1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31,JUNE 30, 2001
--------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 1-7541
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THE HERTZ CORPORATION
-----------------------------------------------------
(Exact name of Registrant as specified in its charter)
DELAWARE 13-1938568
- - ------------------------------- -----------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
225 BRAE BOULEVARD, PARK RIDGE, NEW JERSEY 07656-0713
-----------------------------------------------------
(Address of principal executive offices)
(Zip Code)
(201)307-2000
----------------------------------------------------
(Registrant's telephone number, including area code)
Not Applicable
----------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report.)
THE REGISTRANT MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTION H(1)(a) AND
(b) OF FORM 10-Q AND IS THEREFORE FILING THIS FORM WITH THE REDUCED DISCLOSURE
FORMAT AS PERMITTED.
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrantRegistrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 daysdays. Yes X No
--- ---[X] No[ ]
Indicate the number of shares outstanding of each of the Registrant's classes of
common stock, as of March 31,June 30, 2001: Class A Common Stock, $0.01 par value - 100 shares.
Page 1 of 1317 pages
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THE HERTZ CORPORATION AND SUBSIDIARIES
INDEX
Page
----
PART I. FINANCIAL INFORMATION
ITEM 1. Condensed Consolidated Financial Statements
Consolidated Balance Sheet as of March 31,June 30, 2001
and December 31, 2000...........................................2000................................................... 3
Consolidated Statement of OperationsIncome for the
three months ended March 31,June 30, 2001 and 2000......................2000............................... 4
Consolidated Statement of Income for the
six months ended June 30, 2001 and 2000................................. 5
Consolidated Statement of Cash Flows for the
threesix months ended March 31,June 30, 2001 and 2000...................... 52000................................. 6
Notes to Condensed Consolidated Financial Statements.............. 6Statements...................... 7 - 810
ITEM 2. Management's Discussiondiscussion and Analysis of Financial
Condition and Results of Operations............................. 9Operations..................................... 11 - 1115
PART II. OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K.................................. 12
SIGNATURES...................................................................... 128-K.......................................... 16
SIGNATURES................................................................................. 16
EXHIBIT INDEX................................................................... 13INDEX.............................................................................. 17
2
3
PART I - FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THE HERTZ CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS OF DOLLARS)
UNAUDITED
ASSETS
March 31,June 30, Dec. 31,
2001 2000
---------- ---------------------- ------------
Cash and equivalents $ 138,832149,902 $ 206,477
Receivables, less allowance for
doubtful accounts of $33,199$31,456 and $34,788 949,434982,733 1,115,509
Due from affiliates 190,895120,044 343,568
Inventories, at lower of cost or market 80,36281,495 78,942
Prepaid expenses and other assets 135,175152,183 129,115
Revenue earning equipment, at cost:
Cars 6,523,8247,288,171 5,757,090
Less accumulated depreciation (544,531)(543,799) (570,855)
Other equipment 2,291,9212,417,430 2,310,118
Less accumulated depreciation (633,384)(671,226) (573,837)
---------- ---------------------- ------------
Total revenue earning equipment 7,637,8308,490,576 6,922,516
---------- ---------------------- ------------
Property and equipment, at cost:
Land, buildings and leasehold improvements 902,455926,107 876,123
Service equipment 877,478903,850 863,708
---------- ----------
1,779,933------------ ------------
1,829,957 1,739,831
Less accumulated depreciation (768,425)(797,570) (739,670)
---------- ---------------------- ------------
Total property and equipment 1,011,5081,032,387 1,000,161
---------- ---------------------- ------------
Goodwill and other intangible assets, net of amortization (Note 3) 825,602820,636 823,693
---------- ---------------------- ------------
Total assets $10,969,638 $10,619,981
========== ==========$ 11,829,956 $ 10,619,981
============ ============
LIABILITIES AND STOCKHOLDERS'STOCKHOLDER'S EQUITY
Accounts payable $ 652,880828,738 $ 546,082
Accrued liabilities 567,791597,649 573,662
Accrued taxes 159,196173,594 160,901
Debt (Note 6) 6,932,8297,520,238 6,675,988
Public liability and property damage 279,752283,695 272,779
Deferred taxes on income 410,600 406,500
Stockholders'Stockholder's equity (Note 2):
Common Stock, $0.01 par value, 3,000 shares authorized,
100 shares issued at June 30, 2001 -- --
Preferred Stock, $0.01 par value,
40,000,000 shares authorized, none issued - -at December 31, 2000 -- --
Class A Common Stock, $0.01 par value,
440,000,000 shares authorized,
100 shares issued at March 31, 2001
and 40,956,858 shares issued at December 31, 2000 --- 410
Class B Common Stock, $0.01 par value,
140,000,000 shares authorized,
67,310,167 shares issued at December 31, 2000 --- 673
Additional capital paid-in 982,758983,132 995,871
Unamortized restricted stock grants --- (5,518)
Retained earnings 1,094,0791,153,283 1,103,401
Accumulated other comprehensive loss (Note 8) (110,247)(120,973) (84,270)
Treasury stock, at cost, 779,534 shares at December 31, 2000 --- (26,498)
---------- ---------------------- ------------
Total stockholders'stockholder's equity 1,966,5902,015,442 1,984,069
---------- ---------------------- ------------
Total liabilities and stockholders'stockholder's equity $10,969,638 $10,619,981
========== ==========$ 11,829,956 $ 10,619,981
============ ============
The accompanying notes are an integral part of this statement.
