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, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 1-7541
THE HERTZ CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 13-1938568
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
225 Brae Boulevard, Park Ridge, New Jersey 07656-0713
(Address of principal executive offices)
(Zip Code)
(201) 307-2000
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year,
if changed since last report.)
The registrant meets the conditions set forth in General
Instruction H(1)(a) and (b) of Form 10-Q and is therefore filing
this Form with the reduced disclosure format permitted by General
Instruction H(2) of Form 10-Q.
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Indicate the number of shares outstanding of each of the
registrant's classes of common stock as of March 31, 1995:
Common Stock, $1 par value - Class A, 200 shares; Class B, 51
shares; and Class C, 490 shares.
Page 1 of 18 pages
The Exhibit Index is on page 15
PART I - FINANCIAL INFORMATION
ITEM l. FINANCIAL STATEMENTS.
INTRODUCTORY STATEMENT
The summary of accounting policies set forth in Note 1 to the
consolidated financial statements contained in the Form 10-K for
the fiscal year ended December 31, 1994, filed by the registrant
with the Securities and Exchange Commission on March 13, 1995,
has been followed in preparing the accompanying condensed
consolidated financial statements.
The condensed consolidated financial statements for interim
periods included herein have not been audited by independent
public accountants. In the registrant's opinion, all adjustments
(which include only normal recurring adjustments) necessary for a
fair presentation of the results of operations for the interim
periods have been made. Results for interim periods are not
necessarily indicative of results for a full year.
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<PAGE>
THE HERTZ CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(In Thousands of Dollars)
A S S E T S
Unaudited
March 31, Dec. 31,
1995 1994
CASH AND EQUIVALENTS $ 132,678 $ 99,749
RECEIVABLES, less allowance for
doubtful accounts: 1995, $8,734;
1994, $10,026 750,423 641,595
DUE FROM AFFILIATES 292,663 371,599
INVENTORIES, at lower of cost or market 15,490 35,092
PREPAID EXPENSES AND OTHER ASSETS (Note 1) 97,561 94,880
REVENUE EARNING VEHICLES AND OTHER
EQUIPMENT, at cost, less accumulated
depreciation: 1995 $379,385; 1994,
$550,816 4,503,393 4,260,364
PROPERTY AND EQUIPMENT, at cost,
less accumulated depreciation:
1995, $446,758; 1994, $427,859 452,760 439,677
FRANCHISES, CONCESSIONS, CONTRACT COSTS
AND LEASEHOLDS, net of amortization 6,656 6,708
COST IN EXCESS OF NET ASSETS OF PURCHASED
BUSINESSES, net of amortization 561,965 571,182
$6,813,589 $6,520,846
LIABILITIES AND SHAREHOLDERS' EQUITY
ACCOUNTS PAYABLE $ 564,142 $ 417,619
ACCRUED LIABILITIES 455,349 517,879
ACCRUED TAXES 76,802 81,862
DEBT (Note 4) 4,608,475 4,413,915
PUBLIC LIABILITY AND PROPERTY DAMAGE 305,115 304,328
DEFERRED TAXES ON INCOME 44,100 49,300
SHAREHOLDERS' EQUITY:
Preferred stock -
Series A, 10% cumulative 236,000 236,000
Series B, various rates cumulative 249,900 249,900
Common stock 1 1
Additional capital paid-in 59,008 59,008
Reinvested earnings 196,162 196,527
Translation adjustment 18,611 (5,271)
Unrealized holding losses for
available-for-sale securities (Note 1) (76) (222)
Total shareholders' equity 759,606 735,943
$6,813,589 $6,520,846
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,
1995 1994
REVENUES $735,679 $694,803
EXPENSES:
Direct operating 400,395 406,709
Depreciation of revenue earning
equipment (Note 3) 170,117 148,823
Selling, general and administrative 95,462 84,635
Interest, net of interest income
of $2,542 and $1,156 70,351 56,522
736,325 696,689
LOSS BEFORE INCOME TAXES (646) (1,886)
INCOME TAX BENEFIT (Note 2) (281) (820)
NET LOSS $ (365) $ (1,066)
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,
1995 1994
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (365) $ (1,066)
Non-cash expenses:
Depreciation of revenue earning
equipment 170,117 148,823
Depreciation of property and
equipment 17,898 14,951
Amortization of intangibles 4,777 4,829
Provision for public liability
and property damage 30,709 36,397
Provision for losses for doubtful
accounts 1,394 1,970
Deferred income taxes (5,200) 100
Revenue earning equipment
expenditures (2,289,666) (1,919,567)
Proceeds from sales of revenue
earning equipment 1,508,501 718,008
Changes in assets and liabilities,
net of effects from sale of the
European car leasing and car
dealership operations -
Receivables (132,879) 26,413
Due from affiliates 78,936 198,621
Inventories and prepaid expenses
and other assets (12,519) 4,528
Accounts payable 287,319 56,924
Accrued liabilities (8,193) (264)
Accrued taxes 8,045 4,048
Payments of public liability and
property damage claims and expenses (29,986) (27,560)
Net cash flows used for
operating activities (371,112) (732,845)
The accompanying notes are an integral part of this statement.
