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What changed in HERC HOLDINGS INC's 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of HERC HOLDINGS INC's 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+118 added−110 removedSource: 10-K (2024-02-13) vs 10-K (2023-02-14)

Top changes in HERC HOLDINGS INC's 2023 10-K

118 paragraphs added · 110 removed · 86 edited across 7 sections

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

17 edited+7 added−2 removed177 unchanged
Biggest changeAn increase in interest rates or in our borrowing margin would increase the cost of servicing our debt and could reduce our profitability. A significant portion of our indebtedness bears interest at floating rates, which increases our vulnerability to general adverse economic and industry conditions (such as economic cycles and credit-related disruptions), including interest rate fluctuations.
Biggest changeA significant portion of our indebtedness bears interest at floating rates, which increases our vulnerability to general adverse economic and industry conditions (such as economic cycles and credit-related disruptions), including interest rate fluctuations.
Our business depends on our ability to maintain positive relations with our key national account customers, which collectively accounted for 43% of our rental revenue in 2022. We cannot assure you that all of these relationships will continue at current levels or on current terms. Our contracts with our customers generally do not obligate them to rent equipment from us.
Our business depends on our ability to maintain positive relations with our key national account customers, which collectively accounted for 44% of our rental revenue in 2023. We cannot assure you that all of these relationships will continue at current levels or on current terms. Our contracts with our customers generally do not obligate them to rent equipment from us.
As of December 31, 2022, there were 28.9 million shares of our common stock outstanding, which are freely transferable without restriction or further registration under the Securities Act of 1933, as amended (the “Securities Act”), unless held or acquired by our “affiliates” as that term is defined in Rule 144 under the Securities Act.
As of December 31, 2023, there were 28.2 million shares of our common stock outstanding, which are freely transferable without restriction or further registration under the Securities Act of 1933, as amended (the “Securities Act”), unless held or acquired by our “affiliates” as that term is defined in Rule 144 under the Securities Act.
Such disruptions have resulted and could further result in our inability to effectively meet our customers’ needs, impair our ability to execute our growth plans and could result in a material adverse effect on our results of operations, financial condition, and/or cash flows.
Such disruptions could result in our inability to effectively meet our customers’ needs, impair our ability to execute our growth plans and could result in a material adverse effect on our results of operations, financial condition, and/or cash flows.
As of December 31, 2022, we had unutilized U.S. federal net operating loss carryforwards of approximately $532.1 million. Our ability to use such tax attributes to offset future taxable income and tax liabilities may be significantly limited if we experience an "ownership change" as defined in Section 382(g) of the Code.
As of December 31, 2023, we had unutilized U.S. federal net operating loss carryforwards of approximately $436 million. Our ability to use such tax attributes to offset future taxable income and tax liabilities may be significantly limited if we experience an "ownership change" as defined in Section 382(g) of the Code.
As our rental equipment ages, the cost of maintaining such equipment, if not replaced within a certain period of time, and the risk of fleet equipment being out of service, generally increase. As of December 31, 2022, the average age of our rental equipment fleet was approximately 48 months.
As our rental equipment ages, the cost of maintaining such equipment, if not replaced within a certain period of time, and the risk of fleet equipment being out of service, generally increase. As of December 31, 2023, the average age of our rental equipment fleet was approximately 45 months.
The following factors, among others, may cause weakness in our markets, either temporarily or long-term: • a decrease in the expected levels of rental versus ownership of equipment; • government regulations and policies, including government initiatives for infrastructure improvements or expansions, or the policies of governments regarding exploration for, and production and development of, oil and natural gas reserves; • a prolonged or recurring shutdown of the U.S. and Canadian federal, state, provincial and local governments; • an increase in the cost of construction materials; • the level of supply and demand and relative prices or anticipated prices for oil and natural gas; • an overcapacity of fleet in the equipment rental industry; • a lack of availability of credit; • an increase in interest rates; and • terrorism or hostilities involving the United States or Canada.
The following factors, among others, may cause weakness in our markets, either temporarily or long-term: • a decrease in the expected levels of rental versus ownership of equipment; • government regulations and policies, including government initiatives for infrastructure improvements or expansions, or the policies of governments regarding exploration for, and production and development of, oil and natural gas reserves; • a prolonged or recurring shutdown of the U.S. and Canadian federal, state, provincial and local governments; • an increase in the cost of construction materials; • the level of supply and demand and relative prices or anticipated prices for oil and natural gas; • an overcapacity of fleet in the equipment rental industry; • a lack of availability of credit; • an increase in interest rates; • labor strikes, work stoppages or other labor disruption in one or more markets we serve; and • terrorism or hostilities involving the United States or Canada.
As of December 31, 2022 and December 31, 2021, the aggregate amounts accrued for environmental liabilities, including liability for environmental indemnities, reflected in the Company's consolidated balance sheets in "Accrued liabilities" were $0.4 million and $0.3 million, respectively.
As of December 31, 2023 and 2022, the aggregate amounts accrued for environmental liabilities, including liability for environmental indemnities, reflected in the Company's consolidated balance sheets in "Accrued liabilities" were $0.4 million.
Labor contracts covering the terms of employment of approximately 585 employees in the U.S. and 105 employees in Canada were in effect as of December 31, 2022 under approximately 25 active contracts with local unions, affiliated primarily with the International Brotherhood of Teamsters and the International Union of Operating Engineers. These contracts are renegotiated periodically.
Labor contracts covering the terms of employment of approximately 590 employees in the U.S. and 110 employees in Canada were in effect as of December 31, 2023 under approximately 25 active contracts with local unions, affiliated primarily with the International Brotherhood of Teamsters and the International Union of Operating Engineers. These contracts are renegotiated periodically.
We have experienced, and in the future are likely to experience, lack of access to and delays in receipt of equipment and products from suppliers. For example, the rapid increase in demand as the COVID-19 pandemic wanes has caused, and is expected to continue to cause, significant stress on global supply chains.
We have experienced, and in the future are likely to experience, lack of access to and delays in receipt of equipment and products from suppliers. For example, the rapid increase in demand as the COVID-19 pandemic waned caused significant stress on global supply chains.
RISK FACTORS (continued) stock acquired upon exercise of stock options and other equity-based awards granted under our stock incentive plan also will be freely tradable under the Securities Act unless acquired by our affiliates, as will shares acquired by our employees under our employee stock purchase plan.
In addition, all shares of our common stock acquired upon exercise of stock options and other equity-based awards granted under our stock incentive plan also will be freely tradable under the Securities Act unless acquired by our affiliates, as will shares acquired by our employees under our employee stock purchase plan.
While the pandemic's impact on social and economic conditions has begun to subside and potentially shifting toward becoming more endemic in the U.S. , the extent of the impact of COVID-19 on our operational and financial performance, including our ability to execute our business strategies and initiatives in the expected time frame, will depend on future developments, including the duration and spread of COVID-19 and related restrictions on economic activity, all of which are uncertain and cannot be predicted.
While the U.S. federal government declared that the COVID-19 public health emergency has ended and begun shifting toward becoming more endemic in the U.S., the extent of the impact of COVID-19 on our operational and financial performance, including our ability to execute our business strategies and initiatives in the expected time frame, will depend on future developments, including the duration and spread of COVID-19 and related restrictions on economic activity, all of which are uncertain and cannot be predicted.
Any or all of the foregoing provisions could limit the price that some investors might be willing to pay for shares of our common stock. ITEM 1B. UNRESOLVED STAFF COMMENTS None.
Any or all of the foregoing provisions could limit the price that some investors might be willing to pay for shares of our common stock.
In addition, the prices of equipment and products have significantly increased in the past twelve months and there continues to be inflationary pressures that could further increase such costs. We may not be able to pass on these costs to our customers, which could have a material adverse impact on our results of operations and/or cash flows.
In addition, the prices of certain equipment and products may continue to experience inflationary pressures that could further increase such costs. We may not be able to pass on these costs to our customers, which could have a material adverse impact on our results of operations and/or cash flows.
As of December 31, 2022, we had total outstanding debt of approximately $2.9 billion, including our outstanding senior notes and the amounts drawn under our credit facilities.
As of December 31, 2023, we had total outstanding debt of approximately $3.7 billion, including our outstanding senior notes and the amounts drawn under our credit facilities.
Despite our current level of indebtedness, we may still be able to incur substantially more debt. This could further exacerbate the risks described above. We and our subsidiaries may be able to incur significant additional indebtedness in the future.
This could further exacerbate the risks described above. We and our subsidiaries may be able to incur significant additional indebtedness in the future.
Further, these restrictions also do not prevent us from incurring obligations that do not constitute indebtedness. If new debt or other obligations are added to our current debt and liability levels without a corresponding refinancing or redemption of our existing indebtedness and obligations, the risks related to our substantial indebtedness could increase.
Further, these restrictions also do not prevent us from incurring obligations that do not constitute indebtedness. If new debt or other obligations are added to our current debt and liability levels 19 Table of Contents HERC HOLDINGS INC. AND SUBSIDIARIES ITEM lA.
Removed
Certain shareholders, most notably affiliates of Carl Icahn and Mario Gabelli, have accumulated significant amounts of our common stock.
Added
The amount of borrowings permitted under our revolving credit facility may fluctuate significantly, which may adversely affect our liquidity, results of operations and financial position. The amount of borrowings permitted at any time under our revolving credit facility is limited to a periodic borrowing base valuation of the collateral thereunder.
Removed
In addition, all shares of our common 19 Table of Contents HERC HOLDINGS INC. AND SUBSIDIARIES ITEM lA.
Added
As a result, our access to credit under our revolving credit facility is potentially subject to significant fluctuations depending on the value of the borrowing base of eligible assets as of any measurement date, as well as certain discretionary rights of the agent in respect of the calculation of such borrowing base value.
Added
The inability to borrow under our revolving credit facility, or limitations on the amounts we can borrow under our revolving credit facility, may adversely affect our liquidity, results of operations and financial position. An increase in interest rates or in our borrowing margin would increase the cost of servicing our debt and could reduce our profitability.
Added
Our ability to refinance our indebtedness is subject to prevailing economic conditions, including our operating and financial performance, as well as financial, business, legislative, regulatory and other factors beyond our control.
Added
A refinancing of our indebtedness could also require us to comply with more onerous covenants and further restrict our business operations.
Added
Our inability to refinance our indebtedness or to do so upon attractive terms could materially and adversely affect our business, prospects, results of operations, financial condition and cash flows, and make us vulnerable to adverse industry and general economic conditions. Despite our current level of indebtedness, we may still be able to incur substantially more debt.
Added
RISK FACTORS (continued) without a corresponding refinancing or redemption of our existing indebtedness and obligations, the risks related to our substantial indebtedness could increase.

