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 SEPTEMBER 30, 2000
------------------
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 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.)
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 September 30, 2000: Common Stock, $0.01 par value -
Class A, 40,124,418 shares and Class B, 67,310,167 shares.
Page 1 of 19 pages
The Exhibit Index is on page 19
2
PART I - FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS
THE HERTZ CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS OF DOLLARS)
UNAUDITED
ASSETS
Sept. 30, Dec. 31,
2000 1999
-------------- -----------
Cash and equivalents $ 147,695 $ 208,652
Receivables, less allowance for
doubtful accounts of $23,069 and $24,299 1,072,218 1,092,955
Due from affiliates 394,344 698,612
Inventories, at lower of cost or market 79,303 57,546
Prepaid expenses and other assets 137,916 120,270
Revenue earning equipment, at cost:
Cars 6,421,017 5,277,472
Less accumulated depreciation (630,904) (515,128)
Other equipment 2,323,041 1,953,854
Less accumulated depreciation (545,787) (452,420)
----------- -----------
Total revenue earning equipment 7,567,367 6,263,778
----------- -----------
Property and equipment, at cost:
Land, buildings and leasehold improvements 852,383 806,058
Service equipment 832,825 775,010
----------- -----------
1,685,208 1,581,068
Less accumulated depreciation (708,967) (673,710)
----------- -----------
Total property and equipment 976,241 907,358
----------- -----------
Goodwill and other intangible assets,
net of amortization (Note 4) 816,340 787,536
----------- -----------
Total assets $11,191,424 $10,136,707
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable $ 507,350 $ 546,111
Accrued liabilities 562,584 604,307
Accrued taxes 155,886 146,405
Debt (Note 7) 7,345,085 6,602,220
Public liability and property damage 286,995 292,573
Deferred taxes on income 416,500 271,100
Stockholders' equity:
Class A Common Stock, $0.01 par value,
440,000,000 shares authorized,
40,956,858 shares issued 410 410
Class B Common Stock, $0.01 par value,
140,000,000 shares authorized,
67,310,167 shares issued 673 673
Additional capital paid-in (Note 4) 996,559 982,298
Unamortized restricted stock grants (6,113) (3,452)
Retained earnings 1,053,159 766,513
Accumulated other comprehensive income (Note 10) (98,933) (52,499)
Treasury stock, at cost, 832,440 shares and 420,725 shares (28,731) (19,952)
----------- -----------
Total stockholders' equity 1,917,024 1,673,991
----------- -----------
Total liabilities and stockholders' equity $11,191,424 $10,136,707
=========== ===========
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
Three Months Ended
September 30,
----------------------------------
2000 1999
------------- -----------
Revenues:
Car rental $1,137,089 $1,071,683
Industrial and construction equipment rental 269,002 233,013
Car leasing 7,498 10,125
Franchise fees and other revenue 24,167 29,987
---------- ----------
Total revenues 1,437,756 1,344,808
---------- ----------
Expenses:
Direct operating 600,000 564,976
Depreciation of revenue earning equipment (Note 6) 367,393 336,773
Selling, general and administrative 115,725 116,650
Interest, net of interest income of $2,802 and $3,311 119,046 93,714
---------- ----------
Total expenses 1,202,164 1,112,113
---------- ----------
Income before income taxes 235,592 232,695
Provision for taxes on income (Note 5) 92,829 93,659
---------- ----------
Net income $ 142,763 $ 139,036
========== ==========
Earnings per share (Note 3):
Basic $ 1.33 $ 1.29
========== ==========
Diluted $ 1.33 $ 1.28
========== ==========
The accompanying notes are an integral part of this statement.
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4
THE HERTZ CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
(IN THOUSANDS OF DOLLARS)
UNAUDITED
Nine Months Ended
September 30,
----------------------------------
2000 1999
------------- -----------
Revenues:
Car rental $3,057,578 $2,828,261
Industrial and construction equipment rental 706,010 609,578
Car leasing 28,609 29,274
Franchise fees and other revenue 70,091 78,039
---------- ----------
Total revenues 3,862,288 3,545,152
---------- ----------
Expenses:
Direct operating 1,708,496 1,571,510
Depreciation of revenue earning equipment (Note 6) 1,007,491 921,634
Selling, general and administrative 341,068 340,134
Interest, net of interest income of $10,282 and $8,097 307,335 250,211
---------- ----------
Total expenses 3,364,390 3,083,489
---------- ----------
Income before income taxes 497,898 461,663
Provision for taxes on income (Note 5) 195,104 185,963
---------- ----------
Net income $ 302,794 $ 275,700
========== ==========
Earnings per share (Note 3):
Basic $ 2.81 $ 2.55
========== ==========
Diluted $ 2.81 $ 2.54
========== ==========
The accompanying notes are an integral part of this statement.
