregate maximum borrowings

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Unaudited

available under the European Revolving Credit Facility will revert to up to €250 million (subject to borrowing base availability).

European Securitization

In June 2016, certain of Hertz’s foreign subsidiaries entered into an agreement pursuant to which certain terms of the European Securitization were amended. The amendment provides for, among other things, aggregate maximum borrowings (subject to borrowing base availability) of up to €460 million and an extension of the maturity from October 2017 to October 2018.

Brazilian Vehicle Financing Facility

In April 2016, the Company entered into an agreement pursuant to which the maturity of the Brazilian Vehicle Financing Facility was extended from April 2016 to October 2016.

Capitalized Leases-U.K. Leveraged Financing

In June 2016, 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, for a seasonal commitment period through October 2016. Following the expiration of the seasonal commitment period, aggregate maximum borrowings available under the U.K Leveraged Financing will revert to up to £250 million (subject to borrowing base availability).

See also Note 19, "Subsequent Events," regarding financing transactions occurring subsequent to June 30, 2016.

Borrowing Capacity and Availability

~~The~~Borrowing ~~following~~capacity ~~facilities~~and ~~were~~availability ~~available~~comes tofrom the Company's "revolving credit facilities," which are a combination of variable funding asset-backed securitization facilities, cash-flow-based revolving credit facilities and asset-based revolving credit facilities. Creditors under each such asset-backed securitization facility and asset-based revolving credit facility have a claim on a specific pool of assets as collateral. The Company's ability to borrow under each such asset-backed securitization facility and asset-based revolving credit facility is a function of, ~~March 31~~among other things, ~~2016:~~the value of the assets in the relevant collateral pool. With respect to each such asset-backed securitization facility and asset-based revolving credit facility, the Company refers to the amount of debt it can borrow given a certain pool of assets as the borrowing base.

(In millions)	RemainingCapacity		Availability UnderBorrowing BaseLimitation
Corporate Debt
Senior ABL Facility	$	1,488	$	1,481
Total Corporate Debt	1,488		1,481
Fleet Debt
HVF II U.S. Fleet Variable Funding Notes	2,125		—
HFLF Variable Funding Notes	50		—
European Revolving Credit Facility	—		—
European Securitization	192		4
Canadian Securitization	99		—
Australian Securitization	94		—
Capitalized Leases	50		1
Total Fleet Debt	2,610		5
Total	$	4,098	$	1,486

The Company refers to "Remaining Capacity" as the maximum principal amount of debt permitted to be outstanding under the respective facility (i.e., with respect to a variable funding asset-backed securitization facility or asset-based revolving credit facility, the amount of debt we could borrow assuming we possessed sufficient assets as collateral) less the principal amount of debt then-outstanding under such facility. With respect to a variable funding asset-backed securitization facility or asset-based revolving credit facility, the Company refers to "Availability Under Borrowing Base Limitation" as the lower of Remaining Capacity or the borrowing base less the principal amount of debt then-outstanding under such facility (i.e., the amount of debt that can be borrowed given the collateral possessed at such time). With respect to the Senior RCF, "Availability Under Borrowing Base Limitation" is the same as "Remaining Capacity" since borrowings under the Senior RCF are not subject to a borrowing base.

~~As of March 31, 2016, the Senior ABL Facility had $1.03 billion available under the letter of credit facility sublimit, subject to borrowing base restrictions.~~20

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Unaudited

The following facilities were available to the Company as of June 30, 2016:



(In millions)	Remaining Capacity		Availability Under Borrowing Base Limitation
Non-Vehicle Debt
Senior RCF	$	1,094	$	1,094
Total Non-Vehicle Debt	1,094		1,094
Vehicle Debt
U.S. Vehicle RCF	—		—
HVF II U.S. Vehicle Variable Funding Notes	613		—
HFLF Variable Funding Notes	325		—
European Revolving Credit Facility	—		—
European Securitization	94		—
Canadian Securitization	16		—
Australian Securitization	96		2
Capitalized Leases	16		8
Total Vehicle Debt	1,160		10
Total	$	2,254	$	1,104

Letters of Credit

As of ~~March~~June 3130, 2016, there were outstanding standby letters of credit totaling $~~628~~618 million. Such letters of credit have been issued primarily to support the Company's vehicle rental concessions and leaseholds and its insurance programs as well as to provide credit enhancement for its asset-backed securitization facilities. Of this amount, $~~615~~606 million was issued under the Senior ~~Term~~RCF, ~~Facility~~which ~~and~~has ~~the~~a ~~Senior~~$1 ~~ABL~~billion ~~Facility~~letter ~~(together~~of credit sublimit, ~~the~~resulting ~~“Senior~~in ~~Credit~~$394 ~~Facilities”)~~million of availability under such sublimit. As of ~~March 31~~June 30, 2016, none of ~~these~~the 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 March 31, 2016 and December 31, 2015, the portion of total restricted cash and cash equivalents that was associated with the Fleet Debt facilities was $298 million and $289 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 (an event that results in the amortization of indebtedness prior to its expected maturity).

Special Purpose Entities

Substantially all of the revenue earning ~~equipment~~vehicles 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.~~LLC, 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~~revenue earning vehicles and related assets of certain of Hertz International, Ltd.'s subsidiaries. As of ~~March~~June 3130, 2016 and December 31, 2015, 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 $~~400~~619 million and $418 million, respectively, primarily comprised of loans receivable and revenue earning vehicles, and total liabilities of $619 million and $418 million, respectively, primarily comprised of debt.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (~~Continued~~CONTINUED)

Unaudited

respectively, primarily comprised of loans receivable and revenue earning equipment, and total liabilities of $400 million and $418 million, respectively, primarily comprised of debt.

Financial Covenant Compliance

~~Under~~The Company refers to Hertz and its subsidiaries as the ~~terms~~Hertz ofcredit group. The indentures for the Senior ~~Term~~Notes ~~Facility~~contain ~~and~~covenants ~~Senior~~that, ~~ABL~~among ~~Facility~~other things, limit or restrict the ~~Company~~ability isof ~~not~~the ~~subject~~Hertz tocredit ~~ongoing~~group ~~financial~~to ~~maintenance~~incur ~~covenants;~~additional ~~however~~indebtedness, ~~under~~incur ~~the~~guarantee ~~Senior~~obligations, ~~ABL~~prepay ~~Facility~~certain indebtedness, ~~failure~~make tocertain ~~maintain~~restricted ~~certain~~payments ~~levels~~(including ofpaying ~~liquidity~~dividends, ~~will~~redeeming ~~subject~~stock ~~the~~or ~~Company~~making other distributions to aparent ~~contractually~~entities ~~specified~~of ~~fixed~~Hertz ~~charge~~and ~~coverage~~other ~~ratio~~persons outside of ~~not~~the ~~less~~Hertz ~~than~~credit ~~1:1~~group), ~~for~~make ~~the~~investments, ~~four~~create ~~quarters~~liens, ~~most~~transfer ~~recently~~or ~~ended.~~sell Asassets, ofmerge ~~March 31,~~or ~~2016~~consolidate, ~~the~~and ~~Company~~enter ~~was~~into ~~not~~certain ~~subject~~transactions towith ~~the~~Hertz's ~~fixed~~affiliates ~~charge~~that ~~coverage~~are ~~ratio~~not ~~test~~members of the Hertz credit group.

~~Note~~Certain ~~6—Employee~~other ~~Retirement~~debt ~~Benefits~~instruments and credit facilities (including the Senior Facilities) contain a number of covenants that, among other things, limit or restrict the ability of the borrowers and the guarantors to dispose of assets, incur additional indebtedness, incur guarantee obligations, prepay certain indebtedness, make certain restricted payments (including paying dividends, share repurchases or making other distributions), create liens, make investments, make acquisitions, engage in mergers, fundamentally change the nature of their business, make capital expenditures, or engage in certain transactions with certain affiliates.

~~Effective~~The ~~December~~Senior ~~31,~~RCF ~~2014,~~contains ~~the~~a ~~Company~~financial ~~amended~~maintenance ~~the~~covenant, ~~Hertz~~which ~~Corporation~~is ~~Account~~a ~~Balance~~maximum ~~Defined~~consolidated ~~Benefit~~total ~~Pension~~net ~~Plan~~corporate toleverage ~~permanently~~ratio, ~~discontinue~~as ~~future~~defined ~~benefit~~in ~~accruals and participation under~~ the ~~plan~~Senior ~~for non-union employees. The Company anticipates that~~RCF, ~~while~~and ~~compensation~~is ~~credits~~only ~~will~~applicable noto ~~longer be provided under~~ the ~~plan~~Senior ~~after~~RCF. Hertz’s ~~2014~~consolidated ~~for~~total ~~affected~~net ~~participants,~~corporate ~~interest~~leverage ~~credits~~ratio ~~will~~as ~~continue~~of ~~to be credited on existing participant account balances under~~ the ~~plan~~last ~~until~~day ~~benefits~~of ~~are~~any ~~distributed~~fiscal ~~and~~quarter, ~~service~~commencing ~~will~~with ~~continue~~September to30, be2016, ~~recognized~~may ~~for~~not ~~vesting~~exceed ~~and~~the ~~retirement~~ratios ~~eligibility~~indicated ~~requirements.~~below:



Fiscal Quarter(s) Ending		Maximum Ratio
September 30, 2016		5.25 to 1.00
December 31, 2016 through March 31, 2017		4.75 to 1.00
June 30, 2017 through September 30, 2017		5.25 to 1.00
December 31, 2017		4.75 to 1.00
March 31, 2018		4.50 to 1.00
June 30, 2018 through September 30, 2018		5.00 to 1.00
December 31, 2018 through March 31, 2019		4.50 to 1.00
June 30, 2019 through September 30, 2019		5.00 to 1.00
December 31, 2019 through March 31, 2020		4.50 to 1.00
June 30, 2020 through September 30, 2020		5.00 to 1.00
December 31, 2020 through March 31, 2021		4.50 to 1.00

Note 7—Employee Retirement Benefits

Effective December 31, 2014, the Company amended the Hertz Corporation Account Balance Defined Benefit Pension Plan to permanently discontinue future benefit accruals and participation under the plan for non-union employees. While compensation credits are no longer provided under the plan, interest credits continue to be credited on existing participant account balances under the plan until benefits are distributed, and service continues to be recognized for vesting and retirement eligibility requirements.

Employee Matters Agreement

As described in Note 3, "Discontinued Operations," Hertz Global and Herc Holdings entered into the “Employee Matters Agreement” to allocate liabilities and responsibilities relating to employment matters, employee compensation, benefit plans and programs and other related matters in connection with the Spin-Off of the equipment rental business. The Employee Matters Agreement governs Hertz Global's and Herc Holdings’ obligations with respect to such matters for current and former employees of the vehicle rental business and the equipment rental business. The Employee Matters Agreement specifies the method by which the pension plans are split in connection with the Spin-Off. Pension liabilities

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Unaudited

and an associated asset allocation related to employees of the equipment rental business will be transferred to a new plan. Amounts presented herein relate to pension expense associated with current and former employees of the vehicle rental business.

On June 30, 2016, in connection with the Spin-Off and transfer of assets and liabilities from combined U.S. pension and other post-retirement benefit plans to newly created Herc Holdings plans, the Company remeasured pension and other post-retirement liabilities and assets for several of its U.S. plans. The remeasurement resulted in an increase to the Company's continuing operations net pension liability of $23 million compared to the net pension liability as of December 31, 2015. The significant weighted-average assumptions used at the June 30, 2016 measurement date were as follows.



Discount rate		3.5%
Expected rate of return on plan assets		7.2%
Average salary increase		4.3%

The following table sets forth the net periodic pension expense:

	Pension Benefits
	U.S.						Non-U.S.
	Three Months EndedMarch 31,
	Three Months Ended June 30,
(In millions)	2016			2015			2016			2015
Components of Net Periodic Benefit Cost:
Service cost	$	1—		$	1		$	—1		$	1—
Interest cost	7			76			2			2
Expected return on plan assets	(97		)	(108		)	(3		)	(4		)
Net amortizations	21			1			—			—1
Settlement loss	1—			1			—			—
Net periodic pension expense (benefit)	$	21		$	—1		$	(1—	)	$	(1	)

Note 7—Stock-Based Compensation



	Pension Benefits
	U.S.						Non-U.S.
	Six Months Ended June 30,
(In millions)	2016			2015			2016			2015
Components of Net Periodic Benefit Cost:
Service cost	$	1		$	2		$	1		$	1
Interest cost	11			11			4			4
Expected return on plan assets	(14		)	(16		)	(6		)	(8		)
Net amortizations	4			2			—			1
Settlement loss	1			2			—			—
Net periodic pension expense (benefit)	$	3		$	1		$	(1	)	$	(2	)

~~The~~Note ~~non~~8—Stock-~~cash~~Based ~~stock-based compensation expense associated with the Hertz Holdings' stock-based compensation plans is pushed down from Hertz Holdings and recorded on the books at the Hertz level.~~Compensation

~~During~~The ~~the three months ended March 31, 2016, Hertz Holdings granted 794,149~~ non-~~qualified~~cash stock-based ~~options~~compensation toexpense ~~certain~~associated ~~executives~~with ~~and employees at a weighted average grant date fair value of $3.99 as determined using~~ the ~~Black~~Hertz ~~Scholes~~Global's ~~option model; 1,135,343 restricted~~ stock-based ~~units~~compensation ~~("RSUs")~~plans atis apushed ~~weighted~~down ~~average~~from ~~grant~~Hertz ~~date~~Global ~~fair value of $9.99~~ and ~~2,365,670~~recorded ~~performance~~on ~~stock~~the ~~units~~books ~~("PSUs")~~ at ~~a weighted average grant date fair value of $9.98 under~~ the Hertz ~~Global Holdings, Inc~~level. ~~2008 Omnibus Incentive Plan with vesting terms of three to five years.~~

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In accordance with the Employee Matters Agreement entered into between Hertz Global and Herc Holdings, as further described in Note 3, "Discontinued Operations," previously outstanding stock-based compensation awards granted under Old Hertz Holdings' equity compensation programs prior to the Spin-Off and held by certain executives and employees of HERC and Old Hertz Holdings were adjusted to reflect the impact of the Spin-Off on these awards. To preserve the aggregate intrinsic value of these stock-based compensation awards, as measured immediately before and immediately after the Spin-Off, each holder of Old Hertz Holdings stock-based compensation awards received an adjusted award consisting of a stock-based compensation award denominated in the equity of the company at which the person was employed following the Spin-Off. In the Spin-Off, the determination as to which type of adjustment applied to a holder’s previously outstanding Old Hertz Holdings award was based upon the type of stock-based compensation award that was to be adjusted and the date on which the award was originally granted under the Old Hertz Holdings equity compensation programs prior to the Spin-Off.

Under the Hertz Global Holdings, Inc. 2008 Omnibus Incentive Plan, and prior to the consummation of the Spin-Off, during the six months ended June 30, 2016, the Company granted 794,149 non-qualified stock options to certain executives and employees at a weighted average grant date fair value of $3.99 as determined using the Black Scholes option model; 1,114,527 restricted stock units ("RSUs") at a weighted average grant date fair value of $9.78 and 2,075,328 performance stock units ("PSUs") at a weighted average grant date fair value of $9.93 with vesting terms of three to five years. In connection with the Spin-Off on June 30, 2016 as further described in Note 1, "Background," outstanding stock-based compensation awards for employees of the global vehicle rental business were converted at a ratio of 1 former unit to 0.2523 new units, with a corresponding change in the exercise price of outstanding options. There are no significant changes to assumptions used to fair value the options, nor is there material incremental compensation expense as a result of the Spin-Off.

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 EndedMarch 31,
	Three Months EndedJune 30,						Six Months EndedJune 30,
(In millions)	2016			2015			2016			2015
Compensation expense	$	6		$	45		$	12		$	8
Income tax benefit	(2		)	(12		)	(5		)	(3		)
Total	$	4		$	3		$	7		$	5

15As of June 30, 2016, there was $55 million of total unrecognized compensation cost related to non-vested stock options, RSUs and PSUs granted by Old Hertz Holdings under all plans. The total unrecognized compensation cost is expected to be recognized over the remaining 2.14 years, on a weighted average basis, of the requisite service period that began on the grant dates.

Note 9—Restructuring

During 2016, the Company evaluated its workforce and operations and initiated approximately $31 million in restructuring programs that include headcount reductions, business process re-engineering and outsourcing certain information technology application and infrastructure functions to a third party service provider. These programs are expected to be completed within the next twelve months.

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Unaudited

AsRestructuring ofcharges ~~March 31, 2016, there was $79 million of total unrecognized compensation cost related to non-vested stock options, RSUs and PSUs granted by Hertz Holdings~~ under ~~all~~these ~~plans.~~programs ~~The~~for ~~total unrecognized compensation cost is expected to be recognized over~~ the ~~remaining~~periods ~~2.34~~shown ~~years,~~are onas ~~a weighted average basis, of the requisite service period that began on the grant dates.~~follows:

Note 8—Restructuring



	Three Months Ended June 30,					Six Months Ended June 30,
(In millions)	2016		2015			2016		2015
By Type:
Termination benefits	$	10	$	6		$	16	$	12
Impairments and asset write-downs	3		—			3		1
Facility closure and lease obligation costs	5		14			5		14
Other	—		(1		)	—		(2		)
Total	$	18	$	19		$	24	$	25

During the first quarter of 2016, the Company evaluated its workforce and operations and initiated approximately $15 million in restructuring programs that include headcount reductions, business process re-engineering and outsourcing certain information technology application and infrastructure functions to a third party service provider. These programs are expected to be completed within the next twelve months.



	Three Months Ended June 30,				Six Months Ended June 30,
(In millions)	2016		2015		2016		2015
By Caption:
Direct vehicle and operating	$	8	$	14	$	9	$	15
Selling, general and administrative	10		5		15		10
Total	$	18	$	19	$	24	$	25

Restructuring charges under these programs for the period shown are as follows:



	Three Months Ended June 30,				Six Months Ended June 30,
(In millions)	2016		2015		2016		2015
By Segment:
U.S. Rental Car	$	15	$	14	$	21	$	16
International Rental Car	3		5		3		7
Corporate	—		—		—		2
Total	$	18	$	19	$	24	$	25

	Three Months EndedMarch 31,
(In millions)	2016		2015
By Type:
Termination benefits	$	6	$	6
Impairments and asset write-downs	—		1
Facility closure and lease obligation costs	1		1
Other	—		(1		)
Total	$	7	$	7

The following table sets forth the activity affecting the restructuring accrual which is included in accrued liabilities in the accompanying condensed consolidated balance sheets during the six months ended June 30, 2016. Other is primarily comprised of future lease obligations which will be paid over the remaining term of the applicable leases.