Item 2. Properties

Properties — owned and leased real estate

2 edited+0 added−0 removed1 unchanged
Biggest changeITEM 2. PROPERTIES As of February 10, 2023, we had 358 locations in the United States and Canada. We also operate regional headquarters, sales offices and service facilities in the foregoing countries in support of our equipment rental operations. Our principal executive offices are located in Bonita Springs, Florida.
Biggest changeITEM 2. PROPERTIES As of February 9, 2024, we had 400 locations in the United States and Canada. We also operate regional headquarters, sales offices and service facilities in the foregoing countries in support of our equipment rental operations. Our principal executive offices are located in Bonita Springs, Florida.
As of December 31, 2022, we owned approximately 7% of the locations from which we operate our equipment rental business, with the remainder leased. Those leases are typically triple net leases, where Herc is responsible for the ongoing expenses of the property, including real estate taxes, insurance, and maintenance, in addition to paying rent and utilities.
As of December 31, 2023, we owned approximately 6% of the locations from which we operate our equipment rental business, with the remainder leased. Those leases are typically triple net leases, where Herc is responsible for the ongoing expenses of the property, including real estate taxes, insurance, and maintenance, in addition to paying rent and utilities.

Item 4. Mine Safety Disclosures

Mine Safety Disclosures — required of mining issuers

9 edited+3 added−3 removed8 unchanged
Biggest changeCunningham joined the Company in September 2014 from DFC Global Corporation where he served as vice president, corporate HR and HR services since June 2013 with global responsibility for all human resource matters for corporate staff. Previously, Mr. Cunningham held the position of vice president, HR, compensation and benefits at Sunoco Inc. and Sunoco Logistics from 2010 to 2013.
Biggest changeBirnbaum also has held leadership responsibilities related to the Company's strategic planning, operational execution and M&A activities. Christian J. Cunningham. Mr. Cunningham joined the Company in September 2014 from DFC Global Corporation where he served as vice president, corporate HR and HR services since June 2013 with global responsibility for all human resource matters for corporate staff. Previously, Mr.
Birnbaum has served as the Company’s Senior Vice President from 2017 to 2019 and served as a Regional Vice President from 2012 to 2017. As Senior Vice President, Mr. Birnbaum oversaw the Company's Western, Northwest, North Central and Canada regions as well as its Herc Entertainment Services® and Cinelease® specialty equipment rental units. Mr.
Birnbaum served as the Company’s Senior Vice President from 2017 to 2019 and served as a Regional Vice President from 2012 to 2017. As Senior Vice President, Mr. Birnbaum oversaw the Company's Western, Northwest, North Central and Canada regions as well as its Herc Entertainment Services® and Cinelease® specialty equipment rental units. Mr.
Prior to Sunoco, Mr. Cunningham served at ARAMARK as vice president, global compensation and strategy from 2008 to 2010; at Scholastic Inc. as vice president, compensation, benefits and HRIS from 2006 to 2007; and at Pep Boys as assistant vice president, human resources from 2005 to 2006. Previously, Mr.
Cunningham served at ARAMARK as vice president, global compensation and strategy from 2008 to 2010; at Scholastic Inc. as vice president, compensation, benefits and HRIS from 2006 to 2007; and at Pep Boys as assistant vice president, human resources from 2005 to 2006. Previously, Mr.
Wade Sheek 46 Senior Vice President, Chief Legal Officer and Secretary Lawrence H. Silber. Mr. Silber joined the Company in May 2015. Prior to that, Mr.
Wade Sheek 47 Senior Vice President, Chief Legal Officer and Secretary Lawrence H. Silber. Mr. Silber joined the Company in May 2015. Prior to that, Mr.
ITEM 4. MINE SAFETY DISCLOSURES Not applicable. Executive Officers of the Registrant The name, age, position and a description of the business experience of each of our executive officers is provided below. There is no family relationship among the executive officers or between any executive officer and a director. Name Age Position Lawrence H.
ITEM 4. MINE SAFETY DISCLOSURES Not applicable. 22 Table of Contents HERC HOLDINGS INC. AND SUBSIDIARIES Executive Officers of the Registrant The name, age, position and a description of the business experience of each of our executive officers is provided below. There is no family relationship among the executive officers or between any executive officer and a director.
Silber previously served on the board of directors of SMTC Corporation, a mid-size provider of end-to-end electronics manufacturing services, from 2012 to 2015 (and from May 2013 through January 2014 served as its interim president and CEO). Mark H. Irion. Mr. Irion joined the Company in June 2018. Prior to that, Mr.
Silber previously served on the board of directors of SMTC Corporation, a mid-size provider of end-to-end electronics manufacturing services, from 2012 to 2015 (and from May 2013 through January 2014 served as its interim president and CEO). Mark Humphrey. Mr. Humphrey joined the Company in April 2017. Prior to his current role, Mr.
He was previously director of Worldwide Financial Systems for Kulicke & Soffa Industries, Inc., a global manufacturer and supplier of semiconductor equipment, and before that he worked for Ernst & Young, including as an audit senior in its Assurance Services area. S. Wade Sheek. Mr.
He was previously director of Worldwide Financial Systems for Kulicke & Soffa Industries, Inc., a global manufacturer and supplier of semiconductor equipment, and before that he worked for Ernst & Young, including as an audit senior in its Assurance Services area. 23 Table of Contents HERC HOLDINGS INC. AND SUBSIDIARIES Executive Officers of the Registrant (continued) S. Wade Sheek. Mr.
Silber 66 President and Chief Executive Officer, Director Mark H. Irion 56 Senior Vice President and Chief Financial Officer Christian J. Cunningham 61 Senior Vice President and Chief Human Resources Officer Aaron D. Birnbaum 57 Senior Vice President and Chief Operating Officer Tamir Peres 53 Senior Vice President and Chief Information Officer S.
Name Age Position Lawrence H. Silber 67 President and Chief Executive Officer, Director Mark Humphrey 52 Senior Vice President and Chief Financial Officer Aaron D. Birnbaum 58 Senior Vice President and Chief Operating Officer Christian J. Cunningham 62 Senior Vice President and Chief Human Resources Officer Tamir Peres 54 Senior Vice President and Chief Information Officer S.
Cunningham held director and regional managerial positions in roles with increasing levels of responsibility at Pep Boys from 1995 to 2005 and Tire Service Corporation, Inc. from 1985 to 1995. Aaron D. Birnbaum. Mr. Birnbaum served the Company and its predecessor business for more than 30 years. Prior to his current role, Mr.
Cunningham held director and regional managerial positions in roles with increasing levels of responsibility at Pep Boys from 1995 to 2005 and Tire Service Corporation, Inc. from 1985 to 1995. Tamir Peres. Mr.
Removed
Irion most recently served as the chief financial officer of Neff Corporation, a publicly traded equipment rental company, for 19 years until its sale in October 2017.
Added
Humphrey served as vice president, chief accounting officer from April 2017 to March 2023, served as controller from April 2017 to February 2022 and served as interim chief financial officer from March 2018 to June 2018. Prior to joining the Company, Mr. Humphrey served as chief financial officer and controller of Alico, Inc., a publicly traded agribusiness and resource-management company.
Removed
Prior to his role with Neff, he was chief financial officer for Markvision Holdings, Inc., a computer component distribution company, from 1994 to 1998 and, before that, he was an audit senior for Deloitte & Touche LLP in the U.S. and New Zealand. Christian J. Cunningham. Mr.
Added
His nearly 30-year career also includes roles as chief financial officer for Compass Management Group, a property-management company, and nearly 10 years in public accounting with PricewaterhouseCoopers LLP. Aaron D. Birnbaum. Mr. Birnbaum served the Company and its predecessor business for more than 30 years. Prior to his current role, Mr.
Removed
Birnbaum also has held leadership responsibilities related to the Company's strategic planning, operational execution and M&A activities. 21 Table of Contents HERC HOLDINGS INC. AND SUBSIDIARIES Executive Officers of the Registrant (continued) Tamir Peres. Mr.
Added
Cunningham held the position of vice president, HR, compensation and benefits at Sunoco Inc. and Sunoco Logistics from 2010 to 2013. Prior to Sunoco, Mr.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

7 edited+2 added−1 removed5 unchanged
Biggest changeOur industry peer group is comprised of Applied Industrial Tech Inc., Ashstead Group plc, Beacon Roofing Supply, Inc., Fastenal Company, GATX Corp., H&E Equipment Services, KAR Auction Services Inc., McGrath RentCorp, NOW Inc., Pool Corp., Ritchie Bros. Auctioneers Incorporated, Triton International Ltd., Watsco Inc., WillScot Mobile Mini Holdings Corp. and United Rentals, Inc.
Biggest changeFederal Signal Corporation Rush Enterprises, Inc. Xylem Inc. GATX Corp. Terex Corporation Our 2022 industry peer group includes: Agrekko H&E Equipment Services Triton International Ltd. Applied Industrial Tech Inc. KAR Auction Services Inc. United Rentals, Inc. Ashtead Group plc McGrath Rentcorp Watsco Inc. Beacon Roofing Supply, Inc. NOW Inc. WillScot Mobile Mini Holdings Corp. Fastenal Company Pool Corp. GATX Corp.
The industry peer group is comprised of publicly traded companies participating in the equipment rental industry and other relevant companies of comparable size in the broader industry in which we compete.
The 2023 industry peer group is comprised of publicly traded companies participating in the equipment rental industry and other relevant companies of comparable size in the broader industry in which we compete.
The graph assumes that $100 was invested on December 31, 2017 over the indicated time periods and assumes reinvestment of all dividends, if any, paid on the securities. The cumulative total return calculation for Herc Holdings is based on stock price appreciation and payment of cash dividends.
Ritchie Bros Auctioneers Inc. The graph assumes that $100 was invested on December 31, 2018 over the indicated time periods and assumes reinvestment of all dividends, if any, paid on the securities. The cumulative total return calculation for Herc Holdings is based on stock price appreciation and payment of cash dividends.
ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITY Common Stock and Registered Holders Our common stock trades on the New York Stock Exchange ("NYSE") under the symbol "HRI". On February 10, 2023, there were 1,527 registered holders of our common stock.
ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Common Stock and Registered Holders Our common stock trades on the New York Stock Exchange ("NYSE") under the symbol "HRI". On February 9, 2024, there were 1,672 registered holders of our common stock.
The agreements governing our indebtedness restrict our ability to pay dividends. See Item 7, "Management Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources — Dividends," in this Report. 22 Table of Contents HERC HOLDINGS INC. AND SUBSIDIARIES ITEM 5.
The agreements governing our indebtedness restrict our ability to pay dividends. See Item 7, "Management Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources — Dividends," in this Report.
MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES (Continued) Recent Performance The following graph compares the cumulative total stockholder return on Herc Holdings common stock from December 31, 2017 through December 31, 2022, with the cumulative total returns of the Standard & Poor's Small Cap 600 Index, the Standard & Poor's Mid Cap 400 Trading Companies & Distributors Industry Index and an industry peer group.
Recent Performance The following graph compares the cumulative total stockholder return on Herc Holdings common stock from December 31, 2018 through December 31, 2023, with the cumulative total returns of the Standard & Poor's Mid Cap 400 Trading Companies & Distributors Industry Index, our 2023 industry peer group and our 2022 industry peer group.
The following table provides information about our repurchases of our common stock during the fourth quarter of 2022: Period Total Number of Shares Purchased Average Price Per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs Maximum Dollar Amount of Shares That May Yet Be Purchased Under the Program October 1, 2022 to October 31, 2022 459,388 $ 109.46 459,388 November 1, 2022 to November 30, 2022 48,774 $ 118.62 48,774 December 1, 2022 to December 31, 2022 — $ — — Total 508,162 $ 110.34 508,162 $ 280,638,376 Dividends On February 8, 2023, the Company declared a quarterly dividend of $0.6325 per share to record holders as of February 22, 2023, with payment date of March 9, 2023.
The following table provides information about our repurchases of our common stock during the fourth quarter of 2023: Period Total Number of Shares Purchased Average Price Per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs Maximum Dollar Amount of Shares That May Yet Be Purchased Under the Program October 1, 2023 to October 31, 2023 119,392 $ 106.84 119,392 November 1, 2023 to November 30, 2023 — — — December 1, 2023 to December 31, 2023 — — — Total 119,392 $ 106.84 119,392 $ 161,497,321 Dividends On February 7, 2024, the Company declared a quarterly dividend of $0.665 per share to record holders as of February 21, 2024, with payment date of March 7, 2024.
Removed
The Standard & Poor's Mid Cap 400 Trading Companies & Distributors Industry Index was added in 2022 as the companies included more closely align to the Company's industry and business.
Added
The 2023 industry peer group includes the removal of six companies and addition seven companies as compared to the 2022 industry peer group in order to reflect changing market conditions, our growth and to place us near the median in revenue and market capitalization. 24 Table of Contents HERC HOLDINGS INC. AND SUBSIDIARIES ITEM 5.
Added
MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES (Continued) Our 2023 industry peer group includes: Air Lease Corporation H&E Equipment Services Trinity Industries, Inc. Ashtead Group plc McGrath Rentcorp Triton International Ltd. Custom Truck One Source Inc. Pool Corp. United Rentals, Inc. Fastenal Company Ritchie Bros Auctioneers Inc. WillScot Mobile Mini Holdings Corp.