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5
THE HERTZ CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS OF DOLLARS)
UNAUDITED
Nine Months Ended
September 30,
------------------------------------
2000 1999
--------------- -----------
Cash flows from operating activities:
Net income $ 302,794 $ 275,700
Non-cash expenses:
Depreciation of revenue earning equipment 1,007,491 921,634
Depreciation of property and equipment 100,600 81,715
Amortization of intangibles 22,318 20,339
Amortization of restricted stock grants 2,114 3,294
Provision for public liability and property damage 98,458 95,393
Provision for losses for doubtful accounts 16,305 9,785
Tax benefit from employee stock compensation plans 3,398 6,103
Deferred income taxes 145,400 51,700
Revenue earning equipment expenditures (7,377,337) (6,684,599)
Proceeds from sales of revenue earning equipment 4,894,963 4,659,855
Changes in assets and liabilities:
Receivables (102,950) (125,520)
Due from affiliates 304,268 186,146
Inventories and prepaid expenses and other assets (39,786) (30,489)
Accounts payable (6,432) 99,793
Accrued liabilities (14,540) 36,461
Accrued taxes 6,741 52,434
Payments of public liability and property damage claims
and expenses (103,768) (102,631)
----------- -----------
Net cash used in operating activities (739,963) (442,887)
----------- -----------
Cash flows from investing activities:
Property and equipment expenditures (198,746) (257,843)
Proceeds from sales of property and equipment 23,194 24,468
Available-for-sale securities:
Purchases (4,921) (3,136)
Sales 4,637 2,694
Investment in joint venture (2,033) (9,200)
Transfer of leasing operations to affiliated company,
net of cash (Note 4) 99,167 -
Purchases of various operations, net of cash
(see supplemental disclosures below) (86,726) (104,066)
----------- -----------
Net cash used in investing activities (165,428) (347,083)
----------- -----------
Cash flows from financing activities:
Proceeds from issuance of long-term debt 511,877 1,046,376
Repayment of long-term debt (298,155) (108,726)
Short-term borrowings:
Proceeds 551,004 1,698,915
Repayments (630,084) (1,706,303)
Ninety day term or less, net 748,551 (98,620)
Cash dividends paid on common stock (16,148) (16,205)
Purchases of treasury stock (25,124) (25,058)
Proceeds from sale of treasury stock 5,987 15,568
----------- -----------
Net cash provided by financing activities 847,908 805,947
----------- -----------
Effect of foreign exchange rate changes on cash (3,474) (1,456)
----------- -----------
Net (decrease) increase in cash and equivalents
during the period (60,957) 14,521
Cash and equivalents at beginning of year 208,652 188,466
----------- -----------
Cash and equivalents at end of period $ 147,695 $ 202,987
=========== ===========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest (net of amounts capitalized) $ 325,001 $ 264,343
Income taxes 61,120 106,748
In connection with acquisitions made in the first nine months of 2000 and
1999, liabilities assumed were $67 million and $53 million, respectively.
The accompanying notes are an integral part of this statement.
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THE HERTZ CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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, 1999, filed by the registrant (the "Company") with the
Securities and Exchange Commission on March 17, 2000, has been followed in
preparing the accompanying consolidated financial statements.
The 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.
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform to the
current year presentation.
RECENT PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities." SFAS No. 133 establishes a
new model for accounting for derivatives and hedging activities. In June
1999, the FASB delayed the effective date to fiscal years beginning after June
15, 2000. The Company will adopt SFAS No. 133 beginning January 1, 2001. The
adoption of SFAS No. 133 is not expected to have a material effect on the
Company's financial position or results of operations or cash flows.
NOTE 2 - PROPOSAL TO ACQUIRE SHARES OWNED BY PUBLIC STOCKHOLDERS
On September 21, 2000, Ford Motor Company ("Ford") announced a
proposal to acquire the 18.5 percent of the Company's outstanding stock it
does not already own through a merger transaction. Under the proposed merger,
the Company's public stockholders would receive $30 for each share of the
Company's Class A Common Stock owned. The Company's Board of Directors has
formed a Special Committee, consisting of three independent members of the
Board of Directors, to consider the proposal. If the proposed transaction is
consummated, the Company's Class A Common Stock will cease to be listed on the
New York Stock Exchange and will be deregistered under the Securities Exchange
Act of 1934, as amended.
