HERTZ CORP 10-Q

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 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 August 8, 2016, 100 shares of common stock (par value $0.01) of the registrant were outstanding and owned by its affiliate, Rental Car Intermediate Holdings, 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 June 30, 2016 and December 31, 2015	1
	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 and Six Months Ended June 30, 2016 and 2015	3
	Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2016 and 2015	4
	Condensed Consolidated Statement of Changes in Equity for the Six Months Ended June 30, 2016	6
	Notes to Condensed Consolidated Financial Statements	7
ITEM 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	46
ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk	72
ITEM 4.	Controls and Procedures	72
PART II. OTHER INFORMATION
ITEM 1.	Legal Proceedings	73
ITEM 1A.	Risk Factors	73
ITEM 2.	Unregistered Sales of Securities and Use of Proceeds	86
ITEM 3.	Defaults Upon Senior Securities	86
ITEM 4.	Mine Safety Disclosures	87
ITEM 5.	Other Information	87
ITEM 6.	Exhibits	87
SIGNATURE		88
EXHIBIT INDEX		89

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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)



	June 30, 2016			December 31, 2015
ASSETS
Cash and cash equivalents	$	1,285		$	474
Restricted cash and cash equivalents:
Vehicle	272			289
Non-vehicle	46			44
Total restricted cash and cash equivalents	318			333
Receivables:
Vehicle	480			1,137
Non-vehicle, net of allowance of $45 and $36, respectively	843			649
Total receivables, net	1,323			1,786
Inventories, net	43			29
Prepaid expenses and other assets	594			966
Revenue earning vehicles:
Vehicles	15,418			13,441
Less accumulated depreciation	(2,609		)	(2,695		)
Total revenue earning vehicles, net	12,809			10,746
Property and equipment:
Land, buildings and leasehold improvements	1,152			1,171
Service equipment and other	758			809
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:
Vehicle	$	647		$	207
Non-vehicle	592			559
Total accounts payable	1,239			766
Accrued liabilities	1,037			1,035
Accrued taxes, net	179			128
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	3,134			3,583
Due to (from) affiliate	66			(345		)
Accumulated deficit	(1,470		)	(1,045		)
Accumulated other comprehensive income (loss)	(121		)	(245		)
Total equity	1,609			1,948
Total liabilities and equity	$	22,020		$	23,509

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 Ended June 30,						Six Months Ended June 30,
	2016			2015			2016			2015
Revenues:
Worldwide vehicle rental	$	2,124		$	2,171		$	3,963		$	4,127
All other operations	146			146			290			288
Total revenues	2,270			2,317			4,253			4,415
Expenses:
Direct vehicle and operating	1,267			1,290			2,425			2,492
Depreciation of revenue earning vehicles and lease charges, net	629			597			1,245			1,228
Selling, general and administrative	234			251			459			471
Interest expense, net:
Vehicle	72			62			140			123
Non-vehicle	102			87			185			173
Total interest expense, net	174			149			325			296
Other (income) expense, net	1			(8		)	(89		)	(1		)
Total expenses	2,305			2,279			4,365			4,486
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 Ended June 30,						Six Months Ended June 30,
	2016			2015			2016			2015
Net income (loss)	$	(43	)	$	36		$	(91	)	$	(33	)
Other comprehensive income (loss):
Foreign currency translation adjustments	(18		)	9			18			(39		)
Unrealized holding gains (losses) on securities	(8		)	—			9			—
Net gain (loss) on defined benefit pension plans	(34		)	—			(34		)	—
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
Total other comprehensive income (loss) before income taxes	(58		)	13			(3		)	(33		)
Income tax (provision) benefit related to net gains and losses on defined benefit pension plans	14			—			14			—
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)



	Six Months Ended June 30,
	2016			2015
Cash flows from operating activities:
Net income (loss)	$	(91	)	$	(33	)
Less: Net income (loss) from discontinued operations	(11		)	32
Net income (loss) from continuing operations	(80		)	(65		)
Adjustments to reconcile net income (loss) from continuing operations to net cash provided by (used in) operating activities:
Depreciation of revenue earning vehicles, net	1,212			1,191
Depreciation and amortization, non-vehicle	128			131
Amortization and write-off of deferred financing costs	22			29
Amortization and write-off of debt discount (premium)	3			(2		)
Loss on extinguishment of debt	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	(4		)	(6		)
Changes in assets and liabilities
Non-vehicle receivables	(214		)	(168		)
Inventories, prepaid expenses and other assets	(48		)	(61		)
Non-vehicle accounts payable	43			36
Accrued liabilities	(15		)	21
Accrued taxes	14			(8		)
Public liability and property damage	18			11
Net cash provided by (used in) operating activities	1,014			1,161
Cash flows from investing activities:
Net change in restricted cash and cash equivalents, vehicle	18			137
Net change in restricted cash and cash equivalents, non-vehicle	(2		)	(4		)
Revenue earning vehicles expenditures	(7,268		)	(7,639		)
Proceeds from disposal of revenue earning vehicles	5,168			4,816
Capital asset expenditures, non-vehicle	(72		)	(121		)
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 Old Hertz Holdings	—			(6		)
Net cash provided by (used in) investing activities	(1,929		)	(2,868		)

