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, 1994
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 March 31, 1994:
Common Stock, $1 par value - Class A, 200 shares; Class B, 311
shares; and Class C, 490 shares.
Page 1 of 16 pages
The Exhibit Index is on page 15
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PART I - FINANCIAL INFORMATION
ITEM l. FINANCIAL STATEMENTS.
INTRODUCTORY STATEMENT
The summary of accounting policies set forth in Note 1 to the
consolidated financial statements contained in the Form 10-K for
the fiscal year ended December 31, 1993, filed by the registrant
with the Securities and Exchange Commission on March 8, 1994, has
been followed in preparing the accompanying condensed
consolidated financial statements, except, effective January 1,
1994, the registrant adopted the provisions of Financial
Accounting Standards No. 115, "Accounting for Certain Investments
in Debt and Equity Securities" (see Note 5 to the Notes to
Condensed Consolidated Financial Statements).
The condensed consolidated financial statements for interim
periods included herein have not been audited by independent
public accountants. In the registrant's opinion, all adjustments
(which include only normal recurring adjustments) necessary for a
fair presentation of the results of operations for the interim
periods have been made. Results for interim periods are not
necessarily indicative of results for a full year.
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THE HERTZ CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(In Thousands of Dollars)
A S S E T S
Unaudited
March 31, Dec. 31,
1994 1993
CASH AND EQUIVALENTS $ 87,806 $ 88,557
RECEIVABLES, less allowance for
doubtful accounts: 1994, $8,363;
1993, $6,862 410,120 434,423
DUE FROM AFFILIATES 129,891 328,512
INVENTORIES, at lower of cost or market 28,170 33,643
PREPAID EXPENSES AND OTHER ASSETS (Note 5) 127,170 121,776
REVENUE EARNING VEHICLES AND OTHER
EQUIPMENT, at cost, less accumulated
depreciation: 1994, $441,088; 1993,
$418,692 3,770,340 2,702,552
PROPERTY AND EQUIPMENT, at cost,
less accumulated depreciation:
1994, $375,020; 1993, $358,781 397,651 384,598
FRANCHISES, CONCESSIONS, CONTRACT COSTS
AND LEASEHOLDS, net of amortization 7,108 7,192
COST IN EXCESS OF NET ASSETS OF PURCHASED
BUSINESSES, net of amortization 582,712 587,245
$5,540,968 $4,688,498
LIABILITIES AND SHAREHOLDERS' EQUITY
ACCOUNTS PAYABLE $ 388,779 $ 328,957
ACCRUED LIABILITIES 424,796 422,743
ACCRUED TAXES 75,307 70,849
DEBT (Note 4) 3,713,210 2,940,495
PUBLIC LIABILITY AND PROPERTY DAMAGE 272,586 264,158
DEFERRED TAXES ON INCOME 44,700 44,600
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 104,379 105,445
Translation adjustment (22,673) (28,749)
Unrealized holding losses for
available-for-sale securities (Note 5) (116) -
Total shareholders' equity 621,590 616,696
$5,540,968 $4,688,498
The accompanying notes are an integral part of this statement.
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THE HERTZ CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF INCOME
(In Thousands of Dollars)
Unaudited
Three Months
Ended March 31,
1994 1993
REVENUES $694,803 $636,241
EXPENSES:
Direct operating 406,709 396,209
Depreciation of revenue earning
equipment (Note 3) 148,823 124,038
Selling, general and administrative 84,635 78,878
Interest, net of interest income
of $1,156 and $8,990 (Note 4) 56,522 51,387
696,689 650,512
LOSS BEFORE INCOME TAXES (1,886) (14,271)
INCOME TAX BENEFIT (Note 2) (820) (7,398)
NET LOSS $ (1,066) $ (6,873)
The accompanying notes are an integral part of this statement.