NOTE 3 - EARNINGS PER SHARE
The following table sets forth the computations of basic earnings per
share and diluted earnings per share (in thousands of dollars, except per
share amounts):
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------------------- -------------------------------------
2000 1999 2000 1999
----------------- ---------------- ---------------- ------------------
Basic earnings per share:
Net income $ 142,763 $ 139,036 $ 302,794 $ 275,700
--------------- ---------------- ---------------- ---------------
Average common shares
outstanding 107,427,227 108,032,375 107,616,838 108,005,161
--------------- ---------------- ---------------- ---------------
Basic earnings per share $ 1.33 $ 1.29 $ 2.81 $ 2.55
=============== ================ ================ ===============
Diluted earnings per share:
Net income $ 142,763 $ 139,036 $ 302,794 $ 275,700
--------------- ---------------- ---------------- ---------------
Average common shares
outstanding 107,427,227 108,032,375 107,616,838 108,005,161
Dilutive effect of stock options 117,140 518,789 173,590 680,444
--------------- ---------------- ---------------- ---------------
Average diluted common shares
outstanding 107,544,367 108,551,164 107,790,428 108,685,605
--------------- ---------------- ---------------- ---------------
Diluted earnings per share $ 1.33 $ 1.28 $ 2.81 $ 2.54
=============== ================ ================ ===============
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THE HERTZ CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Options to purchase 3,024,121 and 832,000 shares of common stock for
the three month periods ended September 30, 2000 and 1999, respectively, and
2,561,093 and 609,633 shares of common stock for the nine month periods ended
September 30, 2000 and 1999, respectively, were outstanding but not included
in the computation of diluted earnings per common share because the options'
exercise prices were greater than the average market price of the common
shares.
NOTE 4 - ACQUISITIONS AND DISPOSITIONS
During the nine months ended September 30, 2000, the Company acquired
three European and four North American equipment rental and sales companies.
The Company also acquired one European car rental company. The aggregate
purchase price of the acquisitions was $86.7 million, net of cash acquired,
plus the assumption of $34.1 million of debt. The aggregate consideration
exceeded the fair value of the net assets acquired by approximately $55.7
million, which has been recognized as goodwill and is being amortized over
periods from 20 to 40 years. The acquisitions were accounted for as purchases,
and the results of operations have been included in the Company's 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.
On August 31, 2000, the Company transferred substantially all of the
net assets of its leasing operations in Australia, New Zealand and the United
Kingdom to Axus International, Inc., a wholly-owned subsidiary of Ford Motor
Credit Corporation for $99.2 million. The transfer was considered a transfer
of net assets between companies under common control, and as such, the excess
proceeds received over the net book value of $16.4 million were recorded as an
adjustment to "Additional capital paid-in."
NOTE 5 - TAXES ON INCOME
The income tax provision 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.
NOTE 6 - DEPRECIATION OF REVENUE EARNING EQUIPMENT
Depreciation of revenue earning equipment includes the following (in
thousands of dollars):
Three Months Ended
September 30,
-------------------------------
2000 1999
--------- ---------
Depreciation of revenue earning equipment $376,855 $340,564
Adjustment of depreciation upon disposal of the equipment (12,680) (8,556)
Rents paid for vehicles leased 3,218 4,765
--------- ---------
Total $367,393 $336,773
========= =========
Nine Months Ended
September 30,
-------------------------------
2000 1999
---------- --------
Depreciation of revenue earning equipment $1,029,373 $929,843
Adjustment of depreciation upon disposal of the equipment (31,880) (21,150)
Rents paid for vehicles leased 9,998 12,941
---------- --------
Total $1,007,491 $921,634
========== ========
Effective January 1, 2000, certain lives being used to compute the
provision for depreciation of revenue earning equipment used in the Company's
domestic industrial and construction equipment rental operations were
increased to reflect changes in the estimated residual values to be realized
when the equipment is sold. As a result of this change, depreciation of
revenue earning equipment for the three and nine months ended September 30,
2000 decreased $3.2 million and $10.2 million, respectively. Periodic
evaluations of changes in estimated residual values resulted in similar
revisions to certain asset lives in January 1997 and July 1994.
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THE HERTZ CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The adjustment of depreciation upon disposal of revenue earning
equipment for the three months ended September 30, 2000 and 1999 included net
gains of $2.6 million and $5.6 million, respectively, on the sale of equipment
in the Company's industrial and construction equipment rental operations; and
net gains of $10.1 million and $3.0 million, respectively, in the car rental
and car leasing operations.
The adjustment of depreciation upon disposal of revenue earning
equipment for the nine months ended September 30, 2000 and 1999 included net
gains of $11.9 million and $17.9 million, respectively, on the sale of
equipment in the industrial and construction equipment rental operations; and
net gains of $20.0 million and $3.3 million, respectively, in the car rental
and car leasing operations.
During the nine months ended September 30, 2000, the Company purchased
Ford vehicles at a cost of approximately $3.6 billion, and sold Ford vehicles
to Ford or its affiliates under various repurchase programs for approximately
$2.0 billion.
