Hertz 2013 Annual Report Download - page 25

Table of Contents

Our business is subject to a number of important risks and uncertainties, some of which are described below. The risks and
uncertainties described below, however, are not the only risks and uncertainties that we face. Additional risks and uncertainties not
currently known to us or that we currently deem to be immaterial may also significantly impact us. Any of these risks and uncertainties
may materially and adversely affect our business, financial condition or results of operations, liquidity and cash flows. In such a case,
you may lose all or part of your investment in our common stock. You should carefully consider each of the following risks and
uncertainties. Any of the following risks and uncertainties could materially and adversely affect our business, financial condition,
operating results or cash flow and we believe that the following information identifies the material risks and uncertainties affecting
our company; however, the following risks and uncertainties are not the only risks and uncertainties facing us and it is possible that
other risks and uncertainties might significantly impact us.

Our car rental business, which provides the majority of our revenues, is particularly sensitive to reductions in the levels of
airline passenger travel, and reductions in air travel could materially adversely impact our financial condition, results of
operations, liquidity and cash flows.
The car rental industry is particularly affected by reductions in business and leisure travel, especially with respect to levels of airline
passenger traffic. Reductions in levels of air travel, whether caused by general economic conditions, airfare increases (such as due to
capacity reductions or increases in fuel costs borne by commercial airlines) or other events (such as work stoppages, military conflicts,
terrorist incidents, natural disasters, epidemic diseases, or the response of governments to any of these events) could materially adversely
affect us. Further, decreases in levels of airline passenger traffic in key leisure destinations, including Florida, Hawaii, California and Texas,
could also materially adversely affect us.
We face intense competition that may lead to downward pricing or an inability to increase prices.
The markets in which we operate are highly competitive. We believe that price is one of the primary competitive factors in the car and
equipment rental markets and that the Internet has enabled cost-conscious customers, including business travelers, to more easily compare
rates available from rental companies. If we try to increase our pricing, our competitors, some of whom may have greater resources and
better access to capital than us, may seek to compete aggressively on the basis of pricing. In addition, our competitors may reduce prices in
order to attempt to gain a competitive advantage or to compensate for declines in rental activity. To the extent we do not match or remain
within a reasonable competitive margin of our competitors’ pricing, our revenues and results of operations could be materially adversely
affected. If competitive pressures lead us to match any of our competitors’ downward pricing and we are not able to reduce our operating
costs, then our margins, results of operations and cash flows could be materially adversely impacted. Additionally, we could be further
affected if we are not able to adjust the size of our car rental fleet in response to changes in demand, whether such changes are due to
competition or otherwise. See the sections entitled ‘‘Business—Worldwide Car Rental—Competition’’ and ‘‘Business—Worldwide
Equipment Rental—Competition’’ in this Annual Report.
Our business is highly seasonal and any occurrence that disrupts rental activity during our peak periods could materially
adversely affect our liquidity, cash flows and results of operations.
Certain significant components of our expenses are fixed in the short-term, including minimum concession fees, real estate taxes, rent,
insurance, utilities, maintenance and other facility-related expenses, the costs of operating our information technology systems and
minimum staffing costs. Seasonal changes in our revenues do not alter those fixed expenses, typically resulting in higher profitability in
periods when our revenues are higher. The second and third quarters of the year have historically been our strongest quarters due to their
increased levels of leisure travel and construction activity. Any occurrence that disrupts rental activity during the second or third quarters could
have a disproportionately material adverse effect on our liquidity, cash flows and results of operations. Following the Dollar Thrifty
Acquisition, we expect this risk to increase, as the scale of our car rental business and the related fixed costs have increased.
A material downsizing of our rental car fleet could require us to make additional cash payments for tax liabilities, which could
be material.
The Like-Kind Exchange Program, or ‘‘LKE Program,’’ allows tax gains on the disposition of vehicles in our car rental fleet to be deferred and
has resulted in deferrals of federal and state income taxes for prior years. If a qualified replacement vehicle is not purchased within a specific
time period after vehicle disposal, then taxable gain is recognized.
22
Source: HERTZ CORP, 10-K, March 31, 2014 Powered by Morningstar® Document Research℠
The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,
except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.