Hertz 2011 Annual Report Download - page 178

HERTZ GLOBAL HOLDINGS, INC.
NOTES TO PARENT COMPANY FINANCIAL STATEMENTS
Note 1—Background and Basis of Presentation
Hertz Global Holdings, Inc., or ‘‘Hertz Holdings,’’ is the top-level holding company that conducts
substantially all of its business operations through its indirect subsidiaries. Hertz Holdings was
incorporated in Delaware on August 31, 2005 in anticipation of the December 21, 2005 acquisition by its
subsidiary, Hertz Investors, Inc., of the Hertz Corporation.
There are significant restrictions over the ability of Hertz Holdings to obtain funds from its indirect
subsidiaries through dividends, loans or advances. Accordingly, these condensed financial statements
have been presented on a ‘‘parent-only’’ basis. Under a parent-only presentation, the investments of
Hertz Holdings in its consolidated subsidiaries are presented under the equity method of accounting.
These parent-only financial statements should be read in conjunction with the consolidated financial
statements of Hertz Holdings included in this Annual Report under the caption ‘‘Item 8—Financial
Statements and Supplementary Data.’’ For a discussion of background and basis of presentation, see
Note 1 and Note 2 to the Notes to the consolidated financial statements included in this Annual Report
under the caption ‘‘Item 8—Financial Statements and Supplementary Data.’’
Note 2—Debt
Convertible Senior Notes
In May and June 2009, we issued $474.8 million in aggregate principal amount of 5.25% convertible
senior notes due January 2014, or the ‘‘Convertible Senior Notes.’’ Our Convertible Senior Notes may be
convertible by holders into shares of our common stock, cash or a combination of cash and shares of
our common stock, as elected by us, initially at a conversion rate of 120.6637 shares per $1,000 principal
amount of notes, subject to adjustment.
We have a policy of settling the conversion of our Convertible Senior Notes using a combination
settlement, which calls for settling the fixed dollar amount per $1,000 in principal amount in cash and
settling in shares the excess conversion value, if any. Proceeds from the offering of the Convertible
Senior Notes were allocated between ‘‘Debt’’ and ‘‘Additional paid-in capital.’’ The value assigned to the
debt component was the estimated fair value, as of the issuance date, of a similar debt instrument
without the conversion feature, and the difference between the proceeds for the Convertible Senior
Notes and the amount reflected as a debt liability was recorded as ‘‘Additional paid-in capital.’’ As a
result, at issuance the debt was recorded at a discount of $117.9 million reflecting that its coupon was
below the market yield for a similar security without the conversion feature at issuance. The debt is
subsequently accreted to its par value over its expected life, with the market rate of interest at issuance
being reflected in the statements of operations. The effective interest rate on the Convertible Senior
Notes on the issuance date was 12%.
On January 1, 2011, our Convertible Senior Notes became convertible. This conversion right was
triggered because our closing common stock price per share exceeded $10.77 for at least 20 trading
days during the 30 consecutive trading day period ending on December 31, 2010. Since this same
trigger was met in the periods ending on March 31, 2011 and June 30, 2011, the Convertible Senior
Notes remained convertible through September 30, 2011. The Convertible Senior Notes became
convertible again on January 1, 2012 and will continue to be convertible until March 31, 2012, and may
be convertible thereafter, if one or more of the conversion conditions specified in the indenture is
satisfied during future measurement periods.
On June 1 and December 1, 2011 and 2010, Hertz Holdings made semi-annual interest payments of
approximately $12.5 million on the Convertible Senior Notes, respectively. Hertz Holdings made this
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