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THE HERTZ CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONSINCOME
(IN THOUSANDS OF DOLLARS)
UNAUDITED
Three Months
Ended March 31,
----------------------------June 30,
------------------------------
2001 2000
--------- ------------------- ----------
Revenues:
Car rental $ 928,282 $ 898,831$1,003,059 $1,021,658
Industrial and construction equipment rental 228,729 202,031256,515 234,977
Car leasing 1,416 10,6041,227 10,507
Franchise fees and other revenue 22,444 23,739
--------- ---------24,695 22,185
---------- ----------
Total revenues 1,180,871 1,135,205
--------- ---------1,285,496 1,289,327
---------- ----------
Expenses:
Direct operating 618,145 539,001615,202 569,495
Depreciation of revenue earning equipment (Note 5) 337,442 304,030363,688 336,068
Selling, general and administrative 129,252 109,613117,932 115,730
Interest, net of interest income of $2,782$2,312 and $3,517 101,837 89,275
--------- ---------$3,963 102,868 99,014
---------- ----------
Total expenses 1,186,676 1,041,919
--------- ---------1,199,690 1,120,307
---------- ----------
Income (loss) before income taxes (5,805) 93,28685,806 169,020
Provision (benefit) for taxes on income (Note 4) (1,868) 36,986
--------- ---------26,602 65,289
---------- ----------
Net income (loss) $ (3,937)59,204 $ 56,300
========= =========103,731
========== ==========
The accompanying notes are an integral part of this statement.
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THE HERTZ CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
(IN THOUSANDS OF DOLLARS)
UNAUDITED
Six Months
Ended June 30,
------------------------------
2001 2000
---------- ----------
Revenues:
Car rental $1,931,341 $1,920,489
Industrial and construction equipment rental 485,244 437,008
Car leasing 2,643 21,111
Franchise fees and other revenue 47,139 45,924
---------- ----------
Total revenues 2,466,367 2,424,532
---------- ----------
Expenses:
Direct operating 1,233,347 1,108,496
Depreciation of revenue earning equipment (Note 5) 701,130 640,098
Selling, general and administrative 247,184 225,343
Interest, net of interest income of $5,094 and $7,480 204,705 188,289
---------- ----------
Total expenses 2,386,366 2,162,226
---------- ----------
Income before income taxes 80,001 262,306
Provision for taxes on income (Note 4) 24,734 102,275
---------- ----------
Net income $ 55,267 $ 160,031
========== ==========
The accompanying notes are an integral part of this statement.
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THE HERTZ CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS OF DOLLARS)
UNAUDITED
ThreeSix Months
Ended March 31,June 30,
-------------------------------
2001 2000
-------------------- -----------
Cash flows from operating activities:
Net income (loss) $ (3,937)55,267 $ 56,300160,031
Adjustments to reconcile net income (loss)
to net cash used in operating activities (318,185) (141,434)
-----------(918,762) (1,050,754)
--------- -----------
Net cash used in operating activities (322,122) (85,134)
-----------(863,495) (890,723)
--------- -----------
Cash flows from investing activities:
Property and equipment expenditures (62,883) (60,254)(134,857) (128,823)
Proceeds from sales of property and equipment 4,598 6,20512,994 13,477
Available-for-sale securities:
Purchases (1,861) (2,255)(5,607) (3,255)
Sales 1,700 2,108
Investment5,062 3,281
Decrease (Increase) in investment in joint venture -480 (2,700)
Purchases of various operations, net of cash
(see supplemental disclosures below) (2,618) (49,000)
-----------(2,661) (76,388)
--------- -----------
Net cash used in investing activities (61,064) (105,896)
-----------(124,589) (194,408)
--------- -----------
Cash flows from financing activities:
Proceeds from issuance of long-term debt 486,733 1,215809,088 496,720
Repayment of long-term debt (155,227) (18,970)(408,931) (136,116)
Short-term borrowings:
Proceeds 301,185 91,374566,915 284,146
Repayments (140,989) (403,260)(369,356) (442,263)
Ninety day term or less, net (179,682) 499,543332,877 832,241
Cash dividends paid on common stock (5,385) (5,396)(10,777)
Purchases of treasury stock - (11,276)-- (22,426)
Proceeds from sale of treasury stock 9,995 2,634
-----------4,243
--------- -----------
Net cash provided by financing activities 316,630 155,864
-----------935,203 1,005,768
--------- -----------
Effect of foreign exchange rate changes on cash (1,089) (1,894)
-----------(3,694) (1,987)
--------- -----------
Net decrease in cash and equivalents during the period (67,645) (37,060)(56,575) (81,350)
Cash and equivalents at beginning of year 206,477 208,652
-------------------- -----------
Cash and equivalents at end of period $ 138,832149,902 $ 171,592
===========127,302
========= ===========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest (net of amounts capitalized) $ 107,885211,934 $ 105,203197,528
Income taxes 7,897 17,80928,507 36,390
In connection with acquisitions made in the first quartersix months of 2001 and 2000,
liabilities assumed were $12.5$13 million and $27.8$58 million, respectively.