NOTE 7 - DEBT
Debt at September 30, 2000 and December 31, 1999 consisted of the
following (in thousands of dollars):
Sept. 30, Dec 31,
2000 1999
----------- ------------
Notes payable, including commercial paper,
average interest rate: 2000, 6.6%; 1999, 6.0% $2,123,655 $2,082,417
Promissory notes, average interest rate:
2000, 7.1%; 1999, 6.9%; (effective average
interest rate: 2000, 7.2%; 1999, 6.9%);
net of unamortized discount: 2000, $9,921;
1999, $9,344; due 2001 to 2028 3,540,078 3,140,657
Junior subordinated promissory notes,
average interest rate: 2000, 7.0%; 1999, 6.9%;
net of unamortized discount: 2000, $85; 1999, $115;
due 2003 249,915 399,885
Subsidiaries' short-term debt, in dollars and foreign
currencies, including commercial paper in millions
(2000, $763.6; 1999, $482.1); and other borrowings;
average interest rate: 2000, 5.4%; 1999, 4.6% 1,431,437 979,261
---------- -----------
Total $7,345,085 $6,602,220
========== ===========
The aggregate amounts of maturities of debt for the twelve-month periods
following September 30, 2000 are as follows (in millions): 2001, $3,935.0
(including $3,524.7 of commercial paper and short-term borrowings); 2002,
$406.4; 2003, $553.2; 2004, $252.1; 2005, $504.2; after 2005, $1,694.2.
At September 30, 2000, approximately $1,225 million of the Company's
consolidated stockholders' equity was free of dividend limitations pursuant to
its existing debt agreements.
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THE HERTZ CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 - STOCK-BASED COMPENSATION
The Company sponsors a stock-based incentive plan (the "Plan") covering
certain officers and other executives of the Company. The Plan is administered
by the Compensation Committee of the Board of Directors. The total number of
shares of Class A Common Stock that may be subject to awards under the Plan is
8,120,000 shares. On January 1, 2000, the Company granted an additional award
of 100,000 shares of restricted stock. On February 8, 2000, the Company
granted nonqualified stock options for 1,089,900 shares of Class A Common
Stock. The options were granted at the closing market price on that day of
$41.94 per share. As of September 30, 2000, 3,155,038 shares were available
for awards under the Plan.
The Company sponsors an Employee Stock Purchase Plan (the "ESPP"). The
ESPP became effective on July 1, 1999. The ESPP allows eligible employees an
opportunity to purchase shares of Class A Common Stock through accumulated
payroll deductions at 85% of the closing price at the end of each quarterly
offering period.
During the nine months ended September 30, 2000, the Company acquired
747,727 shares of its Class A Common Stock for requirements under the above
Plans.
NOTE 9 - 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 before income taxes for the three months and nine months
ended September 30, 2000 and 1999 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).
Three Months Ended September 30,
------------------------------------------------------
Income (Loss)
Revenues Before Income Taxes
------------------------- -----------------------
2000 1999 2000 1999
----------- --------- -------- -------
Car rental and leasing $1,159.7 $1,097.4 $219.1 $207.7
Industrial and construction equipment rental (a) 269.1 233.1 22.1 32.5
Corporate and other 9.0 14.3 (5.6) (7.5)
--------- -------- ------- ------
Consolidated total $1,437.8 $1,344.8 $235.6 $232.7
======== ======== ======= ======
Nine Months Ended September 30,
------------------------------------------------------
Income (Loss)
Revenues Before Income Taxes
------------------------ -----------------------
2000 1999 2000 1999
---------- ---------- --------- --------
Car rental and leasing (b) $3,125.0 $2,897.4 $474.5 $423.7
Industrial and construction equipment rental (a) 706.2 609.9 35.9 57.0
Corporate and other 31.1 37.9 (12.5) (19.0)
-------- -------- ------ ------
Consolidated total $3,862.3 $3,545.2 $497.9 $461.7
======== ======== ====== ======
(a) Income before income taxes includes the effect of a change in certain
estimated lives being used to compute depreciation of revenue earning
equipment. See Note 6.
(b) Income before income taxes includes a gain of $9.0 million in 2000 from
the condemnation of a car rental and support facility in California.