Item 6. [Reserved]

Selected Financial Data — reserved (removed by SEC in 2021)

8 edited+2 added−5 removed9 unchanged
Biggest changeThe addition of new locations supports our long-term strategy to achieve greater density and scale in select urban markets across North America to better serve both our local and national customers.
Biggest changeThe addition of new locations supports our long-term strategy to achieve greater density and scale in select urban markets across North America to better serve both our local and national customers. Supporting our financial flexibility and continued investment in our business, our senior secured asset-based revolving credit facility has over $1.4 billion of availability at the end of 2023.
Our expenses primarily consist of: • Direct operating expenses (primarily wages and related benefits, facility costs and other costs relating to the operation and rental of rental equipment, such as delivery, maintenance and fuel); • Cost of sales of rental equipment, new equipment, parts and supplies; • Depreciation expense relating to rental equipment; • Selling, general and administrative expenses; and • Interest expense. 24 Table of Contents HERC HOLDINGS INC.
Our expenses primarily consist of: • Direct operating expenses (primarily wages and related benefits, facility costs and other costs relating to the operation and rental of rental equipment, such as delivery, maintenance and fuel); • Cost of sales of rental equipment, new equipment, parts and supplies; • Depreciation expense relating to rental equipment; • Selling, general and administrative expenses; and • Interest expense. 26 Table of Contents HERC HOLDINGS INC.
ITEM 6. RESERVED 23 Table of Contents HERC HOLDINGS INC. AND SUBSIDIARIES ITEM 7.
ITEM 6. RESERVED 25 Table of Contents HERC HOLDINGS INC. AND SUBSIDIARIES ITEM 7.
We invested significantly in our rental equipment as part of our long-term capital expenditure plans, adding rental equipment in high growth markets in response to customer demand and to position ourselves for growth into 2023. Additionally, during 2022, we completed 18 acquisitions, adding 29 branches, totaling a net cash outflow of $515.2 million, while also opening 21 new greenfield locations.
We invested significantly in our rental equipment as part of our long-term capital expenditure plans, adding rental equipment in high growth markets in response to customer demand and to position ourselves for growth into 2024. Additionally, during 2023, we completed 12 acquisitions, adding 21 branches, totaling a net cash outflow of $430 million, while also opening 21 new greenfield locations.
Additionally, we amended and extended our account receivable securitization facility, which now matures August 31, 2023 and increased the aggregate commitments from $250 million to $335 million.
Additionally, we amended and extended our account receivable securitization facility, which now matures August 31, 2024 and increased the aggregate commitments from $335 million to $370 million.
AND SUBSIDIARIES ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) 2022 Overview Our results for 2022 reflect the strong demand in the rental industry as demonstrated by our equipment rental revenues of $2.6 billion, an increase of 33.6% over 2021, reflecting positive pricing of 5.8% and increased volume of equipment on rent of 31.8%.
AND SUBSIDIARIES ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) 2023 Overview Our results for 2023 reflect the strong demand in the rental industry as demonstrated by our equipment rental revenues of $2.9 billion, an increase of 12% over 2022, reflecting positive pricing of 6.9% and increased volume of equipment on rent of 14.8%.
Our local markets and industries have shown continued strength in economic activity and we believe the operating environment continues to be favorable for equipment rental companies of scale. We continued to execute on company-wide initiatives to increase our margins and profitability, resulting in an increase in net income to $329.9 million from $224.1 million in 2021.
Our local markets and industries have shown continued strength in economic activity and we believe the operating environment continues to be favorable for equipment rental companies of scale. We continued to execute on company-wide initiatives to increase our margins and profitability, resulting in an increase in net income to $347 million from $330 million in 2022.
As part of our capital allocation strategy, we have continued to pay quarterly dividends at $0.575 per share throughout 2022 and also repurchased approximately 1.1 million shares of our common stock for $115.2 million. COVID-19 We continue to monitor the ongoing impact of the COVID-19 pandemic and the potential shift toward becoming more endemic in the U.S.
As part of our capital allocation strategy, we have continued to pay quarterly dividends at $0.6325 per share throughout 2023 and also repurchased approximately 1.1 million shares of our common stock for $120 million. During the fourth quarter, we announced our plans to explore strategic alternatives for our Cinelease studio entertainment and lighting and grip equipment rental business.
Removed
In order to provide financial flexibility and continue investment in our business, we amended our senior secured asset-based revolving credit facility to increase the aggregate amount of the revolving credit commitments from $1.75 billion to $3.5 billion and extended the maturity to 2027.
Added
The film and studio entertainment industry has shifted to a studio centric model where owning or managing a large footprint of studios is becoming more important to be a competitive equipment rental provider, requiring significant investment in fully managed studios. This business model is a departure from our stated growth strategy.
Removed
The health and safety of our employees, customers, and the communities in which we operate remains our top priority. We remain focused on the safety and well-being of our employees, customers and communities as we maintain a high-level of service to our customers.
Added
We will continue to provide equipment rentals, other than lighting and grip equipment, to the film and entertainment industry through Herc Entertainment Services, which includes aerial equipment, forklifts, carts, generators and climate solutions. 27 Table of Contents HERC HOLDINGS INC. AND SUBSIDIARIES
Removed
As part of our overall safety culture, we communicate frequently throughout the organization to reinforce our health and safety guidelines, informed by the Center for Disease Control recommendations.
Removed
The impact of COVID-19 continues to evolve and the impact on the economy may be influenced by a number of factors, including a widespread resurgence in COVID-19 infections, whether due to the spread of variants of the virus or otherwise, the rate and efficacy of vaccinations, labor constraints, the strength of the global supply chain, and government actions.
Removed
We cannot predict the extent to which the ultimate impacts of the COVID-19 pandemic, or a shift from pandemic to endemic, will have on our financial condition, results of operations or cash flows, however, we believe we are well-positioned to operate effectively through the present environment. 25 Table of Contents HERC HOLDINGS INC. AND SUBSIDIARIES

