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, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 1-7541
THE HERTZ CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 13-1938568
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
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 permitted by General
Instruction H(2) of Form 10-Q.
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 registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Indicate the number of shares outstanding of each of the
registrant's classes of common stock as of March 31, 1996:
Common Stock, $1 par value - Class A, 200 shares; Class B, 51
shares; and Class C, 490 shares.
Page 1 of 18 pages
The Exhibit Index is on page 15
PART I - FINANCIAL INFORMATION
ITEM l. FINANCIAL STATEMENTS.
INTRODUCTORY STATEMENT
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, 1995, filed by the registrant
with the Securities and Exchange Commission on March 13, 1996,
has been followed in preparing the accompanying condensed
consolidated financial statements.
The condensed consolidated financial statements for interim
periods included herein have not been audited by independent
public accountants. In the registrant'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.
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THE HERTZ CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(In Thousands of Dollars)
A S S E T S
Unaudited
March 31, Dec. 31,
1996 1995
CASH AND EQUIVALENTS $ 140,157 $ 137,257
RECEIVABLES, less allowance for
doubtful accounts: 1996, $11,057;
1995, $7,985 727,775 789,801
DUE FROM AFFILIATES 276,180 407,442
INVENTORIES, at lower of cost or market 17,095 17,930
PREPAID EXPENSES AND OTHER ASSETS (Note 1) 91,100 83,345
REVENUE EARNING VEHICLES AND OTHER
EQUIPMENT, at cost, less accumulated
depreciation: 1996 $459,990; 1995,
$486,266 4,961,177 4,170,169
PROPERTY AND EQUIPMENT, at cost,
less accumulated depreciation:
1996, $488,388; 1995, $485,680 509,669 495,890
FRANCHISES, CONCESSIONS, CONTRACT COSTS
AND LEASEHOLDS, net of amortization 9,879 7,722
COST IN EXCESS OF NET ASSETS OF PURCHASED
BUSINESSES, net of amortization 542,488 547,074
$7,275,520 $6,656,630
LIABILITIES AND SHAREHOLDERS' EQUITY
ACCOUNTS PAYABLE $ 569,438 $ 585,663
ACCRUED LIABILITIES 471,254 473,019
ACCRUED TAXES 86,699 74,714
DEBT (Note 4) 4,925,288 4,297,484
PUBLIC LIABILITY AND PROPERTY DAMAGE 305,456 311,669
DEFERRED TAXES ON INCOME 77,200 77,800
SHAREHOLDERS' EQUITY:
Preferred stock -
Series A, 10% cumulative 236,000 236,000
Series B, various rates cumulative 249,900 249,900
Common stock 1 1
Additional capital paid-in 59,008 59,008
Reinvested earnings 285,521 276,733
Translation adjustment 9,867 14,539
Unrealized holding (losses) gains for
available-for-sale securities (Note 1) (112) 100
Total shareholders' equity 840,185 836,281
$7,275,520 $6,656,630
The accompanying notes are an integral part of this statement.