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)

Unaudited

(In millions)



	Six Months Ended June 30,
	2016			2015
Cash flows from financing activities:
Proceeds from issuance of long-term debt	2,185			1,069
Repayments of long-term debt	(2,404		)	(1,032		)
Short-term borrowings:
Proceeds	312			383
Payments	(263		)	(258		)
Proceeds under the revolving lines of credit	5,058			5,307
Payments under the revolving lines of credit	(5,253		)	(3,683		)
Payment of financing costs	(51		)	(8		)
Transfers from discontinued entities	2,122			—
Other	12			(1		)
Net cash provided by (used in) financing activities	1,718			1,777
Effect of foreign exchange rate changes on cash and cash equivalents from continuing operations	8			(16		)
Net increase (decrease) in cash and cash equivalents during the period from continuing operations	811			54
Cash and cash equivalents at beginning of period	474			474
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, vehicle	$	115		$	93
Interest, non-vehicle	167			188
Income taxes, net of refunds	25			12
Supplemental disclosures of non-cash information:
Purchases of revenue earning vehicles included in accounts payable and accrued liabilities	$	560		$	386
Sales of revenue earning vehicles included in receivables	392			150
Purchases of property and other equipment included in accounts payable	19			47
Sales of property and other equipment included in receivables	17			5
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 and is a successor to corporations that have been engaged in the vehicle rental and leasing business since 1918. Hertz operates its vehicle rental business primarily through the Hertz, Dollar and Thrifty brands from company-owned, licensee and franchisee locations in the U.S., Africa, Asia, Australia, Canada, Europe, Latin America, the Middle East and New Zealand. Through its Donlen subsidiary, Hertz provides vehicle leasing and fleet management services.

All of the Company's outstanding common stock is owned by Rental Car Intermediate Holdings, LLC, which is wholly owned by Hertz Global Holdings, Inc. ("Hertz Global"). Hertz is the primary operating company for Hertz Global.

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.

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.

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.

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THE HERTZ CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Unaudited

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

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 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. 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

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THE HERTZ CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Unaudited

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.

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.

Measurement of Credit 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 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. Rental Car
Revenue earning vehicles	$	71
Property and equipment	6
Other intangible assets	9
Goodwill	1
Total	$	87

Divestitures

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

Note 5—Revenue Earning Vehicles

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



(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

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



	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

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



	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

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:



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

(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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Note 6—Debt

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.

The Company's debt, including its available credit facilities, 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

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Facility	Weighted Average Interest Rate at June 30, 2016	Fixed or Floating Interest Rate	Maturity	June 30, 2016			December 31, 2015
HFLF Medium Term Notes
HFLF Series 2013-3⁽²⁾	1.21%	Floating	9/2016–11/2016	171			270
HFLF Series 2014-1⁽²⁾	1.06%	Floating	12/2016–3/2017	209			288
HFLF Series 2015-1⁽²⁾	1.12%	Floating	3/2018–5/2018	295			295
HFLF Series 2016-1⁽²⁾	1.80%	Floating	2/2019–4/2019	386			—
				1,061			853
Other Vehicle Debt
U.S. Vehicle RCF⁽³⁾	3.50%	Floating	6/2021	185			—
U.S. Vehicle Financing Facility	N/A	N/A	N/A	—			190
European Revolving Credit Facility	2.13%	Floating	10/2017	376			273
European Vehicle Notes	4.38%	Fixed	1/2019	470			464
European Securitization⁽²⁾	1.55%	Floating	10/2018	415			267
Canadian Securitization⁽²⁾	1.88%	Floating	1/2018	253			148
Australian Securitization⁽²⁾	3.51%	Floating	12/2016	89			98
Brazilian Vehicle Financing Facility	17.63%	Floating	10/2016	9			7
Capitalized Leases	2.61%	Floating	7/2016–3/2020	383			362
				2,180			1,809
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	June 30, 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.