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeMANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) RESULTS OF OPERATIONS Year Ended December 31, ($ in millions) 2022 2021 $ Change % Change Equipment rental $ 2,551.5 $ 1,910.4 $ 641.1 33.6 % Sales of rental equipment 125.7 113.1 12.6 11.1 Sales of new equipment, parts and supplies 35.8 30.1 5.7 18.9 Service and other revenue 25.8 19.5 6.3 32.3 Total revenues 2,738.8 2,073.1 665.7 32.1 Direct operating 1,027.7 782.3 245.4 31.4 Depreciation of rental equipment 535.9 420.7 115.2 27.4 Cost of sales of rental equipment 88.8 93.3 (4.5) (4.8) Cost of sales of new equipment, parts and supplies 22.3 20.3 2.0 9.9 Selling, general and administrative 410.1 310.8 99.3 31.9 Non-rental depreciation and amortization 94.9 68.0 26.9 39.6 Impairment 3.5 3.2 0.3 9.4 Interest expense, net 122.0 86.3 35.7 41.4 Other expense (income), net 0.2 (2.2) 2.4 109.1 Income before income taxes 433.4 290.4 143.0 49.2 Income tax provision (103.5) (66.3) (37.2) 56.1 Net income $ 329.9 $ 224.1 $ 105.8 47.2 % Year Ended December 31, 2022 Compared with Year Ended December 31, 2021 Equipment rental revenue increased $641.1 million, or 33.6%.
Biggest changeMANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) RESULTS OF OPERATIONS Year Ended December 31, ($ in millions) 2023 2022 $ Change % Change Equipment rental $ 2,870 $ 2,552 $ 318 12 % Sales of rental equipment 346 125 221 177 % Sales of new equipment, parts and supplies 38 36 2 6 % Service and other revenue 28 27 1 4 % Total revenues 3,282 2,740 542 20 % Direct operating 1,139 1,029 110 11 % Depreciation of rental equipment 643 536 107 20 % Cost of sales of rental equipment 252 89 163 183 % Cost of sales of new equipment, parts and supplies 25 21 4 19 % Selling, general and administrative 448 411 37 9 % Non-rental depreciation and amortization 112 95 17 18 % Interest expense, net 224 122 102 84 % Other expense (income), net (8) 3 (11) NM Income before income taxes 447 434 13 3 % Income tax provision (100) (104) 4 (4) % Net income $ 347 $ 330 $ 17 5 % NM - Not meaningful Year Ended December 31, 2023 Compared with Year Ended December 31, 2022 Equipment rental revenue increased $318 million, or 12%, during the year ended of 2023 primarily due to higher volume of equipment on rent of 14.8% and pricing growth of 6.9% over the same period in the prior year, partially offset by a decline in re-rent revenue and a reduction year-over-year in the studio entertainment business as a result of labor disruptions in the film and television industry.
The key assumptions used in the discounted cash flow valuation model for impairment testing include discount rates, growth rates, cash flow projections and terminal value rates. Discount rates are set by using the weighted average cost of capital, or "WACC," methodology.
The key assumptions used in the discounted cash flow valuation model for impairment testing include discount rates, growth rates, cash flow projections and terminal value rates. Discount rates are set by using the weighted average cost of capital ("WACC") methodology.
In connection with our impairment analysis for goodwill and indefinite-lived intangible assets conducted as of October 1, 2022, we assessed qualitative factors as described above to determine if it is more likely than not that goodwill and indefinite-lived assets may be impaired and concluded that there was no impairment related to such assets.
In connection with our impairment analysis for goodwill and indefinite-lived intangible assets conducted as of October 1, 2023, we assessed qualitative factors as described above to determine if it is more likely than not that goodwill and indefinite-lived assets may be impaired and concluded that there was no impairment related to such assets.
RECENT ACCOUNTING PRONOUNCEMENTS For a discussion of recent accounting pronouncements, see Note 2, "Basis of Presentation and Significant Accounting Policies" to the notes to our consolidated financial statements included in Part II, Item 8 "Financial Statements and Supplementary Data" of this Report. 32 Table of Contents HERC HOLDINGS INC. AND SUBSIDIARIES
RECENT ACCOUNTING PRONOUNCEMENTS For a discussion of recent accounting pronouncements, see Note 2, "Basis of Presentation and Significant Accounting Policies" to the notes to our consolidated financial statements included in Part II, Item 8 "Financial Statements and Supplementary Data" of this Report. 35 Table of Contents HERC HOLDINGS INC. AND SUBSIDIARIES
LIQUIDITY AND CAPITAL RESOURCES Our primary liquidity needs include the payment of operating expenses, purchases of rental equipment to be used in our operations, servicing of debt, funding acquisitions, payment of dividends, and share repurchases. Our primary sources of funding are operating cash flows, cash received from the disposal of equipment and borrowings under our debt arrangements.
LIQUIDITY AND CAPITAL RESOURCES Our primary uses of liquidity include the payment of operating expenses, purchases of rental equipment to be used in our operations, servicing of debt, funding acquisitions, payment of dividends, and share repurchases. Our primary sources of funding are operating cash flows, cash received from the disposal of equipment and borrowings under our debt arrangements.
As a result of this ongoing assessment, we make periodic adjustments to depreciation rates of rental equipment in response to changing market conditions. During the years ended December 31, 2022 and 2021, there were no material adjustments to our depreciation rates.
As a result of this ongoing assessment, we make periodic adjustments to depreciation rates of rental equipment in response to changing market conditions. During the years ended December 31, 2023 and 2022, there were no material adjustments to our depreciation rates.
To the extent that the useful lives of all of our rental equipment were to increase or decrease by one year, we estimate that our annual depreciation expense would decrease or increase by approximately $50 million or $60 million, respectively.
To the extent that the useful lives of all of our rental equipment were to increase or decrease by one year, we estimate that our annual depreciation expense would decrease or increase by approximately $60 million or $80 million, respectively.
Financing activities during 2022 primarily represent our changes in debt, which included net borrowings of $1.0 billion on our revolving lines of credit and securitization, which were used primarily to fund acquisitions and invest in rental equipment during the year. Net borrowings in the prior year period were $251.6 million.
Financing activities primarily represent our changes in debt, which included net borrowings of $740 million on our revolving lines of credit and securitization, which were used primarily to fund acquisitions and invest in rental equipment during the period. Net borrowings in the prior year period were $1 billion.
Rental Equipment Our principal assets are rental equipment, which represented 58.5% and 59.4% of our total assets as of December 31, 2022 and 2021, respectively. Rental equipment consists of equipment utilized in our equipment rental operations. When rental equipment is acquired, we use historical experience, industry residual value guidebooks and the monitoring of market conditions to set depreciation rates.
Rental Equipment Our principal assets are rental equipment, which represented 54.3% and 58.5% of our total assets as of December 31, 2023 and 2022, respectively. Rental equipment consists of equipment utilized in our equipment rental operations. When rental equipment is acquired, we use historical experience, industry residual value guidebooks and the monitoring of market conditions to set depreciation rates.
We refer 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 the Facility (i.e., the amount of debt we could borrow given the collateral we possess at such time). 28 Table of Contents HERC HOLDINGS INC. AND SUBSIDIARIES ITEM 7.
We refer 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 the Facility (i.e., the amount of debt we could borrow given the collateral we possess at such time).
As of December 31, 2022, we had approximately $2.9 billion of total nominal indebtedness outstanding. Our liquidity as of December 31, 2022 consisted of cash and cash equivalents of $53.5 million and unused commitments of approximately $1.6 billion under our ABL Credit Facility. See "Borrowing Capacity and Availability" below for further discussion.
As of December 31, 2023, we had approximately $3.7 billion of total nominal indebtedness outstanding. Our liquidity as of December 31, 2023 consisted of cash and cash equivalents of $71 million and unused commitments of approximately $1.4 billion under our ABL Credit Facility. See "Borrowing Capacity and Availability" below for further discussion.
Finite-Lived Intangible and Long-Lived Assets Finite-lived intangible assets include technology, customer relationships, and other intangibles. Intangible assets with finite lives are amortized over the estimated economic lives of the assets, which range from five to 14 years. These assets are 31 Table of Contents HERC HOLDINGS INC. AND SUBSIDIARIES ITEM 7.
