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, 2002
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.)
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 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, 2002: Common Stock, $0.01 par value - 100 shares.
Page 1 of 13 pages
THE HERTZ CORPORATION AND SUBSIDIARIES
INDEX
Page
----
PART I. FINANCIAL INFORMATION
ITEM 1. Condensed Consolidated Financial Statements
Consolidated Balance Sheet as of March 31, 2002
and December 31, 2001........................................ 3
Consolidated Statement of Operations for the
three months ended March 31, 2002 and 2001................... 4
Consolidated Statement of Cash Flows for the
three months ended March 31, 2002 and 2001................... 5
Notes to Condensed Consolidated Financial Statements........... 6 - 8
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.......................... 9 - 11
PART II. OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K............................... 12
SIGNATURES...................................................................... 12
EXHIBIT INDEX................................................................... 13
2
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, Dec. 31,
2002 2001
------------ ------------
Cash and equivalents $ 262,668 $ 213,997
Receivables, less allowance for
doubtful accounts of $35,453 and $38,886 844,507 919,041
Due from affiliates 129,905 143,302
Inventories, at lower of cost or market 64,816 65,881
Prepaid expenses and other assets 108,408 103,727
Revenue earning equipment, at cost:
Cars 6,392,038 5,821,722
Less accumulated depreciation (626,379) (601,318)
Other equipment 2,316,231 2,396,295
Less accumulated depreciation (791,562) (764,975)
------------ ------------
Total revenue earning equipment 7,290,328 6,851,724
------------ ------------
Property and equipment, at cost:
Land, buildings and leasehold improvements 1,055,306 1,013,376
Service equipment 924,219 917,118
------------ ------------
1,979,525 1,930,494
Less accumulated depreciation (906,934) (874,593)
------------ ------------
Total property and equipment 1,072,591 1,055,901
------------ ------------
Goodwill and other intangible assets, net of amortization (Note 3) 804,095 804,840
------------ ------------
Total assets $ 10,577,318 $ 10,158,413
============ ============
LIABILITIES AND STOCKHOLDER'S EQUITY
Accounts payable $ 723,012 $ 457,991
Accrued liabilities 688,884 655,288
Accrued taxes 69,692 72,077
Debt (Note 6) 6,483,276 6,314,032
Public liability and property damage 322,780 315,845
Deferred taxes on income 358,800 358,800
Stockholder's equity (Note 2):
Common Stock, $0.01 par value,
3,000 shares authorized, 100 shares issued -- --
Additional capital paid-in 983,132 983,132
Retained earnings 1,056,950 1,105,083
Accumulated other comprehensive loss (Note 8) (109,208) (103,835)
------------ ------------
Total stockholder's equity 1,930,874 1,984,380
------------ ------------
Total liabilities and stockholder's equity $ 10,577,318 $ 10,158,413
============ ============
The accompanying notes are an integral part of this statement.
3
THE HERTZ CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS OF DOLLARS)
UNAUDITED
Three Months
Ended March 31,
-----------------------------
2002 2001
----------- -----------
Revenues:
Car rental $ 877,524 $ 928,282
Industrial and construction equipment rental 196,171 228,729
Other 15,127 23,860
----------- -----------
Total revenues 1,088,822 1,180,871
----------- -----------
Expenses:
Direct operating 590,355 622,459
Depreciation of revenue earning equipment (Note 5) 352,928 333,128
Selling, general and administrative 119,672 129,252
Interest, net of interest income of $1,479 and $2,782 85,107 101,837
----------- -----------
Total expenses 1,148,062 1,186,676
----------- -----------
Loss before income taxes (59,240) (5,805)
Benefit for income taxes (Note 4) (11,107) (1,868)
----------- -----------
Net loss $ (48,133) $ (3,937)
=========== ===========
The accompanying notes are an integral part of this statement.