9
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THE HERTZ CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Total assets, by segment, as of September 30, 2000 and December 31, 1999 are
as follows (in millions of dollars):
Sept. 30, 2000 Dec. 31, 1999
-------------- -------------
Total assets
Car rental and leasing $ 7,967.5 $ 7,330.9
Industrial and construction equipment rental 2,661.9 2,268.2
Corporate and other 562.0 537.6
---------- ---------
Consolidated total $11,191.4 $10,136.7
========= =========
NOTE 10 - COMPREHENSIVE INCOME
Accumulated other comprehensive income includes an accumulated
translation loss (in thousands of dollars) of $97,403 and $50,878 at September
30, 2000 and December 31, 1999, respectively. Comprehensive income for the
three months and nine months ended September 30, 2000 and 1999 was as follows
(in thousands of dollars):
Three Months Ended
September 30,
------------------------------------
2000 1999
----------- ----------
Net income $142,763 $139,036
------- -------
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments (27,258) 8,406
Unrealized gains on available-for-sale securities 89 34
------- --------
Other comprehensive (loss) income (27,169) 8,440
------- --------
Comprehensive income $115,594 $147,476
======== =========
Nine Months Ended
September 30,
-----------------------------------
2000 1999
----------- ---------
Net income $302,794 $275,700
-------- --------
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments (46,525) (16,321)
Unrealized gains (losses) on available-for-sale securities 91 (199)
------- --------
Other comprehensive loss (46,434) (16,520)
------- --------
Comprehensive income $256,360 $259,180
======== ========
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED WITH THREE MONTHS ENDED
SEPTEMBER 30, 1999
SUMMARY
The following table sets forth for the three months ended September 30,
2000 and 1999 the percentage of operating revenues represented by certain
items in the Company's consolidated statement of income:
Percentage of Revenues
Three Months Ended
September 30,
---------------------------------
2000 1999
---------- ---------
Revenues:
Car rental 79.1% 79.7%
Industrial and construction equipment rental 18.7 17.3
Car leasing .5 .8
Franchise fees and other revenue 1.7 2.2
----- -----
100.0 100.0
----- -----
Expenses:
Direct operating 41.7 42.0
Depreciation of revenue earning equipment 25.6 25.0
Selling, general and administrative 8.0 8.7
Interest, net of interest income 8.3 7.0
----- -----
83.6 82.7
----- -----
Income before income taxes 16.4 17.3
Provision for taxes on income 6.5 7.0
----- -----
Net income 9.9% 10.3%
===== =====
The following table sets forth certain selected operating data of the
Company for the three months ended September 30, 2000 and 1999:
Three Months Ended
September 30,
-----------------------------------
2000 1999
------------ ----------
Car rental and other operations:
Average number of owned cars operated
during period 406,000 367,000
Number of transactions of owned car
rental operations during period 6,736,000 6,287,000
Average revenue per transaction of owned
car rental operations during period (in whole dollars) $ 168.81 $ 170.46
Equipment rental operations:
Average cost of rental equipment operated during
period (in millions) $ 2,291 $ 1,963
REVENUES
The Company achieved record revenues of $1,437.8 million in the third
quarter of 2000, which increased by 6.9% from $1,344.8 million in the third
quarter of 1999. Revenues from car rental operations of $1,137.1 million in
the third quarter of 2000 increased by $65.4 million, or 6.1% from $1,071.7
million in the third quarter of 1999. The increase was primarily the result of
a worldwide increase in transactions of 7.1% that contributed $76.0 million in
increased revenue. In addition, improved revenue per transaction worldwide,
before the effects of foreign currency translation, contributed $21.3 million
which resulted from longer length rentals partly offset by lower revenue per
day. These increases were partially offset by a decrease of $31.9 million from
the effects of foreign currency translation.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
Revenues from industrial and construction equipment rental of $269.0
million in the third quarter of 2000 increased by 15.4% from $233.0 million in
the third quarter of 1999. Of this $36.0 million increase, approximately $29.2
million was due to the inclusion of businesses acquired worldwide since the
second quarter of 1999.
Revenues from all other sources of $31.7 million in the third quarter
of 2000 decreased by 21.1% from $40.1 million in the third quarter of 1999,
primarily due to a decrease in telecommunications revenue and a decrease in
car leasing revenue due to the transfer of certain foreign operations to an
affiliated company on August 31, 2000.
EXPENSES
Total expenses of $1,202.2 million in 2000 increased by 8.1% from
$1,112.1 million in 1999, and total expenses as a percentage of revenues
increased to 83.6% in 2000 from 82.7% in 1999.
Direct operating expenses of $600.0 million in 2000 increased by 6.2%
from $565.0 million in 1999. The increase was primarily the result of the
expansion of the industrial and construction equipment rental business and
higher wages, facility costs and vehicle damage costs in car rental
operations, which correspond with the increase in transaction volume. These
increases were partly offset by higher recovery of concession fees.