	Three Months EndedMarch 31,
(In millions)	TerminationBenefits			Other			Total
(In millions)	2016			2015
Balance as of December 31, 2015	$	9		$	15		$	24
By Caption:
Charges incurred	16			8			24
Direct operating	$	1		$	2
Cash payments	(8		)	(7		)	(15		)
Selling, general and administrative	6			5
Other non-cash changes	(1		)	1			—
Total	$	7		$	7
Balance as of June 30, 2016	$	16		$	17		$	33

	Three Months EndedMarch 31,
(In millions)	2016		2015
By Segment:
U.S. Car Rental	$	6	$	2
International Car Rental	1		2
Worldwide Equipment Rental	—		1
Corporate	—		2
Total	$	7	$	7

Note 10—Tangible Asset Impairments and Asset Write-downs

16In the first quarter of 2015, the Company performed an impairment assessment of the Dollar Thrifty headquarters campus in Tulsa, Oklahoma, which is part of the U.S. Rental Car segment. Based on the impairment assessment, the Company recorded a charge of $6 million which is included in selling, general and administrative expense in the accompanying condensed consolidated statements of operations. The building was sold in December 2015.

In the first quarter of 2015, the Company recorded $11 million in charges associated with U.S. Rental Car service

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Unaudited

~~The~~equipment ~~following~~and ~~table~~assets ~~sets~~deemed ~~forth~~to ~~the~~have ~~activity~~no ~~affecting~~future ~~the~~use, ~~restructuring~~of ~~accrual~~ which $4 million is included in ~~accrued~~direct ~~liabilities~~vehicle inand ~~the~~operating ~~Company's~~expense ~~condensed~~and ~~consolidated~~$7 ~~balance~~million ~~sheets~~is ~~during~~included ~~the~~in ~~three~~other ~~months~~(income) ~~ended March 31~~expense, ~~2016.~~net ~~The~~in ~~remainder of~~ the ~~restructuring~~accompanying ~~accrual~~condensed ~~primarily~~consolidated ~~relates~~statements ~~to future lease obligations which will be paid over the remaining term~~ of ~~the applicable leases~~operations.

(In millions)	TerminationBenefits			Other			Total
Balance as of January 1, 2016	$	10		$	17		$	27
Charges incurred	6			1			7
Cash payments	(3		)	(3		)	(6		)
Other non-cash changes	—			(1		)	(1		)
Balance as of March 31, 2016	$	13		$	14		$	27

Note 11—Taxes on Income (Loss)

~~Note~~The ~~9—Tangible~~effective ~~Asset~~tax ~~Impairments~~rate for the three months ended June 30, 2016 and ~~Asset~~2015 ~~Write-downs~~was 20% and 66%, respectively. The effective tax rate for the six months ended June 30, 2016 and 2015 was 29% and 8%, respectively. The effective tax rate for the full fiscal year 2016 is expected to be approximately 47%.

InThe ~~the~~Company ~~first~~recorded ~~quarter~~a oftax ~~2015,~~benefit ~~the~~of ~~Company~~$7 ~~performed~~million anfor ~~impairment~~the ~~assessment~~three ofmonths ~~the~~ended ~~Dollar~~June 30, ~~Thrifty~~2016 ~~headquarters~~compared ~~campus~~to ina ~~Tulsa,~~tax ~~Oklahoma,~~provision ~~which~~of is$25 ~~part~~million offor the ~~U.S.~~three ~~Car~~months ~~Rental~~ended ~~segment~~June 30, 2015. ~~Based~~The onchange was the ~~impairment~~result ~~assessment,~~of the ~~Company~~impact ~~recorded a charge~~ of $6tax ~~million~~law ~~which~~changes, isprincipally ~~included~~ in ~~selling~~Louisiana, ~~general~~for ~~and~~approximately ~~administrative~~$2 ~~expense~~million inand ~~the~~charges ~~Company's~~related ~~condensed~~to ~~consolidated~~the ~~statements~~Spin-Off of ~~operations.~~$2 ~~The~~million ~~building~~recorded ~~was~~in ~~sold~~the insecond ~~December~~quarter ~~2015~~of 2016.

InThe ~~the~~Company ~~first~~recorded ~~quarter~~a tax benefit of ~~2015,~~$32 million for the ~~Company~~six ~~recorded~~months ended June 30, 2016 compared to a tax benefit of $116 million infor ~~charges~~the ~~associated~~six ~~with~~months Uended June 30, 2015.S. ~~Car~~The ~~Rental~~change ~~service~~was ~~equipment~~the ~~and~~result ~~assets~~of ~~deemed~~a tohigher ~~have~~loss nofrom ~~future~~continuing ~~use~~operations before income taxes, ofthe ~~which~~impact $4of ~~million~~tax islaw ~~included~~changes, principally in ~~direct~~Louisiana, ~~operating~~for ~~expense~~approximately ~~and~~ $72 million isand ~~included~~charges inrelated ~~other~~to ~~(income)~~the ~~expense,~~Spin-Off ~~net~~of in$2 ~~the~~million ~~Company's~~recorded ~~condensed~~in ~~consolidated~~the ~~statements~~second quarter of ~~operations~~2016.

~~Note~~Tax ~~10—Taxes~~Matters ~~on Income (Loss)~~Agreement

~~The~~As ~~effective~~described ~~tax~~in ~~rate~~Note ~~for~~3, "Discontinued Operations", Hertz Global and Hertz entered into the ~~three~~Tax ~~months~~Matters ~~ended~~Agreement ~~March 31~~with Herc Holdings and Herc Rentals to govern the parties’ respective rights, ~~2016~~responsibilities and ~~2015~~obligations ~~was~~after ~~26%~~the Spin-Off with respect to tax liabilities and ~~19%~~benefits, ~~respectively.~~tax ~~The~~attributes, ~~effective~~ tax ~~rate~~contests ~~for~~and ~~the~~other ~~full~~tax ~~fiscal~~matters ~~year~~regarding ~~2016~~income istaxes, ~~expected~~other totaxes beand ~~approximately~~related ~~42%~~tax returns.

~~The~~Note ~~Company~~12—Financial recorded a tax benefit of $17 million for the three months ended March 31, 2016 compared to a tax benefit of $16 million for the three months ended March 31, 2015. The change was the result of the composition of earnings by jurisdiction in the first quarter of 2016.Instruments

~~Note~~The ~~11—Financial~~Company ~~Instruments~~has risk exposures that it has historically used financial instruments to manage. None of the instruments have been designated in a hedging relationship as of June 30, 2016.

The Company has risk exposures that it has historically used financial instruments to manage. None of the instruments have been designated in a hedging relationship as of March 31, 2016.

Interest Rate Risk

The Company’s objective in managing exposure to interest rate changes is to minimize the impact of interest rate changes on earnings and cash flows and to lower overall borrowing costs. To achieve these objectives, the Company uses interest rate caps and other instruments to manage the mix of floating and fixed-rate debt.

Currency Exchange Rate Risk

The Company’s objective in managing exposure to currency fluctuations is to limit the exposure of certain cash flows and earnings from changes associated with currency exchange rate changes through the use of various derivative contracts. The Company experiences currency risks in its global operations as a result of various factors including intercompany local currency denominated loans, rental operations in various currencies and purchasing ~~fleet~~vehicles in various currencies.

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Unaudited

The following table summarizes the estimated fair value of financial instruments:

	Fair Value of Financial Instruments
	Asset Derivatives(1)				Liability Derivatives(1)
(In millions)	~~March~~June 3130, 2016		December 31, 2015		~~March~~June 3130, 2016		December 31, 2015
Interest rate caps	$	3	$	9	$	2	$	9
Interest rate instruments	$	2	$	9	$	1	$	9
Foreign currency forward contracts	26		3		13		1
Total	$	58	$	12	$	34	$	10

(1) All asset derivatives are recorded in ~~"Prepaid~~prepaid expenses and other assets" and all liability derivatives are recorded in ~~"Accrued~~accrued liabilities" in the accompanying condensed consolidated balance sheets.

While the Company's foreign currency forward contracts and certain interest rate ~~caps~~instruments are subject to enforceable master netting agreements with their counterparties, the Company does not offset the derivative assets and liabilities in its condensed consolidated balance sheets.

The following table summarizes the gains or (losses) on financial instruments for the period indicated.

	Location of Gain or (Loss) Recognized on Derivatives	Amount of Gain or (Loss) Recognized in Income on Derivatives
		Three Months EndedMarch 31,
		Three Months EndedJune 30,
(In millions)		2016			2015
Foreign currency forward contracts	Selling, general and administrative	$	3(1	)	$	(13	)

Note 12—Fair Value Measurements

Note 13—Fair Value Measurements

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The fair value of accounts receivable, accounts payable and accrued expenses, to the extent the underlying liability will be settled in cash, approximates the carrying values because of the short-term nature of these instruments.

Cash Equivalents and Investments

The Company’s cash equivalents primarily consist of money market accounts which the Company measures at fair value on a recurring basis. The Company determines the fair value of cash equivalents using a market approach based on quoted prices in active markets.

Investments in equity and other securities that are measured at fair value on a recurring basis consist of various mutual funds and available for sale securities. The valuation of these securities is based on pricing models whereby all significant inputs are observable or can be derived from or corroborated by observable market data.

~~The following table summarizes the ending balances of the Company's cash equivalents and investments.~~27

	March 31, 2016								December 31, 2015
(In millions)	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Money market funds	$	218	$	44	$	—	$	262	$	195	$	49	$	—	$	244
Equity and other securities	49		100		—		149		—		111		—		111
Total	$	267	$	144	$	—	$	411	$	195	$	160	$	—	$	355

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Unaudited

The following table summarizes the ending balances of the Company's cash equivalents and investments.



	June 30, 2016								December 31, 2015
(In millions)	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Money market funds	$	205	$	406	$	—	$	611	$	181	$	49	$	—	$	230
Equity and other securities	40		100		—		140		—		111		—		111
Total	$	245	$	506	$	—	$	751	$	181	$	160	$	—	$	341

CAR Inc.

As further described in Note 34, "Acquisitions and Divestitures," the Company holds an investment in CAR Inc. that was previously accounted for under the equity method and is now accounted for as an available for sale security. As such, the balance of our investment is included in the table above under equity and other securities (Level 1) as of ~~March~~June 3130, 2016.

Financial Instruments

The fair value of the Company's financial instruments as of ~~March~~June 3130, 2016 are shown in Note 1112, "Financial Instruments." The Company's financial instruments are classified as Level 2 assets and liabilities and are priced using quoted market prices for similar assets or liabilities in active markets.

Debt Obligations

The fair value of debt is estimated based on quoted market rates as well as borrowing rates currently available to the Company for loans with similar terms and average maturities (Level 2 inputs).

	As of March 31, 2016				As of December 31, 2015
	As of June 30, 2016				As of December 31, 2015
(In millions)	Nominal Unpaid Principal Balance		Aggregate Fair Value		Nominal Unpaid Principal Balance		Aggregate Fair Value
Corporate Debt	$	6,046	$	6,126	$	6,055	$	6,134
Non-vehicle Debt	$	4,629	$	4,726	$	5,991	$	6,070
Fleet Debt	10,106		10,103		9,857		9,854
Vehicle Debt	10,846		10,927		9,857		9,854
Total	$	1615,~~152~~475	$	1615,~~229~~653	$	15,~~912~~848	$	15,~~988~~924

Assets and Liabilities Measured at Fair Value on a Non-Recurring Basis

Assets and liabilities measured at fair value during the ~~three~~six months ended ~~March~~June 3130, 2016 are as follows:

(In millions)	Balance as of June 30, 2016				Level 1				Level 2				Level 3				Total Loss Adjustments Recorded for the Six Months ended June 30, 2016
Long-lived assets held for sale	$	219			$	—			$	—			$	219			$	3

During the first quarter of 2016, the Company reclassified an asset in its U.S. ~~Car~~ Rental Car segment with a fair value of $9 million to held and used. The asset was previously classified as held for sale at December 31, 2015. During the second quarter of 2016, the Company sold its previous corporate headquarters building in Park Ridge, New Jersey.

The Company's long-lived assets held for sale are primarily comprised of ~~its~~property ~~previous~~in ~~corporate~~its ~~headquarters~~U.S. ~~building~~Rental inCar ~~Park~~segment ~~Ridge,~~recorded ~~New~~in ~~Jersey~~property and aequipment, ~~property~~net in ~~its~~the ~~U.S.~~accompanying ~~Car~~condensed ~~Rental~~consolidated ~~segment~~balance sheets. The fair value less cost to sell of the long-lived ~~assets~~asset held for sale ~~were~~was assessed at ~~March~~June 3130, 2016. The Company uses market and income approaches to value ~~the~~ long-lived assets, including inputs such as expected cash flows and recent comparable transactions.

~~Note 13—Contingencies and Off-Balance Sheet Commitments~~28

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Unaudited

Note 14 —Accumulated Other Comprehensive Income

Accumulated Other Income (Loss)

Changes in the accumulated other comprehensive income (loss) balance by component (net of tax) are as follows:



(In millions)	Pension and Other Post-Employment Benefits			Foreign Currency Items			Unrealized Losses on Terminated Net Investment Hedges			Unrealized Gains on Available for Sale Securities		Accumulated Other Comprehensive Income (Loss)
Balance as of December 31, 2015	$	(102	)	$	(124	)	$	(19	)	$	—	$	(245	)
Other comprehensive income (loss) before reclassification	(20		)	18			—			9		7
Amounts reclassified from accumulated other comprehensive loss	2			—			—			—		2
Distribution of Herc Rentals Inc	20			95			—			—		115
Balance as of June 30, 2016	$	(100	)	$	(11	)	$	(19	)	$	9	$	(121	)

Balance as of December 31, 2014	$	(101	)	$	5		$	(19	)	$	—	$	(115	)
Other comprehensive income (loss) before reclassification	—			(39		)	—			—		(39		)
Amounts reclassified from accumulated other comprehensive loss	4			—			—			—		4
Balance as of June 30, 2015	$	(97	)	$	(34	)	$	(19	)	$	—	$	(150	)

Note 15—Contingencies and Off-Balance Sheet Commitments

Legal Proceedings

Public Liability and Property Damage

The Company is currently a defendant in numerous actions and has received numerous claims on which actions have not yet been commenced for public liability and property damage arising from the operation of motor vehicles ~~and equipment~~ rented from the Company. The obligation for public liability and property damage on self-insured U.S. and international vehicles ~~and equipment~~, as stated on the Company's balance sheet, represents an estimate for both reported accident claims not yet paid and claims incurred but not yet reported. The related liabilities are recorded on a non-discounted basis. Reserve requirements are based on rental volume and actuarial evaluations of historical accident claim experience and trends, as well as future projections of ultimate losses, expenses, premiums and administrative costs. At June 30, 2016 and December 31, 2015, the Company's liability recorded for public liability and property damage matters was $410 million and $394 million, respectively. The Company believes that its analysis is based on the most relevant information available, combined with reasonable assumptions, and that the Company may prudently rely on this information to determine the estimated liability. The liability is subject to significant uncertainties. The adequacy of the liability reserve is regularly monitored based on evolving accident claim history and insurance related state legislation changes. If the Company's estimates change or if actual results differ from these assumptions, the amount of the recorded liability is adjusted to reflect these results.

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Unaudited

accident claim experience and trends, as well as future projections of ultimate losses, expenses, premiums and administrative costs. At March 31, 2016 and December 31, 2015, the Company's liability recorded for public liability and property damage matters was $413 million and $402 million, respectively. The Company believes that its analysis is based on the most relevant information available, combined with reasonable assumptions, and that the Company may prudently rely on this information to determine the estimated liability. The liability is subject to significant uncertainties. The adequacy of the liability reserve is regularly monitored based on evolving accident claim history and insurance related state legislation changes. If the Company's estimates change or if actual results differ from these assumptions, the amount of the recorded liability is adjusted to reflect these results.

Other Matters

From time to time the Company is a party to various legal proceedings. The Company has summarized below the most significant legal proceedings to which the Company was and/or is a party to during the ~~three~~six months ended ~~March~~June 3130, 2016 or the period after ~~March~~June 3130, 2016, but before the filing of this Report on Form 10-‑Q.

Concession Fee Recoveries - In October 2006, Janet Sobel, Daniel Dugan, PhD. and Lydia Lee, individually and on behalf of all others similarly situated v. The Hertz Corporation and Enterprise Rent-A-Car Company (“Enterprise”) was filed in the U.S. District Court for the District of Nevada (Enterprise became a defendant in a separate action which they have now settled.) The Sobel case is a consumer class action on behalf of all persons who rented ~~cars~~vehicles from Hertz at airports in Nevada and were separately charged airport concession recovery fees by Hertz as part of their rental charges during the class period. In October 2014, the court entered final judgment against the Company and directed Hertz to pay the class approximately $42 million in restitution and $11 million in prejudgment interest, and to pay attorney's fees of $3.1 million with an additional $3.1 million to be paid from the restitution fund. In December 2014, Hertz timely filed an appeal of that final judgment with the U.S. Court of Appeals for the Ninth Circuit and the plaintiffs cross appealed the court's judgment seeking to challenge the lower court's ruling that Hertz did not deceive or mislead the class members. The matter has now been fully briefed by the parties. No oral argument date has been set. The Company continues to believe the outcome of this case will not be material to its financial condition, results of operations or cash flows.