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THE HERTZ CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF INCOME
(In Thousands of Dollars)
Unaudited
Three Months
Ended March 31,
1996 1995
REVENUES $803,142 $735,679
EXPENSES:
Direct operating 423,819 400,395
Depreciation of revenue earning
equipment (Note 3) 192,387 170,117
Selling, general and administrative 104,449 95,462
Interest, net of interest income
of $2,758 and $2,542 67,315 70,351
787,970 736,325
INCOME (LOSS) BEFORE INCOME TAXES 15,172 (646)
PROVISION (BENEFIT) FOR TAXES ON INCOME
(Note 2) 6,384 (281)
NET INCOME (LOSS) $ 8,788 $ (365)
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
Three Months
Ended March 31,
1996 1995
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 8,788 $ (365)
Non-cash expenses:
Depreciation of revenue earning
equipment 192,387 170,117
Depreciation of property and
equipment 20,373 17,898
Amortization of intangibles 4,789 4,777
Provision for public liability
and property damage 26,494 30,709
Provision for losses for doubtful
accounts 3,663 1,394
Deferred income taxes (600) (5,200)
Revenue earning equipment
expenditures (2,435,557) (2,289,666)
Proceeds from sales of revenue
earning equipment 1,446,966 1,508,501
Changes in assets and liabilities,
net of effects from sale in 1995
of the European car leasing and
car dealership operations -
Receivables 53,123 (132,879)
Due from affiliates 131,262 78,936
Inventories and prepaid expenses
and other assets (7,467) (12,519)
Accounts payable (13,683) 287,319
Accrued liabilities (191) (8,193)
Accrued taxes 12,252 8,045
Payments of public liability and
property damage claims and expenses (32,712) (29,986)
Net cash flows used for
operating activities (590,113) (371,112)
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
Three Months
Ended March 31,
1996 1995
CASH FLOWS FROM INVESTING ACTIVITIES:
Property and equipment expenditures $(41,944) $ (46,652)
Proceeds from sales of property and
equipment 2,483 8,680
Available-for-sale securities -
Purchases (2,619) -
Sales 2,687 110
Purchases of various operations, and
proceeds from sale in 1995 of the
European car leasing and car dealership
operations, net of cash & equivalents (2,546) 56,560
Net cash flows (used for) provided
from investing activities (41,939) 18,698
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term
debt 149,401 170,112
Repayment of long-term debt (32,651) (139,472)
Short-term borrowings:
Proceeds 225,704 230,541
Repayments (114,248) (118,178)
Ninety day term or less, net 406,821 242,047
Net cash flows provided from
financing activities 635,027 385,050
EFFECT OF FOREIGN EXCHANGE RATE
CHANGES ON CASH (75) 293
NET INCREASE IN CASH AND EQUIVALENTS
DURING THE PERIOD 2,900 32,929
CASH AND EQUIVALENTS AT BEGINNING OF
YEAR 137,257 99,749
CASH AND EQUIVALENTS AT END OF PERIOD $ 140,157 $ 132,678
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the period for -
Interest (net of amount capitalized) $ 71,737 $ 72,932
Income taxes 3,024 4,945
The accompanying notes are an integral part of this statement.
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THE HERTZ CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Available-for-Sale Securities
As of March 31, 1996, Prepaid Expenses and Other Assets in
the condensed consolidated balance sheet include available-for-
sale securities at fair value of $5.5 million (cost $5.7
million). The fair value is calculated using information
provided by outside quotation services. These securities include
various governmental and corporate debt obligations, with the
following maturity dates for the twelve month period following
March 31, 1996 (in millions): fair value $.2 (cost $.2) in 1997;
fair value $3.4 (cost $3.5) 1998 through 2002; fair value $1.9
(cost $2.0) 2003 through 2014. For the three months ended March
31, 1996, proceeds of $2.7 million from the sale of available-
for-sale securities were received, and net gains of $90,271 were
realized. For the three months ended March 31, 1996, unrealized
holding losses and unrealized holding gains, net of taxes,
included in Shareholders' Equity were $135,000 and $23,000,
respectively.
Note 2 - Taxes on Income
The income tax provision (benefit) is based upon the expected
effective tax rate applicable to the full year. The effective
tax rate is higher than the U.S. statutory rate of 35% due to
higher tax rates relating to foreign operations and adjustment
for state taxes net of federal benefit.
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THE HERTZ CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 3 - Depreciation of Revenue Earning Equipment
Depreciation of revenue earning equipment includes the
following (in thousands of dollars):
Unaudited
Three Months Ended
March 31,
1996 1995
Depreciation of revenue earning equipment $196,606 $144,816
Less adjustment of depreciation upon
disposal of the equipment (6,983) 343
Rents paid for vehicles leased 2,764 24,958
Total $192,387 $170,117
The adjustment of depreciation upon disposal of revenue
earning equipment for the three months ended March 31, 1996 and
1995 included net gains of $1.6 million and net losses of $1.1
million, respectively, on the sale of equipment in the
construction equipment rental operations in the United States;
and net gains of $5.4 million and $.8 million, respectively, in
the car rental and car leasing operations.
During the three months ended March 31, 1996, the registrant
purchased Ford Motor Company ("Ford") vehicles at a cost of
approximately $2.3 billion, and sold Ford vehicles to Ford or its
affiliates under various repurchase programs for approximately
$.8 billion.
