Hertz 2013 Annual Report Download - page 95

Table of Contents
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effective tax rate of the combined company could be significantly different (either higher or lower) depending on post-Dollar Thrifty acquisition
activities, cash needs and the geographical location of businesses.
Pro forma adjustments - Donlen acquisition
2011 supplemental pro forma revenue for the year ended December 31, 2011 excludes $3.2 million related to deferred revenue which was
eliminated as part of acquisition accounting. 2011 supplemental pro forma earnings for the year ended December 31, 2011 excludes $2.0
million related to deferred income which was eliminated as part of acquisition accounting, and $6.1 million of acquisition related costs
incurred in 2011.
Other Acquisitions
On April 15, 2013, Hertz entered into definitive agreements with China Auto Rental Holdings, Inc., or ‘‘China Auto Rental,’’ and related
parties pursuant to which Hertz made a strategic investment in China Auto Rental. China Auto Rental is the largest car rental company in
China. Pursuant to the transaction, Hertz invested cash in, and agreed to contribute its China Rent-a-Car entities to, China Auto Rental. For
this investment, Hertz received common stock and convertible notes in return. Upon the initial closing of the transaction, which occurred on
May 1, 2013, Hertz became the owner of 10% of China Auto Rental’s ordinary shares and has a seat on China Auto Rental’s Board. We
have de-consolidated Hertz China Rent-a-Car entities and classified the convertible notes as available for sale securities. Upon conversion of
the convertible notes, Hertz would have 18.64% on a fully diluted basis. This transaction was accounted for under the equity method of
accounting in accordance with GAAP.
During the year ended December 31, 2013, we added twenty seven locations by re-acquiring former franchisees and three locations through
external acquisitions in our domestic and international car rental operations. These acquisitions are not material to our consolidated financial
statements for the year ended December 31, 2013.
Divestitures
Divestiture of Selected Dollar Thrifty Airport Locations
In order to obtain regulatory approval and clearance for the Dollar Thrifty acquisition, Hertz agreed to dispose of Advantage, and to secure for
the buyer of Advantage certain on-airport car rental concessions and related assets at certain locations where Dollar Thrifty operated at least
one of its brands. As of December 31, 2013, Hertz completed the transfer of most of these Dollar Thrifty locations and had a remaining
reserve for estimated support payments of $2.8 million.
Advantage Divestiture
Pursuant to the terms of a purchase agreement, or the "Simply Wheelz Purchase Agreement," on December 12, 2012, Hertz completed the
sale of Simply Wheelz LLC, or the “Advantage divestiture,” a wholly owned subsidiary of Hertz that operated our Advantage Rent A Car
business, or “Advantage,” for approximately $16.0 million, plus the value of current assets as of the closing date, which was approximately
$3.6 million. Pursuant to the terms of a support agreement, or the "Simply Wheelz Support Agreement," Hertz also agreed to provide
financial support to the buyer of Advantage in the amount of $17.0 million over a period of three years from the closing date (with the present
value of $15.6 million as of December 31, 2012). As a result of the Advantage divestiture, Hertz realized a loss (before income taxes) of
approximately $31.4 million as of December 31, 2012.
To assist the buyer of Advantage in securing alternative fleet financing arrangements, Hertz entered into a senior note credit agreement (the
“Simply Wheelz Credit Agreement”), pursuant to which Hertz agreed, subject to certain conditions, to loan Simply Wheelz, on a senior
unsecured basis, up to $45.0 million over 5 years (2.5 years weighted average life) at varied interest rates up to 13% over the life of the loan.
Further, Hertz agreed to sublease vehicles to the buyer of Advantage for use in continuing the operations of Advantage, for a period no longer
than two years from the closing date. As such, Hertz had significant continuing involvement in the operations of the disposed Advantage
business. Therefore, the operating results associated with the Advantage business are classified as part of our continuing operations in the
consolidated statements of operations for all periods presented.
In October 2013, Simply Wheelz's parent Franchise Services of North America, or "FSNA," requested that Hertz forbear from seeking
collection of all amounts owed to it by Simply Wheelz and agree to renegotiate certain aspects of the commercial arrangements with Hertz,
including the financial terms on which Hertz was subleasing vehicles to Simply Wheelz. On November 2, 2013, Hertz 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.
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Source: HERTZ CORP, 10-K, March 31, 2014 Powered by Morningstar® Document Research℠
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