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<PAGE>
THE HERTZ CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(In Thousands of Dollars)
Unaudited
Three Months
Ended March 31,
1995 1994
CASH FLOWS FROM INVESTING ACTIVITIES:
Property and equipment expenditures $(46,652) $ (32,786)
Proceeds from sales of property and
equipment 8,680 6,909
Sales (purchases) of available-for-
sale securities 110 (3,235)
Proceeds from sale of the European car
leasing and car dealership operations,
net of cash and equivalents 56,560 -
Net cash flows provided from
(used for) investing activities 18,698 (29,112)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term
debt 170,112 158,496
Repayment of long-term debt (139,472) (143,533)
Short-term borrowings:
Proceeds 230,541 266,414
Repayments (118,178) (45,365)
Ninety days or less, net 242,047 524,559
Net cash flows provided from
financing activities 385,050 760,571
EFFECT OF FOREIGN EXCHANGE RATE
CHANGES ON CASH 293 635
NET INCREASE (DECREASE) IN CASH AND
EQUIVALENTS DURING THE PERIOD 32,929 (751)
CASH AND EQUIVALENTS AT BEGINNING OF
YEAR 99,749 88,557
CASH AND EQUIVALENTS AT END OF PERIOD $ 132,678 $ 87,806
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the period for -
Interest (net of amount capitalized) $ 72,932 $ 69,186
Income taxes 4,945 3,053
The accompanying notes are an integral part of this statement.
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<PAGE>
THE HERTZ CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Available-for-Sale Securities
As of March 31, 1995, Prepaid Expenses and Other Assets in
the condensed consolidated balance sheet include available-for-
sale securities at fair value of $5.6 million (cost $5.7
million). The fair value is calculated using information
provided by outside quotation services. These securities include
various governmental and corporate debt obligations, with the
following maturity dates for the twelve month period following
March 31, 1995 (in millions): fair value $.2 (cost $.2) in 1996;
fair value $4.3 (cost $4.3) 1997 through 2000; fair value $1.1
(cost $1.2) 2001 through 2005. For the three months ended March
31, 1995, proceeds of $110,000 from the sale of available-for-
sale securities were received, and no gains or losses were
incurred. For the three months ended March 31, 1995, unrealized
holding losses and unrealized holding gains, net of taxes,
included in Shareholders' Equity were $148,680 and $72,516,
respectively.
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% 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,
1995 1994
Depreciation of revenue earning equipment $144,816 $123,634
Less adjustment of depreciation upon
disposal of the equipment 343 (7,060)
Rents paid for vehicles leased 24,958 32,249
Total $170,117 $148,823
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THE HERTZ CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 3 - Depreciation of Revenue Earning Equipment (continued)
Effective July 1, 1994, certain lives being used to compute
the provision for depreciation of revenue earning equipment 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
months ended March 31, 1995 was decreased by $10.8 million.
The adjustment of depreciation upon disposal of revenue
earning equipment for the three months ended March 31, 1995 and
1994 included net losses of $1.1 million and net gains of $7.6
million, respectively, on the sale of equipment in the
construction equipment rental operations in the United States;
and net gains of $.8 million and net losses of $.5 million,
respectively, in the car rental and car leasing operations.
During the three months ended March 31, 1995, the registrant
purchased Ford Motor Company ("Ford") vehicles at a cost of
approximately $1.9 billion, and sold Ford vehicles to Ford or its
affiliates under various repurchase programs for approximately
$.7 billion.