In re Hertz Global Holdings, Inc. Securities Litigation - In November 2013, a purported shareholder class action, Pedro Ramirez, Jr. v. Hertz Global Holdings, Inc., et al., was commenced in the U.S. District Court for the District of New Jersey naming Old Hertz Holdings and certain of its officers as defendants and alleging violations of the federal securities laws. The complaint alleged that Old Hertz Holdings made material misrepresentations and/or omissions of material fact in its public disclosures during the period from February 25, 2013 through November 4, 2013, in violation of Section 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended, and Rule 10b-5 promulgated thereunder. The complaint sought an unspecified amount of monetary damages on behalf of the purported class and an award of costs and expenses, including counsel fees and expert fees. In June 2014, Old Hertz Holdings responded to the amended complaint by filing a motion to dismiss. After a hearing in October 2014, the court granted Old Hertz Holdings' motion to dismiss the complaint. The dismissal was without prejudice and plaintiff was granted leave to file a second amended complaint within 30 days of the order. In November 2014, plaintiff filed a second amended complaint which shortened the putative class period such that it was not alleged to have commenced until May 18, 2013 and made allegations that were not substantively very different than the allegations in the prior complaint. In early 2015, this case was assigned to a new federal judge in the District of New Jersey, and Old Hertz Holdings responded to the second amended complaint by filing another motion to dismiss. On July 22, 2015, the court granted Old Hertz Holdings’ motion to dismiss without prejudice and ordered that plaintiff could file a third amended complaint on or before August 22, 2015. On August 21, 2015, plaintiff filed a third amended complaint. The third amended complaint included additional allegations, named additional current and former officers as defendants and expanded the putative class period such that it was alleged to span from February 14, 2013 to July 16, 2015. On November 4, 2015, Old Hertz Holdings filed its motion to dismiss. Thereafter, a motion was made by plaintiff to add a new plaintiff, because of challenges to the standing of the first plaintiff. The court granted plaintiffs leave to file a fourth amended complaint to add the new plaintiff, and the new complaint was filed on March 1, 2016. Old Hertz Holdings and the individual defendants moved to dismiss the fourth amended complaint in its entirety with prejudice on March 24, 2016, and plaintiff filed its opposition to same on May 6, 2016. On June 13, ~~plaintiff~~2016, Old Hertz Holdings and the individual defendants filed ~~its~~their ~~opposition~~reply briefs in support of their motions to ~~same~~dismiss. The matter is now fully briefed. New Hertz and Herc Holdings are each responsible for a portion of the matter and Hertz Global will be responsible for managing the settlement or other disposition of the matter. Hertz Global believes that it has valid and meritorious defenses and it intends to vigorously defend against the complaint, but ~~liti~~litigation is subject to many uncertainties and the outcome of this matter is not predictable with assurance. It is possible that this matter could be decided unfavorably to Hertz Global. However, we are currently unable to estimate the range of these possible losses, but they could be material to the Company's consolidated financial condition, results of operations or cash flows in any particular reporting period.

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~~gation~~Ryanair - In July 2015, Ryanair Ltd. ("Ryanair") filed a complaint against Hertz Europe Limited, a subsidiary of the Company, in the High Court of Justice, Queen’s Bench Division, Commercial Court, Royal Courts of Justice of the United Kingdom alleging breach of contract in connection with Hertz Europe Limited’s termination of its vehicle hire agreement with Ryanair following a contractual dispute with respect to Ryanair’s agreement to begin using third party ticket distributors. The complaint seeks damages, interest and costs, together with attorney fees. The Company believes that it has valid and meritorious defenses and it intends to vigorously defend against these allegations, but litigation is subject to many uncertainties and the outcome of this matter is not predictable with assurance. ItThe Company has established a reserve for this matter which is not material. However, it is possible that this matter could be decided unfavorably to ~~Hertz~~the ~~Holdings.~~Company, ~~However~~accordingly, ~~Hertz~~it ~~Holdings~~ is ~~currently~~possible ~~unable~~that toan ~~estimate~~adverse ~~the~~outcome ~~range~~could ofexceed ~~these~~the ~~possible~~amount ~~losses,~~accrued ~~but~~in ~~they~~an amount that could be material to the Company's consolidated financial condition, results of operations or cash flows in any particular reporting period.

Ryanair - In July 2015, Ryanair Ltd. ("Ryanair") filed a complaint against Hertz Europe Limited, a subsidiary of the Company, in the High Court of Justice, Queen’s Bench Division, Commercial Court, Royal Courts of Justice of the United Kingdom alleging breach of contract in connection with Hertz Europe Limited’s termination of its car hire agreement with Ryanair following a contractual dispute with respect to Ryanair’s agreement to begin using third party ticket distributors. The complaint seeks damages, interest and costs, together with attorney fees. The Company believes that it has valid and meritorious defenses and it intends to vigorously defend against these allegations, but litigation is subject to many uncertainties and the outcome of this matter is not predictable with assurance. The Company has established a reserve for this matter which is not material. However, it is possible that this matter could be decided unfavorably to the Company, accordingly, it is possible that an adverse outcome could exceed the amount accrued in an amount that could be material to the Company's consolidated financial condition, results of operations or cash flows in any particular reporting period.

The Company intends to assert that it has meritorious defenses in the foregoing matters and the Company intends to defend itself vigorously.

Governmental Investigations - In June 2014, the Company was advised by the staff of the New York Regional Office of the SEC that it is investigating the events disclosed in certain of the Company’s filings with the SEC. In addition, in December 2014 a state securities regulator requested information and starting in June 2016 the Company has had communications with the United States Attorney's Office for the District of New Jersey regarding the same or similar events. The investigations and communications generally involve the restatements included in the Company's 2014 Form 10-‑K for the year ended December 31, 2014, as filed with the Securities and Exchange Commission ("SEC") on July 16, 2015 and related accounting for prior periods. The Company has and intends to continue to cooperate with ~~both~~all ~~the~~requests ~~SEC~~related ~~and~~to ~~state~~the ~~requests~~foregoing. Due to the stage at which the proceedings are, Hertz is currently unable to predict the likely outcome of the proceedings or estimate the range of reasonably possible losses, which may be material. Among other matters, the restatements included in the Company’s 2014 Form 10-‑K addressed a variety of accounting matters involving the Company’s Brazil vehicle rental ~~car~~ operations. The Company has identified certain activities in Brazil that may raise issues under the Foreign Corrupt Practices Act and other federal and local laws, which the Company has self-reported to appropriate government entities. The Company is continuing to investigate these issues. At this time, the Company is unable to predict the outcome of ~~this~~these ~~issue~~issues or estimate the range of reasonably possible losses, which could be material.

French Antitrust - In February 2015, the French Competition Authority issued a Statement of Objections claiming that several ~~car~~vehicle rental companies, including Hertz and certain of its subsidiaries, violated French competition law by receiving historic market information from twelve French airports relating to the ~~car~~vehicle rental companies operating at those airports and by engaging in a concerted practice relating to train station surcharges. Hertz believes that it has valid defenses and intends to vigorously defend against the allegations, but, due to the early stage at which the proceedings are, Hertz is currently unable to predict the likely outcome of the proceedings or range of reasonably possible losses, which could be material.

French Road Tax - The French Tax Authority has challenged the historic practice of several vehicle rental ~~car~~ companies, including Hertz France, of registering vehicles in jurisdictions where it is established and where the road tax payable with respect to those vehicles is lower than the road tax payable in the jurisdictions where the vehicles will primarily be used. In respect of a period in 2005, the Company has unsuccessfully appealed the French Tax assessment to the highest Administrative court in France. In respect of a period from 2003 to 2005, following an adverse judgment, the Company appealed the French Tax Authority’s assessment to the Civil Court of Appeal. This appeal is currently awaiting judgment. In the third quarter of 2015, following an adverse decision against another industry participant involved in a similar action, the Company ~~has~~ recorded charges with respect to this matter of approximately $23 million ~~during 2015~~. In January 2016, the Company made a payment of approximately $9 million.

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Unaudited

The Company has established reserves for matters where the Company believes that losses are probable and can be reasonably estimated. Other than the aggregate reserve established for claims for public liability and property damage, none of those reserves are material. For matters, including certain of those described above, where the Company has not established a reserve, the ultimate outcome or resolution cannot be predicted at this time, or the amount of ultimate loss, if any, cannot be reasonably estimated. Litigation is subject to many uncertainties and the outcome of the individual litigated matters is not predictable with assurance. It is possible that certain of the actions, claims, inquiries or proceedings, including those discussed above, could be decided unfavorably to the Company or any of its subsidiaries involved. Accordingly, it is possible that an adverse outcome from such a proceeding could exceed the amount accrued in an amount that could be material to the Company's consolidated financial condition, results of operations or cash flows in any particular reporting period.

In March 2016, the Company, as plaintiff, received a $9 million settlement related to a 2013 eminent domain case associated with one of the Company’s airport locations. The settlement gain is included in other (income) expense, net in the ~~Company's~~accompanying condensed consolidated statements of operations.

Separation and Distribution Agreement

As described in Note 3, "Discontinued Operations", Hertz Global entered into the Separation and Distribution Agreement with Herc Holdings, which sets forth the terms agreed to by the parties regarding legal matters and claims relating to pending and threatened litigation and pre Spin-Off liabilities.

Indemnification Obligations

~~There~~As ~~have~~described ~~been~~in noNote ~~significant~~3, ~~changes~~"Discontinued toOperations", the ~~Company's~~Separation ~~indemnification~~and ~~obligations~~Distribution asAgreement ~~compared~~with toHerc ~~those~~Holdings ~~disclosed~~contains inmutual ~~Note~~indemnification ~~16,~~clauses ~~"Contingencies~~ and ~~Off-Balance~~a ~~Sheet~~customary ~~Commitments"~~indemnification ofprovision ~~the~~with ~~Notes~~respect to ~~consolidated~~liability ~~financial~~arising ~~statements~~out ~~included~~of inor ~~the~~resulting ~~2015~~from ~~Form 10-K~~assumed ~~under~~legal ~~the caption Item 8, "Financial Statements and Supplementary Data~~matters."

Other than as described above, there have been no significant changes to the Company's indemnification obligations as compared to those disclosed in Note ~~14—Segment~~16, ~~Information~~"Contingencies and Off-Balance Sheet Commitments" of the Notes to consolidated financial statements included in the 2015 Form 10‑K under the caption Item 8, "Financial Statements and Supplementary Data."

The Company ~~has~~regularly ~~identified~~evaluates ~~four~~the ~~reportable~~probability ~~segments,~~of ~~which~~having ~~are~~to ~~organized~~incur ~~based~~costs onassociated ~~the~~with ~~products~~indemnification ~~and~~obligations ~~services provided by its operating segments~~ and ~~the~~will ~~geographic~~accrue ~~areas~~for inexpected ~~which~~losses ~~its~~when ~~operating~~they ~~segments~~are ~~conduct~~probable ~~business,~~and ~~as follows:~~estimable.

•Note ~~U.S.~~16—Segment ~~Car Rental - rental of cars, crossovers and light trucks, as well as ancillary products and services, in the United States and consists of the Company's United States operating segment;~~Information

•The ~~International~~Company ~~Car~~has ~~Rental~~identified -three ~~rental~~reportable ~~and leasing of cars~~segments, ~~crossovers~~which ~~and~~are ~~light~~organized ~~trucks,~~based ason ~~well~~the ~~as ancillary~~ products and services, ~~internationally~~provided ~~and~~by ~~consists~~its ofoperating ~~the~~segments ~~Company's Europe~~ and ~~Other~~the ~~International~~geographic ~~operating~~areas ~~segments,~~in which ~~are~~its ~~aggregated~~operating ~~into~~segments aconduct ~~reportable segment based primarily upon similar economic characteristics~~business, ~~products~~as ~~and services, customers, delivery methods and general regulatory environments;~~follows:

• ~~Worldwide~~U.S. ~~Equipment~~ Rental Car ("U.S. RAC") - rental of ~~industrial~~vehicles ~~construction~~(cars, ~~material~~crossovers ~~handling~~and light trucks), as well as ancillary products and ~~other~~services, ~~equipment~~in the United States and consists of the Company's ~~worldwide~~United ~~equipment~~States ~~rental~~ operating segment; ~~and~~

• ~~All~~International ~~Other~~Rental ~~Operations~~Car -("International ~~includes~~RAC") ~~the~~- ~~Company's~~rental ~~Donlen~~and ~~operating~~leasing ~~segment~~of ~~which~~vehicles ~~provides~~(cars, ~~fleet~~vans, ~~leasing~~crossovers and ~~fleet~~light ~~management~~trucks), as well as ancillary products and services, internationally and isconsists ~~not~~of ~~considered~~the aCompany's ~~separate~~Europe and Other International operating segments, which are aggregated into a reportable segment inbased ~~accordance~~primarily ~~with~~upon ~~applicable~~similar ~~accounting~~economic ~~standards~~characteristics, ~~together~~products ~~with~~and ~~other~~services, ~~business~~customers, ~~activities.~~delivery methods and general regulatory environments;

In• ~~addition~~All toOther ~~the~~Operations ~~above~~- ~~reportable~~includes ~~segments,~~ the Company's ~~has~~Donlen ~~corporate~~operating ~~operations~~segment ~~("Corporate")~~ which ~~includes~~provides ~~general~~vehicle ~~corporate~~leasing ~~assets~~ and ~~expenses~~fleet management services and ~~certain~~is ~~interest~~not ~~expense~~considered ~~(including~~a ~~net~~separate ~~interest~~reportable onsegment ~~corporate~~in ~~debt)~~accordance with applicable accounting standards, together with other business activities.

Adjusted pre-tax income (loss) is calculated as income (loss) before income taxes plus non-cash acquisition accounting charges, debt-related charges relating to the amortization and write-off of debt financing costs and debt discounts and certain one-time charges and non-operational items. Adjusted pre-tax income (loss) is important because it allows management to assess operational performance of its business, exclusive of the items mentioned above. It also 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 the Company's operational performance on the same basis that management uses internally. When evaluating the Company's operating performance, investors should not consider adjusted pre-tax income (loss) in isolation of, or as a substitute for, measures of the Company's financial performance, such as net income (loss) or income (loss) before income taxes.32

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In addition to the above reportable segments, the Company has corporate operations ("Corporate") which includes general corporate assets and expenses and certain interest expense (including net interest on non-vehicle debt).

Adjusted pre-tax income (loss) is calculated as income (loss) from continuing operations before income taxes plus non-cash acquisition accounting charges, debt-related charges relating to the amortization and write-off of debt financing costs and debt discounts and certain one-time charges and non-operational items. Adjusted pre-tax income (loss) is important because it allows management to assess operational performance of its business, exclusive of the items mentioned above. It also 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 the Company's operational performance on the same basis that management uses internally. When evaluating the Company's operating performance, investors should not consider adjusted pre-tax income (loss) in isolation of, or as a substitute for, measures of the Company's financial performance, such as net income (loss) from continuing operations or income (loss) from continuing operations before income taxes.

Revenues and adjusted pre-tax income (loss) by segment and the reconciliation to consolidated amounts are summarized below.

	Three Months Ended March 31,
	Three Months Ended June 30,
	Revenues				Adjusted Pre-Tax Income (Loss)
(In millions)	2016		2015		2016			2015
U.S. Car Rental	$	1,406	$	1,520	$	(4	)	$	71
U.S. Rental Car	$	1,584	$	1,615	$	143		$	195
International Car Rental	433		436		3			8
International Rental Car	540		556		34			45
Worldwide Equipment Rental	328		355		12			33
All Other Operations	146		146		17			17
All Other Operations	144		143		18			16
Total reportable segments	$	2,270	$	2,317	194			257
Total reportable segments	$	2,311	$	2,454	29			128
Corporate(1)					(139		)	(139		)
Corporate(1)					(109		)	(125		)
Consolidated adjusted pre-tax income (loss)					55			118
Consolidated adjusted pre-tax income (loss)					(80		)	3
Adjustments:
Acquisition accounting(2)					(18		)	(3123		)
Debt-related charges(3)					(1512		)	(1615		)
Restructuring and restructuring related charges(4)					(12		)	(20		)
Loss on extinguishment of debt(4)					(20		)	—
Equipment rental spin-off costs(5)					(13		)	(9		)
Restructuring and restructuring related charges(5)					(18		)	(41		)
Sale of CAR Inc. common stock(6)					75			—
Impairment charges and asset write-downs(7)					(3		)	—
Impairment charges and asset write-downs(7)					—			(9		)
Finance and information technology transformation costs(8)					(19		)	—
Finance and information technology transformation costs(8)					(8		)	—
Other(9)					—			(1		)
Other(9)					5			(4		)
Income (loss) from continuing operations before income taxes					$	(35	)	$	38
Income (loss) before income taxes					$	(66	)	$	(86	)

~~(1) Represents general corporate expenses, certain interest expense (including net interest on corporate debt), as well as other business activities.~~33

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	Six Months Ended June 30,
	Revenues				Adjusted Pre-Tax Income (Loss)
(In millions)	2016		2015		2016			2015
U.S. Rental Car	$	2,990	$	3,135	$	138		$	265
International Rental Car	973		992		36			52
All Other Operations	290		288		35			31
Total reportable segments	$	4,253	$	4,415	209			348
Corporate⁽¹⁾					(262		)	(271		)
Consolidated adjusted pre-tax income (loss)					(53		)	77
Adjustments:
Acquisition accounting⁽²⁾					(34		)	(45		)
Debt-related charges⁽³⁾					(25		)	(29		)
Loss on extinguishment of debt⁽⁴⁾					(20		)	—
Restructuring and restructuring related charges⁽⁵⁾					(29		)	(59		)
Sale of CAR Inc. common stock⁽⁶⁾					75			—
Impairment charges and asset write-downs⁽⁷⁾					(3		)	(9		)
Finance and information technology transformation costs⁽⁸⁾					(26		)	—
Other⁽⁹⁾					3			(6		)
Income (loss) from continuing operations before income taxes					$	(112	)	$	(71	)


(1)	Represents general corporate expenses, non-vehicle interest expense, as well as other business activities.


(2)	Represents incremental expense associated with amortization of other intangible assets, depreciation of property and other equipment and accretion of revalued liabilities relating to acquisition accounting.


(3)	Represents debt-related charges relating to the amortization of deferred debt financing costs and debt discounts and premiums.

(4) Represents ~~expenses~~the ~~incurred~~write-off ~~under~~of ~~restructuring~~deferred ~~actions~~debt asfinancing ~~defined in U.S. GAAP. For further information on restructuring~~ costs, ~~see Note 8, "Restructuring." Also represents incremental costs incurred directly supporting business transformation initiatives. Such costs include transition costs incurred~~ in ~~connection~~the ~~with~~second ~~business~~quarter ~~process~~of ~~outsourcing~~2016 ~~arrangements~~as ~~and~~a ~~incremental~~result ~~costs~~of ~~incurred~~paying tooff ~~facilitate~~the ~~business~~Senior ~~process~~Term ~~re-engineering~~Facility ~~initiatives that involve significant organization redesign~~ and ~~extensive~~various ~~operational~~vehicle ~~process~~debt ~~changes~~refinancings. ~~Also includes consulting costs and legal fees related to the accounting review and investigation.~~

(5) Represents expenses ~~associated~~incurred ~~with~~under ~~the~~restructuring ~~anticipated~~actions ~~HERC~~as ~~spin-off~~defined ~~transaction announced~~ in ~~March~~U.S. ~~2014~~GAAP. InFor ~~2016~~further information on restructuring costs, $see Note 9, ~~million~~"Restructuring." ~~were~~Also represents incremental costs incurred bydirectly ~~HERC~~supporting business transformation initiatives. Such costs include transition costs incurred in connection with business process outsourcing arrangements and $4incremental ~~million~~costs byincurred ~~Corporate~~to facilitate business process re-engineering initiatives that involve significant organization redesign and extensive operational process changes. InAlso ~~2015,~~includes $9consulting ~~million~~costs ~~were~~and ~~incurred~~legal byfees ~~HERC~~related to the accounting review and investigation.


