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, 1993
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.)
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, 1993:
Common Stock, $1 par value - Class A, 200 shares; Class B, 311
shares; and Class C, 490 shares.
Page 1 of 17 pages
The Exhibit Index is on page 16
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PART I - FINANCIAL INFORMATION
ITEM l. FINANCIAL STATEMENTS.
INTRODUCTORY STATEMENT
On July 19, 1993, Park Ridge Corporation ("Park Ridge"),
which was then the registrant's parent company, was merged with
and into the registrant. The merger has been recorded as a
"pooling of interests." Under this method of accounting, when
the entities before and after a merger are under common control
with the same management, the operations are combined at
historical cost. Consequently, the condensed consolidated
financial statements of the registrant included herein have been
restated for all periods prior to the effective date of the
merger, and are identical to the condensed consolidated financial
statements of Park Ridge for such periods.
The summary of accounting policies set forth in Note 1 to the
consolidated financial statements contained in the Form l0-K for
the fiscal year ended December 31, 1992, filed by the registrant
with the Securities and Exchange Commission on March 10, 1993, as
amended on Form 10-K/A filed on July 6, 1993, and the summary of
accounting policies set forth in Note 1 to the consolidated
financial statements of Park Ridge contained in the Form S-3
Registration Statement, as amended, filed by the registrant with
the Securities and Exchange Commission on July 6, 1993 and
declared effective July 7, 1993, have 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
Sept. 30, Dec. 31,
1993 1992
CASH AND EQUIVALENTS $ 102,579 $ 268,019
RECEIVABLES, less allowance for
doubtful accounts: 1993, $9,285;
1992, $8,496 477,201 608,238
DUE FROM AFFILIATES 180,010 27,948
INVENTORIES, at lower of cost or market 32,050 40,037
PREPAID EXPENSES AND OTHER ASSETS 113,009 140,789
REVENUE EARNING VEHICLES AND OTHER
EQUIPMENT, at cost, less accumulated
depreciation: 1993, $451,522; 1992,
$403,714 3,310,561 2,122,528
PROPERTY AND EQUIPMENT, at cost, less
accumulated depreciation: 1993,
$347,833; 1992, $314,378 389,604 400,272
FRANCHISES, CONCESSIONS, CONTRACT COSTS
AND LEASEHOLDS, net of amortization 7,372 7,817
COST IN EXCESS OF NET ASSETS OF PURCHASED
BUSINESSES, net of amortization 592,144 606,324
$5,204,530 $4,221,972
LIABILITIES AND SHAREHOLDERS' EQUITY
ACCOUNTS PAYABLE $ 322,706 $ 380,287
ACCRUED LIABILITIES 407,084 378,840
ACCRUED TAXES 101,328 69,422
DEBT (Note 4) 3,463,311 2,549,901
PUBLIC LIABILITY AND PROPERTY DAMAGE 262,603 226,789
DEFERRED TAXES ON INCOME 32,800 37,200
SHAREHOLDERS' EQUITY:
Preferred stock -
Series A, 10% cumulative 340,000 340,000
Series B, various rates cumulative 99,900 99,900
Common stock 1 1
Additional capital paid-in 100,099 100,099
Reinvested earnings 97,291 52,017
Translation adjustment (22,593) (12,484)
Total shareholders' equity 614,698 579,533
$5,204,530 $4,221,972
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 September 30,
1993 1992
REVENUES $817,252 $840,739
EXPENSES:
Direct operating 441,553 449,106
Depreciation of revenue earning
equipment (Note 3) 140,243 139,686
Selling, general and administrative 85,605 95,007
Interest, net of interest income
of $818 and $445 71,598 85,015
738,999 768,814
INCOME BEFORE INCOME TAXES 78,253 71,925
PROVISION FOR TAXES ON INCOME (Note 2) 39,219 15,825
NET INCOME $ 39,034 $ 56,100
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
Nine Months
Ended September 30,
1993 1992
