<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended SEPTEMBER 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 1-7541
THE HERTZ CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 13-1938568
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
225 Brae Boulevard, Park Ridge, New Jersey 07656-0713
(Address of principal executive offices)
(Zip Code)
(201) 307-2000
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal
year, if changed since last report.)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of September 30, 1998: Common Stock, $0.01 par value - Class A,
40,690,793 shares and Class B, 67,310,167 shares.
Page 1 of 29 pages
The Exhibit Index is on page 26
<PAGE> 2
PART I - FINANCIAL INFORMATION
ITEM l. FINANCIAL STATEMENTS
THE HERTZ CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(In Thousands of Dollars)
Unaudited
A S S E T S
<TABLE>
<CAPTION>
Sept. 30, Dec. 31,
1998 1997
---- ----
<S> <C> <C>
Cash and equivalents $ 239,476 $ 152,620
Receivables, less allowance for
doubtful accounts of $15,805 (1997 - $13,927) 865,112 763,145
Due from affiliates 223,463 423,434
Inventories, at lower of cost or market 35,625 17,941
Prepaid expenses and other assets 93,678 86,297
Revenue-earning equipment, at cost:
Cars 5,289,743 4,435,546
Less accumulated depreciation (480,190) (395,728)
Other equipment 1,602,296 1,089,888
Less accumulated depreciation (295,244) (237,840)
----------- -----------
Total revenue-earning equipment 6,116,605 4,891,866
----------- -----------
Property and equipment, at cost:
Land, buildings and leasehold improvements 671,794 583,796
Service equipment 617,680 538,723
----------- -----------
1,289,474 1,122,519
Less accumulated depreciation (604,415) (537,753)
----------- -----------
Total property and equipment 685,059 584,766
----------- -----------
Franchises, concessions, contract costs and leaseholds,
net of amortization (Note 3) 12,827 8,781
Cost in excess of net assets of purchased
businesses, net of amortization (Note 3) 678,805 506,671
----------- -----------
Total assets $ 8,950,650 $ 7,435,521
=========== ===========
</TABLE>
The accompanying notes are an integral part of this statement.
-2-
<PAGE> 3
THE HERTZ CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(In Thousands of Dollars)
Unaudited
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Sept. 30, Dec. 31,
1998 1997
---- ----
<S> <C> <C>
Accounts payable $ 534,958 $ 482,119
Accrued liabilities 596,929 528,396
Accrued taxes 147,818 96,666
Debt (Note 6) 5,820,956 4,715,668
Public liability and property damage 308,143 310,475
Deferred taxes on income 189,200 166,000
Stockholders' equity (Note 1):
Class A Common Stock, $0.01 par value,
440,000,000 shares authorized,
40,956,858 shares issued 410 410
Class B Common Stock, $0.01 par value,
140,000,000 shares authorized,
67,310,167 shares issued 673 673
Additional capital paid-in 982,740 980,581
Unamortized restricted stock grants (8,604) (11,763)
Retained earnings 409,639 196,715
Accumulated other comprehensive income (Note 9) (21,295) (30,419)
Treasury stock, at cost (Note 7) (10,917) --
----------- -----------
Total stockholders' equity 1,352,646 1,136,197
----------- -----------
Total liabilities and stockholders' equity $ 8,950,650 $ 7,435,521
=========== ===========
</TABLE>
The accompanying notes are an integral part of this statement.
-3-
<PAGE> 4
THE HERTZ CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
(In Thousands of Dollars, Except Per Share Amounts)
Unaudited
<TABLE>
<CAPTION>
Three Months
Ended September 30,
----------------------------
1998 1997
---- ----
<S> <C> <C>
Revenues:
Car rental $1,003,963 $ 946,903
Industrial and construction equipment rental 189,480 122,789
Car leasing 9,433 9,205
Franchise fees and other revenue 22,269 23,245
---------- ----------
Total revenues 1,225,145 1,102,142
---------- ----------
Expenses:
Direct operating 514,718 479,426
Depreciation of revenue-earning equipment (Note 5) 304,453 266,947
Selling, general and administrative 119,762 113,244
Interest, net of interest income of $2,909 and $2,779 85,894 80,829
---------- ----------
Total expenses 1,024,827 940,446
---------- ----------
Income before income taxes 200,318 161,696
Provision for taxes on income (Note 4) 81,640 68,262
---------- ----------
Net income $ 118,678 $ 93,434
========== ==========
Earnings per share (Note 2):
Basic $ 1.10 $ .86
========== ==========
Diluted $ 1.09 $ .86
========== ==========
</TABLE>
The accompanying notes are an integral part of this statement.
-4-
<PAGE> 5
THE HERTZ CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
(In Thousands of Dollars, Except Per Share Amounts)
Unaudited
<TABLE>
<CAPTION>
Nine Months
Ended September 30,
----------------------------
1998 1997
---- ----
<S> <C> <C>
Revenues:
Car rental $2,652,624 $2,549,506
Industrial and construction equipment rental 430,243 318,158
Car leasing 27,835 30,660
Franchise fees and other revenue 61,596 58,486
---------- ----------
Total revenues 3,172,298 2,956,810
---------- ----------
Expenses:
Direct operating 1,415,233 1,376,248
Depreciation of revenue-earning equipment (Note 5) 796,588 730,739
Selling, general and administrative 344,232 328,687
Interest, net of interest income of $8,741 and $10,328 227,910 232,424
---------- ----------
Total expenses 2,783,963 2,668,098
---------- ----------
Income before income taxes 388,335 288,712
Provision for taxes on income (Note 4) 159,193 121,658
---------- ----------
Net income $ 229,142 $ 167,054
========== ==========
Earnings per share (Note 2):
Basic $ 2.12 $ 1.54
========== ==========
Diluted $ 2.11 $ 1.54
========== ==========
</TABLE>
The accompanying notes are an integral part of this statement.