(6)	Represents the pre-tax gain on the sale of CAR Inc. common stock.

(7) In the first half of 2015, primarily represents a $6 million impairment on the former Dollar Thrifty headquarters in Tulsa, Oklahoma.

(8) Represents external costs associated with the Company’s finance and information technology transformation programs, both of which are multi-year initiatives to upgrade and modernize the Company’s systems and processes. In the three months ended June 30, 2016, $5 million was incurred by U.S. RAC and $14 million was incurred by Corporate and in the six months ended June 30, 2016, $9 million was incurred by U.S. RAC and $17 million was incurred by Corporate.

(9) Includes miscellaneous and non-recurring items including but not limited to acquisition charges, integration charges, and other non-cash items. InFor the six months ended June 30, 2016, also includes a settlement gain related to one of our ~~U.S.~~ airport locations. ~~and,~~In inthe 2015 periods, ~~also~~ includes charges incurred in connection with relocating the Company's corporate headquarters to Estero, Florida.

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Unaudited

Depreciation of revenue earning ~~equipment~~vehicles and lease charges, net

	Three Months EndedMarch 31,
	Three Months EndedJune 30,				Six Months EndedJune 30,
(In millions)	2016		2015		2016		2015
U.S. Car Rental	$	419	$	421
U.S. Rental Car	$	417	$	380	$	836	$	801
International Car Rental	86		95
International Rental Car	98		101		184		196
Worldwide Equipment Rental	90		76
All Other Operations	114		116		225		231
All Other Operations	111		115
Total	$	629	$	597	$	1,245	$	1,228
Total	$	706	$	707

Total assets

(In millions)	~~March~~June 3130, 2016		December 31, 2015
U.S. Car Rental	$	13,894	$	13,614
U.S. Rental Car	$	14,049	$	13,614
International Car Rental	3,548		3,002
International Rental Car	4,416		3,002
Worldwide Equipment Rental	3,757		3,809
All Other Operations	1,583		1,520
All Other Operations	1,522		1,520
Corporate	1,972		1,983
Corporate	1,306		1,335
Assets of discontinued operations	—		3,390
Total	$	2422,~~027~~020	$	23,~~280~~509

The increase in total assets for ~~the~~ International ~~Car~~RAC ~~Rental segment~~ is due to an increase in cash ~~partially~~as ~~due~~a toresult of the proceeds received from the sale of CAR Inc. shares, ~~which~~in ~~were not transferred to Corporate,~~ 2016 and an increase in ~~additional~~the ~~fleet~~number of revenue earning vehicles acquired to meet seasonal leisure demand during the summer period. Refer to "Note 3—4, "Acquisitions and Divestitures," for additional information related to the CAR Inc. share sale. The increase in total assets for ~~the~~ U.S. ~~Car~~RAC ~~Rental~~is ~~segment~~the isresult ~~also~~of an increase in the ~~result~~number of ~~additional~~revenue ~~fleet~~earning vehicles acquired in order to meet upcoming seasonal demands, partially offset by lower receivables from ~~fleet~~vehicle sales.

Note 1517—Related Party Transactions

In November ~~2014~~2015, the Company signed a master loan agreement with Old Hertz Holdings for a facility size of $~~125~~650 million with an expiration in November ~~2015~~2016 (the "Old Master Loan"). ~~The~~Prior ~~interest~~to ~~rate~~the isSpin-Off ~~based~~ on June 30, 2016, the Uboard of directors of the Company approved, and Hertz paid, a non-cash dividend to Hertz Investors, Inc.S. ~~Dollar~~consisting ~~LIBOR~~of ~~rate~~the full rights to the receivable due from Old Hertz Holdings under the Old Master Loan in the amount of $334 million plus aaccrued ~~margin~~interest. Hertz Investors, Inc. declared and paid the same dividend to Old Hertz Holdings; thereby settling the amount receivable from Old Hertz Holdings.

InOn ~~November~~June ~~2015~~30, ~~upon expiration of the Master Loan~~2016, ~~as amended,~~ the Company signed a ~~new~~ master loan agreement with Hertz ~~Holdings~~Global for a facility size of $~~650~~425 million with an expiration in ~~November~~June ~~2016~~2017 (the "~~New~~ Master Loan" ~~and together with the Master Loan, the "Loan"~~). The interest rate is based on the U.S. Dollar LIBOR rate plus a margin. There were no amounts outstanding under the Master Loan as of June 30, 2016.

AsIcahn ~~of March 31, 2016 and December 31, 2015, there was $334 million and $345 million due from Hertz Holdings, respectively, representing principal and interest amounts due under the Loan.~~Agreements

24On June 30, 2016, Hertz Global entered into a confidentiality agreement (the “Confidentiality Agreement”) with Carl C. Icahn and certain related parties (the “Icahn Group”). Pursuant to the Confidentiality Agreement, Vincent J. Intrieri, Samuel Merksamer and Daniel A. Ninivaggi, each of whom was appointed as a director of Hertz Global, are designees of the Icahn Group on the Hertz Global board of directors. Until the date that the Icahn Group no longer has a designee on the Hertz Global board of directors, the Icahn Group agrees to vote all of its shares of common stock of Hertz Global in favor of the election of all of Hertz Global’s director nominees at each annual or special meeting of Hertz Global.

In addition, Hertz Global, High River Limited Partnership, Icahn Partners LP and Icahn Partners Master Fund LP entered into a registration rights agreement, dated June 30, 2016 (the “Registration Rights Agreement”). Pursuant to the Registration Rights Agreement, among other things, and subject to certain exceptions, Hertz Global agreed to effect up to two demand registrations with respect to shares of Hertz Global common stock held by members of the Icahn

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Unaudited

~~Note~~Group. ~~16—Subsequent~~Hertz ~~Events~~Global also agreed to provide, with certain exceptions, certain piggyback registration rights with respect to common stock held by members of the Icahn Group.

~~Fleet~~Note ~~Debt~~18—Guarantor and Non-Guarantor Condensed Consolidating Financial Statements

~~HFLF~~The ~~Medium~~following ~~Term~~condensed ~~Notes~~consolidating financial information presents the Condensed Consolidating Balance Sheets as of June 30, 2016 and December 31, 2015, the Condensed Consolidating Statements of Operations and Comprehensive Income (Loss) for the three and six months ended June 30, 2016 and 2015 and the Statements of Cash Flows for the six months ended June 30, 2016 and 2015 of (a) The Hertz Corporation, ("Parent”); (b) the Parent's subsidiaries that guarantee the Parent's indebtedness ("Guarantor Subsidiaries"); (c) the Parent's subsidiaries that do not guarantee the Parent's indebtedness ("Non-Guarantor Subsidiaries"); (d) elimination entries necessary to consolidate the Parent with the Guarantor Subsidiaries and Non-Guarantor Subsidiaries ("Eliminations"); and of (e) the Company on a consolidated basis.

~~HFLF~~Investments ~~Series~~in ~~2016-1~~subsidiaries ~~Notes:~~are Inaccounted ~~April~~for ~~2016,~~using ~~HFLF~~the ~~issued~~equity method for purposes of the ~~Series~~consolidating ~~2016-1~~presentation. ~~Asset-Backed~~The ~~Notes,~~principal ~~Class~~elimination A,entries ~~Class~~relate B,to ~~Class~~investments C,in ~~Class~~subsidiaries D,and intercompany balances and ~~Class~~transactions. EThe ~~(collectively,~~Guarantor Subsidiaries are 100% owned by the ~~“HFLF~~Parent ~~Series~~and ~~2016-1~~all ~~Notes”)~~guarantees inare anfull ~~aggregate~~and ~~principal~~unconditional ~~amount~~and ofjoint ~~$400~~and ~~million~~several. ~~The~~Additionally, ~~expected~~substantially ~~maturity~~all of the ~~HFLF~~assets ~~Series~~of ~~2016-1~~the ~~Notes~~Guarantor isSubsidiaries ~~February~~are ~~2019~~pledged tounder ~~April~~the ~~2019~~Senior Facilities, ~~based~~and ~~upon~~consequently ~~assumptions~~will ~~made~~not atbe ~~the~~available ~~time~~to ofsatisfy the ~~pricing~~claims of the ~~HFLF~~Company's ~~Series~~general ~~2016-1 Notes~~creditors. ~~The~~In ~~HFLF~~lieu ~~Series~~of ~~2016-1~~providing ~~Notes~~separate ~~(other~~unaudited ~~than~~financial ~~the~~statements ~~Class~~for ~~A-2~~the ~~Notes~~Guarantor ~~which~~Subsidiaries, ~~are~~we ~~fixed~~have ~~rate)~~included ~~are~~the ~~floating~~accompanying ~~rate~~condensed ~~and~~consolidating ~~carry~~financial anstatements ~~interest~~based ~~rate~~on ~~based~~Rule ~~upon~~3-10 aof ~~spread~~the toSEC's ~~one-month~~Regulation ~~LIBOR~~S-X. AnManagement ~~affiliate~~does ofnot ~~HFLF~~believe ~~purchased~~that separate financial statements of the ~~Class~~Guarantor ESubsidiaries ~~Notes,~~are material to our investors; therefore, ~~approximately~~separate ~~$15~~financial ~~million~~statements ofand ~~the~~other ~~obligation~~disclosures ~~will~~concerning bethe ~~eliminated~~Guarantor inSubsidiaries ~~consolidation~~are not presented.

~~The~~As ~~net~~described ~~proceeds~~in ~~from~~Note 1, "Background" and Note 3, "Discontinued Operations", Hertz completed the ~~issuance~~Spin-Off of ~~the~~its equipment ~~HFLF~~rental ~~Series~~business ~~2016-1~~on ~~Notes~~June 30, ~~together~~2016. In connection with ~~available~~the ~~cash~~Spin-Off, certain amounts that were ~~used~~historically torecorded ~~repay~~on ~~$400~~the ~~million~~balance sheet of the Parent were distributed with the discontinued entities. These amounts ~~then-outstanding~~primarily ~~under~~related to defined benefit pension plans, workers’ compensation liabilities, and income taxes. These amounts have been reclassified in the ~~HFLF~~2015 ~~Series~~condensed ~~2013~~consolidating financial statements to reflect the balances transferred in the Guarantor Subsidiaries' and Non-2Guarantor ~~Notes~~Subsidiaries' financial statements based on which discontinued entity received the distribution in the Spin-Off.

~~Brazilian~~During ~~Fleet~~the ~~Financing~~preparation ~~Facility~~of the condensed consolidating financial information of The Hertz Corporation and Subsidiaries as of and for the three and six months ended June 30, 2016, it was determined that investments in subsidiaries at December 31, 2015 as filed in the Company's 2015 Form 10-K were improperly classified, resulting in a $453 million understatement of investments in subsidiaries and stockholder's equity for the Non-Guarantor Subsidiaries, and an understatement of investments in subsidiaries and an overstatement of prepaid expenses and other assets for the Guarantor Subsidiaries. These errors had no impact to total assets, total liabilities or stockholder's equity of the Guarantor Subsidiaries. These errors, which the Company determined are not material, are eliminated upon consolidation and, therefore, have no impact on the Company's consolidated financial condition, results of operations, or cash flows. The Company has revised the Guarantor, Non-Guarantor, and Eliminations Condensed Consolidating Balance Sheets as of December 31, 2015 to correct for these errors.

~~In April 2016, the Company entered into an agreement pursuant to which the maturity of the Brazilian Fleet Financing Facility was extended from April 2016 to October 2016.~~36

Note 17—Guarantor and Non-Guarantor Condensed Consolidating Financial Statements

The following condensed consolidating financial information presents the Condensed Consolidating Balance Sheets as of March 31, 2016 and December 31, 2015, the Condensed Consolidating Statements of Operations and Comprehensive Income (Loss) for the three months ended March 31, 2016 and 2015 and the Statements of Cash Flows for the three months ended March 31, 2016 and 2015 of (a) The Hertz Corporation, ("Parent”); (b) the Parent's subsidiaries that guarantee the Parent's indebtedness ("Guarantor Subsidiaries"); (c) the Parent's subsidiaries that do not guarantee the Parent's indebtedness ("Non-Guarantor Subsidiaries"); (d) elimination entries necessary to consolidate the Parent with the Guarantor Subsidiaries and Non-Guarantor Subsidiaries ("Eliminations"); and of (e) the Company on a consolidated basis.

Investments in subsidiaries are accounted for using the equity method for purposes of the consolidating presentation. The principal elimination entries relate to investments in subsidiaries and intercompany balances and transactions. The Guarantor Subsidiaries are 100% owned by the Parent and all guarantees are full and unconditional and joint and several. Additionally, substantially all of the assets of the Guarantor Subsidiaries are pledged under the Senior Credit Facilities, and consequently will not be available to satisfy the claims of the Company's general creditors. In lieu of providing separate unaudited financial statements for the Guarantor Subsidiaries, we have included the accompanying condensed consolidating financial statements based on Rule 3-10 of the SEC's Regulation S-X. Management does not believe that separate financial statements of the Guarantor Subsidiaries are material to our investors; therefore, separate financial statements and other disclosures concerning the Guarantor Subsidiaries are not presented.

Table of Contents

THE HERTZ CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (~~Continued~~CONTINUED)

Unaudited

CONDENSED CONSOLIDATING BALANCE SHEET

~~March~~June 3130, 2016

(In millions)

Parent(The HertzCorporation)

GuarantorSubsidiaries

Non-GuarantorSubsidiaries

Eliminations

The HertzCorporation &Subsidiaries

ASSETS

Cash and cash equivalents

~~133~~811

1211

~~711~~463

—

~~856~~1,285

Restricted cash and cash equivalents

6768

164

~~270~~246

—

~~353~~318

Receivables, net of allowance

~~443~~588

~~396~~207

~~679~~528

—

1,~~518~~323

Due from affiliates

3,~~844~~263

23,~~436~~233

7,~~236~~684

(1314,~~516~~180

)

—

Inventories, net

1519

194

1920

—

5343

Prepaid expenses and other assets

4,~~461~~541

~~951~~50

~~(136~~277

)

(4,~~625~~274

)

~~651~~594

Revenue earning equipment, net

434

2,062

11,729

—

14,225

Revenue earning vehicles, net

324

12,477

—

12,809

Property and equipment, net

~~723~~698

~~277~~64

~~214~~150

—

~~1,214~~912

Investment in subsidiaries, net

75,~~795~~951

~~1,158~~545

—

(86,~~953~~496

)

—

Other intangible assets, net

~~134~~127

3,~~643~~327

2725

—

3,~~804~~479

Goodwill

102

~~1,035~~943

~~216~~212

—

1,~~353~~257

Total assets

1816,~~151~~492

128,~~005~~396

2022,~~965~~082

(2724,~~094~~950

)

2422,~~027~~020

LIABILITIES AND EQUITY

Due to affiliates

8,~~966~~976

1,~~125~~350

3,~~425~~854

(1314,~~516~~180

)

—

Accounts payable

~~278~~303

~~226~~95

~~878~~841

—

1,~~382~~239

Accrued liabilities

~~616~~605

~~136~~103

~~338~~329

—

1,~~090~~037

Accrued taxes, net

8075

3222

2,~~942~~468

(2,~~888~~386

)

~~166~~179

Debt

64,~~091~~772

59—

910,~~922~~620

—

1615,~~072~~392

Public liability and property damage

~~150~~152

6546

~~198~~212

—

~~413~~410

Deferred taxes on income, net

—

2,~~706~~061

1,~~965~~981

(1,~~737~~888

)

2,~~934~~154

Total liabilities

1614,~~181~~883

43,~~349~~677

1920,~~668~~305

(18,~~141~~454

)

2220,~~057~~411

Equity:

Stockholder's equity

1,~~970~~609

74,~~656~~719

1,~~297~~777

(86,~~953~~496

)

1,~~970~~609

Total liabilities and equity

1816,~~151~~492

128,~~005~~396

2022,~~965~~082

(2724,~~094~~950

)

2422,~~027~~020

2637

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (~~Continued~~CONTINUED)

Unaudited

CONDENSED CONSOLIDATING BALANCE SHEET

December 31, 2015

(In millions)

	Parent(The HertzCorporation)		GuarantorSubsidiaries		Non-GuarantorSubsidiaries		Eliminations			The HertzCorporation &Subsidiaries
ASSETS
Cash and cash equivalents	$	179	$	17	$	~~283~~278	$	—		$	~~479~~474
Restricted cash and cash equivalents	57		193		273		—			~~349~~333
Receivables, net of allowance	399		~~428~~183		1,~~247~~204		—			21,~~074~~786
Due from affiliates	4,158		3,238		7,543		(14,939		)	—
Inventories, net	15		213		1511		—			5129
Prepaid expenses and other assets	4,~~239~~503		~~960~~695		13450		(4,~~437~~682		)	~~775~~966
Revenue earning equipment, net	388		2,087		10,653		—			13,128
Revenue earning vehicles, net	388		6		10,352		—			10,746
Property and equipment, net	777		~~288~~74		~~183~~151		—			1,~~248~~002
Investment in subsidiaries, net	7,~~593~~457		1,~~161~~614		—		(89,~~754~~071		)	—
Other intangible assets, net	~~136~~142		3,~~656~~350		30		—			3,~~822~~522
Goodwill	102		~~1,035~~942		217		—			1,~~354~~261
Total assets	$	18,043	$	12,910	$	20,457	$	(28,130	)	$	23,280
Assets of discontinued operations	—		2,989		401		—			3,390
Total assets	$	18,177	$	13,114	$	20,910	$	(28,692	)	$	23,509
LIABILITIES AND EQUITY
Due to affiliates	$	8,888	$	21,~~129~~465	$	3,~~922~~961	$	(14,~~939~~314	)	$	—
Accounts payable	262		~~171~~81		~~442~~423		—			~~875~~766
Accrued liabilities	~~608~~584		~~155~~114		~~343~~337		—			1,~~106~~035
Accrued taxes, net	65223		3019		2,~~842~~849		(2,~~765~~963		)	~~172~~128
Debt	6,126		61—		9,~~647~~644		—			15,~~834~~770
Public liability and property damage	146		5648		200		—			~~402~~394
Deferred taxes on income, net	—		2,~~703~~005		1,~~912~~882		(1,~~672~~719		)	2,~~943~~168
Total liabilities	16,095		5,305		19,308		(19,376		)	21,332
Liabilities of discontinued operations	—		1,915		9		(624		)	1,300
Total liabilities	16,229		5,647		19,305		(19,620		)	21,561
Equity:
Stockholder's equity	1,948		7,~~605~~467		1,~~149~~605		(89,~~754~~072		)	1,948
Total liabilities and equity	$	18,~~043~~177	$	1213,~~910~~114	$	20,~~457~~910	$	(28,~~130~~692	)	$	23,~~280~~509