The accompanying notes are an integral part of this statement.
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67
THE HERTZ CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED
NOTE 1 - BASIS OF PRESENTATION
The summary of accounting policies set forth in Note 1 to the
consolidated financial statements contained in the Form 10-K for the fiscal year
ended December 31, 2000, filed by the registrant (the "Company") with the
Securities and Exchange Commission on March 30, 2001, has been followed in
preparing the accompanying consolidated financial statements.
The condensed consolidated financial statements for interim periods
included herein have not been audited by independent public accountants. In the
Company's opinion, all adjustments (which include only normal recurring
adjustments) necessary for a fair presentation of the results of operations for
the interim periods have been made. Results for interim periods are not
necessarily indicative of results for a full year.
NOTE 2 - ACQUISITION OF SHARES OWNED BY PUBLIC STOCKHOLDERS
On March 9, 2001, Ford FSG, Inc., ("FSG"), an indirect wholly owned
subsidiary of Ford Motor Company ("Ford") that owned an approximate 81.5%
economic interest in the Company, completed its acquisition of all of the
Company's outstanding Class A Common Stock that FSG did not already own for
$35.50 per share. The acquisition was accomplished through a cash tender offer
followed by a merger of a wholly owned subsidiary of FSG with and into the
Company, with the Company surviving the merger. After the merger, all
outstanding shares of Class A Common Stock of the Company arewere owned by FSG, and
all shares of Class A Common Stock of the Company, including those shares
previously held by the Company as treasury stock, along with all shares of Class
B Common Stock of the Company owned by a wholly owned subsidiary of FSG, have beenwere
cancelled. The merger had no effect on the outstanding obligations (including
debt obligations, leases and guarantees) of the Company. As a result of FSG's
acquisition, the Company's Class A Common Stock is no longer traded on the New
York Stock Exchange. On May 3, 2001, the Company's restated Certificate of
Incorporation was amended to change the authorized capital stock of the Company
to 3,000 shares, par value $.01 per share, of common stock, of which 100 shares
have been issued to the Company's sole shareholder, FSG.
At the time FSG completed its acquisition, the Employee Stock Purchase
Plan (the "ESPP) was terminated, and all accumulated after-tax payroll
deductions that had not been used to purchase shares of the Company's Class A
Common Stock were returned to the participants, without interest, in accordance
with terms of the ESPP. Outstanding employee stock options to purchase Company
stock under the Long Term Equity Compensation Plan (the "LTECP") (other than
options held by non-employee Directors of the Company) were converted into
options to purchase shares of common stock of Ford, as determined and approved
by the Company and Ford. In addition, holders of restricted stock awarded under
the LTECP received the same consideration as all other holders of the Company's
Class A Common Stock received in the merger. The Company recognized $9.7 million
of expenses associated with the merger in the first quarter of 2001. FSG's cost
of acquiring the Company's minority interest has not been reflected in the
accompanying condensed consolidated financial statements.
NOTE 3 - ACQUISITIONS
During the threesix months ended March 31,June 30, 2001, the Company acquired one
European equipment rental and sales company and one North American car rental
company. The aggregate purchase price of the acquisitions was $2.6$2.7 million, net
of cash acquired, plus the assumption of $9.1 million of debt. The aggregate
consideration exceeded the fair value of the net assets acquired by
approximately $4.1$4.2 million, which has been recognized as goodwill and is being
amortized over periods from 25 to 40 years. The acquisitions were accounted for
as purchases, and the results of operations have been included in the Company's
condensed consolidated financial statements since their respective dates of
acquisition. Had the acquisitions occurred as of the beginning of the year, the
effect of including their results would not be material to the results of
operations of the Company.
NOTE 4 - TAXES ON INCOME
The income tax provision is based upon the expected effective tax rate
applicable to the full year. The effective tax rate in 2001 is lower than the
U.S. statutory rate of 35% primarily due to the anticipated effects of foreign
tax credits on U.S. income taxes.
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THE HERTZ CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED
NOTE 5 - DEPRECIATION OF REVENUE EARNING EQUIPMENT
Depreciation of revenue earning equipment includes the following (in
thousands of dollars):
Three Months Ended
March 31,
---------------------------June 30,
-----------------------------
2001 2000
------- ---------------- ---------
Depreciation of revenue earning equipment $337,687 $309,271$ 360,466 $ 343,247
Adjustment of depreciation upon disposal of the equipment (3,713) (8,524)(791) (10,676)
Rents paid for vehicles leased 3,468 3,283
------- -------4,013 3,497
--------- ---------
Total $337,442 $304,030
======= =======$ 363,688 $ 336,068
========= =========
Six Months Ended
June 30,
-----------------------------
2001 2000
--------- ---------
Depreciation of revenue earning equipment $ 698,153 $ 652,518
Adjustment of depreciation upon disposal of the equipment (4,504) (19,200)
Rents paid for vehicles leased 7,481 6,780
--------- ---------
Total $ 701,130 $ 640,098
========= =========
The adjustment of depreciation upon disposal of revenue earning equipment
for the three months ended March 31,June 30, 2001 and 2000 included net gains of $2.9$4.0
million and $5.7$3.7 million, respectively, on the sale of equipment in the
Company's industrial and construction equipment rental operations; and a net
loss of $3.2 million and a net gain of $7.0 million, respectively, in the car
rental and car leasing operations.