-5-
<PAGE> 6
THE HERTZ CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(In Thousands of Dollars)
Unaudited
<TABLE>
<CAPTION>
Nine Months
Ended September 30,
-------------------------------
1998 1997
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 229,142 $ 167,054
Non-cash expenses:
Depreciation of revenue-earning equipment 796,588 730,739
Depreciation of property and equipment 84,589 67,000
Amortization of intangibles 19,530 14,665
Amortization of restricted stock grants 3,303 2,266
Provision for public liability and property damage 85,380 105,810
Provision for losses for doubtful accounts 2,449 5,041
Deferred income taxes 23,200 38,700
Revenue-earning equipment expenditures (6,417,217) (5,966,470)
Proceeds from sales of revenue-earning equipment 4,561,997 4,735,027
Changes in assets and liabilities:
Receivables (40,855) 59,512
Due from affiliates 199,971 145,285
Inventories and prepaid expenses and
other assets (512) (20,131)
Accounts payable 24,074 47,503
Accrued liabilities 56,554 (7,611)
Accrued taxes 49,088 19,977
Payments of public liability and property
damage claims and expenses (87,228) (103,290)
----------- -----------
Net cash (used in) provided by operating activities (409,947) 41,077
----------- -----------
</TABLE>
The accompanying notes are an integral part of this statement.
-6-
<PAGE> 7
THE HERTZ CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(In Thousand of Dollars)
Unaudited
<TABLE>
<CAPTION>
Nine Months
Ended September 30,
-------------------------------
1998 1997
---- ----
<S> <C> <C>
Cash flows from investing activities:
Property and equipment expenditures $ (190,213) $ (153,246)
Proceeds from sales of property and equipment 30,844 36,373
Available-for-sale securities:
Purchases (2,304) (1,692)
Sales 2,049 1,574
Sale of operations, net of cash 4,341 2,214
Acquisitions of new businesses, net of cash (315,651) --
----------- -----------
Net cash used in investing activities (470,934) (114,777)
----------- -----------
Cash flows from financing activities:
Proceeds from issuance of long-term debt 449,453 402,955
Repayment of long-term debt (373,920) (210,987)
Short-term borrowings:
Proceeds 1,621,172 1,476,590
Repayments (1,083,810) (1,167,105)
Ninety-day term or less, net 379,694 (421,803)
Cash dividend paid to Ford -- (460,000)
Issuance of preferred stock to Ford -- 129,000
Redemption of preferred stock from Ford -- (130,135)
Sale of common stock -- 453,068
Cash dividends paid on common stock (16,218) (5,410)
Purchases of treasury stock (13,477) --
Exercise of stock options 3,046 --
Other 1,529 --
----------- -----------
Net cash provided by financing activities 967,469 66,173
----------- -----------
Effect of foreign exchange rate changes on cash 268 (270)
----------- -----------
Net increase (decrease) in cash and equivalents
during the period 86,856 (7,797)
Cash and equivalents at beginning of year 152,620 179,311
----------- -----------
Cash and equivalents at end of period $ 239,476 $ 171,514
=========== ===========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest (net of amounts capitalized) $ 240,694 $ 230,677
Income taxes 103,868 80,673
</TABLE>
In connection with acquisitions made in 1998, liabilities assumed were $117
million.
The accompanying notes are an integral part of this statement.
-7-
<PAGE> 8
THE HERTZ CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Basis of Presentation
The summary of accounting policies set forth in Note 1 to the
consolidated financial statements contained in the Form 10-K for the fiscal year
ended December 31, 1997, filed by the registrant (the "Company") with the
Securities and Exchange Commission on March 23, 1998, has been followed in
preparing the accompanying consolidated financial statements.
The consolidated financial statements and notes thereto 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.
In April 1997, the Company reclassified all of its outstanding common
stock, par value $1.00 per share, owned by Ford into 67,310,167 shares of Class
B Common Stock, par value $.01 per share, and reclassified all of its
outstanding 10% Cumulative Series A Preferred Stock and variable rate Cumulative
Series B Preferred Stock beneficially owned by Ford into 20,245,833 shares of
its Class A Common Stock, par value $.01 per share. The Company also issued
701,025 shares of its Class A Common Stock pursuant to an employee benefit plan.
On April 30, 1997, the Company issued and sold 20,010,000 shares of its
Class A Common Stock in an initial public offering (the "Offering") and received
net proceeds of $453 million from the sale, and redeemed its 1,290 shares of
Series C Preferred Stock for $130 million. The net proceeds received from the
initial public offering were used to pay down notes payable. After the Offering,
Ford beneficially owned 49.4% of the outstanding Class A Common Stock of the
Company (which has one vote per share) and 100% of the outstanding Class B
Common Stock of the Company (which has five votes per share). At September 30,
1998, the common stock beneficially owned by Ford represents in the aggregate
94.6% of the combined voting power of all of the Company's outstanding common
stock and 81.1% of the economic interest in the Company. Accordingly, Ford is
able to direct the election of all of the members of the Company's Board of
Directors and to exercise a controlling influence over the business and affairs
of the Company.
Reclassifications
Certain prior year amounts have been reclassified to conform to the
current year presentation.
Recent Pronouncements
In February 1998, the Financial Accounting Standards Board issued
Statements of Financial Accounting Standards ("SFAS") No. 132, "Employers'
Disclosures about Pensions and Other Post Retirement Benefits." SFAS No. 132
revises employers' disclosures about pension and other post retirement benefit
plans but does not change the measurement or recognition of those plans. The
Statement standardizes the disclosure requirements to the extent practicable,
requires additional information on changes in the benefit obligations and fair
values of plan assets that will facilitate financial analysis, and eliminates
certain disclosures. SFAS No. 132 is effective for fiscal years beginning after
December 15, 1997. The Company will adopt this standard in its 1998 year-end
financial statements.
-8-
<PAGE> 9
THE HERTZ CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Basis of Presentation (continued)
In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use" ("SOP 98-1"), dealing with the
costs of internal use software. The treatment accorded such costs in the past
has been very diverse in practice. The SOP will require capitalization of such
costs after certain preliminary development efforts have been made. Costs to be
capitalized are direct costs and interest costs related to development efforts.
The SOP is effective for fiscal years beginning after December 15, 1998. Earlier
application is permitted for years which financial statements have not been
issued. Management is evaluating the impact that the SOP may have on the
Company's financial position or results of operations.