2738

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (~~Continued~~CONTINUED)

Unaudited

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

For the Three Months Ended ~~March~~June 3130, 2016

(In millions)

	Parent(The HertzCorporation)			GuarantorSubsidiaries			Non-GuarantorSubsidiaries			Eliminations			The HertzCorporation &Subsidiaries
Total revenues	$	1,~~066~~192		$	~~626~~385		$	1,~~338~~636		$	(~~719~~943	)	$	2,~~311~~270
Expenses:
Direct operating	684			342			316			(1		)	1,341
Direct vehicle and operating	732			192			343			—			1,267
Depreciation of revenue earning equipment and lease charges, net	621			214			589			(718		)	706
Depreciation of revenue earning vehicles and lease charges, net	759			214			599			(943		)	629
Selling, general and administrative	~~145~~158			5311			6965			—			~~267~~234
Interest expense, net	89119			—(21		)	6576			—			~~154~~174
Other (income) expense, net	—1			(91		)	~~(82~~1		)	—			~~(91~~1		)
Total expenses	1,~~539~~769			~~600~~395			~~957~~1,084			(~~719~~943		)	2,~~377~~305
Income (loss) before income taxes and equity in earnings (losses) of subsidiaries	(473		)	26			381			—			(66		)
Income (loss) from continuing operations before income taxes and equity in earnings (losses) of subsidiaries	(577		)	(10		)	552			—			(35		)
(Provision) benefit for taxes on income (loss)	187			(11		)	(159		)	—			17
(Provision) benefit for taxes on income (loss) of continuing operations	227			3			(223		)	—			7
Equity in earnings (losses) of subsidiaries, net of tax	~~237~~307			56144			—			(~~293~~451		)	—
Net income (loss)	(49		)	71			222			(293		)	(49		)
Net income (loss) from continuing operations	(43		)	137			329			(451		)	(28		)
Other comprehensive income (loss), net of tax	54			(4		)	53			(49		)	54
Net income (loss) from discontinued operations	—			(4		)	(11		)	—			(15		)
Comprehensive income (loss)	$	5		$	67		$	275		$	(342	)	$	5
Net income (loss)	(43		)	133			318			(451		)	(43		)
Other comprehensive income (loss), net of tax	(45		)	(5		)	(23		)	28			(45		)
Comprehensive income (loss)	$	(88	)	$	128		$	295		$	(423	)	$	(88	)

2839

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THE HERTZ CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (~~Continued~~CONTINUED)

Unaudited

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

For the Three Months Ended ~~March~~June 3130, 2015

(In millions)

	Parent(The HertzCorporation)			GuarantorSubsidiaries			Non-GuarantorSubsidiaries			Eliminations			The HertzCorporation &Subsidiaries
Total revenues	$	1,~~115~~181		$	~~657~~408		$	1,~~278~~310		$	(~~596~~582	)	$	2,~~454~~317
Expenses:
Direct operating	694			378			337			(1		)	1,408
Direct vehicle and operating	719			223			349			(1		)	1,290
Depreciation of revenue earning equipment and lease charges, net	455			184			663			(595		)	707
Depreciation of revenue earning vehicles and lease charges, net	434			137			607			(581		)	597
Selling, general and administrative	~~114~~157			6218			9076			—			~~266~~251
Interest expense, net	9195			5(4		)	58			—			~~154~~149
Other (income) expense, net	—(3		)	—(1		)	5(4		)	—			5(8		)
Total expenses	1,~~354~~402			~~629~~373			1,~~153~~086			(~~596~~582		)	2,~~540~~279
Income (loss) before income taxes and equity in earnings (losses) of subsidiaries	(239		)	28			125			—			(86		)
Income (loss) from continuing operations before income taxes and equity in earnings (losses) of subsidiaries	(221		)	35			224			—			38
(Provision) benefit for taxes on income (loss)	(32		)	2			46			—			16
(Provision) benefit for taxes on income (loss) of continuing operations	75			(16		)	(84		)	—			(25		)
Equity in earnings (losses) of subsidiaries, net of tax	~~201~~182			4668			—			(~~247~~250		)	—
Net income (loss)	(70		)	76			171			(247		)	(70		)
Net income (loss) from continuing operations	36			87			140			(250		)	13
Other comprehensive income (loss), net of tax	(46		)	(4		)	(46		)	50			(46		)
Net income (loss) from discontinued operations	—			23			—			—			23
Comprehensive income (loss)	$	(116	)	$	72		$	125		$	(197	)	$	(116	)
Net income (loss)	36			110			140			(250		)	36
Other comprehensive income (loss), net of tax	11			—			7			(7		)	11
Comprehensive income (loss)	$	47		$	110		$	147		$	(257	)	$	47

2940

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (~~Continued~~CONTINUED)

Unaudited

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

For the Six Months Ended June 30, 2016

(In millions)



	Parent (The Hertz Corporation)			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Eliminations			The Hertz Corporation & Subsidiaries
Total revenues	$	2,258		$	725		$	2,932		$	(1,662	)	$	4,253
Expenses:
Direct vehicle and operating	1,417			381			627			—			2,425
Depreciation of revenue earning vehicles and lease charges, net	1,380			349			1,177			(1,661		)	1,245
Selling, general and administrative	304			24			132			(1		)	459
Interest expense, net	207			(22		)	140			—			325
Other (income) expense, net	1			(10		)	(80		)	—			(89		)
Total expenses	3,309			722			1,996			(1,662		)	4,365
Income (loss) from continuing operations before income taxes and equity in earnings (losses) of subsidiaries	(1,051		)	3			936			—			(112		)
(Provision) benefit for taxes on income (loss) of continuing operations	415			(2		)	(381		)	—			32
Equity in earnings (losses) of subsidiaries, net of tax	545			201			—			(746		)	—
Net income (loss) from continuing operations	(91		)	202			555			(746		)	(80		)
Net income (loss) from discontinued operations	—			(1		)	(10		)	—			(11		)
Net income (loss)	(91		)	201			545			(746		)	(91		)
Other comprehensive income (loss), net of tax	9			(5		)	29			(24		)	9
Comprehensive income (loss)	$	(82	)	$	196		$	574		$	(770	)	$	(82	)

Table of Contents

THE HERTZ CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Unaudited

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

For the Six Months Ended June 30, 2015

(In millions)



	Parent (The Hertz Corporation)			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Eliminations			The Hertz Corporation & Subsidiaries
Total revenues	$	2,296		$	791		$	2,506		$	(1,178	)	$	4,415
Expenses:
Direct vehicle and operating	1,415			446			633			(2		)	2,492
Depreciation of revenue earning vehicles and lease charges, net	889			262			1,253			(1,176		)	1,228
Selling, general and administrative	271			42			158			—			471
Interest expense, net	193			(9		)	112			—			296
Other (income) expense, net	(2		)	—			1			—			(1		)
Total expenses	2,766			741			2,157			(1,178		)	4,486
Income (loss) from continuing operations before income taxes and equity in earnings (losses) of subsidiaries	(470		)	50			349			—			(71		)
(Provision) benefit for taxes on income (loss) of continuing operations	55			(12		)	(37		)	—			6
Equity in earnings (losses) of subsidiaries, net of tax	382			114			—			(496		)	—
Net income (loss) from continuing operations	(33		)	152			312			(496		)	(65		)
Net income (loss) from discontinued operations	—			33			(1		)	—			32
Net income (loss)	(33		)	185			311			(496		)	(33		)
Other comprehensive income (loss), net of tax	(35		)	(4		)	(39		)	43			(35		)
Comprehensive income (loss)	$	(68	)	$	181		$	272		$	(453	)	$	(68	)

Table of Contents

THE HERTZ CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Unaudited

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

For the ~~Three~~Six Months Ended ~~March~~June 3130, 2016

(In millions)

	Parent(The HertzCorporation)			GuarantorSubsidiaries			Non-GuarantorSubsidiaries			Eliminations			The HertzCorporation &Subsidiaries
Net cash provided by (used in) operating activities	$	(777	)	$	(30	)	$	1,572		$	(185	)	$	580
Net cash provided by (used in) operating activities from continuing operations	$	(1,903	)	$	40		$	3,316		$	(439	)	$	1,014
Cash flows from investing activities:
Net change in restricted cash and cash equivalents	(910		)	3(2		)	428			—			(216		)
Revenue earning equipment expenditures	(132		)	(46		)	(3,449		)	—			(3,627		)
Revenue earning vehicle expenditures	(176		)	(43		)	(7,049		)	—			(7,268		)
Proceeds from disposal of revenue earning equipment	108			52			2,850			—			3,010
Proceeds from disposal of revenue earning vehicles	542			6			4,620			—			5,168
Capital asset expenditures, non-fleet	(29		)	(13		)	(11		)	—			(53		)
Capital asset expenditures, non-vehicle	(41		)	(8		)	(23		)	—			(72		)
Proceeds from disposal of property and equipment	6			6			10			—			22
Proceeds from disposal of property and other equipment	12			3			24			—			39
Sales of (investment in) shares in equity method investment	—			—			233			—			233
Purchases of shares in equity method investment	(45		)	—			—			—			(45		)
Capital contributions to subsidiaries	(372		)	—			—			372			—
Sales of shares in equity method investment	—			—			233			—			233
Return of capital from subsidiaries	847			25			—			(872		)	—
Capital contributions to subsidiaries	(514		)	—			—			514			—
Loan to Parent / Guarantor from Non-Guarantor	—			—			(340		)	340			—
Return of capital from subsidiaries	1,623			—			—			(1,623		)	—
Net cash provided by (used in) investing activities	419			27			(703		)	(160		)	(417		)
Loan to Parent / Guarantor from Non-Guarantor	—			—			(405		)	405			—
Net cash provided by (used in) investing activities from continuing operations	1,391			(44		)	(2,572		)	(704		)	(1,929		)
Cash flows from financing activities:
Proceeds from issuance of long-term debt	—			—			12,~~000~~185			—			12,~~000~~185
Repayment of long-term debt	(6		)	—			(179		)	—			(185		)
Repayments of long-term debt	(2,062		)	—			(342		)	—			(2,404		)
Short-term borrowings:
Proceeds	—			—			~~151~~312			—			~~151~~312
Payments	—			—			(~~132~~263		)	—			(~~132~~263		)
Proceeds under the revolving lines of credit	~~365~~1,663			—			13,~~298~~395			—			15,~~663~~058
Payments under the revolving lines of credit	(~~398~~964		)	(2—		)	(14,~~896~~289		)	—			(25,~~296~~253		)
Capital contributions received from parent	—			—			~~372~~514			(~~372~~514		)	—
Loan to Parent / Guarantor from Non-Guarantor	~~340~~405			—			—			(~~340~~405		)	—
Payment of dividends and return of capital	—			—			(12,~~057~~062		)	12,~~057~~062			—
Payment of financing costs	—(31		)	—(3		)	(1017		)	—			(1051		)
Repayments from Hertz Global Holdings, Inc.	11			—			—			—			11
Transfers from discontinued entities	2,122			—			—			—			2,122
Net cash provided by (used in) financing activities	312			(2		)	(453		)	345			202
Other	11			1			—			—			12
Effect of foreign exchange rate changes on cash and cash equivalents	—			—			12			—			12
Net cash provided by (used in) financing activities from continuing operations	1,144			(2		)	(567		)	1,143			1,718
Net change in cash and cash equivalents during the period	(46		)	(5		)	428			—			377
Effect of foreign exchange rate changes on cash and cash equivalents from continuing operations	—			—			8			—			8
Cash and cash equivalents at beginning of period	179			17			283			—			479
Net increase (decrease) in cash and cash equivalents during the period from continuing operations	632			(6		)	185			—			811
Cash and cash equivalents at end of period	$	133		$	12		$	711		$	—		$	856
Cash and cash equivalents at beginning of period	179			17			278			—			474
Cash and cash equivalents at end of period	$	811		$	11		$	463		$	—		$	1,285
Cash flows from discontinued operations:
Cash flows provided by operating activities	—			59			148			—			207
Cash flows used in investing activities	—			(75		)	(2		)	—			(77		)
Cash flows provided by (used in) financing activities	—			44			(138		)	—			(94		)
Net increase (decrease) in cash and cash equivalents during the period from discontinued operations	—			28			8			—			36

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (~~Continued~~CONTINUED)

Unaudited

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

For the ~~Three~~Six Months Ended ~~March~~June 3130, 2015

(In millions)

	Parent(The HertzCorporation)			GuarantorSubsidiaries			Non-GuarantorSubsidiaries			Eliminations			The HertzCorporation &Subsidiaries
Net cash provided by (used in) operating activities	$	179		$	(2	)	$	1,271		$	(665	)	$	783
Net cash provided by (used in) operating activities from continuing operations	$	(810	)	$	(13	)	$	2,663		$	(679	)	$	1,161
Cash flows from investing activities:
Net change in restricted cash and cash equivalents	(6760		)	121			~~209~~192			—			~~154~~133
Revenue earning equipment expenditures	(234		)	(51		)	(3,153		)	—			(3,438		)
Revenue earning vehicle expenditures	(298		)	(63		)	(7,278		)	—			(7,639		)
Proceeds from disposal of revenue earning equipment	75			69			2,145			—			2,289
Proceeds from disposal of revenue earning vehicles	160			51			4,605			—			4,816
Capital assets expenditures, non-fleet	(36		)	(15		)	(46		)	—			(97		)
Capital assets expenditures, non-vehicle	(87		)	—			(34		)	—			(121		)
Proceeds from disposal of property and equipment	14			2			6			—			22
Proceeds from disposal of property and other equipment	27			5			12			—			44
Capital contributions to subsidiaries	(~~713~~1,544		)	—			—			~~713~~1,544			—
Return of capital from subsidiaries	~~452~~2,043			—37			—			(~~452~~2,080		)	—
Acquisitions, net of cash acquired	(1817		)	(53		)	(7375		)	—			(9695		)
Loan to Parent / Guarantor from Non-Guarantor	—			—			(~~432~~506		)	~~432~~506			—
Advances to Hertz Global Holdings, Inc.	(5		)	—			—			—			(5		)
Advances to Old Hertz Holdings	(6		)	—			—			—			(6		)
Net cash provided by (used in) investing activities	(532		)	12			(1,344		)	693			(1,171		)
Net cash provided by (used in) investing activities from continuing operations	218			28			(3,084		)	(30		)	(2,868		)
Cash flows from financing activities:
Repayment of long-term debt	(6		)	—			(1,021		)	—			(1,027		)
Proceeds from issuance of long-term debt	—			—			1,069			—			1,069
Repayments of long-term debt	(11		)	—			(1,021		)	—			(1,032		)
Short-term borrowings:
Proceeds	—			—			~~175~~383			—			~~175~~383
Payments	—			—			(~~142~~258		)	—			(~~142~~258		)
Proceeds under the revolving lines of credit	~~656~~1,206			—			24,~~670~~101			—			35,~~326~~307
Payments under the revolving lines of credit	(~~610~~970		)	(2—		)	(12,~~216~~713		)	—			(13,~~828~~683		)
Capital contributions received from parent	—			—			~~713~~1,544			(~~713~~1,544		)	—
Loan to Parent / Guarantor from Non-Guarantor	~~432~~506			—			—			(~~432~~506		)	—
Payment of dividends and return of capital	—			—			(12,~~117~~759		)	12,~~117~~759			—
Payment of financing costs	—			—(1		)	(17		)	—			(18		)
Net cash provided by (used in) financing activities	472			(2		)	61			(28		)	503
Other	—			—			(1		)	—			(1		)
Effect of foreign exchange rate changes on cash and cash equivalents	—			—			(20		)	—			(20		)
Net cash provided by (used in) financing activities from continuing operations	731			(1		)	338			709			1,777
Net change in cash and cash equivalents during the period	119			8			(32		)	—			95
Effect of foreign exchange rate changes on cash and cash equivalents from continuing operations	—			—			(16		)	—			(16		)
Cash and cash equivalents at beginning of period	2			14			474			—			490
Net increase (decrease) in cash and cash equivalents during the period from continuing operations	139			14			(99		)	—			54
Cash and cash equivalents at end of period	$	121		$	22		$	442		$	—		$	585
Cash and cash equivalents at beginning of period	2			11			461			—			474
Cash and cash equivalents at end of period	141			25			362			—			528
Cash flows from discontinued operations:
Cash flows provided by operating activities	—			252			40			—			292
Cash flows used in investing activities	—			(258		)	(37		)	—			(295		)
Cash flows provided by (used in) financing activities	—			(4		)	1			—			(3		)
Effect of foreign exchange rate changes on cash and cash equivalents	—			—			(1		)	—			(1		)
Net increase (decrease) in cash and cash equivalents during the period from discontinued operations	—			(10		)	3			—			(7		)

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Unaudited

Note 19—Subsequent Events

Non-Vehicle Debt

Senior Notes

In July 2016, Hertz completed the redemption of all its outstanding 7.50% Senior Notes due 2018 (the "7.50% Senior Notes") using proceeds received from the issuance of the Senior Term Loan and available cash to fund the redemption. Consequently, Hertz terminated, cancelled and discharged all of its obligations under the 7.50% Senior Notes and under the Indenture dated as of September 30, 2010 (as supplemented). In addition to the payment of $700 million in principal amount of the 7.50% Senior Notes, Hertz paid an additional $25 million, comprised of $13 million for an early redemption premium of 1.875% of the principal amount outstanding and $12 million for accrued and unpaid interest through the date of redemption.