The adjustment of depreciation upon disposal of revenue earning equipment
for the six months ended June 30, 2001 and 2000 included net gains of $.8$6.9
million and $2.8$9.3 million, respectively, on the sale of equipment in the
industrial and construction equipment rental operations; and a net loss of $2.4
million and a net gain of $9.9 million, respectively, in the car rental and car
leasing operations.
During the threesix months ended March 31,June 30, 2001, the Company purchased Ford
vehicles at a cost of approximately $1.4$2.9 billion, and sold Ford vehicles to Ford
or its affiliates under various repurchase programs for approximately $.9$1.8
billion.
NOTE 6 - DEBT
Debt at March 31,June 30, 2001 and December 31, 2000 consisted of the following
(in thousands of dollars):
March 31,June 30, Dec. 31,
2001 2000
------------ --------------------- ----------
Notes payable, including commercial paper,
average interest rate: 2001, 5.1%3.9%; 2000, 6.6% $1,666,519$2,134,163 $1,580,391
Promissory notes, average interest rate:
2001, 7.2%7.0%; 2000, 7.1% (effective average
interest rate: 2001, 7.0%; 2000, 7.2%);
net of unamortized discount: 2001, $11,255;$10,788;
2000, $9,448; due 20012002 to 2028 3,888,7433,939,210 3,540,550
Junior subordinated promissory notes,
average interest rate 7.0%; net of unamortized
discount: 2001, $70;$63; 2000, $78; due 2003 249,930249,937 249,922
Subsidiaries' short-term debt, in dollars and foreign
currencies, including commercial paper in millions
(2001, $687.8;$708.7; 2000, $765.5); and other borrowings;
average interest rate: 2001, 5.2%4.8%; 2000, 5.3% 1,127,6371,196,928 1,305,125
--------- ------------------- ----------
Total $6,932,829$7,520,238 $6,675,988
========= =================== ==========
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THE HERTZ CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED
The aggregate amounts of maturities of debt for the twelve-month periods
following March 31,June 30, 2001 are as follows (in millions): 2002, $3,020.4$3,608.0 (including
$2,764.8$3,302.6 of commercial paper and short-term borrowings); 2003, $700.2;$701.6; 2004,
$250.0;$250.7; 2005, $265.5;$762.2; 2006, $604.2,$355.2, after 2006, $2,092.5.$1,842.5.
At March 31,June 30, 2001, Notes payable included a $300 million loan outstanding
with Ford Motor Credit Company, a wholly-owned subsidiary of Ford.
At June 30, 2001, approximately $1,276$1,323 million of the Company's
consolidated stockholder's equity was free of dividend limitations pursuant to
its existing debt agreements.
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THE HERTZ CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED
NOTE 7 - SEGMENT INFORMATION
The Company's business principally consists of two significant segments:
rental and leasing of cars and light trucks and related franchise fees ("car
rental and leasing"); and rental of industrial, construction and materials
handling equipment ("industrial and construction equipment rental"). The
contributions of these segments, as well as "corporate and other," to revenues
and income (loss) before income taxes for the three months and six months ended
March 31,June 30, 2001 and 2000 are summarized below (in millions of dollars). Corporate
and other includes general corporate expenses, principally amortization of
certain intangibles and certain interest, as well as other business activities,
such as claim management and telecommunication services (in millions of dollars).services.
Three Months Ended March 31,
-----------------------------------------June 30,
---------------------------------------------------
Income (Loss)
Revenues Before Income Taxes
---------------- ----------------------------------------- -----------------------
2001 2000 2001 2000
------- ------- ------ -------------- -------- -------- --------
Car rental and leasing $1,017.9 $1,044.8 $ 941.185.8 $ 920.6 $ 21.8 $93.1162.3(a)
Industrial and construction equipment rental 228.8 202.1 (11.1) 4.0256.5 235.0 7.4 9.8
Corporate and other 11.0 12.5 (16.5)(a) (3.8)
------- ------- ------ ----11.1 9.5 (7.4) (3.1)
-------- -------- -------- --------
Consolidated total $1,180.9 $1,135.2$1,285.5 $1,289.3 $ (5.8) $93.3
======= ======= ====== ====85.8 $ 169.0
======== ======== ======== ========
Six Months Ended June 30,
---------------------------------------------------
Income (Loss)
Revenues Before Income Taxes
---------------------- -----------------------
2001 2000 2001 2000
-------- -------- -------- --------
Car rental and leasing $1,959.0 $1,965.4 $ 107.6 $ 255.4(a)
Industrial and construction equipment rental 485.3 437.1 (3.7) 13.8
Corporate and other 22.1 22.0 (23.9)(b) (6.9)
-------- -------- -------- --------
Consolidated total $2,466.4 $2,424.5 $ 80.0 $ 262.3
======== ======== ======== ========
(a) Includes a gain of $9.0 million from the condemnation of a car rental and
support facility in California.
(b) Includes $9.7 million of expenses associated with the merger, as
described in Note 2 to the condensed consolidated financialsfinancial statements.