Finite-Lived Intangible and Long-Lived Assets Finite-lived intangible assets include technology, customer relationships, and other intangibles. Intangible assets with finite lives are amortized over the estimated economic lives of the assets, which range from five to 14 years.
In evaluating whether a tax position has met the more-likely-than-not recognition threshold, the Company presumes that the position will be examined by the appropriate taxing authority with full knowledge of all relevant information. Upon determination that a tax position meets the more-likely-than-not recognition threshold, it is measured to determine the amount of benefit to recognize in the financial statements.
In evaluating whether a tax position has met the more-likely-than-not recognition threshold, the Company presumes that the position will be examined by the appropriate taxing authority with full knowledge of all relevant information.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES Our discussion and analysis of financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with U.S. GAAP.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES Our discussion and analysis of financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of the consolidated financial statements requires management to make estimates and judgments that affect the reported amounts in our consolidated financial statements and accompanying notes.
The accounts receivable and other assets of the SPE are encumbered in favor of the lenders under our AR Facility. The SPE assets are owned by the SPE and are not available to settle the obligations of the Company or any of its other subsidiaries.
The SPE assets are owned by the SPE and are not available to settle the obligations of the Company or any of its other subsidiaries. Substantially all of the remaining assets of Herc and certain of its U.S. and Canadian subsidiaries are encumbered in favor of our lenders under our ABL Credit Facility.
As of December 31, 2022, the appropriate levels of liquidity have been maintained, therefore this financial maintenance covenant is not applicable. For further information on the terms of our 2027 Notes, ABL Credit Facility and AR Facility see Note 11, "Debt" included in Part II, Item 8 "Financial Statements and Supplementary Data" of this Report.
For further information on the terms of our 2027 Notes, ABL Credit Facility and AR Facility see Note 11, "Debt" included in Part II, Item 8 "Financial Statements and Supplementary Data" of this Report.
See Note 11, "Debt" included in Part II, Item 8 "Financial Statements and Supplementary Data" of this Report for more information.
None of such assets are available to satisfy the claims of our general creditors. See Note 11, "Debt" included in Part II, Item 8 "Financial Statements and Supplementary Data" of this Report for more information.
We are subject to ongoing tax examinations and assessments in various jurisdictions. Accordingly, accruals for tax contingencies are established based on the probable outcomes of such matters. Our ongoing assessments of the probable outcomes of the examinations and related tax accruals require judgment and could increase or decrease our effective tax rate as well as impact our operating results..
Our ongoing assessments of the probable outcomes of the examinations and related tax accruals require judgment and could increase or decrease our effective tax rate as well as impact our operating results.
Years Ended December 31, 2022 2021 Rental equipment expenditures $ 1,168.5 $ 593.8 Disposals of rental equipment (121.1) (106.9) Net rental equipment expenditures $ 1,047.4 $ 486.9 Net capital expenditures for rental equipment increased $560.5 million during the year ended December 31, 2022 compared to 2021, as we manage our fleet by continuing to invest in our fleet in high growth markets as part of our long-term capital expenditure plans and manage disposals to respond to a tight equipment market.
Years Ended December 31, 2023 2022 Rental equipment expenditures $ 1,320 $ 1,168 Disposals of rental equipment (325) (121) Net rental equipment expenditures $ 995 $ 1,047 Net capital expenditures for rental equipment decreased $52 million during the year ended December 31, 2023 compared to the same period in 2022, as we optimize our fleet by continuing to invest in high growth markets as part of our long-term capital expenditure plans.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) Certain of our accounting policies, as discussed below, involve a higher degree of judgment and complexity in their application and, therefore, represent the critical accounting policies used in the preparation of our financial statements.
Certain of our accounting policies, as discussed below, involve a higher degree of judgment and complexity in their application and, therefore, represent the critical accounting policies used in the preparation of our financial statements. If different assumptions or conditions were to prevail, the results could be materially different from our reported results.
The following table summarizes the change in cash and cash equivalents for the periods shown (in millions): Years Ended December 31, 2022 2021 $ Change Cash provided by (used in): Operating activities $ 916.7 $ 744.0 $ 172.7 Investing activities (1,681.8) (961.3) (720.5) Financing activities 784.1 219.6 564.5 Effect of exchange rate changes (0.6) (0.2) (0.4) Net change in cash and cash equivalents $ 18.4 $ 2.1 $ 16.3 Year Ended December 31, 2022 Compared with Year Ended December 31, 2021 Operating Activities During the year ended December 31, 2022, we generated $172.7 million more cash from operating activities compared with the same period in 2021.
The following table summarizes the change in cash and cash equivalents for the periods shown (in millions): Years Ended December 31, 2023 2022 $ Change Cash provided by (used in): Operating activities $ 1,086 $ 917 $ 169 Investing activities (1,581) (1,682) 101 Financing activities 512 785 (273) Effect of exchange rate changes — (1) 1 Net change in cash and cash equivalents $ 17 $ 19 $ (2) Year Ended December 31, 2023 Compared with Year Ended December 31, 2022 Operating Activities During the year ended December 31, 2023, we generated $169 million more cash from operating activities compared with the same period in 2022.
Business Combinations The Company has made multiple acquisitions and may continue to make acquisitions in the future. The assets acquired and liabilities assumed are recorded based on their respective fair values at the date of acquisition. Determining the fair value of the assets and liabilities acquired is judgmental in nature and can involve the use of significant estimates and assumptions.
The past annualized long-term performance of the Plan's assets has generally been in line with the long-term rate of return assumption. Business Combinations The Company has made multiple acquisitions and may continue to make acquisitions in the future. The assets acquired and liabilities assumed are recorded based on their respective fair values at the date of acquisition.
If the carrying value of the reporting unit is greater than its fair value, we recognize an impairment charge for the amount equal to that excess. A significant decline in the projected cash flows or a change in the WACC used to determine fair value could result in a future goodwill impairment charge.
If the carrying value of the reporting unit is greater than its fair value, we recognize an impairment charge for the amount equal to that excess. A significant decline in the 33 Table of Contents HERC HOLDINGS INC. AND SUBSIDIARIES ITEM 7.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) values, useful lives and other prospective financial information. Goodwill is calculated as the excess of the cost of the acquired entity over the net of the fair value of the assets acquired and the liabilities assumed.
The estimated fair values of these intangible assets reflect various assumptions about discount rates, revenue growth rates, operating margins, terminal values, useful lives and other prospective financial information. Goodwill is calculated as the excess of the cost of the acquired entity over the net of the fair value of the assets acquired and the liabilities assumed.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) As of December 31, 2022, the following was available to us (in millions): Remaining Capacity Availability Under Borrowing Base Limitation ABL Credit Facility $ 2,134.5 $ 1,575.3 AR Facility — — Total $ 2,134.5 $ 1,575.3 During the third quarter of 2022, we entered into an amendment to the ABL Credit Facility that was executed primarily to increase the aggregate amount of the revolving credit commitments to $3.5 billion and to extend the maturity date to July 5, 2027.