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THE HERTZ CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 4 - Debt
Debt at March 31, 1996 and December 31, 1995 consists of the following
(in thousands of dollars):
Unaudited
March 31, Dec. 31,
1996 1995
Notes payable, including commercial paper,
average interest rate: 1996, 5.3%;
1995, 5.8% $1,520,448 $1,036,215
Promissory notes, average interest rate:
1996, 7.48%; 1995, 7.62% (effective
average interest rate: 1996, 7.54%; 1995,
7.67%); net of unamortized discount:
1996, $3,666; 1995, $3,019; due 1996
to 2005 1,841,334 1,694,641
Property and equipment lease obligations,
average interest rate: 1996, 7.5%; 1995,
7.9%; due 1996 to 1998 2,519 3,572
Medium term notes, average interest rate:
1996, 9.3%; 1995, 9.4%; due 1996 to 1997 90,300 119,175
Senior subordinated promissory notes,
average interest rate 9.5% (effective
average interest rate 9.6%); net of
unamortized discount: 1996, $275; 1995,
$313; due 1996 to 1998 249,725 249,687
Junior subordinated promissory notes,
average interest rate 6.9%; net of
unamortized discount: 1996, $276;
1995, $286; due 2000 to 2003 399,724 399,714
Subsidiaries' short-term debt, including
commercial paper in millions (1996,
$774.2; 1995, $747.2) and other
borrowings; average interest rate in
domestic and foreign currencies: 1996,
5.0%; 1995, 5.9%; including unamortized
discount: 1996, $28; 1995, $29 821,238 794,480
Total $4,925,288 $4,297,484
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THE HERTZ CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 4 - Debt (continued)
The aggregate amounts of maturities of debt for the twelve
month periods following March 31, 1996 are as follows (in
millions): 1997, $2,562.3 (including $2,294.6 of commercial paper
and short-term borrowings); 1998, $395.8; 1999, $219.7; 2000,
$349.8; 2001, $299.1; after 2001, $1,098.6.
At March 31, 1996, approximately $168 million of the
registrant's consolidated shareholders' equity was free of
dividend limitations pursuant to its existing debt agreements.
At March 31, 1996, the registrant and a subsidiary had $268.9
million of outstanding loans from Ford.
The registrant and its subsidiaries have entered into
arrangements to manage exposure to fluctuations in interest
rates. These arrangements consist of interest-rate swap
agreements ("swaps") and forward rate agreements ("FRAs"). The
differential paid or received on these agreements is recognized
as an adjustment to interest expense. These agreements are not
entered into for trading purposes. The effect of these
agreements is to make the registrant less susceptible to changes
in interest rates by effectively converting certain variable rate
debt to fixed rate debt. Because of the relationship of current
market rates to historical fixed rates, the effect at March 31,
1996 of the swap and FRA agreements is to give the registrant an
overall effective weighted-average rate on debt of 6.6%, with
38% of debt effectively subject to variable interest rates,
compared to a weighted-average interest rate on debt of 6.5%,
with 47% of debt subject to variable interest rates when not
considering the swap and FRA agreements. At March 31, 1996,
these agreements expressed in notional amounts aggregated (in
millions) $412.0 swaps, and FRAs in the amount of $31.2 which
were settled in 1996. Notional amounts are not reflective of the
registrant's obligations under these agreements because the
registrant is only obligated to pay the net amount of interest
rate differential between the fixed and variable rates specified
in the contracts. The registrant's exposure to any credit loss
in the event of non-performance by the counterparties is further
mitigated by the fact that all of these financial instruments are
with significant financial institutions that are rated "A" or
better by the major credit rating agencies. At March 31, 1996,
the fair value of all outstanding contracts, which is
representative of the registrant's obligations under these
contracts, assuming the contracts were terminated at that date,
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THE HERTZ CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 4 - Debt (continued)
was approximately a net payable of $1.4 million. This relates to
notional principal (in millions) of $412 swaps maturing $128.2,
$235.4, $24.1, $24.0, $.2, and $.1 in 1996, 1997, 1998, 1999,
2000, and 2002, respectively; and of notional principal scheduled
to start after March 31, 1996 of $1.9 swaps maturing $1.2 and $.7
in 1996 and 1997, respectively and $31.2 FRA's maturing in 1997.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
First Quarter 1996 vs. First Quarter 1995
Revenues in the first quarter of 1996 of $803 million
increased by $67 million as compared to the first quarter of
1995. This increase was primarily attributable to gains in the
car rental operations resulting from a greater number of
transactions and rate increases; and improvements in construction
equipment rental and sales due to increased volume resulting from
the opening of new locations and increased activity in
construction and industrial related markets.