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THE HERTZ CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED
NOTE 8 - COMPREHENSIVE INCOME
(LOSS)
Accumulated other comprehensive income (loss) includes an accumulated
translation loss (in thousands of dollars) of $109,045$119,721 and $83,057 at March
31,June 30,
2001 and December 31, 2000, respectively. Comprehensive income (loss) for the three
months and six months ended March 31,June 30, 2001 and 2000 was as follows (in thousands
of dollars):
Three Months Ended
March 31,
-------------------------------June 30,
------------------------
2001 2000
-------- --------- -------
Net income (loss) $ (3,937)59,204 $ 56,300103,731
-------- --------- -------
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments (25,988) (14,708)(10,676) (4,559)
Unrealized (loss) gain (loss) on available-for-sale securities 11 (19)(50) 21
-------- --------- -------
Other comprehensive loss (25,977) (14,727)(10,726) (4,538)
-------- --------- -------
Comprehensive income $ 48,478 $ 99,193
======== =========
Six Months Ended
June 30,
------------------------
2001 2000
-------- ---------
Net income $ 55,267 $ 160,031
-------- ---------
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments (36,664) (19,267)
Unrealized (loss) gain on available-for-sale securities (39) 2
-------- ---------
Other comprehensive loss (36,703) (19,265)
-------- ---------
Comprehensive income $ (29,914)18,564 $ 41,573140,766
======== ========= =======
NOTE 9 - DERIVATIVE INSTRUMENTSRECENT PRONOUNCEMENTS
In July 2001, the Financial Accounting Standards Board ("FASB") issued
Statements of Financial Accounting Standards ("SFAS") No. 141 "Business
Combinations" and No. 142 "Goodwill and Other Intangible Assets". SFAS No. 141
addresses financial accounting and reporting for business combinations and
requires all business combinations to be accounted for using one method, the
purchase method. SFAS No. 142 addresses financial accounting for acquired
goodwill and other intangible assets and how such assets should be accounted for
in financial statements upon their acquisition and after they have been
initially recognized in the financial statements. The Company will adopt SFAS
No. 141 and No. 142 beginning January 1, 2002. The Company is currently
evaluating the impact of these pronouncements to determine the effect they will
have on the Company's consolidated financial position and results of operations.
Effective January 1, 2001, the Company adopted Statement of Financial
Accounting Standards ("SFAS")SFAS No. 133, "Accounting
for Derivative Instruments and Hedging Activities," as amended. SFAS No. 133
establishes a new model for accounting for derivatives and hedging activities.
The adoption of SFAS No. 133 did not have a material effect on the Company's
financial position, results of operations or cash flows.
810
911
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31,JUNE 30, 2001 COMPARED WITH THREE MONTHS ENDED MARCH 31,JUNE 30, 2000
SUMMARY
The following table sets forth for the three months ended March 31,June 30, 2001
and 2000 the percentage of operating revenues represented by certain items in
the Company's consolidated statement of income:
Percentage of Revenues
Three Months Ended
March 31,
--------------------------June 30,
-------------------
2001 2000
------------- ------
Revenues:
Car rental 78.6%78.0% 79.2%
Industrial and construction equipment rental 19.4 17.820.0 18.2
Car leasing .1 .9.8
Franchise fees and other revenue 1.9 2.1
----- -----1.8
------ ------
100.0 100.0
----- ----------- ------
Expenses:
Direct operating 52.4 47.547.8 44.2
Depreciation of revenue earning equipment 28.6 26.828.3 26.0
Selling, general and administrative 10.9 9.69.2 9.0
Interest, net of interest income 8.6 7.9
----- -----
100.5 91.8
----- -----8.0 7.7
------ ------
93.3 86.9
------ ------
Income (loss) before income taxes (0.5) 8.26.7 13.1
Provision (benefit) for taxes on income (0.2) 3.2
----- -----2.1 5.1
------ ------
Net income (loss) (0.3)% 5.0%
===== =====4.6% 8.0%
====== ======
REVENUES
Total revenues in the firstsecond quarter of 2001 of $1,180.9$1,285.5 million
increaseddecreased by 4.0%0.3% from $1,135.2$1,289.3 million in the firstsecond quarter of 2000. Revenues
from car rental operations of $928.3$1,003.1 million in the firstsecond quarter of 2001
increaseddecreased by $29.5$18.6 million, or 3.3%1.8% from $898.8$1,021.7 million in the firstsecond quarter
of 2000. The increaseThis decrease was primarily the result of a worldwide increase in
volume (transaction days) of 7.6%, partly offset by a 2.5% decrease in pricing
worldwide, which resulted in a net increase in revenues of $45.0 million. This
increase was partly offset by a decrease of $15.5due to $18.0 million from the effects of
foreign currency translation. The remaining decrease resulted from a 4.7%
decrease in pricing in the United States, which was mostly offset by an increase
in volume worldwide (transaction days) of 3.6%. The translation impact of
exchange rates on net income is not significant because the majority of the
Company's foreign expenses are also incurred in local currency.
Revenues from industrial and construction equipment rental of $228.7$256.5
million in the firstsecond quarter of 2001 increased by 13.2%9.1% from $202.0$235.0 million in
the firstsecond quarter of 2000. Of this $26.7$21.5 million increase, approximately $12.5$4.3
million was due to the inclusion of businesses acquired worldwide during 2000
andsince the
first quarter of 2001.2000.