As of December 31, 2023, the following was available to us (in millions): Remaining Capacity Availability Under Borrowing Base Limitation ABL Credit Facility $ 1,401 $ 1,401 AR Facility 25 — Total $ 1,426 $ 1,401 During the third quarter of 2023, we entered into an amendment to the AR Facility to increase the aggregate commitments from $335 million to $370 million and extend the maturity to August 31, 2024.
In accordance with our Share Repurchase Program, we may from time to time repurchase shares in the open market or through privately negotiated transactions, in accordance with applicable securities laws. We repurchased approximately 1.1 million shares during 2022 in accordance with our overall capital allocation strategy and as of December 31, 2022, $280.6 million remains available for repurchases.
In accordance with our Share Repurchase Program, we may from time to time repurchase shares in the open market or through privately negotiated transactions, in accordance with applicable securities laws.
Long-lived assets (principally rental equipment), goodwill and other intangible assets generally represent the largest components of the acquisitions. Rental equipment is valued utilizing either a cost or market approach, or a combination of these methods, depending on the asset being valued and the availability of market data.
Rental equipment is valued utilizing either a cost or market approach, or a combination of these methods, depending on the asset being valued and the availability of market data. The intangible assets that the Company has acquired are non-compete agreements, customer relationships and trade names and associated trademarks.
The increase was related to improved operating results primarily resulting from higher revenues coupled with improved operating leverage on costs. Investing Activities Cash used in investing activities increased $720.5 million during 2022 when compared with the prior-year period. Our primary use of cash in investing activities is for the acquisition of rental equipment, non-rental capital expenditures and acquisitions.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) Investing Activities Cash used in investing activities decreased $101 million during 2023 when compared with the prior-year period. Our primary use of cash in investing activities is for the acquisition of rental equipment, non-rental capital expenditures and acquisitions.
Creditors under the Facilities have a claim on specific pools of assets as collateral as identified in each credit agreement. Our ability to borrow under the Facilities is a function of, among other things, the value of the assets in the relevant collateral pool.
Borrowing Capacity and Availability Our ABL Credit Facility and AR Facility (together, the "Facilities") provide our borrowing capacity and availability. Creditors under the Facilities have a claim on specific pools of assets as collateral as identified in each credit agreement.
For the expected return on assets assumption, we use a forward-looking rate that is based on the expected return for each asset class (including the value added by active investment management), weighted by the target asset allocation. The past annualized long-term performance of the Plan's assets has generally been in line with the long-term rate of return assumption.
For the expected return on assets assumption, we use a forward-looking rate that is based on the 32 Table of Contents HERC HOLDINGS INC. AND SUBSIDIARIES ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) expected return for each asset class (including the value added by active investment management), weighted by the target asset allocation.
Measurement of an impairment loss for long-lived assets that management expects to hold and use is based on the estimated fair value of the asset. Long-lived assets to be disposed of are reported at the lower of carrying amount or estimated fair value less costs to sell.
Determination of recoverability is based on an estimate of undiscounted future cash flows resulting from the use of the asset and its eventual disposition. Measurement of an impairment loss for long-lived assets that management expects to hold and use is based on the estimated fair value of the asset.
The increase was primarily due to selling expense, including commissions and other variable compensation increases, of $44.9 million, and general payroll and benefits increases of $14.4 million, which includes an increase in stock compensation expense of $3.8 million. Travel expense and credit and collections expense also increased by $13.0 million and $8.2 million, respectively.
Selling, general and administrative expenses increased $37 million, or 9%. The increase was primarily due to credit and collections expense of $19 million resulting from increased rental revenue and volume of transactions. Selling expense, including commissions and other variable compensation increases, also increased by $8 million.
Long-lived assets, including intangible assets with finite lives, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. Determination of recoverability is based on an estimate of undiscounted future cash flows resulting from the use of the asset and its eventual disposition.
These assets are primarily amortized using the straight-line method, however, certain assets may be amortized using an accelerated method that reflects the economic benefit to us. Long-lived assets, including intangible assets with finite lives, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable.
We refer to the amount of debt we can borrow given a certain pool of assets as the "Borrowing Base." In connection with the AR Facility, we sell accounts receivable on an ongoing basis to a wholly-owned special-purpose entity (the "SPE").
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) In connection with the AR Facility, we sell accounts receivable on an ongoing basis to a wholly-owned special-purpose entity (the "SPE"). The accounts receivable and other assets of the SPE are encumbered in favor of the lenders under our AR Facility.
Direct operating expenses increased $245.4 million, or 31.4%, related to increases in (i) personnel-related expenses of $106.0 million primarily resulting from increased headcount and increased wages and benefits, (ii) fleet related expenses including fuel and maintenance expense of $86.0 million resulting from our increased fleet size and higher volume and higher average fuel prices in 2022, (iii) facilities expense of $25.6 million as we have added more locations through acquisitions and opening greenfield locations, (iv) delivery expense of $16.2 million due to increased volume of transactions, and (v) re-rent expense of $13.0 million due to the corresponding increase in re-rent revenue.
Direct operating expenses were 39.7% of equipment rental revenue in 2023, compared to 40.3% in the prior-year period, reflecting better cost performance and fixed cost absorption on higher revenue despite increases in (i) personnel-related expenses of $73 million primarily resulting from increased headcount and increased wages and benefits, (ii) maintenance expense of $22 million resulting from our increased fleet size and higher volume in 2023, (iii) facilities expense of $18 million as we have added more locations through acquisitions and opening greenfield locations.
Additionally, we amended the AR Facility to increase the aggregate commitments from $250 million to $335 million and extend the maturity to August 31, 2023. See Note 11, "Debt" included in Part II, Item 8 "Financial Statements and Supplementary Data" of this Report for more information.
See Note 11, "Debt" included in Part II, Item 8 "Financial Statements and Supplementary Data" of this Report for more information. As of December 31, 2023, $27 million of standby letters of credit were issued and outstanding, none of which have been drawn upon.
Additionally, we closed on 18 acquisitions during the year ended December 31, 2022 for a net cash outflow of $515.2 million. 27 Table of Contents HERC HOLDINGS INC. AND SUBSIDIARIES ITEM 7.
Additionally, we closed on 12 acquisitions during the year ended December 31, 2023 for a net cash outflow of $430 million, compared to cash outflow of $515 million during the year ended December 31, 2022. Financing Activities Cash provided by financing activities decreased $273 million during 2023 when compared with the prior-year.
As of December 31, 2022, $25.8 million of standby letters of credit were issued and outstanding under the ABL Credit Facility, none of which have been drawn upon. The ABL Credit Facility had $224.2 million available under the letter of credit facility sublimit, subject to borrowing base restrictions.
The ABL Credit Facility had $223 million available under the letter of credit facility sublimit, subject to borrowing base restrictions.
Depreciation of rental equipment increased $115.2 million, or 27.4%, during 2022 due to the increase in average fleet size. Non-rental depreciation and amortization increased $26.9 million, or 39.6%, primarily due to amortization of intangible assets related to acquisitions. Selling, general and administrative expenses increased $99.3 million, or 31.9%.