Vehicle Debt

Australian Securitization

In July 2016, the Company entered into an agreement pursuant to which the maturity of the Australian Securitization was extended from December 2016 to July 2018.

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THE HERTZ CORPORATION AND SUBSIDIARIES


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

Management’s discussion and analysis ("MD&A") should be read in conjunction with the MD&A presented in the 2015 Form 10-‑K filed on February 29, 2016 and the unaudited condensed consolidated financial statements and accompanying notes included in Item 1 of this Report on Form 10-Q, 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 various claims and contingencies related to lawsuits, taxes, environmental 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 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 certain Non-GAAP measures, including the following:

•

Adjusted Pre-Tax Income - important 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.

• Total Revenue Per Transaction Day ("Total RPD") - important to management and investors as it represents a measurement of the changes in underlying pricing in the ~~car~~vehicle rental business and encompasses the elements in ~~car~~vehicle rental pricing that management has the ability to control.

• Revenue Per Available Car Day ("RACD") - important to management and investors as it represents a measurement of the changes in underlying pricing in the ~~car~~vehicle rental business and provides a measure of revenue production relative to overall capacity.

• Transaction Days - important 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 ~~fleet~~vehicle ~~efficiency~~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. Late in the third quarter of 2015 we fully integrated the Dollar Thrifty and Hertz counter systems and as a result aligned the transaction day calculation in the Hertz system. As a result of this alignment, we determined that there was an impact to the calculation and we estimate that transaction days for the US RAC segment will increase by approximately 1% prospectively relative to historical calculations through the third quarter of 2016. This will also prospectively impact key metrics calculations that utilize transaction days, although to a lesser extent.

• ~~Fleet~~Vehicle ~~Efficiency~~Utilization - important to management and investors because it is the measurement of the proportion of our ~~car~~vehicles ~~rental fleet~~ that isare being used to generate revenues relative to the total ~~amount~~number of vehicles available for rent ("fleet capacity.") Higher ~~fleet~~vehicle ~~efficiency~~utilization means more ofvehicles ~~the~~are ~~fleet is~~ being utilized to generate revenue.

• Net Depreciation Per Unit Per Month - important to management and investors as depreciation of revenue earning ~~equipment~~vehicles and lease charges, is one of our largest expenses for the ~~car~~vehicle rental business and is driven by the number of vehicles, expected residual values at the time of disposal and expected hold period of the vehicles. Net depreciation per unit per month is reflective of how we are managing the costs of our ~~fleet~~vehicles and facilitates a comparison with other participants in the ~~car~~vehicle rental industry.

•Non-GAAP ~~Dollar~~measures ~~Utilization~~should -not ~~important~~be toconsidered ~~management~~in isolation and ~~investors~~should ~~because~~not itbe isconsidered ~~the~~superior ~~measurement~~to, ofor ~~the~~a ~~proportion~~substitute offor, ~~our~~financial ~~equipment~~measures ~~rental~~calculated ~~revenue~~in ~~earning~~accordance ~~equipment,~~with ~~including~~U.S. ~~additional~~GAAP. ~~capitalized~~The ~~refurbishment~~above ~~costs~~Non-GAAP ~~(with~~measures ~~the~~are ~~basis~~defined ~~for~~and ~~refurbished~~reconciled ~~assets~~to ~~reset~~their atmost ~~the~~comparable ~~refurbishment~~U.S. ~~date),~~GAAP ~~that~~measure isin ~~being~~the ~~used~~"Footnotes to ~~generate~~the ~~revenues~~Results ~~relative~~of toOperations ~~the~~and ~~total~~Selected ~~amount~~Operating ofData ~~available~~by ~~equipment~~Segment ~~fleet~~Tables" ~~capacity~~section of this MD&A.

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

• Time Utilization - important to management and investors as it measures the extent to which the equipment rental fleet is on rent compared to total operated fleet and is an efficiency measurement utilized by participants in the equipment rental industry.

Non-GAAP measures 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 measures are defined and reconciled to their 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 and its predecessors have been in the ~~car~~vehicle rental business since 1918 ~~and in the equipment rental business since 1965~~. We operate our ~~car~~vehicle rental business globally through the Hertz, Dollar, ~~Thrifty~~ and ~~Firefly~~Thrifty brands from approximately 10,000 corporate and franchisee locations in North America, Europe, Latin America, Africa, Asia, Australia, the Middle East and New Zealand. We are one of the largest worldwide airport general use ~~car~~vehicle rental companies and our Hertz brand name is one of the most recognized in the world, signifying leadership in quality rental services and products. We have an extensive network of rental locations in the United States ("U.S.") and in all major European markets. We believe that we maintain one of the leading airport ~~car~~vehicle rental brand market shares, by overall reported revenues, in the U.S. and at approximately 125 major airports in Europe where data regarding ~~car~~vehicle rental concessionaire activity is available. ~~Our~~We equipment rental business is operated through the Hertz Equipment Rental brand from 293 corporate and franchisee locations in North America, Europe, Latin America, Asia and the Middle East. In addition to car rental and equipment rental businesses, we are a leading provider of comprehensive, integrated ~~fleet~~vehicle leasing and fleet management solutions through our Donlen subsidiary.

Equipment Rental Spin-Off

On June 30, 2016, former Hertz Global Holdings, Inc., the former top level holding company for Hertz (for periods on or prior to June 30, 2016, “Old Hertz Holdings” and for periods after June 30, 2016, “Herc Holdings”) completed a spin-off (the “Spin-Off”) of its global vehicle rental business through a dividend to stockholders of record of Old Hertz Holdings as of the close of business on June 22, 2016, the record date for the distribution, of all of the issued and outstanding common stock of Hertz Rental Car Holding Company, Inc. (“New Hertz”), which was re-named Hertz Global Holdings, Inc. in connection with the Spin-Off ("Hertz Global"), on a one-to-five basis. Hertz Global is now an independent public company and trades on the New York Stock Exchange under the symbol "HTZ". Herc Holdings, which changed its name to Herc Holdings Inc. on June 30, 2016, trades on the New York Stock Exchange under the symbol “HRI”.

Unless noted otherwise, discussion in this MD&A pertains to the Company's vehicle rental and leasing business, its continuing operations.

OVERVIEW OF OUR BUSINESS AND OPERATING ENVIRONMENT

We are engaged principally in the business of renting and leasing ofvehicles ~~cars~~primarily through our Hertz, Dollar, ~~Thrifty~~ and ~~Firefly~~Thrifty brands ~~and equipment through our Hertz Equipment Rental brand~~. In addition to ~~car~~vehicle rental ~~and equipment rental businesses~~, we provide comprehensive, integrated ~~fleet~~vehicle leasing and fleet management solutions through our Donlen subsidiary. We have a diversified revenue base and a highly variable cost structure and are able to dynamically manage fleet capacity, the most significant determinant of our costs. Our profitability is primarily a function of the volume, mix and pricing of rental transactions and the utilization of ~~cars and equipment~~vehicles, the related ownership cost of ~~equipment~~vehicles and other operating costs. Significant changes in the purchase price or residual values of ~~cars~~vehicles ~~and equipment~~ or interest rates can have a significant effect on our profitability depending on our ability to adjust pricing for these changes. We continue to balance our mix of non-program and program vehicles based on market conditions. Our business requires significant expenditures for ~~cars and equipment~~vehicles, and consequently we require substantial liquidity to finance such expenditures. See "Liquidity and Capital Resources" below.

Our strategy includes optimization of our on airport operations, selected openings of new off airport locations, the disciplined evaluation of existing locations and the pursuit of same-store sales growth.

Our total revenues primarily are derived from rental and related charges and consist of:

• ~~Car~~Vehicle rental revenues - revenues from all company-operated ~~car~~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 ancillary products associated with ~~car~~vehicle rentals, including the sale of loss or collision damage waivers, liability insurance coverage, parking and other products and fees, ancillary products associated with the retail car sales channel and certain royalty fees from our franchisees;

• Equipment rental revenues - revenues from all company-operated equipment rental operations, including amounts charged to customers for the fueling and delivery of equipment and sale of loss damage waivers, as well as revenues from the sale of new equipment, used revenue earning equipment, parts and supplies; and47

• All other operations revenues - revenues from fleet leasing and fleet management services and other business activities.

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

the sale of loss or collision damage waivers, liability insurance coverage, parking and other products and fees, ancillary products associated with the retail vehicle sales channel and certain royalty fees from our franchisees (such fees, including initial franchise fees, are less than 2% of total revenues each period);


•	All other operations revenues - revenues from vehicle leasing and fleet management services and other business activities.

Our expenses primarily consist of:

• Direct vehicle and operating expenses (primarily wages and related benefits; commissions and concession fees paid to airport authorities, travel agents and others; facility, self-insurance and reservation costs; ~~the cost of new equipment~~ and ~~consumables purchased for resale; and~~ other costs relating to the operation and rental of revenue earning ~~equipment~~vehicles, such as damage, maintenance and fuel costs);

• Depreciation expense and lease charges, net relating to revenue earning ~~equipment~~vehicles (including net gains or losses on the disposal of such ~~equipment~~vehicles)~~. Revenue earning equipment includes cars and rental equipment~~;


•	Selling, general and administrative expenses; and


•	Interest expense, net.

Our Business Segments

We have identified ~~four~~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. Rental Car ~~Rental~~("U.S. RAC") - Rental of vehicles (cars, crossovers and light trucks), as well as sales of ancillary products and services, in the U.S.;

• International Rental Car ~~Rental~~("International RAC") - Rental and leasing of vehicles (cars, vans, crossovers and light trucks), as well as sales of ancillary products and services, internationally; and

• ~~Worldwide~~All ~~Equipment~~Other ~~Rental~~Operations - ~~Rental~~Comprised of ~~industrial,~~our ~~construction~~Donlen business, ~~material~~which ~~handling~~provides vehicle leasing and ~~other~~fleet ~~equipment;~~management services, and other business activities.

•In ~~All~~addition ~~Other~~to ~~Operations~~the -above ~~Comprised~~reportable ofsegments, ~~our~~we ~~Donlen~~have ~~business,~~corporate operations ("Corporate") which ~~provides~~includes ~~fleet~~general ~~leasing~~corporate assets and ~~fleet~~expenses ~~management~~and ~~services,~~certain interest expense (including net interest on non-vehicle debt). We assess performance and ~~other~~allocate ~~business~~resources ~~activities~~based upon the financial information for our operating segments.

In addition to the above reportable segments, we have corporate operations ("Corporate") which includes general corporate assets and expenses and certain interest expense (including net interest on corporate debt). We assess performance and allocate resources based upon the financial information for our operating segments.

Fleet

We periodically review the efficiencies of an optimal mix between program and non-program ~~cars~~vehicles in our fleet. Program ~~cars~~vehicles generally provide us with flexibility to reduce the size of our fleet by returning ~~cars~~vehicles to the manufacturer sooner than originally expected without risk of loss in the event of an economic downturn or to respond to changes in rental demand. When we increase the percentage of program ~~cars~~vehicles the average age of our fleet decreases since the average holding period for program vehicles is shorter than for non-program vehicles. We dispose of our non-program vehicles via auction, dealer-direct and our retail locations. Non-program ~~cars~~vehicles disposed of through our retail outlets allow us the opportunity for ancillary revenue, such as warranty and financing, during disposition. We adjust the ratio of program and non-program ~~cars~~vehicles in our fleet as needed based on contract negotiations and the economic environment pertaining to our industry.

Seasonality

Our ~~car~~vehicle rental ~~and equipment rental~~ operations are a seasonal ~~businesses~~business, with decreased levels of business in the winter months and heightened activity during the spring and summer. We have the ability to dynamically manage fleet capacity, the most significant portion of our cost structure, to meet market demand. For instance, to accommodate increased demand, we increase our available fleet and staff during the second and third quarters of the year. As business demand declines, fleet and staff are decreased accordingly. 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 efficiency initiatives and the use of our information technology systems, to help manage our variable costs. More than half of our typical annual operating costs represent variable costs, while the remaining costs are fixed or semi-fixed.

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

we increase our available fleet and staff during the second and third quarters of the year. As demand declines, fleet and staff are decreased accordingly. 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. More than half of our typical annual operating costs represent variable costs, while the remaining costs are fixed or semi-fixed. We also maintain a flexible workforce, with a significant number of part -time and seasonal workers. However, 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. Revenues related to our ~~fleet~~vehicle leasing and fleet management services are generally not seasonal.

2016 Operating Overview

The following provides an overview of our business and financial performance ~~in 2016~~ and key factors influencing our results:

• ~~Total~~Old ~~revenue~~Hertz ~~for~~Holdings ~~the~~successfully ~~U.S.~~completed ~~Car~~the ~~Rental~~previously ~~segment~~announced ~~for~~separation ~~the~~of ~~first~~its ~~quarter~~vehicle ofrental ~~2016~~business ~~decreased~~and byequipment 8%rental asbusiness ~~compared~~on toJune ~~first~~30, ~~quarter~~2016, ofreceiving ~~2015~~approximately ~~driven~~$2.0 bybillion apursuant ~~10%~~to ~~decline~~the inSeparation ~~Total RPD~~Agreement, ~~partially~~which ~~offset~~was byused ato 2%repay ~~increase~~outstanding innon-vehicle ~~transaction days~~debt;

• ~~Net~~Total ~~depreciation~~revenues ~~per~~for ~~unit~~U.S. ~~per~~RAC ~~month~~for in the ~~U.S.~~second ~~Car~~quarter ~~Rental~~of ~~segment~~2016 ~~was~~decreased upby 62% as compared to ~~$303~~2015 ~~from~~driven ~~$287~~by an 8% decline in Total RPD, partially offset by a 6% increase in transaction days. Total revenues for U.S. RAC for the first ~~quarter~~half of 2016 ~~versus~~decreased by 5% as compared to 2015 driven by a 9% decline in Total RPD, partially offset by a 4% increase in transaction days;

• ~~Excluding~~Depreciation ~~the~~of ~~impact~~revenue ofearning ~~foreign~~vehicles ~~currency~~and lease charges, ~~total~~net ~~revenues~~for U.S. RAC increased 10% to $417 million from $380 million for ~~our~~the ~~International~~second ~~Car~~quarter ~~Rental~~of ~~segment~~2016 versus 2015 and increased 4% to $23836 million, orfrom ~~6%,~~$801 ~~driven~~million byfor athe 2%first ~~increase~~half of 2016 versus 2015. Net depreciation per unit per month in ~~Total~~U.S. ~~RPD,~~RAC onincreased a12% ~~constant~~to ~~currency~~$278 ~~basis,~~from $248 for the second quarter of 2016 versus 2015 and aincreased 39% ~~increase~~to in$290 ~~transaction~~from ~~days~~$267 for the first ~~quarter~~half of 2016 versus 2015. The increases are the result of declining residual values on non-program vehicles and higher program vehicle acquisition costs;

• OnTotal revenues for International RAC decreased 3% and 2% for the second quarter and first half of 2016 versus 2015, respectively. Excluding the impact of foreign currency, total revenues for International RAC decreased $10 million, or 2% for the second quarter 2016 versus 2015, driven by a 2% decrease in Total RPD, on a constant currency basis, ~~net~~on ~~depreciation~~flat ~~per~~transaction ~~unit~~days. ~~per~~Excluding ~~month~~the inimpact ~~the~~of ~~International~~foreign ~~Car~~currency, ~~Rental~~total ~~segment~~revenues ~~was~~for ~~down~~International 7%RAC toincreased $~~194~~13 ~~from~~million, ~~$208~~or 1% for the first ~~quarter~~half of 2016 versus 2015, driven by flat Total RPD, on a constant currency basis, and a 1% increase in transaction days;

• ~~Excluding~~Depreciation of revenue earning vehicles and lease charges, net for International RAC decreased 3% to $98 million from $101 million for the ~~impact~~second quarter of ~~foreign~~2016 versus 2015 and decreased 6% to $184 million from $196 million for the first half of 2016 versus 2015. On a constant currency basis, ~~Worldwide~~net ~~Equipment~~depreciation ~~Rental~~per ~~segment~~unit ~~revenues~~per month for International RAC decreased 74% to $179 from $186 for the ~~first~~second quarter of 2016, asversus ~~compared~~2015 and decreased 6% to $186 from $197 for the first half of 2016 versus 2015,. ~~while~~The ~~revenue~~decreases inare ~~non-upstream~~the ~~oil~~result of improved vehicle procurement, vehicle mix changes and ~~gas~~optimized ~~markets~~remarketing ~~increased~~channels;

• ~~Excluding~~The ~~the~~Company ~~impact~~realized cost savings of ~~foreign~~approximately ~~currency~~$100 million in the second quarter 2016 and $170 million for the first half of 2016, ~~depreciation~~reflecting continued progress as part of ~~revenue~~the ~~earning~~Company's ~~equipment~~three-to-five ~~and~~year ~~lease~~margin ~~charges~~improvement plan. In addition to vehicle related initiatives, ~~net~~consolidated unit costs for ~~our~~the ~~Worldwide~~Company, ~~Equipment~~defined ~~Rental~~as ~~segment~~consolidated ~~increased~~direct ~~$15~~vehicle ~~million~~and operating and selling, general and administrative expenses per transaction day, decreased $2.23, or 207%, inas ~~first~~compared to the second quarter of ~~2016~~2015 ~~when~~and decreased $2.01, or 6%, as compared ~~with~~to the first half of 2015;.