In June 1998, the Financial Accounting Standards Board issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No.
133 establishes a new model for accounting for derivatives and hedging
activities and is effective for fiscal years beginning after June 15, 1999. The
Company will adopt SFAS No. 133 beginning January 1, 2000. The adoption of SFAS
No. 133 is not expected to have a material effect on the Company's financial
position or results of operations.
Note 2 - Earnings Per Share
The following table sets forth the computations of basic earnings per
share and diluted earnings per share (in thousands of dollars, except per share
amounts):
<TABLE>
<CAPTION>
Three Months Nine Months
Ended Sept. 30, Ended Sept. 30,
-------------------------------- --------------------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Basic earnings per share:
Net income $ 118,678 $ 93,434 $ 229,142 $ 167,054
------------ ------------ ------------ ------------
Average common shares
outstanding 108,070,628 108,230,984 108,119,193 108,245,786
------------ ------------ ------------ ------------
Basic earnings per share $ 1.10 $ 0.86 $ 2.12 $ 1.54
============ ============ ============ ============
Diluted earnings per share:
Net income $ 118,678 $ 93,434 $ 229,142 $ 167,054
------------ ------------ ------------ ------------
Average common shares
outstanding 108,070,628 108,230,984 108,119,193 108,245,786
Dilutive effect of stock
options 486,581 400,855 478,065 363,694
------------ ------------ ------------ ------------
Average diluted common shares
outstanding 108,557,209 108,631,839 108,597,258 108,609,480
------------ ------------ ------------ ------------
Diluted earnings per share $ 1.09 $ 0.86 $ 2.11 $ 1.54
============ ============ ============ ============
</TABLE>
At September 30, 1998, options to purchase 1,008,100 shares of common
stock were outstanding, but were not included in the computation of diluted
earnings per share because the options' exercise price were greater than the
average market price of the common shares.
-9-
<PAGE> 10
THE HERTZ CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 3 - Purchases and Sales of Operations
During the nine months ended September 30, 1998, the Company acquired one
European and eight North American equipment rental and sales companies. The
aggregate purchase price of the acquisitions was $315.7 million, net of cash
acquired, plus the assumption of $89.6 million of debt. The aggregate
consideration exceeded the fair value of the net assets acquired by
approximately $189.6 million, which has been recognized as goodwill and is being
amortized over periods from twenty-five to forty years. The acquisitions were
accounted for as purchases, and the results of operations have been included in
the Company's consolidated financial statements since their respective dates of
acquisition. Had the acquisitions occurred as of the beginning of the year, the
effect of including their results would not be material to the results of
operations of the Company. The aggregate purchase price included $5.4 million
paid to shareholders of two of the acquired companies in exchange for covenants
not to compete, which are being amortized over the contractual terms of the
individual covenants.
In May 1998, the Company sold its corporate owned operations in Portugal
to a licensee. The net proceeds from the sale were approximately $4.6 million,
which exceeded book value by approximately $.3 million. In conjunction with the
sale, the Company received an initial license fee of $2.5 million. The total
assets of these operations at May 31, 1998 were $19.6 million, and revenues and
net income for the year ended December 31, 1997 were $14.9 million and .8
million, respectively.
Note 4 - Taxes on Income
The income tax provision is based upon the expected effective tax rate
applicable to the full year. The effective tax rate is higher than the U.S.
statutory rate of 35% due to higher tax rates relating to foreign operations and
adjustment for state taxes net of federal benefit.
Note 5 - Depreciation of Revenue-Earning Equipment
Depreciation of revenue-earning equipment includes the following (in
thousands of dollars):
<TABLE>
<CAPTION>
Unaudited
Three Months Ended
September 30,
--------------------
1998 1997
---- ----
<S> <C> <C>
Depreciation of revenue-earning equipment $299,087 $261,420
Adjustment of depreciation upon disposal
of the equipment 1,733 1,919
Rents paid for vehicles leased 3,633 3,608
-------- --------
Total $304,453 $266,947
======== ========
</TABLE>
<TABLE>
<CAPTION>
Unaudited
Nine Months Ended
September 30,
--------------------
1998 1997
---- ----
<S> <C> <C>
Depreciation of revenue-earning equipment $779,433 $719,036
Adjustment of depreciation upon disposal
of the equipment 6,807 1,516
Rents paid for vehicles leased 10,348 10,187
-------- --------
Total $796,588 $730,739
======== ========
</TABLE>
-10-
<PAGE> 11
THE HERTZ CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 5 - Depreciation of Revenue-Earning Equipment (continued)
The adjustment of depreciation upon disposal of revenue-earning equipment
for the three months ended September 30, 1998 and 1997 included a net gain of
$.3 million and a net loss of $.3 million, respectively, on the sale of
equipment in the industrial and construction equipment rental operations; and
net losses of $2.1 million and $1.6 million, respectively, in the car rental and
car leasing operations.
The adjustment of depreciation upon disposal of revenue-earning equipment
for the nine months ended September 30, 1998 and 1997 included a net loss of
$1.1 million and a net gain of $.5 million, respectively, on the sale of
equipment in the industrial and construction equipment rental operations; and
net losses of $5.7 million and $2.0 million, respectively, in the car rental and
car leasing operations.
During the nine months ended September 30, 1998, the Company purchased Ford
vehicles at a cost of approximately $2.8 billion and sold Ford vehicles to Ford
or its affiliates under various repurchase programs for approximately $1.5
billion.
