<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 JUNE 30, 2000
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 June 30, 2000: Common Stock, $0.01 par value - Class A,
40,153,361 shares and Class B, 67,310,167 shares.
Page 1 of 19 pages
The Exhibit Index is on page 19
<PAGE> 2
PART I - FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS
THE HERTZ CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS OF DOLLARS)
UNAUDITED
<TABLE>
<CAPTION>
ASSETS
June 30, Dec. 31,
2000 1999
-------- --------
<S> <C> <C>
Cash and equivalents $ 127,302 $ 208,652
Receivables, less allowance for
doubtful accounts of $22,609 and $24,299 904,286 1,092,955
Due from affiliates 326,798 698,612
Inventories, at lower of cost or market 71,545 57,546
Prepaid expenses and other assets 146,196 120,270
Revenue earning equipment, at cost:
Cars 6,960,945 5,277,472
Less accumulated depreciation (588,362) (515,128)
Other equipment 2,226,293 1,953,854
Less accumulated depreciation (504,413) (452,420)
------------ ------------
Total revenue earning equipment 8,094,463 6,263,778
------------ ------------
Property and equipment, at cost:
Land, buildings and leasehold improvements 841,578 806,058
Service equipment 808,593 775,010
------------ ------------
1,650,171 1,581,068
Less accumulated depreciation (687,346) (673,710)
------------ ------------
Total property and equipment 962,825 907,358
------------ ------------
Goodwill and other intangible assets,
net of amortization (Note 3) 817,355 787,536
------------ ------------
Total assets $ 11,450,770 $ 10,136,707
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable $ 685,115 $ 546,111
Accrued liabilities 570,044 604,307
Accrued taxes 182,369 146,405
Debt (Note 6) 7,616,626 6,602,220
Public liability and property damage 292,307 292,573
Deferred taxes on income 313,700 271,100
Stockholders' equity:
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 981,410 982,298
Unamortized restricted stock grants (6,946) (3,452)
Retained earnings 915,767 766,513
Accumulated other comprehensive income (Note 9) (71,764) (52,499)
Treasury stock, at cost, 803,497 shares and 420,725 shares (28,941) (19,952)
------------ ------------
Total stockholders' equity 1,790,609 1,673,991
------------ ------------
Total liabilities and stockholders' equity $ 11,450,770 $ 10,136,707
============ ============
</TABLE>
The accompanying notes are an integral part of this statement.
2
<PAGE> 3
THE HERTZ CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
(IN THOUSANDS OF DOLLARS)
UNAUDITED
<TABLE>
<CAPTION>
Three Months
Ended June 30,
2000 1999
---- ----
<S> <C> <C>
Revenues:
Car rental $1,021,658 $ 929,325
Industrial and construction equipment rental 234,977 201,032
Car leasing 10,507 9,963
Franchise fees and other revenue 22,185 27,069
---------- ----------
Total revenues 1,289,327 1,167,389
---------- ----------
Expenses:
Direct operating 569,495 518,246
Depreciation of revenue earning equipment (Note 5) 336,068 308,136
Selling, general and administrative 115,730 114,731
Interest, net of interest income of $3,963 and $2,282 99,014 79,347
---------- ----------
Total expenses 1,120,307 1,020,460
---------- ----------
Income before income taxes 169,020 146,929
Provision for taxes on income (Note 4) 65,289 59,026
---------- ----------
Net income $ 103,731 $ 87,903
========== ==========
Earnings per share (Note 2):
Basic $ .96 $ .81
========== ==========
Diluted $ .96 $ .81
========== ==========
</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)
UNAUDITED
<TABLE>
<CAPTION>
Six Months
Ended June 30,
--------------
2000 1999
---- ----
Revenues:
<S> <C> <C>
Car rental $1,920,489 $1,756,578
Industrial and construction equipment rental 437,008 376,565
Car leasing 21,111 19,149
Franchise fees and other revenue 45,924 48,052
---------- ----------
Total revenues 2,424,532 2,200,344
---------- ----------
Expenses:
Direct operating 1,108,496 1,006,534
Depreciation of revenue earning equipment (Note 5) 640,098 584,861
Selling, general and administrative 225,343 223,484
Interest, net of interest income of $7,480 and $4,786 188,289 156,497
---------- ----------
Total expenses 2,162,226 1,971,376
---------- ----------
Income before income taxes 262,306 228,968
Provision for taxes on income (Note 4) 102,275 92,304
---------- ----------
Net income $ 160,031 $ 136,664
========== ==========
Earnings per share (Note 2):
Basic $ 1.49 $ 1.27
========== ==========
Diluted $ 1.48 $ 1.26
========== ==========
</TABLE>
The accompanying notes are an integral part of this statement.