• Incurred approximately $13 million during the first quarter of 2016 in costs associated with the anticipated separation of the Worldwide Equipment Rental business, versus $9 million during the first quarter of 2015;49

•Table ~~Recorded zero net impairments and asset write-downs during the first quarter~~ of ~~2016 compared to $20 million during the first quarter of 2015;~~Contents

•THE ~~Recorded~~HERTZ $8CORPORATION ~~million~~AND ~~in finance and information technology transformation costs during the first quarter of 2016 with no comparable costs in the first quarter of 2015;~~SUBSIDIARIES

•ITEM ~~Recorded $12 million in restructuring and restructuring related expenses during the first quarter of 2016 compared to $20 million during the first quarter of 2015~~2. ~~Included~~MANAGEMENT'S inDISCUSSION ~~these~~AND ~~amounts~~ANALYSIS ~~were~~OF $4FINANCIAL ~~million~~CONDITION ~~during~~AND ~~the~~RESULTS ~~first~~OF ~~quarter~~OPERATIONS ~~of 2016 in consulting, audit and legal costs associated with the restatement and investigation activities, as compared to $10 million during the first quarter of 2015; and~~(CONTINUED)

• InWrote-off ~~the~~$20 ~~first~~million ~~quarter~~ of ~~2016,~~deferred wefinancing ~~sold~~costs ~~204~~in ~~million~~the ~~shares~~second ofquarter ~~common stock~~ of ~~CAR~~2016 ~~Inc.,~~as a ~~publicly~~result ~~traded company on the Hong Kong Stock Exchange, for net proceeds~~ of ~~approximately~~paying ~~$233~~off ~~million,~~our ~~recognizing~~Senior aTerm ~~pre-tax~~Facility ~~gain~~and ofvarious ~~$75~~vehicle ~~million.~~debt refinancings;


•	Recorded $3 million of net impairments and asset write-downs during the second quarter of 2016 and zero in 2015. Recorded $3 million net impairments and asset write-downs during the first half of 2016 compared to $20 million during the first half of 2015;


•	Recorded $19 million and $26 million in finance and information technology transformation costs during the second quarter and first half of 2016, respectively, with no comparable costs in the second quarter and first half of 2015;

•

International RAC's public liability and property damage (“PLPD”) expense increased $20 million in the second quarter 2016 as compared to 2015, due to the adverse experience and case development of historical claims, primarily in the United Kingdom. While the company cannot be assured that additional exposure may not materialize in future quarters, the company has proactively addressed the root cause of the impact and changed its business practices accordingly. The increase in PLPD expense in International RAC was partially offset by a $5 million decrease in PLPD expense in the US RAC segment.

•

Recorded $18 million in restructuring and restructuring related expenses during the second quarter of 2016 compared to $41 million during the second quarter of 2015. Recorded $29 million in restructuring and restructuring related expenses during the first half of 2016 compared to $59 million in 2015. Included in these amounts were $3 million and $7 million in consulting, audit and legal costs associated with the restatement and investigation activities during the second quarter and first half of 2016, respectively, as compared to $13 million and $23 million during the second quarter and first half of 2015, respectively;


•	The Company sold 204 million shares of common stock of CAR Inc., a publicly traded company on the Hong Kong Stock Exchange, in the first quarter of 2016 for net proceeds of approximately $233 million, recognizing a pre-tax gain of $75 million;


•	The Company executed new financings and amended and extended the maturities of several existing financing facilities such that there are no significant maturities of non-vehicle debt until 2019; and


•	In an effort to focus its resources on continuing to grow the Hertz, Dollar and Thrifty brands, the Company substantially transitioned its Firefly operations to its Thrifty brand in the U.S. market.

For more information on the above highlights, see the discussion of our results on a consolidated basis and by segment that follows herein.

3550

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

CONSOLIDATED RESULTS OF OPERATIONS

	Three Months Ended March 31,						Percent Increase/(Decrease)
	Three Months Ended June 30,						Percent Increase/(Decrease)		Six Months EndedJune 30,						Percent Increase/(Decrease)
($ in millions)	2016			2015					2016			2015
Total revenues	$	2,~~311~~270		$	2,~~454~~317		(62	)%	$	4,253		$	4,415		(4	)%
Direct operating expenses	1,341			1,408			(5	)
Direct vehicle and operating expenses	1,267			1,290			(2	)	2,425			2,492			(3	)
Depreciation of revenue earning equipment and lease charges, net	706			707			—
Depreciation of revenue earning vehicles and lease charges, net	629			597			5		1,245			1,228			1
Selling, general and administrative expenses	~~267~~234			~~266~~251			—(7	)	459			471			(3	)
Interest expense, net	~~154~~174			~~154~~149			—17		325			296			10
Other (income) expense, net	~~(91~~1		)	5(8		)	NM		(89		)	(1		)	NM
Income (loss) before income taxes	(66		)	(86		)	(23	)
Income (loss) from continuing operations, before income taxes	(35		)	38			NM		(112		)	(71		)	58
(Provision) benefit for taxes on income (loss)	17			16			6
(Provision) benefit for taxes on income (loss) of continuing operations	7			(25		)	NM		32			6			433
Net income (loss)	$	(49	)	$	(70	)	(30	)
Net income (loss) from continuing operations	(28		)	13			NM		(80		)	(65		)	23
Adjusted pre-tax income (loss)(a)	$	(80	)	$	3		NM
Net income (loss) from discontinued operations	(15		)	23			NM		(11		)	32			NM
Net income (loss)	$	(43	)	$	36		NM		$	(91	)	$	(33	)	176
Adjusted pre-tax income (loss)(a)	$	55		$	118		(53	)	$	(53	)	$	77		NM

Footnotes to the table above are shown in the "Footnotes to the Results of Operations and Selected Operating Data by Segment Tables" section of this MD&A.

NM - Not meaningful

Three Months Ended ~~March~~June 3130, 2016 Compared with Three Months Ended ~~March~~June 3130, 2015

Total revenues decreased $~~143~~47 million, or 62%, ~~primarily~~ due to ~~decreases~~a indecrease ~~revenues~~ in ~~our~~ U.S. ~~Car~~RAC ~~Rental~~revenues ~~segment~~ of $~~114~~31 million and ~~our~~a ~~Worldwide~~decrease ~~Equipment~~in ~~Rental~~International ~~segment~~RAC revenues of $2716 million. Lower ~~revenue in our~~ U.S. ~~Car~~RAC ~~Rental~~revenues ~~segment~~were ~~was~~ predominantly the result of lower rental rates. Volume in our U.S. ~~Car~~RAC ~~Rental~~ segment increased 23%, ~~up 4%~~ in our airport business and ~~was~~increased ~~flat~~14% in our off-airport business. ~~Lower~~versus revenue in our Worldwide Equipment rental segment was primarily due to continuing weakness in upstream oil and gas markets and a decrease of 4% in worldwide volumes in the first quarter of 2016 as compared to 2015 ~~due to the sale of our equipment rental operations in France and Spain in October 2015~~. Excluding the impact of foreign currency, revenues infor ~~the~~ International ~~Car~~RAC ~~Rental~~decreased ~~segment increased~~ $2310 million period over period.

The decrease in direct vehicle and operating expenses of $6723 million, or 52%, was primarily comprised of a decrease in our U.S. ~~Car~~RAC ~~Rental~~ segment of $5626 million, due to a $219 million decrease in ~~fleet~~other ~~related~~direct ~~expense~~vehicle and operating expenses, ana $189 million decrease in ~~personnel~~transaction variable expenses, a $4 million decrease in vehicle related expenses and ana $174 million decrease in ~~other~~personnel ~~direct~~related ~~operating~~ expenses, as compared to the ~~first~~second quarter of 2015. ~~Additionally,~~Direct ~~direct~~vehicle and operating expenses ~~for~~increased ~~our Worldwide Equipment Rental segment decreased~~ $249 million, ~~due~~or to3%, ~~the~~in ~~impact of the sale of~~ our ~~France~~International ~~and~~RAC ~~Spain~~segment ~~equipment~~due ~~rental~~to ~~operations~~a of $1420 million, ~~lower~~increase ~~amortization~~in ofPLPD $7expense ~~million~~ due to ~~customer~~adverse ~~list~~experience ~~intangibles~~and ~~that~~case ~~became~~development, ~~fully~~primarily ~~amortized~~in atthe ~~December~~United 31Kingdom, ~~2015,~~partially ~~and~~offset ~~lower~~by ~~outside~~a ~~maintenance expenses of~~ $29 million. ~~The~~decrease ~~decreases~~in ~~were~~commissions ~~partially~~expense ~~offset~~due byto anthe ~~increase~~termination inof ~~direct~~a ~~operating~~contract ~~expenses~~in ofthe ~~our~~second ~~International~~quarter ~~Car~~2015. ~~Rental~~Excluding ~~segment~~a of $126 million. ~~Excluding the~~ impact of foreign currency, ~~direct operating expenses in our~~ International ~~Car~~RAC's ~~Rental~~direct ~~segment~~vehicle ~~increased~~and ~~$29 million due to a favorable impact to other direct~~ operating expenses ofincreased approximately $1615 million ~~in 2015 resulting from non-recurring items. Additionally~~, ~~vehicle~~or ~~damage expense increased $6 million and third party insurance expense increased $4 million~~5%.

Depreciation of revenue earning ~~equipment~~vehicles and lease charges, net in the ~~first~~second quarter 2016 ~~was~~increased ~~flat compared to the first quarter of 2015 primarily due to an increase in our Worldwide Equipment Rental segment of~~ $1432 million ~~driven by a larger fleet size as~~ compared to the ~~first~~second quarter of 2015 ~~and~~primarily adue ~~loss on sale of revenue earning equipment in the first quarter of 2016 of $8 million compared~~ to a ~~gain of~~ $737 million ~~in 2015. The~~ increase ~~was offset by a decrease of $9 million~~ in ~~our~~the ~~International~~U.S. ~~Car~~RAC ~~Rental~~ segment, driven by ~~the~~declining ~~impact~~residual ofvalues ~~foreign currency of $5 million~~ and ~~improved fleet procurement, fleet mix changes and optimized remarketing channels and~~ a ~~decrease~~reduction ~~of $4 million~~ in ~~our~~the ~~All~~planned ~~Other~~hold ~~Operations~~period ~~segment due to a decrease at Donlen as a result~~ of ~~lower~~certain ~~average fleet~~vehicles. ~~Depreciation of revenue earning equipment and lease charges, net in our U.S. Car Rental segment was flat period over period.~~

36Selling, general and administrative expenses (“SG&A”) decreased $17 million, or 7%, in the second quarter of 2016 versus 2015 primarily due to a $12 million decrease in our International RAC segment resulting from $9 million of accruals, expenses, charges, and write-downs recorded in the second quarter of 2015 in connection with the termination of a contract. Our Corporate SG&A expenses decreased $8 million due to a $10 million decrease in general consulting

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

~~Selling,~~costs ~~general~~ and ~~administrative~~a ~~expenses~~$10 ~~(“SG&A”)~~million ~~was~~decrease ~~also flat during the year as slight decreases~~ in ~~expense~~consulting, inaudit ~~our~~and ~~International~~legal ~~Car~~costs ~~Rental~~associated ~~segment,~~with ~~Worldwide~~the ~~Equipment~~restatement ~~Rental segment~~ and ~~Corporate~~investigation ~~were~~activities, partially offset by a $614 million ~~increase~~of infinance ~~SG&A~~and ininformation ~~our~~technology ~~U.S.~~transformation ~~Car Rental segment due primarily to~~ costs ~~incurred~~which inare ~~the first quarter of 2016~~ related to ~~finance~~initiatives ~~and~~that ~~information~~began ~~technology~~in ~~transformation~~2016.

Interest expense, net ~~remained~~increased ~~flat~~$25 million, or 17%, primarily due to a $320 million ~~increase~~write-off inof ~~interest~~deferred ~~expense~~financing ~~due~~costs toas a result of paying off our Senior Term Facility and various vehicle debt refinancings, and higher interest rates on some of our ~~fleet~~vehicle debt reflecting an increase in the mix of term debt, partially offset by the impact of lower balances of ~~corporate~~non-vehicle debt ~~and $3 million increase of interest income~~.

~~Other~~We had other income of $911 million in the ~~first~~second quarter 2016 isas ~~primarily~~compared ~~comprised of a $75 million gain on the sale of CAR Inc. common stock and a $9 million settlement gain related~~ to ~~one~~other ~~of our U.S. airport locations. Other~~ expense of $58 million in the ~~first~~second quarter of 2015, which was primarily comprised of ~~$10~~our ~~million~~share of ~~impairment~~earnings ~~charges~~from our equity method and ~~asset~~joint ~~write-downs,~~venture ~~partially~~investments. ~~offset~~Our byinvestment ~~our~~in ~~share~~CAR ofInc. ~~earnings~~ceased ~~from~~to ~~our~~be accounted for under the equity method ~~and~~in ~~joint~~March ~~venture investments~~2016.

The effective tax rate for the ~~first~~second quarter of 2016 was 2620% as compared to 1966% in the ~~first~~second quarter of 2015. The effective tax rate for the full fiscal year 2016 is expected to be approximately 4247%. The Company recorded a tax benefit of $177 million in the ~~first~~second quarter 2016 as compared to a ~~benefit~~provision of $1625 million in the ~~first~~second quarter 2015. The change was the result of the ~~composition~~impact of ~~earnings~~tax bylaw ~~jurisdiction~~changes, principally in Louisiana, for approximately $2 million and charges related to the ~~first~~Spin-Off of approximately $2 million recorded in the second quarter of 2016.

WeNet ~~had~~income an(loss) ~~adjusted~~from ~~pre-tax~~discontinued operations represents the results of the Old Hertz Holdings equipment rental business as further described in Note 1, "Background" and Note 3, "Discontinued Operations". There was a net loss from discontinued operations of $8015 million in the ~~first~~second quarter of 2016 as compared ~~with~~to ~~adjusted~~net ~~pre-tax~~ income from discontinued operations of $323 million in the ~~first~~second quarter of 2015. ~~See~~The ~~footnote~~change ~~(a) in~~was ~~the~~primarily ~~"Footnotes~~due to lower revenues, which were negatively impacted by continuing weakness in upstream oil and gas markets. The results were also impacted by the ~~Results~~sale of ~~Operations~~the France and ~~Selected~~Spain ~~Operating~~equipment ~~Data~~rental bybusinesses ~~Segment~~which ~~Tables"~~were ~~for~~sold ain ~~summary~~October 2015 and ~~description~~costs associated with the Spin-Off, which were $45 million in the second quarter of ~~reconciling~~2016 ~~adjustments~~and on$8 amillion ~~consolidated~~in ~~basis~~the second quarter of 2015.

We had an adjusted pre-tax income of $55 million in the second quarter 2016 compared with adjusted pre-tax income of $118 million in the second quarter 2015. See footnote (a) in the "Footnotes to the Results of Operations and Selected Operating Data by Segment Tables" for a summary and description of reconciling adjustments on a consolidated basis.

Six Months Ended June 30, 2016 Compared with Six Months Ending June 30, 2015

Total revenues decreased $162 million, or 4%, due primarily to decreases in U.S. RAC and International RAC revenues of $145 million and $19 million, respectively. Total RPD in our U.S. RAC segment declined 9% driven predominantly by lower rental rates, partially offset by a 4% increase in transaction days. Volume in our U.S. RAC segment increased 2% in our airport business and increased 9% in our off-airport business versus 2015. Excluding a $32 million impact of foreign currency, revenues in our International RAC segment increased $13 million, or 1% during the first half of 2016.

The decrease in direct vehicle and operating expenses of $67 million, or 3%, was primarily due to a decrease in our U.S. RAC segment of $82 million comprised of a $20 million decrease in other direct vehicle and operating expenses, a $15 million decrease in transaction variable expenses, a $25 million decrease in vehicle related expenses and a $22 million decrease in personnel related expenses as compared to the first half of 2015. Partially offsetting the decrease is an increase in International RAC primarily due to a $20 million charge to PLPD expense recorded in the second quarter 2016 due to adverse experience and case development, primarily in the United Kingdom, an $8 million increase in vehicle damage expense and due to the favorable impact of $16 million in 2015 resulting from non-recurring items. These were partially offset by a $10 million decrease in commissions expense due to the termination of a contract in the second quarter 2015, a $3 million decrease in bad debt expense and a $3 million decrease in fuel related expense. Excluding the $23 million impact of foreign currency, direct vehicle and operating expenses for International RAC increased approximately $44 million, or 8%.

Depreciation of revenue earning vehicles and lease charges, net increased $17 million, or 1%, due to a $35 million increase in our U.S. RAC segment due to lower residual values on certain vehicles, partially offset by a decrease of

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

$12 million in our International RAC segment driven by improved vehicle procurement, vehicle mix changes and optimized remarketing channels.

Selling, general and administrative expenses (“SG&A”) decreased $12 million, or 3%, in the first half of 2016 compared with 2015. The decrease was due to a $13 million decrease in SG&A expense in our International RAC segment primarily due to $9 million of accruals, expenses, charges, and write-downs recorded in the second quarter of 2015 in connection with the termination of a contract. Our Corporate SG&A expenses decreased $11 million due to a $15 million decrease in general consulting costs and a $16 million decrease in consulting, audit and legal costs associated with the restatement and investigation activities, partially offset by $17 million of finance and information technology transformation costs which are related to initiatives that began in 2016. The decreases in International RAC and Corporate were partially offset by an $11 million increase in SG&A in our U.S. RAC segment primarily driven by finance and information technology transformation costs for the segment of $9 million.

Interest expense, net increased $29 million, or 10%, primarily due to a $20 million write-off of deferred financing costs as a result of paying off our Senior Term Facility and various vehicle debt refinancings, higher interest rates and higher outstanding balances on our vehicle debt driven by increased levels of revenue earning vehicles, partially offset by the impact of lower balances of non-vehicle debt.

Other income of $89 million in the first half of 2016 was primarily comprised of a $75 million gain on the sale of common stock of CAR Inc. and a $9 million settlement gain related to an eminent domain case at one of our U.S. airport locations.

The effective tax rate for the first half of 2016 was 29% as compared to 8% in the first half of 2015. The effective tax rate for the full fiscal year 2016 is expected to be approximately 47%. There was a tax benefit of $32 million in the first half of 2016 as compared to a benefit of $6 million in the first half of 2015. The change was the result of a higher loss from continuing operations before income taxes, the impact of tax law changes, principally in Louisiana, for approximately $2 million and charges related to the Spin-Off of approximately $2 million recorded in the second quarter of 2016.

There was a net loss from discontinued operations of $11 million in the first half of 2016 as compared to net income from discontinued operations of $32 million in the first half of 2015. The change was primarily due to lower revenues which were negatively impacted by continuing weakness in upstream oil and gas markets. The results were also impacted by the sale of the France and Spain equipment rental businesses which were sold in October 2015 and costs associated with the Spin-Off, which were $58 million in the first half of 2016 and $17 million in the first half of 2015.

We had adjusted pre-tax loss of $53 million in the first half 2016 compared with adjusted pre-tax income of $77 million in the first half 2015. See footnote (a) in the "Footnotes to the Results of Operations and Selected Operating Data by Segment Tables" for a summary and description of adjustments on a consolidated basis.