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THE HERTZ CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(In Thousands of Dollars)
Unaudited
Three Months
Ended March 31,
1994 1993
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (1,066) $ (6,873)
Non-cash expenses:
Depreciation of revenue earning
equipment 148,823 124,038
Depreciation of property and
equipment 14,951 16,529
Amortization of intangibles 4,829 4,851
Provision for public liability
and property damage 36,397 32,626
Provision for losses for doubtful
accounts 1,970 1,348
Deferred income taxes 100 100
Revenue earning equipment
expenditures (1,919,567) (1,609,853)
Proceeds from sales of revenue
earning equipment 718,008 741,025
Changes in assets and liabilities,
net of effects from purchases
of various operations -
Receivables 26,413 143,090
Due from affiliates 198,621 (127,355)
Inventories and prepaid expenses
and other assets 4,528 40,754
Accounts payable 56,924 (31,863)
Accrued liabilities (264) (9,331)
Accrued taxes 4,048 (13,148)
Payments of public liability and
property damage claims and expenses (27,560) (22,617)
Net cash flows used for
operating activities (732,845) (716,679)
The accompanying notes are an integral part of this statement.
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THE HERTZ CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(In Thousands of Dollars)
Unaudited
Three Months
Ended March 31,
1994 1993
CASH FLOWS FROM INVESTING ACTIVITIES:
Property and equipment expenditures $ (32,786) $ (22,869)
Proceeds from sales of property and
equipment 6,909 8,250
Purchases of available-for-sale
securities (3,235) -
Purchases of various operations, net
of cash acquired (see supplemental
disclosures below) - (3,453)
Net cash flows used for investing
activities (29,112) (18,072)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term
debt 158,496 47,951
Repayment of long-term debt (143,533) (52,555)
Short-term borrowings:
Proceeds 266,414 231,037
Repayments (45,365) (21,722)
Other, net 524,559 324,869
Net cash flows provided from
financing activities 760,571 529,580
EFFECT OF FOREIGN EXCHANGE RATE
CHANGES ON CASH 635 (393)
NET DECREASE IN CASH AND EQUIVALENTS
DURING THE PERIOD (751) (205,564)
CASH AND EQUIVALENTS AT BEGINNING OF
YEAR 88,557 268,019
CASH AND EQUIVALENTS AT END OF PERIOD $ 87,806 $ 62,455
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid (received) during the
period for -
Interest (net of amount capitalized) $ 69,186 $ 68,387
Income taxes 3,053 (17,910)
In connection with acquisitions made during the three months
ended March 31, 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 - Change in Ownership
In March 1994, Ford Motor Company ("Ford") acquired an
additional 5% of the registrant's Common Stock from Commerzbank
Aktiengesellschaft bringing Ford's ownership of the registrant's
voting stock to 54%. In April 1994, Ford announced it had
reached an agreement to purchase 20% of the registrant's Common
Stock from Park Ridge Limited Partnership, and the registrant
will then redeem the capital stock of the registrant owned by AB
Volvo for $145 million. This will result in the registrant
becoming a wholly owned subsidiary of Ford. In addition, the
$150 million subordinated promissory note of the registrant held
by Ford Motor Credit Company will be exchanged for $150 million
of Series B Preferred Stock of the registrant.
Note 2 - Taxes on Income
The income tax benefit is based upon the expected effective
tax rate applicable to the full year. The effective tax rate is
higher than the U.S. statutory rate of 35% in 1994 and 34% in
1993 due to higher tax rates relating to foreign operations and
adjustment for state taxes net of federal benefit.