(3)	Approximately $67 million of the aggregate maximum borrowing capacity under the U.S. Vehicle RCF is scheduled to expire in January 2018.

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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, to mitigate any adverse impact on its operations resulting from adverse financial market conditions.

In 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.

Non-Vehicle Debt

Senior Credit Facilities

In June 2016, in connection with the Spin-Off of the equipment rental business, the Senior Term Facility and the Senior ABL Facility were terminated.

Senior Facilities

In 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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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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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

Borrowing capacity and availability comes from 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, among other things, 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.

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.

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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 June 30, 2016, there were outstanding standby letters of credit totaling $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 $606 million was issued under the Senior RCF, which has a $1 billion letter of credit sublimit, resulting in $394 million of availability under such sublimit. As of June 30, 2016, none of the letters of credit have been drawn upon.

Special Purpose Entities

Substantially all of the revenue earning 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 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 revenue earning vehicles and related assets of certain of Hertz International, Ltd.'s subsidiaries. As of June 30, 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 $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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Financial Covenant Compliance

The Company refers to Hertz and its subsidiaries as the Hertz credit group. The indentures for the Senior Notes contain covenants that, among other things, limit or restrict the ability of the Hertz credit group to incur additional indebtedness, incur guarantee obligations, prepay certain indebtedness, make certain restricted payments (including paying dividends, redeeming stock or making other distributions to parent entities of Hertz and other persons outside of the Hertz credit group), make investments, create liens, transfer or sell assets, merge or consolidate, and enter into certain transactions with Hertz's affiliates that are not members of the Hertz credit group.

Certain other debt 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.

The Senior RCF contains a financial maintenance covenant, which is a maximum consolidated total net corporate leverage ratio, as defined in the Senior RCF, and is only applicable to the Senior RCF. Hertz’s consolidated total net corporate leverage ratio as of the last day of any fiscal quarter, commencing with September 30, 2016, may not exceed the ratios indicated 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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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 Ended June 30,
(In millions)	2016			2015			2016			2015
Components of Net Periodic Benefit Cost:
Service cost	$	—		$	1		$	1		$	—
Interest cost	7			6			2			2
Expected return on plan assets	(7		)	(8		)	(3		)	(4		)
Net amortizations	1			1			—			1
Settlement loss	—			1			—			—
Net periodic pension expense (benefit)	$	1		$	1		$	—		$	(1	)



	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	)

Note 8—Stock-Based Compensation

The non-cash stock-based compensation expense associated with the Hertz Global's stock-based compensation plans is pushed down from Hertz Global and recorded on the books at the Hertz level.

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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 Ended June 30,						Six Months Ended June 30,
(In millions)	2016			2015			2016			2015
Compensation expense	$	6		$	5		$	12		$	8
Income tax benefit	(2		)	(2		)	(5		)	(3		)
Total	$	4		$	3		$	7		$	5

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



	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



	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



	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

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.



(In millions)	Termination Benefits			Other			Total
Balance as of December 31, 2015	$	9		$	15		$	24
Charges incurred	16			8			24
Cash payments	(8		)	(7		)	(15		)
Other non-cash changes	(1		)	1			—
Balance as of June 30, 2016	$	16		$	17		$	33

Note 10—Tangible Asset Impairments and Asset Write-downs

In 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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equipment and assets deemed to have no future use, of which $4 million is included in direct vehicle and operating expense and $7 million is included in other (income) expense, net in the accompanying condensed consolidated statements of operations.

Note 11—Taxes on Income (Loss)

The effective tax rate for the three months ended June 30, 2016 and 2015 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%.

The Company recorded a tax benefit of $7 million for the three months ended June 30, 2016 compared to a tax provision of $25 million for the three months ended June 30, 2015. The change was the result of the impact of tax law changes, principally in Louisiana, for approximately $2 million and charges related to the Spin-Off of $2 million recorded in the second quarter of 2016.

The Company recorded a tax benefit of $32 million for the six months ended June 30, 2016 compared to a tax benefit of $6 million for the six months ended June 30, 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 $2 million recorded in the second quarter of 2016.

Tax Matters Agreement

As described in Note 3, "Discontinued Operations", Hertz Global and Hertz entered into the Tax Matters Agreement with Herc Holdings and Herc Rentals to govern 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.

Note 12—Financial Instruments

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 June 30, 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 vehicles in various currencies.