4
THE HERTZ CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS OF DOLLARS)
UNAUDITED
Three Months
Ended March 31,
-------------------------
2002 2001
--------- ---------
Cash flows from operating activities:
Net loss $ (48,133) $ (3,937)
Adjustments to reconcile net loss
to net cash used in operating activities (25,795) (318,185)
--------- ---------
Net cash used in operating activities (73,928) (322,122)
--------- ---------
Cash flows from investing activities:
Property and equipment expenditures (66,268) (62,883)
Proceeds from sales of property and equipment 8,575 4,598
Available-for-sale securities:
Purchases (1,576) (1,861)
Sales 1,522 1,700
Changes in investment in joint venture 480 --
Purchases of various operations, net of cash
(see supplemental disclosure below) -- (2,618)
--------- ---------
Net cash used in investing activities (57,267) (61,064)
--------- ---------
Cash flows from financing activities:
Proceeds from issuance of long-term debt 1,882 486,733
Repayment of long-term debt (5,736) (155,227)
Short-term borrowings:
Proceeds 100,695 301,185
Repayments (65,197) (140,989)
Ninety day term or less, net 149,867 (179,682)
Cash dividends paid on common stock -- (5,385)
Proceeds from sale of treasury stock -- 9,995
--------- ---------
Net cash provided by financing activities 181,511 316,630
--------- ---------
Effect of foreign exchange rate changes on cash (1,645) (1,089)
--------- ---------
Net increase (decrease) in cash and equivalents during the period 48,671 (67,645)
Cash and equivalents at beginning of year 213,997 206,477
--------- ---------
Cash and equivalents at end of period $ 262,668 $ 138,832
========= =========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest (net of amounts capitalized) $ 101,538 $ 107,885
Income taxes 4,660 7,897
In connection with acquisitions made in the first quarter of 2001, liabilities
assumed were $12.5 million.
The accompanying notes are an integral part of this statement.
5
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, 2001, filed by the registrant (the "Company") with the
Securities and Exchange Commission on March 27, 2002, 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.
Certain prior year amounts have been reclassified to conform to the
current year presentation.
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, or approximately $735 million. 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 (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 is not reflected in the accompanying condensed
consolidated financial statements. After the Merger, all outstanding shares of
Class A Common Stock of the Company were owned by FSG, and all shares of Class A
Common Stock of the Company 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, were cancelled. The Merger had no effect on the
outstanding obligations (including debt obligations, leases and guarantees) of
the Company.
As a result of the Merger, the Company became an indirect wholly owned
subsidiary of Ford and the Company's Class A Common Stock was no longer traded
on the New York Stock Exchange. However, because certain of the Company's debt
securities were sold through public offerings, the Company continues to file
periodic reports under the Securities Exchange Act of 1934.
NOTE 3 - RECENT PRONOUNCEMENTS
In June 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 initiated after June 30, 2001 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. Under SFAS No.
142, goodwill is no longer amortized, but instead, will be tested for impairment
at least annually. Other intangible assets will continue to be amortized over
their useful lives. The Company adopted SFAS No. 141 and No. 142 beginning
January 1, 2002. Unamortized goodwill included in "Goodwill and other intangible
assets, net of amortization" in the condensed consolidated balance sheet was,
$801.4 million and $801.7 million as of March 31, 2002 and December 31, 2001,
respectively. Application of the non-amortization provision of SFAS No. 142
resulted in a decrease of $7.2 million in amortization and a $6.9 million
decrease in Net loss in the first quarter of 2002. The Company is currently
performing the transitional impairment tests of its goodwill as of January 1,
2002; however, the effect these tests will have on the Company's consolidated
financial position and results of operations has not yet been determined.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets". SFAS 144 addresses financial
accounting and reporting for the impairment or disposal of long-lived assets and
for segments of a business to be disposed of. The Company adopted SFAS No. 144
effective January 1, 2002. The adoption of SFAS 144 did not have a material
effect on the Company's financial position results of operations or cash flows.
6
THE HERTZ CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED
NOTE 4 - INCOME TAXES
The benefit for income taxes is based upon the expected effective tax
rate applicable to the full year. The effective tax rate in 2002 is lower than
the U.S. statutory rate of 35% primarily due to restrictions on the
carrryforward of anticipated state tax losses and the mix of pretax operating
results between countries with different tax rates.