REVENUES $2,192,997 $2,152,420
EXPENSES:
Direct operating 1,266,242 1,243,991
Depreciation of revenue earning
equipment (Note 3) 396,079 377,632
Selling, general and administrative 254,421 277,894
Interest, net of interest income
of $10,404 and $2,672 (Note 4) 185,347 235,799
2,102,089 2,135,316
INCOME BEFORE INCOME TAXES 90,908 17,104
PROVISION FOR TAXES ON INCOME (Note 2) 45,634 17,076
INCOME BEFORE CUMULATIVE EFFECT
OF CHANGE IN ACCOUNTING PRINCIPLE 45,274 28
CUMULATIVE EFFECT ON PRIOR YEARS OF
CHANGE IN METHOD OF ACCOUNTING
FOR POSTRETIREMENT BENEFITS
(Note 1) - (4,319)
NET INCOME (LOSS) $ 45,274 $ (4,291)
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
Nine Months
Ended September 30,
1993 1992
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 45,274 $ (4,291)
Non-cash expenses:
Depreciation of revenue earning
equipment 396,079 377,632
Depreciation of property and
equipment 47,789 54,830
Amortization of intangibles 14,534 14,601
Provision for public liability
and property damage 114,563 96,877
Provision for losses for doubtful
accounts 4,761 6,257
Deferred income taxes (4,400) (4,000)
Revenue earning equipment
expenditures (3,929,119) (3,776,134)
Proceeds from sales of revenue
earning equipment 2,301,685 2,562,067
Changes in assets and liabilities,
net of effects from purchases
of various operations -
Receivables 103,903 (124,119)
Due from affiliates (152,062) (28,963)
Inventories and prepaid expenses
and other assets 33,039 (885)
Accounts payable (44,265) 30,557
Accrued liabilities 38,521 31,261
Accrued taxes 36,154 10,004
Payments of public liability and
property damage claims and expenses (77,911) (72,434)
Net cash flows used for
operating activities (1,071,455) (826,740)
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
Nine Months
Ended September 30,
1993 1992
CASH FLOWS FROM INVESTING ACTIVITIES:
Property and equipment expenditures $ (73,332) $ (58,951)
Proceeds from sales of property and
equipment 31,211 19,281
Purchases of various operations, net
of cash acquired (see supplemental
disclosures below) (3,548) (2,754)
Net cash flows used for investing
activities (45,669) (42,424)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term
debt 589,749 240,683
Repayment of long-term debt (700,296) (269,385)
Short-term borrowings:
Proceeds 663,310 453,905
Repayments (370,034) (352,555)
Other, net 771,565 678,084
Net cash flows provided from
financing activities 954,294 750,732
EFFECT OF FOREIGN EXCHANGE RATE
CHANGES ON CASH (2,610) 1,806
NET DECREASE IN CASH AND EQUIVALENTS
DURING THE PERIOD (165,440) (116,626)
CASH AND EQUIVALENTS AT BEGINNING OF
YEAR 268,019 189,888
CASH AND EQUIVALENTS AT END OF PERIOD $ 102,579 $ 73,262
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid (received) during the
period for -
Interest (net of amount capitalized) $ 189,298 $ 245,523
Income taxes (2,066) 15,923
In connection with acquisitions made during the nine months
ended September 30, 1993, liabilities assumed were $2.1 million.
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 - Merger and Accounting Change
On July 19, 1993, Park Ridge Corporation ("Park Ridge") was
merged with and into the registrant. The merger has been
recorded as a "pooling of interests." Under this method of
accounting, when the entities before and after a merger are under
common control with the same management, the operations are
combined at historical cost. Consequently, the condensed
consolidated financial statements of the registrant included
herein have been restated for all periods prior to the effective
date of the merger, and are identical to the condensed
consolidated financial statements of Park Ridge for such periods.