Total expenses increased $52 million to $788 million in the
first quarter of 1996 as compared to $736 million in the first
quarter of 1995. Direct operating expense increased principally
due to the higher volume of business, but is lower in 1996 as a
percent of revenues due to more efficient fixed cost coverage.
Depreciation of revenue earning equipment increased primarily due
to an increase in vehicles and equipment operated and higher
prices for automobiles; these increases were partly offset by
higher net proceeds received on disposal of revenue earning
equipment in excess of book value due to improved market
conditions. Selling, general and administrative expense
increased primarily due to higher advertising, sales promotion
and administrative costs. The decrease in interest expense was
primarily due to lower interest rates in 1996, partly offset by
higher debt levels in 1996.
The tax provision of $6,384,000 in the first quarter of 1996
was unfavorable as compared to the tax benefit of $281,000 in the
first quarter of 1995, primarily due to the higher income before
income taxes in 1996 and changes in effective tax rates. See
Note 2 to the Notes to Condensed Consolidated Financial
Statements.
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PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits:
(4) Instruments defining the rights of security
holders, including indentures. During the quarter
ended March 31, 1996, the registrant and its
subsidiaries ("Hertz") incurred various
obligations which could be considered as long-term
debt, none of which exceeded 10% of the total
assets of Hertz on a consolidated basis. Hertz
agrees to furnish to the Commission upon request a
copy of any instrument defining the rights of the
holders of such long-term debt.
(12) Computation of Ratio of Earnings to Fixed Charges for the
three months ended March 31, 1996, and 1995.
(27) Financial Data Schedule for the three months ended March
31, 1996.
(b) Reports on Form 8-K:
The registrant filed Form 8-K dated January 30, 1996
reporting under Items 5 and 7 thereof, instruments
defining the rights of security holders, including
indentures, in connection with the Registration Statement
on Form S-3 (File No. 33-54183) filed by the registrant
with the Securities and Exchange Commission covering
Senior Debt Securities issuable under an Indenture dated
as of December 1, 1994.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
THE HERTZ CORPORATION
(Registrant)
Date: April 30, 1996 By: /s/ William Sider
William Sider
Executive Vice President and
Chief Financial Officer
(principal financial officer
and duly authorized officer)
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
EXHIBITS
filed with
FORM 10-Q
for the quarter ended
March 31, 1996
under
THE SECURITIES EXCHANGE ACT OF 1934
THE HERTZ CORPORATION
Commission file number 1-7541
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EXHIBIT INDEX
Exhibit
No. Description Page No.
12 Computation of Ratio of Earnings
to Fixed Charges for the three
months ended March 31, 1996 and
1995. 16
27 Financial Data Schedule for the
three months ended March 31, 1996. 17-18
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EXHIBIT 12
THE HERTZ CORPORATION AND SUBSIDIARIES
CONSOLIDATED COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(In Thousands of Dollars Except Ratios)
Unaudited
Three Months
Ended March 31,
1996 1995
Income (loss) before income taxes $ 15,172 $ (646)
Interest expense 70,073 72,893
Portion of rent estimated to represent
the interest factor 16,889 21,839
Earnings before income taxes and fixed
charges (an additional $.8 million
would have been required for 1995 to
reflect a ratio of 1.0X) $102,134 $94,086
Interest expense (including capitalized
interest) $ 70,279 $73,039
Portion of rent estimated to represent
the interest factor 16,889 21,839
Fixed charges $ 87,168 $94,878
Ratio of earnings to fixed charges 1.17 .99
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