Note 6 - Debt
Debt at September 30, 1998 and December 31, 1997 consisted of the following
(in thousands of dollars):
<TABLE>
<CAPTION>
Sept. 30, Dec. 31,
1998 1997
---- ----
<S> <C> <C>
Notes payable, including commercial
paper, average interest rate: 1998, 5.7%;
1997, 6.2% $1,978,469 $1,309,130
Promissory notes, average interest rate:
1998, 7.0%; 1997, 7.2%
(effective average interest rate:
1998, 7.0%; 1997, 7.3%)
net of unamortized discount: 1998, $4,381;
1997, $3,030; due 1999 to 2028 2,445,619 2,246,970
Senior subordinated promissory notes,
average interest rate 9.5%;
(effective average interest rate 9.7%);
net of unamortized discount of $43 in 1997 -- 99,957
Junior subordinated promissory notes,
average interest rate 6.9%; net of
unamortized discount: 1998, $169;
1997, $201; due 2000 to 2003 399,831 399,799
Subsidiaries' short-term debt, in foreign
currencies, including commercial paper in millions (1998, $983.1; 1997,
$637.7); and other borrowings; average interest rate:
1998, 4.9%; 1997, 5.2% 997,037 659,812
---------- ----------
Total $5,820,956 $4,715,668
========== ==========
</TABLE>
-11-
<PAGE> 12
THE HERTZ CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 6 - Debt (continued)
The aggregate amounts of maturities of debt for the twelve-month periods
following September 30, 1998 are as follows (in millions): 1999, $3,056.9
(including $2,931.6 of commercial paper and short-term borrowings); 2000,
$602.6; 2001, $404.8; 2002, $552.3; 2003, $400.2; after 2003, $804.2.
At September 30, 1998, approximately $675 million of the Company's
consolidated stockholders' equity was free of dividend limitations pursuant to
its existing debt agreements.
At September 30, 1998, the Company had a $250 million loan outstanding
from Ford.
The Company and its subsidiaries have entered into arrangements to manage
exposure to fluctuations in interest rates. These arrangements consist of
interest-rate swap agreements ("swaps"). 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 Company 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 September 30, 1998 of the swap agreements is to give the Company an
overall effective weighted- average rate on debt of 6.21%, with 49% of debt
effectively subject to variable interest rates, compared to a weighted-average
interest rate on debt of 6.17%, with 50% of debt subject to variable interest
rates when not considering the swap agreements. At September 30, 1998, these
agreements expressed in notional amounts aggregated $85.1 million. Notional
amounts are not reflective of the Company's obligations under these agreements
because the Company is only obligated to pay the net amount of interest rate
differential between the fixed and variable rates specified in the contracts.
The Company'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 September 30, 1998, the fair
value of all outstanding contracts, which is representative of the Company's
obligations under these contracts, assuming the contracts were terminated at
that date, was approximately a net payable of $1.7 million. The notional
principal of $85.1 million matures as follows: $8.1, $45.4, $22.0, $8.3, $1.2
and $.1 in 1998, 1999, 2000, 2001, 2002 and 2003, respectively.
Note 7 - Long-Term Equity Compensation Plan
The Company sponsors a stock-based incentive plan (the "Plan") covering
certain officers and other executives of the Company. The Plan, which has been
approved by the stockholders, is administered by the Compensation Committee (the
"Committee") appointed by the Board of Directors. Awards granted under the plan
are based on shares of Class A Common Stock. The Plan provides for the grant of
incentive and nonqualified stock options, stock appreciation rights, restricted
stock, performance shares and performance units ("Awards").
Officers and certain key salaried employees of the Company with potential
to contribute to the future success of the Company or its subsidiaries are
eligible to receive Awards under the Plan. Each option granted shall expire at
such time the Committee shall determine at the time of grant; provided, that no
option shall be exercisable later than the tenth anniversary date of its grant.
-12-
<PAGE> 13
THE HERTZ CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 7 - Long-Term Equity Compensation Plan (continued)
The total number of shares of Class A Common Stock that may be subject to
Awards under the Plan is 8,120,026 shares. As part of the Offering, the Company
granted awards of 701,025 shares of restricted stock and 1,423,470 nonqualified
stock options. The options were granted at the initial public offering price of
$24.00 per share. At September 30, 1998, 237,051 stock options and 89,975 shares
of restricted stock had been forfeited. The Awards granted vest over various
anniversaries of the date of grant with all awards vesting by the fifth
anniversary of the date of grant.
On April 2, 1998, the Company granted 1,012,900 nonqualified stock
options. The options were granted at the closing market price on that day of
$48.69 per share. At September 30, 1998, 25,300 stock options had been
forfeited.
On May 21, 1998, the Company granted additional awards of 20,000 shares
of restricted stock. Upon issuance of the restricted shares, the unamortized
value of restricted stock was charged to stockholders' equity and is being
amortized as compensation expense ratably over vesting periods.
During the nine months ended September 30, 1998, the Company acquired
352,165 shares of its Class A Common Stock for requirements under its incentive
stock plan.
Note 8 - Segment Information
The Company's business principally consists of two significant segments:
rental and leasing of cars and light trucks and related franchise fees ("car
rental and leasing"); and rental of industrial, construction and materials
handling equipment and related franchise fees ("industrial and construction
equipment rental"). The contributions of these segments, as well as "corporate
and other," to revenues and income before income taxes for the three months and
nine months ended September 30, 1998 and 1997 are summarized below (in millions
of dollars). Corporate and other includes general corporate expenses,
principally amortization of certain intangibles and interest expense incurred in
connection with the acquisition of the Company by Park Ridge Corporation in
December 1987 and UAL, Inc. in August 1985, as well as other business
activities, such as claims management and telecommunication services.
<TABLE>
<CAPTION>
Three Months Ended September 30,
--------------------------------------------------------
Income (Loss)
Revenues Before Income Taxes
-------------------------- ------------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Car rental and leasing $ 1,026.7 $ 972.4 $ 181.1 $ 150.7
Industrial and construction equipment rental 189.5 122.8 28.0 23.6
Corporate and other 8.9 6.9 (8.8) (12.6)
---------- ---------- --------- ---------
Consolidated total $ 1,225.1 $ 1,102.1 $ 200.3 $ 161.7
========== ========== ========= =========
</TABLE>
-13-
<PAGE> 14
THE HERTZ CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 8 - Segment Information (continued)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
--------------------------------------------------------
Income (Loss)
Revenues Before Income Taxes
-------------------------- ------------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Car rental and leasing $ 2,718.6 $ 2,617.7 $ 358.7 $ 256.9
Industrial and construction equipment rental 430.4 318.2 47.7 51.7
Corporate and other 23.3 20.9 (18.1) (19.9)
---------- ---------- --------- ---------
Consolidated total $ 3,172.3 $ 2,956.8 $ 388.3 $ 288.7
========== ========== ========= =========
</TABLE>
Note 9 - Comprehensive Income
The Company adopted SFAS 130, "Reporting Comprehensive Income" for 1998.