On the date of the merger, the registrant refinanced $334.3
million promissory notes of Park Ridge through the public
issuance of $400 million aggregate principal amount of junior
subordinated debt securities of the registrant; and a $150
million loan to Park Ridge from Ford Motor Credit Company
("FMCC") in the form of subordinated debt was assumed by the
registrant (the "FMCC Note"). The FMCC Note, which has a
scheduled maturity date of May 17, 2000, is subordinated in right
of payment to all "Superior Indebtedness" (as defined for
purposes of the FMCC Note) of the registrant including the junior
subordinated debt securities referred to above.
Effective January 1, 1992, the registrant adopted the
provisions of Statement of Financial Accounting Standards No.
106, Employers' Accounting for Postretirement Benefits Other than
Pensions ("FAS No. 106"), which requires that postretirement
health care and other non-pension benefits be accrued during the
years the employee renders the necessary service. Prior to 1992,
the registrant accrued for such benefits on a pay-as-you-go
basis. As of January 1, 1992, the registrant recorded a
cumulative decrease in net income of $4.3 million (net of $2.7
million tax benefit) as a result of implementing FAS No. 106.
Note 2 - Taxes on Income
The provision for taxes on income 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% in 1993
and 34% in 1992 due to higher tax rates relating to foreign
operations and adjustment for state taxes net of federal benefit.
The income tax provision for the three and nine months ended
September 30, 1993 includes a $1.1 million charge relating to the
increase in net deferred tax liabilities as of January 1, 1993
due to changes in the tax laws enacted in August 1993, and a $2.0
million credit resulting from adjustments made to tax accruals in
connection with tax audit evaluations and the effects of prior
years' tax sharing arrangements between its former parent
companies, RCA Corporation and UAL Corporation.
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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
1993 1992
Three Months Ended September 30
Depreciation of revenue earning equipment $131,073 $124,156
Less adjustment of depreciation upon
disposal of the equipment, which
includes credits resulting from
valuing certain pre-acquisition
assets on a net of tax basis (6,732) (1,877)
Rents paid for vehicles leased 15,902 17,407
Total $140,243 $139,686
Nine Months Ended September 30
Depreciation of revenue earning equipment $352,288 $337,082
Less adjustment of depreciation upon
disposal of the equipment, which
includes credits resulting from
valuing certain pre-acquisition
assets on a net of tax basis (25,144) (13,698)
Rents paid for vehicles leased 68,935 54,248
Total $396,079 $377,632
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THE HERTZ CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 4 - Debt
Debt at September 30, 1993 and December 31, 1992 consists of
the following (in thousands of dollars):
Unaudited
Sept. 30, Dec. 31,
1993 1992
Notes payable, including commercial paper,
average interest rate 3.3% $ 693,939 $ -
Promissory notes, average interest rate:
1993, 8.5%; 1992, 8.6%; (effective
average interest rate: 1993, 8.9%; 1992,
9.2%); net of unamortized discount: 1993,
$2,709; 1992, $3,517; due 1994 to 2002 924,951 947,694
Promissory notes, average interest rate
4.8%, refinanced July 19, 1993 (Note 1) - 394,300
Swiss Franc bonds, fixed U.S. dollar
obligation 11.1% (effective interest
rate 9.7%); including unamortized
premium: 1993, $380; 1992, $528; due 1995 46,512 46,660
Property and equipment lease obligations,
average interest rate: 1993, 9.1%; 1992,
9.2%; due 1993 to 1998 10,444 12,712
Medium term notes, average interest rate
9.3% (effective average interest rate:
1993, 9.4%; 1992, 9.3%); net of unamortized
discount: 1993, $174; 1992, $281; due
1994 to 1997 226,376 260,269
Senior subordinated promissory notes,
average interest rate 9.5% (effective
average interest rate 9.6%); net of
unamortized discount: 1993, $662; 1992,
$778; due 1993 to 1998 251,548 251,432
Junior subordinated promissory notes, average
interest rate 6.9%; net of unamortized
discount of $383; due 2000 to 2003 399,617 -
Subordinated promissory note, average
interest rate: 1993, 3.8%; 1992, 4.2%;
due 2000 (Note 1) 150,000 150,000
Subsidiaries' short-term debt in millions
(1993, $618.3; 1992, $255.6) and other
borrowings; average interest rate in
domestic and foreign currencies: 1993,
7.6%; 1992, 10.2%; including unamortized
discount: 1993, $66; 1992, $152 759,924 486,834
Total $3,463,311 $2,549,901
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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 September 30, 1993 are as follows (in
millions): 1994, $1,516.7 (including $1,312.2 of commercial paper
and short-term borrowings); 1995, $225.9; 1996, $272.4; 1997,
$176.5; 1998, $319.7; after 1998, $952.1.