Increases were partially offset by reduced re-rent expense of $20 million due to the corresponding decrease in re-rent revenue. Depreciation of rental equipment increased $107 million, or 20%, during 2023 due to the increase in average fleet size. Non-rental depreciation and amortization increased $17 million, or 18%, primarily due to amortization of intangible assets related to acquisitions.
For a discussion of the risks associated with our indebtedness, see Part I, Item 1A "Risk Factors" contained in this Report. Dividends On February 8, 2023, the Company declared a quarterly dividend of $0.6325 per share to record holders as of February 22, 2023, with payment date of March 9, 2023.
For a discussion of the risks associated with our indebtedness, see Part I, Item 1A "Risk Factors" contained in this Report. 31 Table of Contents HERC HOLDINGS INC. AND SUBSIDIARIES ITEM 7.
Removed
The increase was primarily due to higher volume of equipment on rent of 31.8% and positive pricing of 5.8% during 2022 over the prior year.
Added
Sales of rental equipment increased $221 million, or 177%, during the year ended of 2023 when compared to the year ended of 2022. As supply chain disruptions have begun to ease in certain categories of equipment, we have increased the volume of sales in line with our fleet rotation planning to improve the equipment mix and manage fleet age.
Removed
Sales of rental equipment increased $12.6 million, or 11.1%, during the year ended December 31, 2022 when compared with 2021 as disposals in the fourth quarter returned to a more seasonal pattern in line with rotating the fleet as part of our long-term strategy. The margin on sales of rental equipment was 29.4% in 2022 compared to 17.5% in 2021.
Added
The margin on sales of rental equipment was 27% in 2023 compared to 29% in 2022. Direct operating expenses increased $110 million, or 11%.
Removed
The increase in margin on sale of rental equipment in 2022 was driven by improved pricing due to the overall strong market for used equipment.
Added
Selling, general and administrative expenses were 15.6% of equipment rental revenue in 2023 compared to 16.1% in the prior-year period due to continued focus on improving operating leverage while expanding revenues. 28 Table of Contents HERC HOLDINGS INC. AND SUBSIDIARIES ITEM 7.
Removed
Interest expense, net increased $35.7 million, or 41.4%, during 2022 due to higher average outstanding balances and weighted average interest rates on the ABL Credit Facility and AR Facility when compared to 2021. 26 Table of Contents HERC HOLDINGS INC. AND SUBSIDIARIES ITEM 7.
Added
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) Interest expense, net increased $102 million, or 84%, during the year ended of 2023 when compared with the year ended of 2022 due to higher interest rates on floating rate debt and increased borrowings on the ABL Credit Facility primarily to fund acquisition growth and invest in rental equipment.
Removed
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) Income tax provision was $103.5 million during 2022 when compared with $66.3 million for the same period in 2021. The provision during 2022 was primarily driven by the increased level of pre-tax income, non-deductible expenses, stock-based compensation, state taxes and tax credits.
Added
Income tax provision was $100 million during the year ended of 2023 when compared with $104 million for the same period in 2022. The effective tax rate during 2023 was 22% compared to 24% in 2022.
Removed
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) Financing Activities Cash provided by financing activities increased $564.5 million during 2022 when compared with the prior-year period.
Added
The rate decrease was driven by a benefit related to stock-based compensation of $12 million in 2023 and $8 million in 2022, certain non-deductible expenses, and return to provision adjustments.
Removed
In 2023, we expect our net rental equipment capital expenditures to be in the range of $1.0 billion to $1.2 billion. Borrowing Capacity and Availability Our ABL Credit Facility and AR Facility (together, the "Facilities") provide our borrowing capacity and availability.
Added
The increase was related to improved operating results primarily resulting from higher revenues coupled with improved operating leverage on costs, collection of receivables and the timing of payments on accounts payable. 29 Table of Contents HERC HOLDINGS INC. AND SUBSIDIARIES ITEM 7.
Removed
Substantially all of the remaining assets of Herc and certain of its U.S. and Canadian subsidiaries are encumbered in favor of our lenders under our ABL Credit Facility. None of such assets are available to satisfy the claims of our general creditors.
Added
We repurchased approximately 1.1 million shares for approximately $120 million during 2023 in accordance with our overall capital allocation strategy and as of December 31, 2023, $161 million remains available for repurchases.
Removed
The preparation of the consolidated financial statements requires management to make estimates and judgments that affect the reported amounts in our consolidated financial statements and accompanying notes. 29 Table of Contents HERC HOLDINGS INC. AND SUBSIDIARIES ITEM 7.
Added
Disposals have increased in the current year to maintain an appropriate mix of fleet and manage fleet age, while ensuring we have sufficient capacity of equipment to meet customer demand in light of the continuing supply chain constraints in certain equipment categories.
Removed
If different assumptions or conditions were to prevail, the results could be materially different from our reported results.
Added
Our ability to borrow under the Facilities is a function of, among other things, the value of the assets in the relevant collateral pool. We refer to the amount of debt we can borrow given a certain pool of assets as the "Borrowing Base." 30 Table of Contents HERC HOLDINGS INC. AND SUBSIDIARIES ITEM 7.
Removed
The intangible assets that the Company has acquired are non-compete agreements, customer relationships and trade names and associated trademarks. The estimated fair values of these intangible assets reflect various assumptions about discount rates, revenue growth rates, operating margins, terminal 30 Table of Contents HERC HOLDINGS INC. AND SUBSIDIARIES ITEM 7.
Added
As of December 31, 2023, the appropriate levels of liquidity have been maintained, therefore this financial maintenance covenant is not applicable. At December 31, 2023, Herc Holdings' balance sheet was substantially identical to that of Herc, with the exception of the debt held by Herc Holdings (2027 Notes and ABL Credit Facility) and certain components of shareholders equity.
Removed
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) primarily amortized using the straight-line method, however, certain assets may be amortized using an accelerated method that reflects the economic benefit to us.
Added
For the year ended December 30, 2023 and 2022, the statements of operations of Herc Holdings and Herc were identical with the exception of interest expense on the debt held at Herc Holdings that is not reflected in the statement of operations of Herc.
Removed
During the years ended December 31, 2022, 2021 and 2020, we recorded asset impairment charges of $3.5 million, $3.2 million and $15.4 million, respectively, see Note 8, "Impairment" to the notes to our consolidated financial statements included in Part II, Item 8 of this Report for further detail.
Added
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) Dividends On February 7, 2024, we declared a quarterly dividend of $0.665 per share to record holders as of February 21, 2024, with payment date of March 7, 2024.
Added
Determining the fair value of the assets and liabilities acquired is judgmental in nature and can involve the use of significant estimates and assumptions. Long-lived assets (principally rental equipment), goodwill and other intangible assets generally represent the largest components of the acquisitions.
Added
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) projected cash flows or a change in the WACC used to determine fair value could result in a future goodwill impairment charge.
Added
Long-lived assets to be disposed of are reported at the lower of carrying amount or estimated fair value less costs to sell. During the years ended December 31, 2022 and 2021, we recorded asset impairment charges of $3.5 million and $3.2 million, respectively. There were no asset impairment charges for the year ended December 31, 2023.
Added
Upon determination that a tax position meets the more-likely-than-not recognition threshold, it is measured to determine the amount of benefit to recognize in the financial statements. 34 Table of Contents HERC HOLDINGS INC. AND SUBSIDIARIES ITEM 7.
Added
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) We are subject to ongoing tax examinations and assessments in various jurisdictions. Accordingly, accruals for tax contingencies are established based on the probable outcomes of such matters.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