Note 3 - Depreciation of Revenue Earning Equipment
Depreciation of revenue earning equipment includes the
following (in thousands of dollars):
Unaudited
Three Months Ended
March 31,
1994 1993
Depreciation of revenue earning equipment $123,634 $ 99,055
Less adjustment of depreciation upon
disposal of the equipment, which
includes in 1993 credits resulting
from valuing certain pre-acquisition
assets on a net of tax basis (7,060) (7,576)
Rents paid for vehicles leased 32,249 32,559
Total $148,823 $124,038
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THE HERTZ CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 4 - Debt
Debt at March 31, 1994 and December 31, 1993 consists of the
following (in thousands of dollars):
Unaudited
March 31, Dec. 31,
1994 1993
Notes payable, including commercial paper,
average interest rate: 1994, 3.7%;
1993, 3.4% $ 865,682 $ 237,197
Promissory notes, average interest rate:
1994, 8.0%; 1993, 8.3%; (effective
average interest rate: 1994, 8.2%; 1993,
8.6%); net of unamortized discount: 1994,
$2,214; 1993, $2,549; due 1995 to 2005 1,074,178 1,025,111
Swiss Franc bonds, fixed U.S. dollar
obligation 11.1% (effective interest
rate 9.7%); including unamortized
premium: 1994, $281; 1993, $330; due 1995 46,413 46,462
Property and equipment lease obligations,
average interest rate 9.0%; due 1994
to 1998 8,619 9,907
Medium term notes, average interest rate
9.3% (effective average interest rate
9.4%); net of unamortized
discount: 1994, $113; 1993, $139; due
1994 to 1997 195,312 226,411
Senior subordinated promissory notes,
average interest rate 9.5% (effective
average interest rate 9.6%); net of
unamortized discount: 1994, $582; 1993,
$621; due 1994 to 1998 250,770 250,731
Junior subordinated promissory notes,
average interest rate 6.9%; net of
unamortized discount: 1994, $361; 1993,
$372; due 2000 to 2003 399,639 399,628
Subordinated promissory note, average
interest rate: 1994, 4.1%; 1993, 4.0%;
due 2000 (Note 1) 150,000 150,000
Subsidiaries' short-term debt in millions
(1994, $588.9; 1993, $463.1) and other
borrowings; average interest rate in
domestic and foreign currencies: 1994,
6.4%; 1993, 7.1%; including unamortized
discount: 1994, $62; 1993, $65 722,597 595,048
Total $3,713,210 $2,940,495
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THE HERTZ CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 4 - Debt (continued)
The aggregate amounts of maturities of debt for the twelve
month periods following March 31, 1994 are as follows (in
millions): 1995, $1,563.7 (including $1,454.6 of commercial paper
and short-term borrowings); 1996, $260.7; 1997, $192.9; 1998,
$276.9; 1999, $217.5; after 1999, $1,201.5.
Interest expense for the three months ended March 31, 1993
was reduced by $8.2 million of interest income relating to
refunds of prior years federal income taxes.
Note 5 - Accounting Change
Effective January 1, 1994, the registrant adopted the
provisions of Financial Accounting Standards No. 115, "Accounting
for Certain Investments in Debt and Equity Securities", which
requires a more detailed disclosure of debt and equity securities
held for investment, the methods to be used in determining fair
value, and when to record unrealized holding gains and losses in
earnings or in a separate component of shareholders' equity.
As of March 31, 1994, Prepaid Expenses and Other Assets
include available-for-sale securities at fair value of $6.1
million (cost $6.2 million). The fair value is calculated using
information provided by outside quotation services. These
securities include various governmental and corporate debt
obligations, with maturity dates ranging from 1994 through 2014.
For the three months ended March 31, 1994, no available-for-sale
securities were sold and unrealized holding losses and unrealized
holding gains, net of taxes, included in Shareholders' Equity
were $160,095 and $44,361, respectively.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
First Quarter 1994 vs. First Quarter 1993
Revenues in the first quarter of 1994 of $695 million
increased by $59 million as compared to the first quarter of
1993. This increase was primarily attributable to gains in the
car rental operations resulting from a greater number of
transactions, and improvements in construction equipment rental
and sales due to increased volume. These increases were partly
offset by lower revenues in claim administration and
telecommunication services due to decreases in volume, and from
changes in foreign exchange rates.
Total expenses increased $46 million to $697 million in the
first quarter of 1994 as compared to $651 million in the first
quarter of 1993. Direct operating expense increased principally
due to the higher volume of business. Depreciation of revenue
earning equipment increased primarily due to an increase in
vehicles and equipment operated, higher prices for automobiles,
and lower net proceeds received on disposal of revenue earning
equipment in excess of book value, principally relating to the
credits recorded in 1993 resulting from valuing certain pre-
acquisition assets on a net of tax basis. Selling, general and
administrative expense increased primarily due to higher
advertising costs. The increase in interest expense was
primarily due to higher debt levels and lower interest income in
1994, partly offset by lower interest rates in 1994.