Interest expense for the nine months ended September 30, 1993
was reduced by $8.2 million of interest income relating to
refunds of prior years federal income taxes.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
Third Quarter 1993 vs. Third Quarter 1992
Revenues in the third quarter of 1993 of $817 million
decreased by $23 million as compared to the third quarter of
1992. This decrease was primarily attributable to changes in
foreign exchange rates and was partly offset by gains in the car
rental operations resulting from a greater number of
transactions.
Total expenses decreased $30 million to $739 million in the
third quarter of 1993 as compared to $769 million in the third
quarter of 1992. Direct operating expense decreased principally
due to changes in foreign exchange rates. Depreciation of
revenue earning equipment increased primarily due to an increase
in vehicles and equipment operated and the discontinuance by the
domestic automobile manufacturers of fleet purchase cash
incentives; partly offset by higher net proceeds received on
disposal of revenue earning equipment in excess of book value,
principally relating to the foreign and the construction
equipment rental operations. Selling, general and administrative
expense decreased primarily due to lower administrative and
advertising costs and changes in foreign exchange rates. The
decrease in interest expense was primarily due to lower interest
rates in 1993.
The tax provision in the third quarter of 1993 was $23
million higher than the tax provision in the third quarter of
1992, primarily due to higher income before income taxes in 1993
and changes in effective tax rates. See Note 2 to the Notes to
Condensed Consolidated Financial Statements.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued).
Nine Months Ended September 30, 1993 vs. September 30, 1992
Revenues in the nine months of 1993 of $2,193 million
increased by $41 million as compared to the nine months of 1992.
This improvement was primarily attributable to gains in the car
rental operations resulting from a greater number of transactions
and domestic rate increases, and higher revenues in
telecommunication services due to increased volume. These
increases were principally offset by decreases resulting from
changes in foreign exchange rates.
Total expenses decreased $33 million to $2,102 million in the
nine months of 1993 as compared to $2,135 million in the nine
months of 1992. Direct operating expense increased principally
due to higher costs in the car rental operations and in
telecommunication services; these increases were partly offset by
decreases resulting from changes in foreign exchange rates.
Depreciation of revenue earning equipment increased primarily due
to an increase in vehicles and equipment operated and the
discontinuance by the domestic automobile manufacturers of fleet
purchase cash incentives; partly offset by higher net proceeds
received on disposal of revenue earning equipment in excess of
book value, principally relating to the foreign and the
construction equipment rental operations. Selling, general and
administrative expense decreased primarily due to lower
administrative and advertising costs and changes in foreign
exchange rates. The decrease in interest expense was primarily
due to lower interest rates and higher interest income in 1993.
The tax provision of $46 million in the nine months of 1993
was $29 million higher than the tax provision in the nine months
of 1992, primarily due to higher income before income taxes in
1993 and changes in effective tax rates. See Note 2 to the Notes
to Condensed Consolidated Financial Statements.
Liquidity and Capital Resources
Hertz' principal assets are highly liquid, consisting mainly
of passenger automobiles and fairly standard classes of
construction equipment. Disposal channels for these assets,
including vehicle manufacturers' guaranteed buyback programs, are
large, well defined, and capable of absorbing Hertz' short fleet
rotation requirements. Customer accounts receivable also turn
rapidly and generate significant liquidity with approximately 30
days of sales outstanding. Cash requirements are highly
seasonal, peaking when fleet acquisitions are the heaviest. In
the annual business cycle, a typical low point for cash needs
occurs during the fourth quarter. Hertz funds its domestic
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued).