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

RESULTS OF OPERATIONS AND SELECTED OPERATING DATA BY SEGMENT

U.S. Rental Car ~~Rental~~

	Three Months EndedMarch 31,						Percent Increase/(Decrease)
	Three Months EndedJune 30,						Percent Increase/(Decrease)			Six Months EndedJune 30,						Percent Increase/(Decrease)
($ in millions, except as noted)	2016			2015						2016			2015
Total revenues	$	1,~~406~~584		$	1,~~520~~615		(82	)%		$	2,990		$	3,135		(5	)%
Direct operating expenses	$	870		$	926		(6	)
Direct vehicle and operating expenses	$	916		$	942		(3	)		$	1,786		$	1,868		(4	)
Depreciation of revenue earning equipment and lease charges, net	$	419		$	421		—
Depreciation of revenue earning vehicles and lease charges, net	$	417		$	380		10			$	836		$	801		4
Income (loss) before income taxes	$	~~(22~~104	)	$	35153		NM(32	)		$	82		$	188		(56	)
Adjusted pre-tax income (loss)(a)	$	(4143	)	$	71195		NM(27	)		$	138		$	265		(48	)
Transaction days (in thousands)(b)	3237,~~742~~190			3234,~~036~~977			26			69,932			67,014			4
Total RPD (in whole dollars)(c)	$	42.3611		$	4745.0780		(108	)		$	42.23		$	46.41		(9	)
Average fleet(d)	460,200			489,300			(6	)
Average vehicles(d)	500,000			511,700			(2	)		480,100			500,500			(4	)
Fleet efficiency(d)	78		%	73		%	N/A
Vehicle utilization(d)	82		%	75		%	700		bps	80		%	74		%	600		bps
Revenue per available car day (in whole dollars)(e)	$	3334.1242		$	34.2440		(3—	)		$	33.80		$	34.33		(2	)
Net depreciation per unit per month (in whole dollars)(f)	$	~~303~~278		$	~~287~~248		612			$	290		$	267		9
Program cars as a percentage of average fleet at period end	15		%	24		%	N/A
Program vehicles as a percentage of average vehicles at period end	12		%	29		%	N/A			12		%	29		%	N/A

Footnotes to the table above are shown in the "Footnotes to the Results of Operations and Selected Operating Data by Segment Tables" section of this MD&A.

N/A - Not Applicable

Three Months Ended ~~March~~June 3130, 2016 Compared with Three Months Ended ~~March~~June 3130, 2015

Total U.S. ~~Car~~RAC ~~Rental segment~~ revenues were $1.46 billion in the ~~first~~second quarter of 2016, a decrease of 82% from the ~~first~~second quarter of 2015. AAn 108% decrease in Total RPD, driven primarily by lower rental rates resulting from competitive pricing pressure in the industry and an increase in weekly versus daily rentals, was partially offset by a 26% increase in transaction days during the quarter. Volume infor ~~our~~ U.S. ~~Car~~RAC ~~Rental~~increased ~~segment~~3% in our airport business and increased 414% in our off-airport business, asversus ~~2016~~2015 ~~included~~due anprimarily ~~additional~~to ~~day~~increases in the number of insurance replacement rentals due to vehicle damage as a ~~leap~~result ~~year~~of severe weather conditions in the Southwest and due to manufacturers' recalls during the quarter. Off airport revenues comprised 27% of total rental revenues for the segment in the second quarter of 2016 as compared to 24% in the second quarter of 2015. The decrease also reflects the impact of the Easter holiday occurring in the first quarter in 2016 versus the second quarter in 2015.

37Direct vehicle and operating expenses for U.S. RAC decreased $26 million, or 3%, primarily comprised of the following:


•	Vehicle related expenses decreased $4 million year over year primarily due to:


◦	Decreased collision and short term maintenance expense of $5 million, driven primarily by process improvements leading to increased customer collections on damage claims and a decrease in the costs to prepare vehicles for turn-back due to a reduction in the number of program vehicles returned to the manufacturer in the second quarter of 2016 versus 2015;

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

~~coupled~~◦ ~~with~~Decreased ~~the~~maintenance ~~Easter~~costs ~~holiday falling in the first quarter~~ of ~~2016~~$6 ~~versus~~million ~~the~~due ~~second~~primarily ~~quarter~~to ofa ~~2016,~~reduction ~~and was flat~~ in ~~our~~the ~~off-airport~~average ~~business.~~age ~~Off airport revenues comprised 26%~~ of ~~total~~revenue ~~revenues~~earning ~~for~~vehicles, ~~the~~thus ~~segment~~requiring inless ~~the~~maintenance ~~first quarter of 2016~~ as compared to ~~25%~~2015 inand ~~the~~improved ~~first~~pricing ~~quarter~~through ofparts ~~2015.~~and supplier sourcing;

~~Direct~~◦ Increases in other vehicle operating ~~expenses~~costs of $5 million due to fewer pre-delivery inspection credits (credits received from vehicle manufacturers for procedures we perform on new vehicle deliveries) as compared to 2015 when we were completing our Ufleet refresh.S. ~~car~~Additionally, ~~rental~~there ~~segment~~was ~~decreased~~an increase in vehicle trucking and transportation expenses of $562 million, orprimarily ~~6%,~~driven ~~primarily~~by ~~comprised~~repositioning of the ~~following:~~fleet to respond to the severe weather conditions in the Southwest during the quarter.

• ~~Fleet~~Personnel related expenses decreased $214 million ~~year~~from ~~over~~the ~~year~~second quarter of 2015, primarily due to: decreased benefits expenses driven by a favorable adjustment to the worker's compensation reserve based on experience.

◦• ~~Decreased~~Transaction ~~collision~~variable expenses decreased $9 million from the second quarter of 2015 primarily due to decreased fuel costs of $11 million driven by lower market fuel pricing, a $7 million decrease in concessions expense as a result of reduced airport revenues, and ~~short~~a ~~term~~decrease ~~maintenance~~in PLPD expense of $85 million, ~~driven~~partially ~~primarily~~offset by ~~process~~an ~~improvements~~increase ~~leading~~in tooptional ~~increased~~insurance ~~customer~~liability ~~collections~~expense onof ~~damage~~$13 ~~claims;~~million.

◦• ~~Decreased~~Other ~~maintenance~~direct ~~costs~~vehicle ofand $6operating ~~million~~expenses ~~due~~decreased ~~primarily~~$9 tomillion afrom ~~reduction in~~ the ~~average~~second ~~age~~quarter ~~and size~~ of ~~the fleet~~2015, ~~thus~~primarily ~~requiring~~due ~~less maintenance as compared~~ to ~~2015~~information ~~and~~technology ~~improved~~cost ~~pricing~~savings ~~through~~resulting ~~parts~~from ~~and~~the ~~supplier~~previously ~~sourcing;~~announced ~~and~~initiatives.

◦Depreciation ~~Decreased~~rates ~~other~~are ~~vehicle~~reviewed ~~operating~~on ~~costs~~a quarterly basis based on management's routine review of $4present ~~million~~and ~~due~~estimated future market conditions and their effect on residual values at the time of disposal. During the three and six months ended June 30, 2016 and 2015, depreciation rates being used to compute the provision for depreciation of revenue earning vehicles were adjusted on certain vehicles in our rental operations to reflect changes in the estimated residual values to be realized when revenue earning vehicles are sold. These depreciation rate changes in our U.S. RAC operations resulted in a ~~lower~~net ~~average~~increase ~~fleet~~in depreciation expense of $12 million and $13 million based on the reviews completed during the second quarter of 2016 and 2015. The rate changes reflect declining residual values and a ~~decrease~~reduction in ~~theft~~the ~~related~~planned ~~expenses~~hold period of certain vehicles.

•Depreciation ~~Personnel~~of ~~related~~revenue ~~expenses~~earning ~~decreased~~vehicles and lease charges, net for U.S. RAC increased $1837 million, ~~from~~or 10% when compared with the ~~first~~second quarter of 2015. The increases year over year are primarily ~~due~~the result of declining residual values on non-program vehicles and higher program vehicle acquisition costs. Net depreciation per unit per month increased to ~~centralization~~$278 in the second quarter of ~~workforce~~2016 ~~management~~compared to $248 in the second quarter of 2015, partially offset by a 700 basis point improvement in vehicle utilization driven primarily by disciplined capacity and ~~improved~~vehicle ~~scheduling~~management ~~tools~~that ~~delivering~~enabled ~~improved~~a ~~productivity~~2% year over year decline in US RAC average vehicles for the period.

•U.S. ~~Other~~RAC ~~direct~~had ~~operating~~income ~~expenses~~before ~~decreased~~income taxes of $17104 million ~~from~~in the ~~first~~second quarter of ~~2015~~2016, ~~primarily~~compared ~~due~~ to ~~decreased~~income ~~fuel~~before ~~costs~~income taxes of $8153 million ~~due~~in tothe ~~lower~~prior ~~market~~year ~~fuel~~period. ~~pricing~~The ~~and~~decrease ~~decreased~~was ~~transaction~~driven ~~variable~~by ~~costs~~the impact of ~~$13~~lower ~~million~~revenues ~~resulting~~and ~~from~~increased ~~reduced~~depreciation ~~revenues~~expense as discussed above, partially offset by ~~a $5 million increase in non-fleet depreciation expense due to~~ the ~~acceleration~~impact of ~~depreciation~~lower atdirect ~~one~~vehicle ofand ~~our~~operating ~~airport locations~~expenses.

~~Depreciation~~U.S. ~~rates~~RAC ~~are~~had ~~reviewed~~adjusted onpre-tax aincome ~~quarterly basis based on management's routine review~~ of ~~present~~$143 ~~and~~million ~~estimated~~in ~~future market conditions and their effect on residual values at~~ the ~~time~~second quarter of ~~disposal. During the three months ended March 31,~~ 2016 ~~and 2015~~, ~~depreciation~~compared ~~rates being used~~ to ~~compute~~adjusted ~~the~~pre-tax ~~provision~~income ~~for depreciation~~ of ~~revenue~~$195 ~~earning~~million ~~equipment were adjusted on certain vehicles~~ in ~~our car rental operations to reflect changes in~~ the ~~estimated~~second ~~residual~~quarter ~~values~~of ~~to be realized when revenue earning equipment is sold~~2015. ~~These~~See ~~depreciation~~footnote ~~rate changes in our U.S. car rental operations resulted in~~ (a ~~net increase~~ ) in ~~depreciation expense of $27 million and $30 million based on~~ the ~~reviews~~"Footnotes ~~completed~~to ~~during~~ the ~~first~~Results ~~quarter~~ of ~~2016~~Operations and ~~2015.~~Selected ~~The~~Operating ~~rate~~Data ~~changes~~by ~~reflect~~Segment ~~declining~~Tables" ~~residual~~for ~~values and~~ a ~~reduction~~summary inand ~~the~~description ~~planned~~of ~~hold~~reconciling ~~period~~adjustments ofon ~~certain~~a ~~vehicles~~consolidated basis.

~~Depreciation~~Six ofMonths ~~revenue~~Ended ~~earning equipment and lease charges~~June 30, ~~net~~2016 ~~was~~Compared ~~flat when compared~~ with ~~the~~Six ~~first~~Months ~~quarter~~Ended ofJune 30, 2015. ~~Net depreciation per unit per month increased to $303 in the first quarter of 2016 compared to $287 in the first quarter of 2015 due to shorter planned holding periods and decreased residual values.~~

WeTotal ~~had~~U.S. aRAC ~~loss~~revenues ~~before income taxes of~~ were $223.0 ~~million~~ billion in the first ~~quarter~~half of 2016, ~~compared~~a todecrease ~~income~~of 5% from ~~before~~the ~~income~~first ~~taxes~~half of ~~$35~~2015. ~~million~~Total inRPD ~~the~~declined ~~prior~~9% ~~year~~driven ~~period.~~predominantly ~~The~~by ~~loss~~lower ~~was~~rental ~~driven~~rates byas ~~the~~a ~~impact~~result of ~~lower~~competitive ~~revenues,~~pressure asin ~~discussed~~the ~~above~~industry and an increase in weekly versus daily rentals, partially offset by ~~the~~a 4% increase ~~impact~~in oftransaction ~~lower~~days. ~~direct~~Volume ~~operating~~for ~~expenses~~U.S. RAC increased 2% in our airport business and increased 9% in our off-airport business versus 2015 due primarily to increases

We had an adjusted pre-tax loss of $4 million in the first quarter of 2016, compared to adjusted pre-tax income of $71 million in the first quarter of 2015. See footnote (a) in the "Footnotes to the Results of Operations and Selected Operating Data by Segment Tables" for a summary and description of reconciling adjustments on a consolidated basis.55

Table of Contents

THE HERTZ CORPORATION AND SUBSIDIARIES


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

~~International~~in ~~Car~~the ~~Rental~~number of insurance replacement rentals due to vehicle damage as a result of severe weather conditions in the Southwest and due to manufacturers' recalls during the second quarter 2016, partially offset by the impact of airport rental volume declines and off-airport store closures in the second quarter 2015. Off airport revenues comprised 27% of total revenues for the segment in the first half of 2016 and 25% for 2015.

	Three Months Ended March 31,						Percent Increase/(Decrease)
($ in millions, except as noted)	2016			2015
Total revenues	$	433		$	436		(1	)%
Direct operating expenses	$	279		$	267		4
Depreciation of revenue earning equipment and lease charges, net	$	86		$	95		(9	)
Income (loss) before income taxes	$	(1	)	$	2		NM
Adjusted pre-tax income (loss)(a)	$	3		$	8		(63	)
Transaction days (in thousands)(b)	10,104			9,775			3
Total RPD (in whole dollars)(c)	$	42.95		$	42.25		2
Average fleet(d)	148,100			144,000			3
Fleet efficiency(d)	75		%	75		%	N/A
Revenue per available car day (in whole dollars)(e)	$	32.20		$	31.87		1
Net depreciation per unit per month (in whole dollars)(f)	$	194		$	208		(7	)
Program cars as a percentage of average fleet at period end	37		%	38		%	N/A

Direct vehicle and operating expenses for U.S. RAC decreased $82 million, or 4%, primarily comprised of the following:

~~Footnotes~~• toVehicle ~~the~~related ~~table~~expenses ~~above~~decreased ~~are~~$25 ~~shown~~million inyear ~~the~~over ~~"Footnotes~~year toprimarily ~~the~~due ~~Results of Operations and Selected Operating Data by Segment Tables" section of this MD&A.~~to:

NM◦ Decreased collision and short term maintenance expense of $13 million driven primarily by process improvements leading to increased customer collections on damage claims and a decrease in the costs to prepare vehicles for turn-back ~~Not~~due ~~Meaningful~~to a reduction in the number of program vehicles returned to the manufacturer year over year;

~~N/A~~◦ -Decreased ~~Not~~maintenance ~~Applicable~~costs of $12 million due primarily to a reduction in the average age of our revenue earning vehicles, thus requiring less maintenance as compared to 2015 and improved pricing through parts and supplier sourcing.

~~Three~~• ~~Months~~Personnel ~~Ended~~related ~~March 31~~expenses decreased $22 million as compared to the first half of 2015 primarily due to centralization of workforce management, ~~2016~~an ~~Compared~~$11 ~~with~~million ~~Three~~improvement ~~Months~~in ~~Ended~~benefits ~~March 31~~expenses, ~~2015~~resulting from a decrease in worker's compensation reserves based on experience, and a $6 million decrease in incentive expenses.

~~Total~~• ~~revenues~~Transaction ~~for~~variable ~~the~~expenses ~~International Car Rental segment~~ decreased $315 million, orfrom ~~1%,~~the ~~when~~first ~~compared~~half ~~with~~of ~~the~~2015 ~~prior-year~~primarily ~~period.~~due ~~Excluding~~to adecreased ~~$26~~fuel ~~million~~costs ~~impact~~ of ~~foreign currency, total revenues increased~~ $2319 million, ~~or 6%,~~ driven by alower 2%market ~~increase~~fuel inpricing ~~Total RPD, on a constant currency basis,~~ and a 3%$13 ~~increase~~million decrease in ~~transaction~~concessions ~~days,~~expense as ~~2016 included an additional day due to~~ a ~~leap~~result ~~year~~of ~~coupled~~reduced ~~with~~airport ~~the~~revenues, ~~Easter~~partially ~~holiday~~offset ~~falling~~by inincreased ~~the~~optional ~~first~~insurance ~~quarter~~liability ofexpense ~~2016 versus the second quarter~~ of ~~2016.~~$17 million.

Direct operating expenses for our International Car Rental segment increased $12 million, or 4%, from the prior year. Excluding a $17 million impact of foreign currency, direct operating expenses increased approximately $29 million, or 12%, primarily due to the favorable impact to other direct operating expenses of $16 million in 2015 resulting from non-recurring items. Additionally, vehicle damage expense increased $6 million and third party insurance expense increased $4 million.•

~~Depreciation~~• ofOther ~~revenue~~direct ~~earning~~vehicle ~~equipment~~ and ~~lease~~operating ~~charges,~~expenses ~~net for our International Car Rental segment~~ decreased $920 million, ~~or 9%,~~ from the first ~~quarter~~half of 2015. ~~Excluding~~primarily ~~the~~due $5to ~~million~~a ~~impact of foreign currency, depreciation of revenue earning equipment and lease charges,~~ net ~~decreased~~ $415 million, orof ~~5%.~~information ~~Net~~technology ~~depreciation~~cost ~~per~~savings ~~unit~~resulting ~~per month decreased 7% to $194~~ from ~~$208~~the ~~year~~previously ~~over~~announced ~~year, excluding currency effects on a constant currency basis, due to improved fleet procurement, fleet mix changes and optimized remarketing channels~~initiatives.

~~Our~~Depreciation ~~International~~rates ~~Car~~are ~~Rental~~reviewed ~~segment~~on ~~had~~ a ~~pretax~~quarterly ~~loss~~basis based on management's routine review of $1present ~~million~~and inestimated future market conditions and their effect on residual values at the time of disposal. During the first ~~quarter~~half of 2016 asand ~~compared~~2015, depreciation rates being used to ~~income~~compute the provision for depreciation of $2revenue ~~million~~earning vehicles were adjusted on certain vehicles in our rental operations to reflect changes in the estimated residual values to be realized when revenue earning vehicles are sold. Based on the quarterly reviews completed during the first ~~quarter~~half of 2016 and 2015

Location of Gain or (Loss) Recognized on Derivatives

Amount of Gain or (Loss) Recognized
in Income on Derivatives

Six Months Ended
June 30,

(In millions)

Foreign currency forward contracts

Selling, general and administrative