NOTE 5 - DEPRECIATION OF REVENUE EARNING EQUIPMENT
Depreciation of revenue earning equipment includes the following (in
thousands of dollars):
Three Months Ended
March 31,
-------------------------
2002 2001
--------- ---------
Depreciation of revenue earning equipment $ 351,807 $ 337,687
Adjustment of depreciation upon disposal of the equipment (3,202) (8,027)
Rents paid for vehicles leased 4,323 3,468
--------- ---------
Total $ 352,928 $ 333,128
========= =========
The adjustment of depreciation upon disposal of revenue earning
equipment for the three months ended March 31, 2002 and 2001 included net gains
of $1.8 million and $2.9 million, respectively, on the sale of equipment in the
Company's industrial and construction equipment rental operations; and net gains
of $1.4 million and $5.1 million, respectively, in the car rental and car
leasing operations.
During the three months ended March 31, 2002, the Company purchased
Ford vehicles at a cost of approximately $1.3 billion, and sold Ford vehicles to
Ford or its affiliates under various repurchase programs for approximately $.8
billion.
NOTE 6 - DEBT
Debt at March 31, 2002 and December 31, 2001 consisted of the following
(in thousands of dollars):
March 31, Dec. 31,
2002 2001
---------- ----------
Notes payable, including commercial paper,
average interest rate: 2002, 2.4%; 2001, 2.9% $ 681,467 $ 452,497
Promissory notes, average interest rate 6.2%
(effective average interest rate 6.3%);
net of unamortized discount: 2002, $9,408;
2001, $9,868; due 2002 to 2028 4,590,590 4,590,130
Junior subordinated promissory notes,
average interest rate 7.0%; net of unamortized
discount: 2002, $40; 2001, $47; due 2003 249,960 249,953
Subsidiaries' short-term debt, in dollars and foreign
currencies, including commercial paper in millions (2002, $581.7; 2001,
$571.6); and other borrowings; average interest rate:
2002, 3.5%; 2001, 3.7% 961,259 1,021,452
---------- ----------
Total $6,483,276 $6,314,032
========== ==========
The aggregate amounts of maturities of debt for the twelve-month
periods following March 31, 2002 are as follows (in millions): 2003, $2,328.2
(including $1,626.2 of commercial paper and short-term borrowings); 2004,
$552.1; 2005, $900.4; 2006, $609.4; 2007, $250.0, after 2007, $1,843.2.
At March 31, 2002, approximately $1,192 million of the Company's
consolidated stockholder's equity was free of dividend limitations pursuant to
its existing debt agreements.
7
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 ("car rental"); 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 ended March 31, 2002 and 2001 are summarized below (in millions of
dollars). Corporate and other includes general corporate expenses, principally
amortization of certain goodwill prior to 2002 and certain interest, as well as
other business activities such as claim management services, and
telecommunication services prior to 2002 (in millions of dollars).
Three Months Ended March 31,
---------------------------------------------------
Income (Loss)
Revenues Before Income Taxes
---------------------- -----------------------
2002 2001 2002 2001 (a)
-------- -------- -------- --------
Car rental $ 890.2 $ 941.1 $ (23.8) $ 21.8
Industrial and construction equipment rental 196.2 228.8 (34.0) (11.1)
Corporate and other 2.4 11.0 (1.4) (16.5) (b)
-------- -------- -------- --------
Consolidated total $1,088.8 $1,180.9 $ (59.2) $ (5.8)
======== ======== ======== ========
(a) Includes $7.2 million of amortization of goodwill prior to the adoption of
SFAS 142 as described in Note 3 to the condensed consolidated financial
statements.
(b) Includes $9.7 million of expenses associated with the Merger, as described
in Note 2 to the condensed consolidated financial statements.
NOTE 8 - COMPREHENSIVE INCOME (LOSS)
Accumulated other comprehensive income (loss) includes an accumulated
translation loss (in thousands of dollars) of $108,251 and $102,976 at March 31,
2002 and December 31, 2001, respectively. Comprehensive income (loss) for the
three months ended March 31, 2002 and 2001 was as follows (in thousands of
dollars):
Three Months Ended
March 31,
-----------------------
2002 2001
-------- --------
Net loss $(48,133) $ (3,937)
-------- --------
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments (5,275) (25,988)
Unrealized gain (loss) on available-for-sale securities (98) 11
-------- --------
Total other comprehensive loss (5,373) (25,977)
-------- --------
Comprehensive loss $(53,506) $(29,914)
======== ========
NOTE 9 - SUBSEQUENT EVENT
On April 15, 2002, the Company and Ford announced that they are
evaluating the possible sale or partial disposition of the Company's industrial
and construction equipment rental business which operates in the United States,
Canada, France and Spain.