Revenues from all other sources of $23.9$25.9 million in the firstsecond quarter of
2001 decreased by 30.5%20.8% from $34.3$32.7 million in the firstsecond quarter of 2000,
primarily due to the transfer of certain foreign car leasing operations to an
affiliated company on August 31, 2000.
EXPENSES
Total expenses of $1,186.7$1,199.7 million in 2001 increased by 13.9%7.1% from
$1,041.9$1,120.3 million in 2000, and total expenses as a percentage of revenues
increased to 100.5%93.3% in 2001 from 91.8%86.9% in 2000.
Direct operating expenses of $618.1$615.2 million in 2001 increased by 14.7%8.0%
from $539.0$569.5 million in 2000. The increase was due primarily the result ofto higher wages,
facility costs and vehicle damage costs in car rental operations, and the
expansion of the industrial and construction equipment rental business and
higher wages, facility costs and self-insurance costsbusiness. The
increase was also due to the inclusion of a gain of $9.0 million in the second
quarter of 2000 from the condemnation of a car rental operations.
9and support facility in
California.
11
1012
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
Depreciation of revenue earning equipment for the car rental and car
leasing operations of $273.1$298.7 million in 2001 increased by 7.5%6.7% from $254.0$279.9
million in 2000, primarily due to an increase in the number of cars operated in
the United States, and higher vehicle costs worldwide.worldwide and a decrease of $10.2
million in the net proceeds received in excess of book value on the disposal of
used vehicles, primarily in the United States. These increases were partly
offset by a decrease due to the transfer of the car leasing operations to an
affiliated company in August of 2000. Depreciation of revenue earning equipment
for the industrial and construction equipment rental operations of $64.3$65.0 million
in 2001 increased by 28.6%15.7% from $50.0$56.2 million in 2000, primarily due to
acquisitions of equipment rental and sales companies and an increase in
equipment operated.
Total depreciation alsoSelling, general and administrative expenses of $117.9 million in 2001
increased by 1.9% from $115.7 million in 2000. The increase was primarily due to
an increase in sales promotion expenses, partly offset by a decrease in
advertising expenses.
Interest expense of $102.9 million in 2001 increased 3.9% from $99.0
million in 2000, primarily due to higher average debt levels and lower interest
income in the second quarter of 2001.
The tax provision of $26.6 million in 2001 decreased 59.3% from $65.3
million in 2000, primarily due to the lower income before income taxes in 2001.
The effective tax rate in 2001 is 31.0% as compared to 38.6% in 2000. The
decrease in the effective tax rate is primarily due to greater anticipated
utilization of foreign tax credits in 2001. See Note 4 to the Notes to the
Company's condensed consolidated financial statements.
NET INCOME
The Company had net income of $59.2 million in the second quarter of
2001, representing a decrease of 42.9% from $103.7 million in 2000. This
decrease was primarily due to a slowdown in the economy and its impact on
pricing, reduced business travel transaction volume and cost coverage, higher
2001 model year vehicle costs, lower proceeds received on the disposal of
vehicles, and the net effect of the other contributing factors noted above.
The Company believes that continued competitive pricing in the car rental
industry and a slowing economy will adversely impact operating results for 2001
when compared to 2000.
12
13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
SIX MONTHS ENDED JUNE 30, 2001 COMPARED WITH SIX MONTHS ENDED JUNE 30, 2000
SUMMARY
The following table sets forth for the six months ended June 30, 2001 and
2000 the percentage of operating revenues represented by certain items in the
Company's consolidated statement of income:
Percentage of Revenues
Six Months Ended
June 30,
-------------------
2001 2000
------ ------
Revenues:
Car rental 78.3% 79.2%
Industrial and construction equipment rental 19.7 18.0
Car leasing .1 .9
Franchise fees and other revenue 1.9 1.9
------ ------
100.0 100.0
------ ------
Expenses:
Direct operating 50.0 45.7
Depreciation of revenue earning equipment 28.5 26.4
Selling, general and administrative 10.0 9.3
Interest, net of interest income 8.3 7.8
------ ------
96.8 89.2
------ ------
Income before income taxes 3.2 10.8
Provision for taxes on income 1.0 4.2
------ ------
Net income 2.2% 6.6%
====== ======
REVENUES
Total revenues of $2,466.4 million in the first half of 2001, increased
by 1.7% from $2,424.5 million in the first half of 2000. Revenues from car
rental operations of $1,931.4 million in the first half of 2001 increased by
$10.9 million, or 0.6% from $1,920.5 million in the first half of 2000. The
increase was primarily the result of a worldwide increase in volume (transaction
days) of 5.5%, partly offset by a 3.9% decrease in pricing in the United States.
These factors contributed to a net increase in revenues of $44.2 million, partly
offset by a decrease of $33.3 million from the effects of foreign currency
translation. The translation impact of exchange rates on net income is not
significant because the majority of the Company's foreign expenses are also
incurred in local currencies.
Revenues from industrial and construction equipment rental of $485.2
million in the first half of 2001 increased by 11.0% from $437.0 million in the
second quarter of 2000. Of this $48.2 million increase, approximately $16.1
million was due to the inclusion of businesses acquired worldwide during 2000
and the first half of 2001.
Revenues from all other sources of $49.8 million in the first half of
2001 decreased by 25.7% from $67.0 million in the first half of 2000, primarily
due to the transfer of certain foreign car leasing operations to an affiliated
company on August 31, 2000.