Depreciation of revenue earning equipment for the car rental and car
leasing operations of $303.0 million in the third quarter of 2000 increased by
10.1% from $275.1 million in 1999, primarily due to an increase in the number
of cars operated worldwide. This increase was partly offset by an increase of
$7.1 million in the net proceeds received in excess of book value on the
disposal of vehicles. Depreciation of revenue earning equipment for the
industrial and construction equipment rental operations of $64.4 million in
2000 increased by 4.4% from $61.7 million in 1999, primarily due to
acquisitions of equipment rental and sales companies, an increase in equipment
operated and a decrease of $3.0 million in the net proceeds received in excess
of book value on the disposal of equipment. This increase was partly offset by
a reduction in depreciation of $3.2 million, due to changes made effective
January 1, 2000 to increase certain estimated useful lives being used to
compute the provision for depreciation of revenue earning equipment and to
reflect changes in the estimated residual values of the equipment. Periodic
evaluations of changes in estimated residual values resulted in similar
revisions to certain asset lives in January 1997 and July 1994.
Selling, general and administrative expenses of $115.7 million in 2000
decreased by 0.8% from $116.7 million in 1999. The decrease was primarily due
to lower advertising costs and the effects of foreign currency translation,
partially offset by increases in administrative and sales promotion expenses.
Interest expense of $119.0 million in 2000 increased 27.0% from $93.7
million in 1999 due to an increase in the weighted-average interest rate and
higher average debt levels in the third quarter of 2000.
The tax provision of $92.8 million in 2000 decreased 0.9% from $93.7
million in 1999, due to a decrease in the effective tax rate. The effective
tax rate in 2000 is 39.4% as compared to 40.2% in 1999. The effective tax rate
fluctuates due to changes in the expected levels of pre-tax income in
countries that operate under different tax rates. See Note 5 to the Notes to
the Company's consolidated financial statements.
NET INCOME
The Company achieved record third quarter net income of $142.8 million
in 2000, or $1.33 per share on a diluted basis, representing an increase of
2.7% from $139.0 million, or $1.28 per share on a diluted basis, in the third
quarter of 1999. This increase was primarily due to strong volume-related
performance, partially offset by downward pricing pressure, and the net effect
of other contributing factors noted above.
The Company believes that continued competitive pricing in the car
rental industry and excess fleet in the North American equipment rental market
will adversely impact operating results for the remainder of 2000 and the
first quarter 2001, when compared to the comparable periods in 1999 and 2000,
respectively.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
NINE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED WITH NINE MONTHS ENDED SEPTEMBER
30, 1999
SUMMARY
The following table sets forth for the nine months ended September 30,
2000 and 1999 the percentage of operating revenues represented by certain
items in the Company's consolidated statement of income:
Percentage of Revenues
Nine Months Ended
September 30,
----------------------------------
2000 1999
---------- --------
Revenues:
Car rental 79.2% 79.8%
Industrial and construction equipment rental 18.3 17.2
Car leasing .7 .8
Franchise fees and other revenue 1.8 2.2
----- -----
100.0 100.0
----- -----
Expenses:
Direct operating 44.2 44.3
Depreciation of revenue earning equipment 26.1 26.0
Selling, general and administrative 8.8 9.6
Interest, net of interest income 8.0 7.1
----- -----
87.1 87.0
----- -----
Income before income taxes 12.9 13.0
Provision for taxes on income 5.1 5.2
----- -----
Net income 7.8% 7.8%
===== =====
The following table sets forth certain selected operating data of the
Company for the nine months ended September 30, 2000 and 1999:
Nine Months Ended
September 30,
-------------------------------------------
2000 1999
--------------- -----------
Car rental and other operations:
Average number of owned cars operated
during period 368,000 332,000
Number of transactions of owned car
rental operations during period 19,083,000 17,634,000
Average revenue per transaction of owned
car rental operations during period (in whole dollars) $ 160.23 $ 160.39
Equipment rental operations:
Average cost of rental equipment operated
during period (in millions) $ 2,109 $ 1,813
REVENUES
The Company achieved record revenues of $3,862.3 million in the first
nine months of 2000, which increased by 8.9% from $3,545.2 million in the
first nine months of 1999. Revenues from car rental operations of $3,057.6
million in the first nine months of 2000 increased by $229.3 million, or 8.1%
from $2,828.3 million in the first nine months of 1999. The increase was
primarily the result of a worldwide increase in transactions of 8.2% that
contributed $231.9 million in increased revenue. In addition, improved revenue
per transaction worldwide, before the effects of foreign currency translation,
contributed $69.9 million which resulted from longer length rentals partly
offset by lower revenue per day. These increases were partially offset by a
decrease of $72.5 million from the effects of foreign currency translation.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
Revenues from industrial and construction equipment rental of $706.0
million in the first nine months of 2000 increased by 15.8% from $609.6
million in the first nine months of 1999. Of this $96.4 million increase,
approximately $77.9 million was due to the inclusion of 20 acquired businesses
worldwide.
