Hertz 2013 Annual Report Download - page 27

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but not paid for, or that were sold for less than their agreed repurchase price or guaranteed value) and we would also be exposed to residual
risk with respect to these cars.
The failure by a manufacturer to pay such amounts could cause a credit enhancement deficiency with respect to our asset-backed and asset-
based financing arrangements, requiring us to either reduce the outstanding principal amount of debt or provide more collateral (in the form
of cash, vehicles and/or certain other contractual rights) to the creditors under any such affected arrangement.
If one or more manufacturers were to adversely modify or eliminate repurchase or guaranteed depreciation programs in the future, our
access to and the terms of asset-backed and asset-based debt financing could be adversely affected, which could in turn have a material
adverse effect on our liquidity, cash flows, financial condition and results of operations.
We have recognized losses as a result of our relationship with Franchise Services of North America, or "FSNA," and Simply
Wheelz and may incur additional losses.
We are a party to certain commercial arrangements with FSNA and its subsidiary Simply Wheelz as a result of the disposition of our
Advantage business, including sublease agreements pursuant to which we subleased approximately 20,000 vehicles to Simply Wheelz or
its affiliates for use in the operation of the Advantage brand. In October 2013, FSNA requested that we forbear from seeking collection of all
amounts owed to us by Simply Wheelz and agree to renegotiate certain aspects of our commercial arrangements, including the financial
terms on which we were subleasing vehicles to them. On November 2, 2013, we terminated the applicable sublease contracts, and on
November 5, 2013, Simply Wheelz filed for bankruptcy protection under Chapter 11 of the United States Bankruptcy Code. Pursuant to
Sections 363 and 365 of the Bankruptcy Code, Simply Wheelz has agreed to sell substantially all of its assets to The Catalyst Capital Group
Inc., or “Catalyst.” On December 16, 2013, in connection with Simply Wheelz’s bankruptcy proceedings, we entered into a settlement
agreement with Simply Wheelz, FSNA, Catalyst and certain other parties thereto, which provides Simply Wheelz and Catalyst with, among
other things, the right to continue to use our vehicles in exchange for certain payments and the orderly return of our vehicles. As of February
1, 2014, Simply Wheelz was in possession of approximately 9,000 of our vehicles. If Simply Wheelz fails to pay the amounts owed to us or
return our vehicles in accordance with the terms of the settlement agreement, our results of operations could be adversely affected.
We may not be successful in implementing our strategy of further reducing operating costs and our cost reduction initiatives
may have adverse consequences.
We are continuing to implement initiatives to reduce our operating expenses. These initiatives may include headcount reductions, business
process outsourcing, business process re-engineering, internal reorganization and other expense controls. We cannot assure you that our
cost reduction initiatives will achieve any further success. Whether or not successful, our cost reduction initiatives involve significant
expenses and we expect to incur further expenses associated with these initiatives, some of which may be material in the period in which
they are incurred.
Even if we achieve further success with our cost reduction initiatives, we face risks associated with our initiatives, including declines in
employee morale or the level of customer service we provide, the efficiency of our operations or the effectiveness of our internal controls. Any
of these risks could have a material adverse impact on our results of operations, financial condition, liquidity and cash flows.
An impairment of our goodwill or our indefinite lived intangible assets could have a material non-cash adverse impact on our
results of operations.
We review our goodwill and indefinite lived intangible assets for impairment whenever events or changes in circumstances indicate that the
carrying amount of these assets may not be recoverable and at least annually. If economic deterioration occurs, then we may be required to
record charges for goodwill or indefinite lived intangible asset impairments in the future, which could have a material adverse non-cash
impact on our results of operations.
Significant increases in fuel prices or reduced supplies of fuel could harm our business.
Significant increases in fuel prices, reduced fuel supplies or the imposition of mandatory allocations or rationing of fuel could negatively
impact our car rental business by discouraging consumers from renting cars, changing the types of cars our customers rent from us or the
other services they purchase from us or disrupting air travel, on which a significant portion of our car rental business relies. In addition,
significant increases in fuel prices or a reduction in fuel supplies could negatively impact our equipment rental business by increasing the
cost of buying new equipment, since fuel is used in the manufacturing process and in delivering equipment to us, and by reducing the
mobility of our fleet, due to higher costs of transporting equipment between facilities or regions. Accordingly, significant increases in fuel
prices or reduced supplies of fuel could have a material adverse effect on our financial condition and results of operations.
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Source: HERTZ CORP, 10-K, March 31, 2014 Powered by Morningstar® Document Research℠
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