Accumulated other comprehensive income includes an accumulated translation loss
(in thousands of dollars) of $21,500 and $30,458 at September 30, 1998 and
December 31, 1997, respectively. Comprehensive income for the three months and
nine months ended September 30, 1998 and 1997 was as follows (in thousands of
dollars):
<TABLE>
<CAPTION>
Three Months Ended
September 30,
------------------------
1998 1997
---- ----
<S> <C> <C>
Net income $118,678 $ 93,434
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments 14,153 (6,336)
Unrealized gains on available-for-sale securities 148 45
-------- --------
Other comprehensive income (loss) 14,301 (6,291)
-------- --------
Comprehensive income $132,979 $ 87,143
======== ========
</TABLE>
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
------------------------
1998 1997
---- ----
<S> <C> <C>
Net income $229,142 $ 167,054
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments 8,958 (29,136)
Unrealized gains on available-for-sale securities 166 24
-------- ---------
Other comprehensive income (loss) 9,124 (29,112)
-------- ---------
Comprehensive income $238,266 $ 137,942
======== =========
</TABLE>
-14-
<PAGE> 15
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Three Months ended September 30, 1998 Compared with Three Months ended September
30, 1997
Summary
The following table sets forth for the three months ended September 30,
1998 and 1997 the percentage of operating revenues represented by certain items
in the Company's consolidated statement of income:
<TABLE>
<CAPTION>
Percentage of Revenues
Three Months Ended
September 30,
----------------------
1998 1997
---- ----
<S> <C> <C>
Revenues:
Car rental 81.9% 85.9%
Industrial and construction equipment rental 15.5 11.1
Car leasing .8 .9
Franchise fees and other revenue 1.8 2.1
------- -------
100.0 100.0
------- -------
Expenses:
Direct operating 42.0 43.5
Depreciation of revenue-earning equipment 24.8 24.2
Selling, general and administrative 9.8 10.3
Interest, net of interest income 7.0 7.3
------- -------
83.6 85.3
------- -------
Income before income taxes 16.4 14.7
Provision for taxes on income 6.7 6.2
------- -------
Net income 9.7% 8.5%
======= =======
</TABLE>
The following table sets forth certain selected operating data of the
Company for the three months ended September 30, 1998 and 1997:
<TABLE>
<CAPTION>
Three Months Ended
September 30,
-----------------------
1998 1997
---- ----
<S> <C> <C>
Car rental and other operations:
Average number of owned cars operated
during period 335,000 317,000
Number of transactions of owned car
rental operations during period 5,801,000 5,549,000
Average revenue per transaction of owned
car rental operations during period
(in whole dollars) $ 173.07 $ 170.63
Equipment rental operations:
Average cost of rental equipment operated
during period (in millions) $ 1,480 $ 1,079
</TABLE>
-15-
<PAGE> 16
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (continued)
Revenues
The Company achieved record revenues of $1,225.1 million in the third
quarter of 1998, which increased by 11.2% from $1,102.1 million in the third
quarter of 1997. Revenues from car rental operations of $1,004.0 million in the
third quarter of 1998 increased by $57.1 million, or 6.0% from $946.9 million in
the third quarter of 1997. The increase was primarily the result of an increase
in the number of transactions in the United States that contributed $39.6
million in increased revenue and continued pricing improvement worldwide that
contributed $20.1 million. This increase was partially offset by a decrease of
$4.6 million from the effects of foreign currency translation. The translation
impact of exchange rates on net income is not significant because the majority
of the Company's foreign expenses are also incurred in local currencies.
Revenues from industrial and construction equipment rental of $189.5
million in the third quarter of 1998 increased by 54.3% from $122.8 million in
the third quarter of 1997. Of this $66.7 million increase, approximately $53.3
million was due to an increase in volume resulting from the inclusion of ten
acquired businesses and 33 new locations opened worldwide in the last 12 months,
and approximately $13.4 million was due to increased activity from existing
locations which grew 10.9%.
Revenues from all other sources of $31.7 million in the third quarter of
1998 decreased by 2.3% from $32.5 million in the third quarter of 1997,
primarily due to the recognition, in the third quarter of 1997, of the initial
fee from the franchising of Denmark and Norway car rental operations, which had
been corporately owned.
Expenses
Total expenses of $1,024.8 million in 1998 increased by 9.0% from $940.4
million in 1997; however, total expenses as a percentage of revenues decreased
to 83.6% in 1998 from 85.3% in 1997.
Direct operating expenses of $514.7 million in 1998 increased by 7.4%
from $479.4 million in 1997, but were lower in 1998 as a percentage of revenues.
The increase was primarily the result of increases in wages, commissions and
facility costs, partly offset by the effects of foreign currency translation,
higher recoveries of concession fees and refueling costs, and favorable
self-insurance claims experience.
Depreciation of revenue-earning equipment for the car rental and car
leasing operations of $250.9 million in 1998 increased by 5.9% from $236.9
million in 1997, primarily due to an increase in the number of cars operated
worldwide and decreases in the net proceeds received in excess of book value on
the disposal of the cars resulting in a $2.1 million loss in 1998 versus a $1.6
million loss in 1997. Depreciation of revenue-earning equipment for the
industrial and construction equipment rental operations of $53.6 million in 1998
increased by 78.1% from $30.1 million in 1997, primarily due to acquisitions of
equipment rental and sales companies and an increase in both the volume and cost
of equipment operated.
Selling, general and administrative expenses of $119.8 million in 1998
increased by 5.8% from $113.2 million in 1997, but decreased as a percentage of
revenues. The increase in 1998 was primarily the result of increases in
advertising costs and sales promotion, which were partly offset by decreases in
administrative costs and the effects of foreign currency translation.