Revenues from all other sources of $98.7 million in the first nine
months of 2000 decreased by 8.0% from $107.3 million in the first nine months
of 1999, primarily due to a decrease in telecommunications revenue.
EXPENSES
Total expenses of $3,364.4 million in 2000 increased by 9.1% from
$3,083.5 million in 1999, and total expenses as a percentage of revenues
increased to 87.1% in 2000 from 87.0% in 1999.
Direct operating expenses of $1,708.5 million in 2000 increased by 8.7%
from $1,571.5 million in 1999. The increase was primarily the result of the
expansion of the industrial and construction equipment rental business and
higher wages, vehicle damage and facility costs in car rental operations which
corresponds with the increase in transaction volume. These increases were
partly offset by higher recovery of concession fees and a gain of $9.0 million
in 2000 from the condemnation of a car rental and support facility in
California.
Depreciation of revenue earning equipment for the car rental and car
leasing operations of $837.1 million in 2000 increased by 8.3% from $772.6
million in 1999, primarily due to an increase in the number of cars operated
worldwide. This increase was partly offset by an increase of $16.7 million in
the net proceeds received in excess of book value on the disposal of vehicles.
Depreciation of revenue earning equipment for the industrial and construction
equipment rental operations of $170.4 million in 2000 increased by 14.4% from
$149.0 million in 1999, primarily due to acquisitions of equipment rental and
sales companies, an increase in equipment operated and a decrease of $6.0
million in the net proceeds received in excess of book value on the disposal
of equipment. This increase was partly offset by a reduction in depreciation
of $10.2 million, due to changes made effective January 1, 2000 to increase
certain estimated useful lives being used to compute the provision for
depreciation of revenue earning equipment and to reflect changes in the
estimated residual values of the equipment. Periodic evaluations of changes in
estimated residual values resulted in similar revisions to certain asset lives
in January 1997 and July 1994.
Selling, general and administrative expenses of $341.1 million in 2000
increased by 0.3% from $340.1 million in 1999. The increase was primarily due
to increases in administrative expenses. These increases were partly offset by
a decrease in advertising costs and the effects of foreign currency
translation.
Interest expense of $307.3 million in 2000 increased 22.8% from $250.2
million in 1999 due to higher average debt levels and an increase in the
weighted-average interest rate in 2000. These increases were partly offset by
higher interest income in 2000.
The tax provision of $195.1 million in 2000 increased 4.9% from $186.0
million in 1999, due to the higher income before income taxes in 2000. The
effective tax rate in 2000 is 39.2% as compared to 40.3% in 1999. The
effective tax rate fluctuates due to changes in the expected levels of pre-tax
income in countries that operate under different tax rates. See Note 5 to the
Notes to the Company's consolidated financial statements.
NET INCOME
The Company achieved record net income of $302.8 million in the first
nine months of 2000, or $2.81 per share on a diluted basis, representing an
increase of 9.8% from $275.7 million, or $2.54 per share on a diluted basis,
in the first nine months of 1999. This increase was primarily due to strong
volume-related performance, partially offset by downward pricing pressure, and
the net effect of other contributing factors noted above.
The Company believes that continued competitive pricing in the car
rental industry and excess fleet in the North American equipment rental market
will adversely impact operating results for the remainder of 2000 and the
first quarter 2001, when compared to the comparable periods in 1999 and 2000,
respectively.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
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.
For the nine months ended September 30, 2000, the Company's expenditures for
revenue earning equipment were $7.4 billion (partially offset by proceeds from
the sale of such equipment of $4.9 billion). These assets are purchased by the
Company in accordance with the terms of programs negotiated with automobile
and equipment manufacturers. In 2000, the Company expended $86.7 million for
new businesses acquired and assumed $34.1 million of related debt and invested
$2.0 million in a business venture. The Company also received $99.2 million
for the transfer of its leasing operations in Australia, New Zealand and the
United Kingdom to Axus International, Inc., an affiliated company. For the
nine months ended September 30, 2000, the Company's capital investments for
property and non-revenue earning equipment were $198.7 million.
To finance its domestic operations, the Company maintains an active
commercial paper program. The Company is also active in the U.S. 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 September 30, 2000 was $3.8 billion with maturities
ranging from 2000 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 and
Ireland. The Company guarantees only the borrowings of its subsidiaries in
Australia, Canada and Ireland, which consist principally of commercial paper
and short-term bank loans. At September 30, 2000, the total debt for the
foreign operations was $1,427 million, of which $1,406 million was short-term
(original maturity of less than one year) and $21 million was long-term. At
September 30, 2000, the total amounts outstanding (in millions of U.S.
dollars) under the Australian, Canadian and Irish commercial paper programs
were $88, $346 and $330, respectively.