Liquidity and Capital Resources (continued)
short-term borrowing requirements in the commercial paper and
Euro-note markets, and through credit facilities with various
banks. Hertz also has access to all global capital markets for
its long-term debt requirements. Funding requirements of Hertz'
foreign operations are generally provided through local currency
short-term and revolving loans with local banks.
During the nine months ended September 30, 1993, net cash
flows used for operating activities of $1.1 billion were
primarily used for the net expenditures of revenue earning
equipment. These expenditures were funded by net borrowings of
$954 million, which included proceeds from the issuance of long-
term debt of $255 million and the remaining from short-term
borrowings.
The registrant has on file with the Securities and Exchange
Commission, under Rule 415, a Registration Statement on Form S-3
which, as of September 30, 1993, allows the registrant to offer
from time to time up to $400 million aggregate principal amount
of its unsecured senior and senior subordinated debt securities
on terms to be determined at the time the securities are offered
for sale. In connection with this filing, the registrant issued
in April 1993, $100 million, 6-1/2% Senior Notes, which mature
April 1, 2000; and issued in October 1993, $100 million, 6-3/8%
Senior Notes, which mature October 15, 2005. The funds were used
for general corporate purposes and to reduce short-term
borrowings.
In July 1993, the registrant filed with the Securities and
Exchange Commission, under Rules 415 and 430A, an additional
Registration Statement on Form S-3, which allowed the registrant
to offer from time to time up to $500 million aggregate principal
amount of its unsecured debt securities, which may be senior,
senior subordinated or junior subordinated in priority of
payment, on terms to be determined at the time the securities are
offered for sale. In connection with this filing, the registrant
issued on July 19, 1993, $150 million, 6-5/8% Junior Subordinated
Notes, due July 15, 2000; and $250 million, 7% Junior
Subordinated Notes, due July 15, 2003. The proceeds from these
borrowings were used to repay $334.3 million promissory notes of
Park Ridge (see Note 1 to Condensed Consolidated Financial
Statements) and to reduce short-term borrowings.
At September 30, 1993, approximately $46 million of the
registrant's consolidated shareholders' equity was free of
dividend limitations pursuant to its existing debt agreements.
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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 September 30, 1993, 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
nine months ended September 30, 1993 and 1992.
(b) Reports on Form 8-K:
The registrant filed a Form 8-K dated July 9, 1993
reporting under Items 5 and 7 thereof (i) instruments
defining the rights of security holders, including
indentures, in connection with the Registration Statement
on Form S-3 (File No. 33-62902) filed by the registrant
with the Securities and Exchange Commission covering Debt
Securities issuable under an Indenture dated as of July
1, 1993 and (ii) the Restated Certificate of
Incorporation and the By-Laws of the registrant adopted
pursuant to the merger of Park Ridge with and into the
registrant.
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: November 9, 1993 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
EXHIBIT
filed with
FORM 10-Q
for the quarter ended
September 30, 1993
under
THE SECURITIES EXCHANGE ACT OF 1934
THE HERTZ CORPORATION
Commission file number 1-7541
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EXHIBIT INDEX
Exhibit
No. Description
12 Computation of Ratio of Earnings to
Fixed Charges for the nine months ended
September 30, 1993 and 1992.
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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
Nine Months
Ended September 30,
1993 1992
Income before income taxes $ 90,908 $ 17,104
Interest expense 195,751 238,471
Portion of rent estimated to represent
the interest factor 60,772 59,508
Earnings before income taxes and fixed
charges $347,431 $315,083
Interest expense (including capitalized
interest) $195,888 $238,503
Portion of rent estimated to represent
the interest factor 60,772 59,508
Fixed charges $256,660 $298,011
Ratio of earnings to fixed charges 1.4 1.1
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