-16-
<PAGE> 17
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (continued)
Expenses (continued)
Interest expense of $85.9 million in 1998 increased 6.3% from $80.8
million in 1997, primarily due to higher average debt levels. This was partly
offset by a lower weighted average interest rate.
The tax provision of $81.6 million in 1998 increased 19.6% from $68.3
million in 1997, primarily due to the higher income before income taxes in 1998.
The effective tax rate in 1998 was 40.8% as compared to 42.2% in 1997. See Note
4 to the Notes to the Company's consolidated financial statements.
Net Income
The Company achieved record net income of $118.7 million in the third
quarter of 1998, or $1.09 per share on a diluted basis, representing an increase
of 27% from $93.4 million, or $.86 per share on a diluted basis, in the third
quarter of 1997. This increase primarily reflects higher revenues and improved
profit margins in worldwide car rental operations and the net effect of the
other contributing factors mentioned above.
-17-
<PAGE> 18
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (continued)
Nine Months ended September 30, 1998 Compared with Nine Months ended September
30, 1997
Summary
The following table sets forth for the nine months ended September 30,
1998 and 1997 the percentage of operating revenues represented by certain items
in the Company's consolidated statement of income:
<TABLE>
<CAPTION>
Percentage of Revenues
Nine Months Ended
September 30,
---------------------
1998 1997
---- ----
<S> <C> <C>
Revenues:
Car rental 83.6% 86.2%
Industrial and construction equipment rental 13.6 10.8
Car leasing .9 1.0
Franchise fees and other revenue 1.9 2.0
------- -------
100.0 100.0
------- -------
Expenses:
Direct operating 44.7 46.5
Depreciation of revenue-earning equipment 25.1 24.7
Selling, general and administrative 10.8 11.1
Interest, net of interest income 7.2 7.9
------- -------
87.8 90.2
------- -------
Income before income taxes 12.2 9.8
Provision for taxes on income 5.0 4.1
------- -------
Net income 7.2% 5.7%
======= =======
</TABLE>
The following table sets forth certain selected operating data of the
Company for the nine months ended September 30, 1998 and 1997:
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
----------------------
1998 1997
---- ----
<S> <C> <C>
Car rental and other operations:
Average number of owned cars operated
during period 305,000 294,000
Number of transactions of owned car
rental operations during period 16,496,000 16,001,000
Average revenue per transaction of owned
car rental operations during period
(in whole dollars) $ 160.80 $ 159.33
Equipment rental operations:
Average cost of rental equipment operated
during period (in millions) $ 1,268 $ 992
</TABLE>
-18-
<PAGE> 19
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (continued)
Revenues
The Company achieved record revenues of $3,172.3 million in the first
nine months of 1998, which increased by 7.3% from $2,956.8 million in the first
nine months of 1997. Revenues from car rental operations of $2,652.6 million in
the first nine months of 1998 increased by $103.1 million, or 4.0% from $2,549.5
million in the first nine months of 1997. The increase was primarily the result
of an increase in transactions in the United States that contributed $74.9
million in increased revenue and an increase in rates worldwide that contributed
$57.8 million. This increase was partially offset by a decrease of $30.9 million
from the effect of the strong U.S. dollar on foreign currency translation. The
translation impact of exchange rates on net income is not significant because
the majority of the Company's foreign expenses are also incurred in local
currencies.
Revenues from industrial and construction equipment rental of $430.2
million in the first nine months of 1998 increased by 35.2% from $318.2 million
in the first nine months of 1997. Of this $112.0 million increase, approximately
$79.1 million was due to an increase in volume resulting from the inclusion of
ten acquired businesses and 33 new locations opened worldwide in the last 12
months, and approximately $32.9 million was due to increased activity from
existing locations which grew 10.3%.
Revenues from all other sources of $89.4 million in the first nine months
of 1998 increased by 0.3% from $89.1 million in the first nine months of 1997,
primarily due to an increase in franchise revenues. This increase was partially
offset by the effect of foreign currency translation.
Expenses
Total expenses of $2,784.0 million in 1998 increased by 4.3% from
$2,668.1 million in 1997; however, total expenses as a percentage of revenues
decreased to 87.8% in 1998 from 90.2% in 1997.
Direct operating expenses of $1,415.2 million in 1998 increased by 2.8%
from $1,376.2 million in 1997, but were lower in 1998 as a percentage of
revenues. The increase was primarily the result of increases in wages and
facility costs. These increases were partly offset by the effects of foreign
currency translation, recoveries of concession fees and refueling costs, and
favorable self-insurance claims experience.
Depreciation of revenue-earning equipment for the car rental and car
leasing operations of $686.7 million in 1998 increased by 3.1% from $665.2
million in 1997, primarily due to an increase in the number of cars operated
worldwide and decreases in the net proceeds received in excess of book value on
the disposal of the cars resulting in a $5.7 million loss in 1998 versus a $2.0
million loss in 1997. Depreciation of revenue-earning equipment for the
industrial and construction equipment rental operations of $109.9 million in
1998 increased by 67.5% from $65.6 million in 1997, primarily due to
acquisitions of equipment rental and sales companies and an increase in both the
volume and cost of equipment operated.
Selling, general and administrative expenses of $344.2 million in 1998
increased by 4.7% from $328.7 million in 1997, but decreased as a percent of
revenue in 1998 as compared to 1997. The increase was a result of increases in
advertising costs and sales promotion, which was partially offset by decreases
in administrative costs and the effects of foreign currency translation.
-19-
<PAGE> 20
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (continued)
Expenses (continued)
Interest expense of $227.9 million in 1998 decreased 1.9% from $232.4
million in 1997, primarily due to lower average debt levels and interest expense
of $4.3 million incurred in 1997, relating to funding a $460 million dividend
paid by the Company on its common stock to Ford in the first quarter of 1997.
These decreases were partly offset by lower interest income in 1998.
The tax provision of $159.2 million in 1998 increased 30.9% from $121.7
million in 1997, primarily due to the higher income before income taxes in 1998.
The effective tax rate in 1998 was 41.0% as compared to 42.1% in 1997. See Note
4 to the Notes to the Company's consolidated financial statements.