8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2002 COMPARED WITH THREE MONTHS ENDED MARCH 31,
2001
SUMMARY
The following table sets forth for the three months ended March 31,
2002 and 2001 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,
--------------------
2002 2001
------ ------
Revenues:
Car rental 80.6% 78.6%
Industrial and construction equipment rental 18.0 19.4
Other 1.4 2.0
------ ------
100.0 100.0
------ ------
Expenses:
Direct operating 54.2 52.8
Depreciation of revenue earning equipment 32.4 28.2
Selling, general and administrative 11.0 10.9
Interest, net of interest income 7.8 8.6
------ ------
105.4 100.5
------ ------
Loss before income taxes (5.4) (0.5)
Benefit for income taxes (1.0) (0.2)
------ ------
Net loss (4.4)% (0.3)%
====== ======
REVENUES
Total revenues in the first quarter of 2002 of $1,088.8 million
decreased by 7.8% from $1,180.9 million in the first quarter of 2001. Revenues
from car rental operations of $877.5 million in the first quarter of 2002
decreased by $50.8 million, or 5.5% from $928.3 million in the first quarter of
2002. The decrease was primarily the result of a 9.9% decrease in transactions
and a decrease of approximately $8.8 million from the effects of foreign
currency translation. These decreases were partly offset by a 3.4% increase in
pricing worldwide and longer length rentals in the United States.
Revenues from industrial and construction equipment rental operations
of $196.2 million in the first quarter of 2002 decreased by $32.6 million, or
14.2% from $228.7 million in the first quarter of 2001. The decrease was
primarily due to a decrease in rental volume resulting from unfavorable economic
conditions in the equipment rental industry.
Revenues from all other sources of $15.1 million in the first quarter
of 2002 decreased by 36.6% from $23.9 million in the first quarter of 2001,
primarily due to a decline in telecommunication revenues which resulted from the
Company's decision, in the fourth quarter of 2001, to leave the
telecommunications resale business.
EXPENSES
Total expenses of $1,148.1 million in 2002 decreased by 3.3% from
$1,186.7 million in 2001, and total expenses as a percentage of revenues
increased to 105.4% in 2002 from 100.5% in 2001.
Direct operating expenses of $590.4 million in 2002 decreased by 5.2%
from $622.5 million in 2001. The decrease was primarily the result of lower
variable costs, including wages, commissions, concession fees and reservation
costs in car rental operations and the elimination of costs associated with the
former telecommunications resale business. The decrease also included a
reduction of $7.2 million which resulted from the elimination of goodwill
amortization upon the Company's adoption of SFAS No. 142 "Goodwill and Other
Intangible Assets", effective January 1, 2002. See Note 3 to the Notes to the
Company's condensed consolidated financial statements.
9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
Depreciation of revenue earning equipment for the car rental operations
of $284.0 million in 2002 increased by 5.7% from $268.8 million in 2001,
primarily due to an increase in the cost of cars operated in the United States
and lower net proceeds received in excess of book value on the disposal of used
vehicles. Depreciation of revenue earning equipment for the industrial and
construction equipment rental operations of $68.9 million in 2002 increased by
7.2% from $64.3 million in 2001 and included lower net proceeds received in
excess of book value on the disposal of used equipment.
Selling, general and administrative expenses of $119.7 million in 2002
decreased by 7.4% from $129.3 million in 2001. The decrease was primarily due to
a decrease in administrative and sales promotion expenses and includes $9.7
million of expenses recorded in the first quarter of 2001 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 decreases
were partly offset by an increase in advertising costs.
Interest expense of $85.1 million in 2002 decreased 16.4% from $101.8
million in 2001, primarily due to a decrease in the weighted-average interest
rate and lower average debt levels in 2002, partly offset by a decrease in
interest income.