EXPENSES
Total expenses of $2,386.4 million in 2001 increased by 10.4% from
$2,162.2 million in 2000; and total expenses as a percentage of revenues
increased to 96.8% in 2001 from 89.2% in 2000.
Direct operating expenses of $1,233.4 million in 2001 increased by 11.3%
from $1,108.5 million in 2000. The increase was primarily the result of an
increase in wages, facility costs and vehicle damage costs in car rental
operations and the expansion of the industrial and construction equipment rental
business. The increase also was due to the recognition of a gain of $9.0 million
in 2000 from the condemnation of a car rental and support facility in
California.
13
14
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
Depreciation of revenue earning equipment for the car rental and car
leasing operations of $571.7 million in 2001 increased by 7.1% from $533.9
million in 2000, primarily due to a worldwide increase in the number of cars
operated and higher vehicle costs. The increase also includes a decrease of
$12.3 million in the net proceeds received in excess of book value on the
disposal of used vehiclesvehicles. These increases were partly offset by a decrease due
to the transfer of certain foreign car leasing operations to an affiliated
company in August of 2000. Depreciation of revenue earning equipment for the
industrial and construction equipment rental operations of $129.4 million in
2001 increased by 21.8% from $106.2 million in 2000, primarily due to
acquisitions of equipment rental and sales companies, an increase in equipment
operated and a decrease in the net proceeds received in excess of book value on
the disposal of used equipment.
Selling, general and administrative expenses of $129.3$247.2 million in 2001
increased by 17.9%9.7% from $109.6$225.3 million in 2000. The increase was primarily due to
an increase in administrative and sales promotion expenses and includes $9.7
million of expenses related to the merger of the Company with a wholly-owned
subsidiary of Ford. See Note 2 to the Notes to the Company's condensed
consolidated financial statements. These increases were partly offset by a
decrease in advertising costs.
Interest expense of $101.8$204.7 million in 2001 increased 14.1%8.7% from $89.3$188.3
million in 2000, primarily due to an increase in the weighted-average interest
rate and higher average debt levels and lower interest
income in 2001.
The tax benefitprovision of $1.9$24.7 million in 2001 wasdecreased 75.9% from $102.3
million in 2000, primarily due to the losslower income before income taxes in the first quarter of 2001. This benefit compares to tax
expense of $37.0 million in 2000.
The effective tax rate in 2001 is 32.2%30.9% as compared to 39.6%39.0% in 2000. The
decrease in the effective tax rate is primarily due
primarily to greater anticipated
utilization of foreign tax credits in 2001. See Note 4 to the Notes to the
Company's condensed consolidated financial statements.
NET INCOME (LOSS)
The Company had a net lossincome of $3.9$55.3 million in the first quarterhalf of 2001,
compared with net incomerepresenting a decrease of $56.365.5% from $160.0 million in 2000. This decrease was
primarily due to downwarda slowdown in the economy and its impact on pricing, pressurereduced
business travel transaction volume and cost coverage, higher 2001 model year
vehicle costs, lower profit marginsproceeds received on the disposal of vehicles and
equipment, and the net effect of the other contributing factors noted above.
The Company believes that continued competitive pricing in the car
rental industry and a slowing economy will adversely impact operating results
for 2001 when compared to 2000.
LIQUIDITY AND CAPITAL RESOURCES
The Company's domestic and foreign operations are funded by cash provided
by operating activities, and by extensive financing arrangements maintained by
the Company in the United States, Europe, Australia, New Zealand, Canada and
Brazil. The Company's investment grade credit ratings
provide it with access to global capital markets to meet its borrowing needs.
The Company's primary use of funds is for the acquisition of revenue
earning equipment, which consists of cars, and industrial and construction
equipment. Net cash used in operating activities during the first quarter of 2001
increased approximately $237 million from the first quarter of 2000 primarily
due to the increase in the number of vehicles operated. For the threesix months ended March 31,June 30, 2001, the Company's expenditures
for revenue earning equipment were $3.6$6.6 billion (partially offset by proceeds
from the sale of such equipment of $2.5$4.9 billion). These assets are purchased by
the Company in accordance with the terms of programs negotiated with automobile
and equipment manufacturers. In the first quarter,half of 2001, the Company expended
$2.6$2.7 million for new businesses acquired and assumed $9.1 million of related
debt. For the threesix months ended March 31,June 30, 2001, the Company's capital investments
for property and non-revenue earning equipment were $62.9$134.9 million.
To finance its domestic operations, the Company maintains an active
commercial paper program. The Company is also active in the domestic medium-term
and long-term debt markets. As the need arises, it is the Company's intention to
issue either unsecured senior, senior subordinated or junior subordinated debt
securities on terms to be determined at the time the securities are offered for
sale. The total amount of medium-term and long-term debt outstanding as of March 31,June
30, 2001 was $4.2 billion with maturities ranging from 20012002 to 2028. Borrowing
for the Company's international operations consists mainly of loans obtained
from local and international banks and commercial paper programs established in
Australia, Canada, Ireland and the Netherlands. The Company guarantees only the
borrowings of its subsidiaries in Australia, Canada, Ireland and the
Netherlands, which consist principally of commercial paper and short-term bank
loans. All borrowings by international
operations either are in the international operations' local currency or, if
in non-local currency, hedged to minimize foreign exchange exposure. At March
31,June 30, 2001, the total debt for the foreign operations was $1,126$1,196
million, of which $1,103$1,173 million was short-term (original maturity of less than
one year) and $23 million was long-term. At March 31,June 30, 2001, the total amounts
outstanding (in millions of U.S. dollars) under the Australian, Canadian, Irish
and the Netherlands commercial paper programs were $18, $277, $327$17, $373, $242 and $66,$77,
respectively.