At September 30, 2000, the Company had committed credit facilities
totaling $3.4 billion. Of this amount, $2.2 billion is represented by a
combination of multi-year and 364-day global committed credit facilities
provided by 31 relationship 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, the multi-year
facilities totaling $1,162 million were renegotiated. Currently, $63 million
expires on June 30, 2002, $137 million expires on June 30, 2003, $46 million
expires on June 30, 2004 and $916 million expires on June 30, 2005. Effective
June 22, 2000, the 364-day facilities totaling $1,050 million were
renegotiated and currently expire on June 20, 2001. The multi-year facilities
that expire in 2005 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 364-day facilities totaling $975
million, the Company is permitted to convert any amount outstanding prior to
expiration into a four-year term loan.
In addition to these bank credit facilities, in February 1997, Ford
extended to the Company a line of credit of $500 million, expiring June 30,
2002. 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 10, 2000 the Company paid a quarterly dividend of $.05 per
share on its Class A and Class B Common Stock to stockholders of record as of
February 15, 2000.
On June 9, 2000 the Company paid a quarterly dividend of $.05 per share
on its Class A and Class B Common Stock to stockholders of record as of May
15, 2000.
On September 11, 2000 the Company paid a quarterly dividend of $.05 per
share on its Class A and Class B Common Stock to stockholders of record as of
August 16, 2000.
On November 6, 2000 the Board of Directors declared a quarterly
dividend of $.05 per share on its Class A and Class B Common Stock, payable on
December 11, 2000 to stockholders of record as of November 15, 2000.
Car rental is a seasonal business, with decreased travel in both the
business and leisure segments in the winter
15
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
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, remain 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.
FORWARD-LOOKING STATEMENTS
This Form 10-Q contains certain forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995. Such
forward-looking statements are based on current expectations, forecasts and
assumptions and involve risks and uncertainties, some of which are outside of
the Company's control, that could cause actual outcomes and results to differ
materially from current expectations. These risks and uncertainties include,
among other things, price and product competition, changes in general economic
and business conditions, wage inflation, economic and competitive conditions
in markets and countries where the Company's customers reside and where the
Company and its licensees operate, changes in capital availability or cost,
costs and other terms related to the acquisition and disposition of
automobiles and equipment, and certain regulatory and environmental matters.
These forward-looking statements represent the Company's judgments as of the
date of this filing. The company disclaims any intention or obligation to
update or revise any forward-looking statements whether as a result of new
information, future events or otherwise.
16
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Hertz Minority Stockholder Class Actions. Twelve class actions
have been filed in Delaware State court on behalf of minority stockholders of
the Company against the Ford Motor Company ("Ford"), the Company and its
directors, alleging that the defendants breached their fiduciary duties to the
minority stockholders of Hertz by Ford proposing, on September 20, 2000, a
merger transaction under which the minority stockholders would receive $30 per
share for the shares of Hertz stock they own. The plaintiffs allege that the
consideration offered is unfair and inadequate, was not negotiated at arms
length and was designed to benefit Ford by "capping" the value of the stock,
and would deny them the full value of their stock. They seek to enjoin or
rescind the transaction, recover damages and profits, and an award of
attorney's fees. All of these actions have been consolidated into a single
court proceeding.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
12 Consolidated Computation of Ratio of Earnings to
Fixed Charges for the nine months ended September 30,
2000 and 1999.
27 Consolidated Financial Data Schedule for the nine
months ended September 30, 2000.
(b) Reports on Form 8-K:
The Company filed a Form 8-K dated July 17, 2000
reporting the issuance of a press release with
respect to its second quarter 2000 earnings.
The Company filed a Form 8-K dated August 7, 2000
reporting the issuance of a press release with
respect to the declaration of a quarterly dividend.
The Company filed a Form 8-K dated September 21, 2000
reporting the issuance of a press release with
respect to a proposal from Ford Motor Company
("Ford") to acquire the outstanding shares of the
Company's Class A Common Stock not currently owned by
Ford.
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: November 14, 2000 By: /s/ Paul J. Siracusa
----------------------
Paul J. Siracusa
Executive Vice
President and
Chief Financial Officer
(principal financial
officer and duly
authorized officer)
17
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------------
EXHIBITS
FILED WITH
FORM 10-Q
FOR THE QUARTER ENDED
SEPTEMBER 30, 2000
UNDER
THE SECURITIES EXCHANGE ACT OF 1934
---------------------------
THE HERTZ CORPORATION
COMMISSION FILE NUMBER 1-7541
18
19
EXHIBIT INDEX
12 Consolidated Computation of Ratio of Earnings to Fixed
Charges for the nine months ended September 30, 2000 and
1999.
27 Consolidated Financial Data Schedule for the nine months
ended September 30, 2000.
19