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



	Fair Value of Financial Instruments
	Asset Derivatives⁽¹⁾				Liability Derivatives⁽¹⁾
(In millions)	June 30, 2016		December 31, 2015		June 30, 2016		December 31, 2015
Interest rate instruments	$	2	$	9	$	1	$	9
Foreign currency forward contracts	6		3		3		1
Total	$	8	$	12	$	4	$	10


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

While the Company's foreign currency forward contracts and certain interest rate 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 Ended June 30,
(In millions)		2016			2015
Foreign currency forward contracts	Selling, general and administrative	$	(1	)	$	(3	)

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.

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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 4, "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 June 30, 2016.

Financial Instruments

The fair value of the Company's financial instruments as of June 30, 2016 are shown in Note 12, "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 June 30, 2016				As of December 31, 2015
(In millions)	Nominal Unpaid Principal Balance		Aggregate Fair Value		Nominal Unpaid Principal Balance		Aggregate Fair Value
Non-vehicle Debt	$	4,629	$	4,726	$	5,991	$	6,070
Vehicle Debt	10,846		10,927		9,857		9,854
Total	$	15,475	$	15,653	$	15,848	$	15,924

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

Assets and liabilities measured at fair value during the six months ended June 30, 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	$	9	$	—	$	—	$	9	$	3

During the first quarter of 2016, the Company reclassified an asset in its U.S. 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 property in its U.S. Rental Car segment recorded in property and equipment, net in the accompanying condensed consolidated balance sheets. The fair value less cost to sell of the long-lived asset held for sale was assessed at June 30, 2016. The Company uses market and income approaches to value long-lived assets, including inputs such as expected cash flows and recent comparable transactions.

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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 rented from the Company. The obligation for public liability and property damage on self-insured U.S. and international vehicles, 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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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 six months ended June 30, 2016 or the period after June 30, 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 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, 2016, Old Hertz Holdings and the individual defendants filed their reply briefs in support of their motions to 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 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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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. 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 all requests related to the 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 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 these 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 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 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 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 recorded charges with respect to this matter of approximately $23 million. In January 2016, the Company made a payment of approximately $9 million.

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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 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

As described in Note 3, "Discontinued Operations", the Separation and Distribution Agreement with Herc Holdings contains mutual indemnification clauses and a customary indemnification provision with respect to liability arising out of or resulting from assumed legal 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 16, "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 regularly evaluates the probability of having to incur costs associated with indemnification obligations and will accrue for expected losses when they are probable and estimable.

Note 16—Segment Information

The Company has identified three reportable segments, which are organized based on the products and services provided by its operating segments and the geographic areas in which its operating segments conduct business, as follows:


•	U.S. Rental Car ("U.S. RAC") - rental of vehicles (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;

•

International Rental Car ("International RAC") - rental and leasing of vehicles (cars, vans, crossovers and light trucks), as well as ancillary products and services, internationally and consists of the Company's Europe and Other International operating segments, which are aggregated into a reportable segment based primarily upon similar economic characteristics, products and services, customers, delivery methods and general regulatory environments;


•	All Other Operations - includes the Company's Donlen operating segment which provides vehicle leasing and fleet management services and is not considered a separate reportable segment in accordance with applicable accounting standards, together with other business activities.

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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 June 30,
	Revenues				Adjusted Pre-Tax Income (Loss)
(In millions)	2016		2015		2016			2015
U.S. Rental Car	$	1,584	$	1,615	$	143		$	195
International Rental Car	540		556		34			45
All Other Operations	146		146		17			17
Total reportable segments	$	2,270	$	2,317	194			257
Corporate⁽¹⁾					(139		)	(139		)
Consolidated adjusted pre-tax income (loss)					55			118
Adjustments:
Acquisition accounting⁽²⁾					(18		)	(23		)
Debt-related charges⁽³⁾					(12		)	(15		)
Loss on extinguishment of debt⁽⁴⁾					(20		)	—
Restructuring and restructuring related charges⁽⁵⁾					(18		)	(41		)
Impairment charges and asset write-downs⁽⁷⁾					(3		)	—
Finance and information technology transformation costs⁽⁸⁾					(19		)	—
Other⁽⁹⁾					—			(1		)
Income (loss) from continuing operations before income taxes					$	(35	)	$	38

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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 the write-off of deferred debt financing costs in the second quarter of 2016 as a result of paying off the Senior Term Facility and various vehicle debt refinancings.

(5)

Represents expenses incurred under restructuring actions as defined in U.S. GAAP. For further information on restructuring costs, see Note 9, "Restructuring." Also represents incremental costs incurred directly supporting business transformation initiatives. Such costs include transition costs incurred in connection with business process outsourcing arrangements and incremental costs incurred to facilitate business process re-engineering initiatives that involve significant organization redesign and extensive operational process changes. Also includes consulting costs and legal fees 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. For the six months ended June 30, 2016, also includes a settlement gain related to one of our airport locations. In the 2015 periods, includes charges incurred in connection with relocating the Company's corporate headquarters to Estero, Florida.