3 edited+0 added−0 removed8 unchanged
Biggest changeAssuming a hypothetical increase of one percentage point in interest rates on our ABL Credit Facility, AR Facility and cash and cash equivalents as of December 31, 2022, our pre-tax earnings would decrease by an estimated $16.2 million over a 12-month period.
Biggest changeAssuming a hypothetical increase of one percentage point in interest rates on our ABL Credit Facility, AR Facility and cash and cash equivalents as of December 31, 2023, our pre-tax earnings would decrease by an estimated $24 million over a 12-month period.
During the year ended December 31, 2022, our foreign subsidiaries accounted for less than 10% of our total revenue and total income before income taxes. Based on the size of our foreign operations relative to the Company as a whole, we do not believe that a 10% change in exchange rates would have a material impact on our earnings.
During the year ended December 31, 2023, our foreign subsidiaries accounted for less than 10% of our total revenue and total income before income taxes. Based on the size of our foreign operations relative to the Company as a whole, we do not believe that a 10% change in exchange rates would have a material impact on our earnings.
We do not engage in purchasing forward exchange contracts for speculative purposes. 33 Table of Contents HERC HOLDINGS INC. AND SUBSIDIARIES
We do not engage in purchasing forward exchange contracts for speculative purposes. 36 Table of Contents HERC HOLDINGS INC. AND SUBSIDIARIES

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