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<PAGE>
THE HERTZ CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 4 - Debt
Debt at March 31, 1995 and December 31, 1994 consists of the following
(in thousands of dollars):
Unaudited
March 31, Dec. 31,
1995 1994
Notes payable, including commercial paper,
average interest rate: 1995, 6.1%;
1994, 6.0% $1,416,369 $1,018,443
Promissory notes, average interest rate:
1995, 7.7%; 1994, 7.8%; (effective
average interest rate 1995 and 1994:
7.9%); net of unamortized discount:
1995, $3,141; 1994, $3,254; due 1995
to 2005 1,644,519 1,574,406
Swiss Franc bonds, fixed U.S. dollar
obligation 11.1% (effective interest
rate 9.7%); including unamortized
premium: 1995, $99; 1994, $132; due
1995 46,231 46,264
Property and equipment lease obligations,
average interest rate: 1995, 8.6%; 1994
8.7%; due 1995 to 1998 5,501 6,847
Medium term notes, average interest rate:
1995, 9.4%; 1994, 9.3%; (effective
average interest rate: 1995, 9.4%; 1994,
9.6%); net of unamortized discount:
1995, $27; 1994, $36; due 1995 to 1997 150,148 188,389
Senior subordinated promissory notes,
average interest rate 9.5% (effective
average interest rate 9.6%); net of
unamortized discount: 1995, $424; 1994,
$461; due 1996 to 1998 249,576 249,539
Junior subordinated promissory notes,
average interest rate 6.9%; net of
unamortized discount: 1995, $319;
1994, $329; due 2000 to 2003 399,681 399,671
Subsidiaries' short-term debt in millions
(1995, $635.8; 1994, $757.1) and other
borrowings; average interest rate in
domestic and foreign currencies: 1995,
7.0%; 1994, 6.6%; including unamortized
discount: 1995, $42; 1994, $47 696,450 930,356
Total $4,608,475 $4,413,915
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<PAGE>
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, 1995 are as follows (in
millions): 1996, $2,311.5 (including $2,052.2 of commercial paper
and short-term borrowings); 1997, $235.7; 1998, $395.7; 1999,
$362.2; 2000, $105.0; after 2000, $1,198.4.
At March 31, 1995, approximately $105 million of the
registrant's consolidated shareholders' equity was free of
dividend limitations pursuant to its existing debt agreements.
At March 31, 1995, the registrant had $268.9 million of
outstanding loans from Ford.
The registrant and its subsidiaries have entered into
arrangements to manage exposure to fluctuations in interest
rates. These arrangements consist of interest-rate swap
agreements ("swaps") and forward rate agreements ("FRAs"). The
differential paid or received on these agreements is recognized
as an adjustment to interest expense. These agreements are not
entered into for trading purposes. The effect of these
agreements is to make the registrant less susceptible to changes
in interest rates by effectively converting certain variable rate
debt to fixed rate debt. Because of the relationship of current
market rates to historical fixed rates, the effect at March 31,
1995 of the swap agreements is to give the registrant an overall
effective weighted-average rate on debt of 7.30%, with 39% of
debt effectively subject to variable interest rates, compared to
a weighted-average interest rate on debt of 7.25%, with 45% of
debt subject to variable interest rates when not considering the
swap agreements. At March 31, 1995, these agreements expressed
in notional amounts aggregated (in millions) $240.6 swaps and
$16.2 FRAs. Notional amounts are not reflective of the
registrant's obligations under these agreements because the
registrant is only obligated to pay the net amount of interest
rate differential between the fixed and variable rates specified
in the contracts. The registrant's exposure to any credit loss
in the event of non-performance by the counterparties is further
mitigated by the fact that all of these financial instruments are
with significant financial institutions that are rated "A" or
better by the major credit rating agencies. At March 31, 1995,
the fair value of all outstanding contracts, which is
representative of the registrant's obligations under these
contracts, assuming the contracts were terminated at that date,
was a net payable of $.4 million swaps and a net receivable of
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THE HERTZ CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 4 - Debt (continued)
$.1 million FRAs. This relates to notional principal (in
millions) of $240.6 swaps maturing $46.7, $171.8, $20.8 and $1.3
in 1995, 1996, 1997 and 1998, respectively; and of notional
principal scheduled to start after March 31, 1995 (in millions)
of $20.9 swaps maturing $1.0, $1.0, $.4 and $18.5 in 1996, 1997,
1998 and 1999, respectively; and $46.7 FRAs maturing in 1995.
Note 5 - Sale of European Car Leasing and Car Dealership Operations
Effective January 1, 1995, the registrant sold its European
car leasing and car dealership operations to Hertz Leasing
International, Inc. ("HLI"), at an amount equal to its book value
of approximately $61 million. HLI is wholly owned by Ford. In
addition, except for Australia and New Zealand, Ford is to
receive the worldwide rights (subject to certain existing license
rights) to use and sublicense others to use the "Hertz" name in
the conduct of motor vehicle leasing businesses, and a subsidiary
of the registrant will receive a license fee from Ford payable
over five years. The unaudited total assets as of December 31,
1994 and unaudited total revenues and net income for the year
ended December 31, 1994 of the registrant's European car leasing
and car dealership operations were (in millions) $482, $295 and
$6, respectively. The registrant believes that this transaction
will not have a material effect on its financial position or
future operations.