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Depreciation of revenue earning vehicles and lease charges, net



	Three Months Ended June 30,				Six Months Ended June 30,
(In millions)	2016		2015		2016		2015
U.S. Rental Car	$	417	$	380	$	836	$	801
International Rental Car	98		101		184		196
All Other Operations	114		116		225		231
Total	$	629	$	597	$	1,245	$	1,228

Total assets



(In millions)	June 30, 2016		December 31, 2015
U.S. Rental Car	$	14,049	$	13,614
International Rental Car	4,416		3,002
All Other Operations	1,583		1,520
Corporate	1,972		1,983
Assets of discontinued operations	—		3,390
Total	$	22,020	$	23,509

The increase in total assets for International RAC is due to an increase in cash as a result of the proceeds received from the sale of CAR Inc. shares in 2016 and an increase in the number of revenue earning vehicles acquired to meet seasonal leisure demand during the summer period. Refer to Note 4, "Acquisitions and Divestitures," for additional information related to the CAR Inc. share sale. The increase in total assets for U.S. RAC is the result of an increase in the number of revenue earning vehicles acquired in order to meet upcoming seasonal demands, partially offset by lower receivables from vehicle sales.

Note 17—Related Party Transactions

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

On June 30, 2016, the Company signed a master loan agreement with Hertz Global for a facility size of $425 million with an expiration in June 2017 (the "Master 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.

Icahn Agreements

On 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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Group. Hertz Global also agreed to provide, with certain exceptions, certain piggyback registration rights with respect to common stock held by members of the Icahn Group.

Note 18—Guarantor and Non-Guarantor Condensed Consolidating Financial Statements

The following condensed 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.

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 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.

As described in Note 1, "Background" and Note 3, "Discontinued Operations", Hertz completed the Spin-Off of its equipment rental business on June 30, 2016. In connection with the Spin-Off, certain amounts that were historically recorded on the balance sheet of the Parent were distributed with the discontinued entities. These amounts primarily related to defined benefit pension plans, workers’ compensation liabilities, and income taxes. These amounts have been reclassified in the 2015 condensed consolidating financial statements to reflect the balances transferred in the Guarantor Subsidiaries' and Non-Guarantor Subsidiaries' financial statements based on which discontinued entity received the distribution in the Spin-Off.

During the preparation 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.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Unaudited

CONDENSED CONSOLIDATING BALANCE SHEET

June 30, 2016

(In millions)



	Parent (The Hertz Corporation)		Guarantor Subsidiaries		Non- Guarantor Subsidiaries		Eliminations			The Hertz Corporation & Subsidiaries
ASSETS
Cash and cash equivalents	$	811	$	11	$	463	$	—		$	1,285
Restricted cash and cash equivalents	68		4		246		—			318
Receivables, net of allowance	588		207		528		—			1,323
Due from affiliates	3,263		3,233		7,684		(14,180		)	—
Inventories, net	19		4		20		—			43
Prepaid expenses and other assets	4,541		50		277		(4,274		)	594
Revenue earning vehicles, net	324		8		12,477		—			12,809
Property and equipment, net	698		64		150		—			912
Investment in subsidiaries, net	5,951		545		—		(6,496		)	—
Other intangible assets, net	127		3,327		25		—			3,479
Goodwill	102		943		212		—			1,257
Total assets	$	16,492	$	8,396	$	22,082	$	(24,950	)	$	22,020
LIABILITIES AND EQUITY
Due to affiliates	$	8,976	$	1,350	$	3,854	$	(14,180	)	$	—
Accounts payable	303		95		841		—			1,239
Accrued liabilities	605		103		329		—			1,037
Accrued taxes, net	75		22		2,468		(2,386		)	179
Debt	4,772		—		10,620		—			15,392
Public liability and property damage	152		46		212		—			410
Deferred taxes on income, net	—		2,061		1,981		(1,888		)	2,154
Total liabilities	14,883		3,677		20,305		(18,454		)	20,411
Equity:
Stockholder's equity	1,609		4,719		1,777		(6,496		)	1,609
Total liabilities and equity	$	16,492	$	8,396	$	22,082	$	(24,950	)	$	22,020

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CONDENSED CONSOLIDATING BALANCE SHEET

December 31, 2015

(In millions)

Parent

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