Net Income
The Company achieved record net income of $229.1 million in the first
nine months of 1998, or $2.11 per share on a diluted basis, representing an
increase of 37.2% from $167.1 million, or $1.54 per share on a diluted basis, in
the first nine months of 1997. This increase was primarily due to higher
revenues and improved profit margins in the worldwide car rental operations and
the net effect of the other contributing factors mentioned above.
Liquidity and Capital Resources
The Company's domestic and foreign operations are funded by cash provided
by operating activities, and by extensive financing arrangements maintained by
the Company in the United States, Europe, Australia, New Zealand, Canada and
Brazil. The Company's investment grade credit ratings provide it with access to
global capital markets to meet its borrowing needs. The Company's primary use of
funds is for the acquisition of revenue-earning equipment, which consists of
cars, and industrial and construction equipment. For the nine months ended
September 30, 1998, the Company's expenditures for revenue-earning equipment
were $6.4 billion (partially offset by proceeds from the sale of such equipment
of $4.6 billion). These assets are purchased by the Company in accordance with
the terms of programs negotiated with automobile and equipment manufacturers.
For the nine months ended September 30, 1998, the Company expended $316 million
for new businesses acquired and assumed $90 million of related debt. For the
nine months ended September 30, 1998, the Company's capital investments for
property and non-revenue-earning equipment were $190 million. The Company's
customer receivables are also liquid with approximately 32 days of total annual
sales outstanding.
To finance its domestic requirements, the Company maintains an active
commercial paper program. The Company is also active in the U.S. domestic
medium-term and long-term debt markets. As the need arises, it is the Company's
intention to issue either unsecured senior, senior subordinated or junior
subordinated debt securities on terms to be determined at the time the
securities are offered for sale. The total amount of medium-term and long-term
debt outstanding as of September 30, 1998 was $2.9 billion with maturities
ranging from 1999 to 2028. This includes a $250 million term loan from Ford,
which matures on November 15, 1999. Borrowing for the Company's international
operations consists mainly of loans obtained from local and international banks
and commercial paper programs established in Australia, Canada and Ireland. The
Company guarantees only the borrowings of its subsidiaries in Australia, Canada
and Ireland, which consist principally of commercial paper and short-term bank
loans. All borrowings by international operations either are in the
international operation's local currency or, if in non-local currency, are fully
hedged to minimize foreign exchange exposure. At
-20-
<PAGE> 21
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (continued)
Liquidity and Capital Resources (continued)
September 30, 1998, the total debt for the foreign operations was $997 million,
of which $983 million was short-term (original maturity of less than one year)
and $14 million was long-term. At September 30, 1998, the total amounts
outstanding (in millions of U.S. dollars) under the Australian and Canadian
commercial paper programs were $72 and $189, respectively. The Irish commercial
paper program had no amounts outstanding at September 30, 1998.
At September 30, 1998, the Company had committed bank credit facilities
totaling $2.1 billion, which are primarily represented by a combination of
five-year and 364-day global committed credit facilities provided by 31
relationship banks. In addition to direct borrowings by the Company, these
agreements allow any subsidiary of the Company to borrow under the facilities
based on a guarantee by the Company. Effective July 1, 1998, the five-year
agreements, with facilities totaling $1,196 million, were renegotiated and
currently $63 million expires on June 30, 2002 and $1,133 million expires on
June 30, 2003. The 364-day agreements, totaling $857 million, expire on June 23,
1999. The five-year agreements 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. The 364-day agreements permit the Company to convert
any amount outstanding prior to expiration into a four-year term loan.
In addition to these bank credit facilities, in February 1997, Ford
extended to the Company a line of credit of $500 million, with an original
expiration date of June 30, 1999. This line of credit has an evergreen feature
that provides on an annual basis for automatic one year extensions of the
expiration date, unless timely notice is provided by Ford at least one year
prior to the then scheduled expiration date.
On March 10, 1998 the Company paid a quarterly dividend of $.05 per share
on its Class A and Class B Common Stock to shareholders of record as of February
13, 1998.
On June 10, 1998 the Company paid a quarterly dividend of $.05 per share
on its Class A and Class B Common Stock to shareholders of record as of May 15,
1998.
On September 10, 1998 the Company paid a quarterly dividend of $.05 per
share on its Class A and Class B Common Stock to shareholders of record as of
August 14, 1998.
On October 26, 1998 the Board of Directors declared a quarterly dividend
of $.05 per share on its Class A and Class B Common Stock, payable on December
10, 1998 to shareholders of record as of November 16, 1998.
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, remain fixed and cannot be adjusted for seasonal demand. In certain
geographic markets, the impact of seasonality has been reduced by emphasizing
leisure or business travel in the off-seasons.
-21-
<PAGE> 22
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (continued)
Year 2000
The Company initiated a comprehensive year 2000 date conversion project
plan in early 1997. The Company's year 2000 effort includes worldwide
computer-based applications, operating software, computer hardware,
telecommunications systems, external data exchanges, electronic equipment and
facilities systems.
State of Readiness: The plan is structured into five primary phases:
inventory, assessment, correction, testing and implementation. The inventory is
an investigation of all information technology (IT) and non-IT hardware and
software components used by the Company. The assessment is an analysis of each
component to determine date sensitivity to the year 2000. The correction phase
is the effort to fix, replace, upgrade or eliminate non-compliant hardware and
software. The testing phase involves verifying the results of the correction
effort, and implementation is the effort to deploy the fixes into a production
environment. The Company has completed the inventory and assessment of all
critical components and is 40% complete with correction of known non-compliant
components, 35% complete with testing and 35% complete with implementation. The
Company expects its year 2000 date conversion project to be completed on a
timely basis. Project completion is planned for the middle of 1999.
The Company has initiated ongoing communications with its significant
vendors and service providers to determine the extent to which the Company is
vulnerable to those third-parties' failures to remediate their own year 2000
issue. To date, none of the Company's vendors or service providers has disclosed
that they anticipate a business interruption. There can be no assurance that the
systems of other companies on which the Company's systems rely will be converted
in a timely manner or that any such failure to convert by another company would
not have a material adverse effect on the Company.