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<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
First Quarter 1995 vs. First Quarter 1994
Revenues in the first quarter of 1995 of $736 million
increased by $41 million as compared to the first quarter of
1994. This increase was primarily attributable to gains in the
car rental operations resulting from a greater number of
transactions, rate increases and changes in foreign exchange
rates; and improvements in construction equipment rental and
sales due to increased volume. These increases were partly
offset by lower revenues in car leasing and car dealerships
resulting from the sale of these operations in Europe effective
January 1, 1995.
Total expenses increased $39 million to $736 million in the
first quarter of 1995 as compared to $697 million in the first
quarter of 1994. Direct operating expense decreased principally
due to lower expenses relating to the sale of the European car
leasing and car dealership operations in 1995 and lower costs in
the domestic car rental operations for public liability and
property damage claims, partly offset by higher costs relating to
the increase in the volume of business. Depreciation of revenue
earning equipment increased primarily due to an increase in
vehicles and equipment operated and higher prices for automobiles;
these increases were partly offset by lower depreciation relating
to the sale of the European car leasing operation in 1995, and a
reduction in depreciation of $10.8 million in 1995 due to changes
made effective July 1, 1994 increasing certain lives being used
to compute the provision for depreciation to reflect changes in
the estimated residual values to be realized when the equipment
is sold. Selling, general and administrative expense increased
primarily due to higher advertising and sales promotion costs and
changes in foreign exchange rates. The increase in interest
expense was primarily due to higher debt levels and interest
rates in 1995, partly offset by higher interest income in 1995.
The tax benefit of $281,000 in the first quarter of 1995 was
lower than the tax benefit of $820,000 in the first quarter of
1994, primarily due to the lower loss before income taxes in 1995
and changes in effective tax rates. See Note 2 to the Notes to
Condensed Consolidated Financial Statements.
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<PAGE>
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, 1995, 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, 1995, and 1994.
(27) Financial Data Schedule for the three months ended March
31, 1995.
(b) Reports on Form 8-K:
The registrant filed Form 8-K dated February 1, 1995
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. 33-54183) filed by the registrant
with the Securities and Exchange Commission covering
Senior Debt Securities issuable under an Indenture dated
as of December 1, 1994, (ii) Computation of Consolidated
Ratio of Earnings to Fixed Charges for the year ended
December 31, 1994, and (iii) Selected Financial Data of
The Hertz Corporation for the years ended December 31,
1994, 1993, 1992, 1991 and 1990.
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: May 8, 1995 By: /s/ William Sider
William Sider
Executive Vice President and
Chief Financial Officer
(principal financial officer
and duly authorized officer)
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
EXHIBITS
filed with
FORM 10-Q
for the quarter ended
March 31, 1995
under
THE SECURITIES EXCHANGE ACT OF 1934
THE HERTZ CORPORATION
Commission file number 1-7541
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<PAGE>
EXHIBIT INDEX
Exhibit
No. Description
12 Computation of Ratio of Earnings to
Fixed Charges for the three months ended
March 31, 1995 and 1994.
27 Financial Data Schedule for the three
months ended March 31, 1995.
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<PAGE>
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,
1995 1994
Loss before income taxes $ (646) $(1,886)
Interest expense 72,893 57,678
Portion of rent estimated to represent
the interest factor 21,839 22,312
Earnings before income taxes and fixed
charges (an additional $.8 million
and $2.0 million would have been
required for 1995 and 1994, respectively,
to reflect a ratio of 1.0X) $94,086 $78,104
Interest expense (including capitalized
interest) $73,039 $57,751
Portion of rent estimated to represent
the interest factor 21,839 22,312
Fixed charges $94,878 $80,063
Ratio of earnings to fixed charges .99 .98
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<PAGE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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<ARTICLE> 5
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<NAME> THE HERTZ CORPORATION
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> 12-31-1995
<PERIOD-START> 01-01-1995
<PERIOD-END> 03-31-1995
<EXCHANGE-RATE> US DOLLARS
<CASH> 20,427
<SECURITIES> 112,251
<RECEIVABLES> 759,157
<ALLOWANCES> (8,734)
<INVENTORY> 15,490
<CURRENT-ASSETS> 0
<PP&E> 5,782,296
<DEPRECIATION> (826,143)
<TOTAL-ASSETS> 6,813,589
<CURRENT-LIABILITIES> 0
<BONDS> 4,608,475
<COMMON> 1
0
485,900
<OTHER-SE> 273,705
<TOTAL-LIABILITY-AND-EQUITY> 6,813,589
<SALES> 0
<TOTAL-REVENUES> 735,679
<CGS> 0
<TOTAL-COSTS> 664,580
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 1,394
<INTEREST-EXPENSE> 70,351
<INCOME-PRETAX> (646)
<INCOME-TAX> (281)
<INCOME-CONTINUING> (365)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
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<NET-INCOME> (365)
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