The benefit for income taxes of $11.1 million in 2002 was due to the
loss before income taxes in the first quarter of 2002. This benefit compares to
a benefit of $1.9 million in 2001. The effective tax rate in 2002 is 18.7% as
compared to 32.2% in 2001. The decrease in the effective tax rate is due
primarily to the effect of restrictions on the ability to carryforward
anticipated state tax losses and the mix of pretax operating results between
countries with different tax rates.
NET LOSS
The Company had a net loss of $48.1 million in the first quarter of
2002, compared with net loss of $3.9 million in 2001. The increase in net loss
was primarily due to continued lower rental volumes after the terrorist attacks
of September 11, 2001, and overall economic conditions which have negatively
impacted corporate spending levels, and the net effect of the other contributing
factors noted above.
The Company believes that business travel and equipment rentals will
remain at diminished levels, reflecting reduced corporate spending in the United
States throughout 2002. While full year 2002 pre-tax income is expected to
exceed 2001 levels as the economy gradually improves, the Company's 2002 annual
earnings performance is expected to be substantially below recent historical
levels.
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 2002 decreased approximately
$248 million from the first quarter of 2001 primarily due to the decrease in the
number of vehicles operated. For the three months ended March 31, 2002, the
Company's expenditures for revenue earning equipment were $2.9 billion
(partially offset by proceeds from the sale of such equipment of $2.1 billion).
These assets are purchased by the Company in accordance with the terms of
programs negotiated with automobile and equipment manufacturers. For the three
months ended March 31, 2002, the Company's capital expenditures for property and
non-revenue earning equipment were $66.3 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, 2002 was $4.9 billion with maturities ranging from 2002 to 2028. The Company
is currently planning to launch an asset-backed securitization program during
the second quarter of 2002.
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
10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
exchange exposure. At March 31, 2002, the total debt for the foreign operations
was $961 million, of which $950 million was short-term (original maturity of
less than one year) and $11 million was long-term. At March 31, 2002, the total
amounts outstanding (in millions of U.S. dollars) under the Canadian, Irish,
Netherlands and Australian commercial paper programs were $309, $220, $40 and
$13, respectively.
At March 31, 2002, the Company had committed credit facilities totaling
$3.4 billion. Of this amount, $2.6 billion is represented by a combination of
multi-year and 364-day global committed credit facilities provided by 29 banks
and $200 million of seasonal committed facilities from two 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,
2001, the multi-year facilities totaling $1,403 million were renegotiated and
currently expire as follows: $63 million on June 30, 2002, $137 million on June
30, 2003, $46 million on June 30, 2004, $69 million on June 30, 2005 and $1,088
million on June 30, 2006. Effective June 21, 2001, the 364-day facilities
totaling $1,170 million were renegotiated and currently expire on June 19, 2002.
The multi-year facilities that expire in 2006 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, the Company is permitted to convert any amount outstanding prior to
expiration into a four-year term loan. The $200 million of seasonal facilities
currently expire as follows: $100 million on April 30, 2002 and $100 million on
June 19, 2002. 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,
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. Obligations of the Company under this agreement would rank pari
passu with the Company's senior debt securities. A commitment fee of .10% per
annum is payable on the unused available credit.
By virtue of its indirect, 100% ownership interest in the Company, Ford
has the right to make any changes that it deems appropriate in the Company's
assets, corporate structure, capitalization, operations, properties and policies
(including dividend policies).
On April 15, 2002, the Company and Ford announced that they are
evaluating the possible sale or partial disposition of the Company's industrial
and construction equipment rental business which operates in the United States,
Canada, France and Spain.
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.
11
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
12 Consolidated Computation of Ratio of Earnings to Fixed Charges
for the three months ended March 31, 2002 and 2001.
(b) Reports on Form 8-K:
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 14, 2002 By: /s/ Paul J. Siracusa
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Paul J. Siracusa
Executive Vice President and
Chief Financial Officer
(principal financial officer and duly
authorized officer)
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EXHIBIT INDEX
12 Consolidated Computation of Ratio of Earnings to Fixed Charges for the
three months ended March 31, 2002 and 2001.
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