The tax benefit of $820,000 in the first quarter of 1994 was
lower than the tax benefit of $7.4 million in the first quarter
of 1993, primarily due to the lower loss before income taxes in
1994 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).
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. 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 short-term borrowing requirements in the commercial
paper market 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 three months ended March 31, 1994, net cash flows
used for operating activities of $733 million were primarily used
for the net expenditures of revenue earning equipment. These
expenditures were funded by net borrowings of $761 million, which
included proceeds from the issuance of long-term debt of $158
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.
As of March 31, 1994, the registrant had offered for sale the
remaining $150 million of unsecured debt securities allowed by
this filing. In connection with this filing, the registrant
issued in February 1994, $150 million, 6% Senior Notes, which
mature February 1, 2001; and subsequently issued in April 1994,
$150 million, 7% Senior Notes, which mature April 15, 2001. The
funds were used for general corporate purposes and to reduce
short-term borrowings. In addition, the registrant has on file
with the Securities and Exchange Commission, under Rules 415 and
430A, a Registration Statement on Form S-3, which as of March 31,
1994, allows the registrant to offer from time to time up to $100
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.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued).
Liquidity and Capital Resources (continued)
At March 31, 1994, approximately $50 million of the
registrant's consolidated shareholders' equity was free of
dividend limitations pursuant to its existing debt agreements.
In connection with Ford announcing in April 1994, that it had
reached an agreement to purchase 20% of the registrant's Common
Stock from Park Ridge Limited Partnership, and that the
registrant will redeem the capital stock of the registrant owned
by AB Volvo, the registrant will borrow $145 million to pay for
the redemption of the capital stock held by AB Volvo. In
addition, the $150 million subordinated promissory note of the
registrant held by Ford Motor Credit Company will be exchanged
for $150 million of Series B Preferred Stock of the registrant.
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits:
(4) Instruments defining the rights of security
holders, including indentures. During the quarter
ended March 31, 1994, the registrant and its
subsidiaries ("Hertz") incurred various
obligations which could be considered as long-term
debt, none of which exceeded 10% of the total
assets of Hertz on a consolidated basis. Hertz
agrees to furnish to the Commission upon request a
copy of any instrument defining the rights of the
holders of such long-term debt.
(12) Computation of Ratio of Earnings to Fixed Charges for the
three months ended March 31, 1994, and 1993.
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (continued)
(b) Reports on Form 8-K:
The registrant filed Forms 8-K dated February 9, 1994 and
February 3, 1994 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. 33-39145) filed by the
registrant with the Securities and Exchange Commission
covering Senior and Senior Subordinated Debt Securities
issuable under an Indenture dated as of April 1, 1986, as
supplemented, and (ii) Computation of Consolidated Ratio
of Earnings to Fixed Charges for the year ended December
31, 1993.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
THE HERTZ CORPORATION
(Registrant)
Date: April 27, 1994 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
March 31, 1994
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 three months ended
March 31, 1994 and 1993.
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EXHIBIT 12
THE HERTZ CORPORATION AND SUBSIDIARIES
CONSOLIDATED COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(In Thousands of Dollars Except Ratios)
Unaudited
Three Months
Ended March 31,
1994 1993
Loss before income taxes $ (1,886) $ (14,271)
Interest expense 57,678 60,377
Portion of rent estimated to represent
the interest factor 22,312 22,278
Earnings before income taxes and fixed
charges (an additional $2.0 million
and $14.3 million would have been
required for 1994 and 1993, respectively,
to reflect a ratio of 1.0X) $ 78,104 $ 68,384
Interest expense (including capitalized
interest) $ 57,751 $ 60,413
Portion of rent estimated to represent
the interest factor 22,312 22,278
Fixed charges $ 80,063 $ 82,691
Ratio of earnings to fixed charges .98 .83
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