1014
1115
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
At March 31,June 30, 2001, the Company had committed credit facilities totaling
$3.2$3.3 billion. Of this amount, $2.2$2.6 billion is represented by a combination of
multi-year and 364-day global committed credit facilities provided by 31
relationship banks and seasonal facilities from three banks. In addition to
direct borrowings by the Company, these facilities allow any subsidiary of the
Company to borrow on the basis of a guarantee by the Company. Effective July 1,
2000,2001, the multi-year facilities totaling $1,162$1,401 million were renegotiated. Currently,renegotiated and
currently expire as follows: $63 million expires on June 30, 2002, $137 million expires on June
30, 2003, $46 million expires on June 30, 2004, and $916$69 million expires on June 30, 2005.2005 and $1,086
million on June 30, 2006. Effective June 22,
2000,21, 2001, the 364-day facilities
totaling $1,050$1,172 million were renegotiated and currently expire on June 20, 2001.19, 2002.
The multi-year facilities that expire in 20052006 have an evergreen feature which
provides for the automatic extension of the expiration date one year forward
unless timely notice is provided by the bank. Under the terms of the 364-day
facilities, totaling $975 million, the Company is permitted to convert any amount outstanding prior to
expiration into a four-year term loan. The $300 million of seasonal facilities
currently expire as follows: $100 million on April 30, 2002, $100 million on
June 19, 2002 and $100 million on October 15, 2002. In addition to the bank
credit facilities, in February 1997, Ford extended to the Company a line of
credit of $500 million, expiring June 30, 2002.2003. This line of credit has an
evergreen feature that provides on an annual basis for automatic one-year
extensions of the expiration date, unless timely notice is provided by Ford at
least one year prior to the then scheduled expiration date.
On March 9, 2001, the Company paid a quarterly dividend totaling $5.4
million on its Class A and Class B Common Stock to shareholders of record as of
February 15, 2001, which was prior to the acquisition of the Company by a
subsidiary of Ford of the Company's stock owned by public shareholders. See Note
2 to the Notes to the Company's condensed consolidated financial statements.
Ford has stated that it has no current plans or proposals which would
result in a merger, reorganization or liquidation involving the Company, any
purchase, sale or transfer of a material amount of assets of the Company or any
other material change in the Company's corporate structure or business; however,
by virtue of its 100% ownership interest in the Company, Ford may make any
changes that it deems necessary or appropriate in light of future developments.
Ford may consider material changes in the present dividend rate
and policy, indebtedness and
capitalization of the Company and may consider pursuing acquisition
opportunities through the Company.
Car rental is a seasonal business, with decreased travel in both the
business and leisure segments in the winter months and heightened activity
during the spring and summer. To accommodate increased demand, the Company
increases its available fleet and staff during the second and third quarters. As
business demand declines, fleet and staff are decreased accordingly. However,
certain operating expenses, including rent, insurance, and administrative
overhead, remains fixed and cannot be adjusted for seasonal demand. In certain
geographic markets, the impact of seasonality has been reduced by emphasizing
leisure or business travel in the off-seasons.
1115
1216
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
3(i) Certificate of Amendment of Restated Certificate of
Incorporation of The Hertz Corporation.
12 Consolidated Computation of Ratio of Earnings to
Fixed Charges for the threesix months ended March 31,June 30, 2001
and 2000.
(b) Reports on Form 8-K:
The Company filed a Form 8-K dated January 17, 2001
reporting under Item 5 thereof, the Agreement and Plan of
Merger by and among the Company, Ford, Ford FSG, Inc. and
Ford FSG II, Inc. which resulted in the acquisition by
Ford FSG, Inc. of the outstanding shares of the Company's
Class A Common Stock which it did not already own.
The Company filed a Form 8-K dated January 31, 2001
reporting the issuance of a press release with respect to
the declaration of a quarterly dividend.
The Company filed a Form 8-K dated March 2, 2001,
reporting under Item 5 thereof, instruments defining the
rights of security holders, including indentures, in
connection with the Registration Statement on Form S-3
(File No. 333-80545) filed by the Company with the
Securities and Exchange Commission covering Senior Debt
Securities issuable under an Indenture dated as of
December 1, 1994.None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Company has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE HERTZ CORPORATION
(Registrant)
Date: May 11,August 7, 2001 By: /s/ Paul J. Siracusa
-------------------------------------
Paul J. Siracusa
Executive Vice President and
Chief Financial Officer
(principal financial officer and duly
authorized officer)
1216
1317
EXHIBIT INDEX
3(i) Certificate of Amendment of Restated Certificate of Incorporation of
The Hertz Corporation.
12 Consolidated Computation of Ratio of Earnings to Fixed Charges for the
threesix months ended March 31,June 30, 2001 and 2000.
1317