Costs to Address Year 2000 Issues: The total estimated cost of the
conversion is $15 million to $20 million. Software remediation is being expensed
as incurred. Approximately $7.3 million of the cost of conversion has been
incurred through the first nine months of 1998. The Company has expended
approximately $9.4 million from inception through September 30, 1998. The costs
are being funded through operating cash flows. These costs represent 7% of the
Company's information technology budget. The Company has contracted with outside
vendors to perform remediations. In addition, the Company has invested in
technologies that allow concurrent application development. As a result, the
Company has not deferred any significant information technology projects to
address the year 2000 issue.
The Risks: The worst case scenarios for the Company with respect to year
2000 problems involve: (1) a temporary disruption due to service providers'
system failures or localized power failures which could result in longer
transaction times and problems with reservations; (2) an interruption in airline
operations affecting the level of airport rental activity; or (3) a temporary
inability to obtain rental vehicles or equipment to meet rental demand due to
the failure of one or more suppliers which could be mitigated by retaining
vehicles or equipment longer than planned. The occurrence of any of these events
could have a material impact on the Company's business and results of
operations.
Contingency Plans: Contingency measures are included within the structure
of the year 2000 project. Such plans include the identification of preemptive
strategies and the development and distribution of business continuity
procedures in the event computer systems, local energy sources or
telecommunications systems are temporarily not available.
-22-
<PAGE> 23
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (continued)
Euro Currency Conversion
The single European currency ("euro") will be introduced on January 1,
1999 with a complete transition to this new currency by January 1, 2002. The
Company plans to price its product in euros during the transition period as the
market and customers require. The Company does not believe the increased price
transparency between participating countries will have a material adverse effect
on pricing, since costs incurred by the Company and its competitors vary by
country.
The conversion to the euro may reduce the Company's exposure to changes
in foreign exchange rates and hedging costs. However, because there will be less
diversity in foreign currencies, changes in the euro's value in relation to the
U.S. dollar could have a more pronounced effect, either positive or negative,
when translating and consolidating these operations.
Required information system changes are on schedule to be completed by
the end of this year. These changes will be minimal and only involve systems
that interface with customers, such as billing systems. The Company will present
invoices to customers in euros as well as local currency. The Company's systems
support currency triangulation; therefore, no additional expense will be
incurred to incorporate this functionality.
The Company is preparing for a conversion to the euro for internal
accounting purposes at the end of the year 2001. Earlier implementation may take
place in certain countries where it would be operationally feasible to do so.
Human resource costs will be incurred in planning and coordinating the
conversion; however, these costs are not expected to be material. The Company
believes major information technology system changes to support this conversion
will not be required.
Pursuant to the Private Securities Litigation Reform Act of 1995, certain
statements contained in this Report under "Management's Discussion and Analysis
of Financial Condition and Results of Operations," including, without
limitation, those concerning the Company's year 2000 and euro currency
conversion projects, may contain forward-looking statements concerning the
Company's operations, economic performance and financial condition. Because such
statements involve risks and uncertainties, actual results may differ materially
from those expressed or implied by such forward-looking statements.
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, 1998, 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. The Company 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, 1998 and 1997.
27 Financial Data Schedule for the nine months ended
September 30, 1998.
-23-
<PAGE> 24
PART II - OTHER INFORMATION (continued)
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (continued)
(b) Reports on Form 8-K:
The Company filed a Form 8-K dated July 27, 1998
reporting the issuance of a press release with respect
to its declaration of a quarterly dividend.
The Company filed a Form 8-K dated July 20, 1998
reporting the issuance of a press release with respect
to its second quarter 1998 earnings.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Company has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE HERTZ CORPORATION
(Registrant)
Date: November 12, 1998 By: /s/ Paul J. Siracusa
-------------------------------------
Paul J. Siracusa
Executive Vice President and
Chief Financial Officer
(principal financial officer and duly
authorized officer)
-24-
<PAGE> 25
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
No. Description Page No.
--- ----------- --------
<S> <C> <C>
12 Computation of Ratio of Earnings 27
to Fixed Charges for the nine months
ended September 30, 1998 and 1997.
27 Financial Data Schedule for the 28-29
nine months ended September 30, 1998.
</TABLE>
<PAGE> 1
EXHIBIT 12
THE HERTZ CORPORATION AND SUBSIDIARIES
CONSOLIDATED COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(In Thousands of Dollars Except Ratios)
Unaudited
<TABLE>
<CAPTION>
Nine Months
Ended September 30,
---------------------
1998 1997
---- ----
<S> <C> <C>
Income before income taxes $388,335 $288,712
Interest expense 236,651 242,752
Portion of rent estimated to represent
the interest factor 58,168 53,344
-------- --------
Earnings before income taxes and fixed charges $683,154 $584,808
======== ========
Interest expense (including capitalized interest) $237,522 $243,164
Portion of rent estimated to represent
the interest factor 58,168 53,344
-------- --------
Fixed charges $295,690 $296,508
======== ========
Ratio of earnings to fixed charges 2.3 2.0
======== ========
</TABLE>
-27-
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<EXCHANGE-RATE> 1
<CASH> 17,000
<SECURITIES> 222,476
<RECEIVABLES> 880,917
<ALLOWANCES> (15,805)
<INVENTORY> 35,625
<CURRENT-ASSETS> 0
<PP&E> 8,181,513
<DEPRECIATION> (1,379,849)
<TOTAL-ASSETS> 8,950,650
<CURRENT-LIABILITIES> 0
<BONDS> 5,820,956
0
0
<COMMON> 1,083
<OTHER-SE> 1,351,563
<TOTAL-LIABILITY-AND-EQUITY> 8,950,650
<SALES> 0
<TOTAL-REVENUES> 3,172,298
<CGS> 0
<TOTAL-COSTS> 2,553,604
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 2,449
<INTEREST-EXPENSE> 227,910
<INCOME-PRETAX> 388,335
<INCOME-TAX> 159,193
<INCOME-CONTINUING> 229,142
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 229,142
<EPS-PRIMARY> 2.12
<EPS-DILUTED> 2.11
</TABLE>