4
<PAGE> 5
THE HERTZ CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS OF DOLLARS)
UNAUDITED
<TABLE>
<CAPTION>
Six Months
Ended June 30,
--------------
2000 1999
---- ----
Cash flows from operating activities:
<S> <C> <C>
Net income $ 160,031 $ 136,664
Non-cash expenses:
Depreciation of revenue earning equipment 640,098 584,861
Depreciation of property and equipment 63,798 55,542
Amortization of intangibles 14,777 13,587
Amortization of restricted stock grants 1,518 2,197
Provision for public liability and property damage 64,839 57,590
Provision for losses for doubtful accounts 10,956 6,848
Deferred income taxes 42,600 11,000
Revenue earning equipment expenditures (5,937,867) (5,259,442)
Proceeds from sales of revenue earning equipment 3,469,113 3,356,882
Changes in assets and liabilities:
Receivables 166,831 53,579
Due from affiliates 371,814 97,208
Inventories and prepaid expenses and other assets (32,921) (25,522)
Accounts payable 136,905 194,675
Accrued liabilities (29,964) 26,928
Accrued taxes 28,403 (187)
Payments of public liability and property damage claims
and expenses (64,948) (73,043)
----------- -----------
Net cash used in operating activities (894,017) (760,633)
----------- -----------
Cash flows from investing activities:
Property and equipment expenditures (128,823) (165,510)
Proceeds from sales of property and equipment 13,477 8,331
Available-for-sale securities:
Purchases (3,255) (2,031)
Sales 3,281 1,837
Investment in joint venture (2,700) --
Purchases of various operations, net of cash
(see supplemental disclosures below) (76,388) (79,380)
----------- -----------
Net cash used in investing activities (194,408) (236,753)
----------- -----------
Cash flows from financing activities:
Proceeds from issuance of long-term debt 496,720 549,663
Repayment of long-term debt (136,116) (104,992)
Short-term borrowings:
Proceeds 284,146 957,057
Repayments (442,263) (998,049)
Ninety day term or less, net 832,241 592,986
Cash dividends paid on common stock (10,777) (10,802)
Purchases of treasury stock (22,426) (14,502)
Proceeds from sale of treasury stock 4,243 14,336
Tax benefit from employee stock compensation plans 3,294 6,026
----------- -----------
Net cash provided by financing activities 1,009,062 991,723
----------- -----------
Effect of foreign exchange rate changes on cash (1,987) (2,186)
----------- -----------
Net decrease in cash and equivalents
during the period (81,350) (7,849)
Cash and equivalents at beginning of year 208,652 188,466
----------- -----------
Cash and equivalents at end of period $ 127,302 $ 180,617
=========== ===========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest (net of amounts capitalized) $ 197,528 $ 173,165
Income taxes 36,390 97,176
</TABLE>
In connection with acquisitions made in the first six months of 2000 and 1999,
liabilities assumed were $58 million and $46 million, respectively.
The accompanying notes are an integral part of this statement.
5
<PAGE> 6
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, 1999, filed by the registrant (the "Company") with the
Securities and Exchange Commission on March 17, 2000, has been followed in
preparing the accompanying consolidated financial statements.
The consolidated financial statements for interim periods included herein
have not been audited by independent public accountants. In the Company's
opinion, all adjustments (which include only normal recurring adjustments)
necessary for a fair presentation of the results of operations for the interim
periods have been made. Results for interim periods are not necessarily
indicative of results for a full year.
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform to the
current year presentation.
RECENT PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities." SFAS No. 133 establishes a new
model for accounting for derivatives and hedging activities. In June 1999, the
FASB delayed the effective date to fiscal years beginning after June 15, 2000.
The Company will adopt SFAS No. 133 beginning January 1, 2001. The adoption of
SFAS No. 133 is not expected to have a material effect on the Company's
financial position or results of operations or cash flows.
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>
Three Months Six Months
Ended June 30, Ended June 30,
-------------- --------------
2000 1999 2000 1999
---- ---- ---- ----
Basic earnings per share:
<S> <C> <C> <C> <C>
Net income $ 103,731 $ 87,903 $ 160,031 $ 136,664
------------ ------------ ------------ ------------
Average common shares
outstanding 107,574,249 108,089,721 107,711,182 107,987,221
------------ ------------ ------------ ------------
Basic earnings per share $ 0.96 $ 0.81 $ 1.49 $ 1.27
============ ============ ============ ============
Diluted earnings per share:
Net income $ 103,731 $ 87,903 $ 160,031 $ 136,664
------------ ------------ ------------ ------------
Average common shares
outstanding 107,574,249 108,089,721 107,711,182 107,987,221
Dilutive effect of stock options 150,565 964,824 202,164 744,399
------------ ------------ ------------ ------------
Average diluted common shares
outstanding 107,724,814 109,054,545 107,913,346 108,731,620
------------ ------------ ------------ ------------
Diluted earnings per share $ 0.96 $ 0.81 $ 1.48 $ 1.26
============ ============ ============ ============
</TABLE>
Options to purchase 3,090,706 shares of common stock for the three month
period ended June 30, 2000 and 2,855,796 and 500,283 shares of common stock for
the six month periods ended June 30, 2000 and 1999 respectively, were
outstanding but not included in the computation of diluted earnings per common
share because the options' exercise prices were greater than the average market
price of the common shares.
6
<PAGE> 7
THE HERTZ CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 - ACQUISITIONS
During the six months ended June 30, 2000, the Company acquired two
European and four North American equipment rental and sales companies. The
Company also acquired one European car rental company. The aggregate purchase
price of the acquisitions was $76.4 million, net of cash acquired, plus the
assumption of $28.0 million of debt. The aggregate consideration exceeded the
fair value of the net assets acquired by approximately $47.5 million, which has
been recognized as goodwill and is being amortized over periods from 25 to 40
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.
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>
Three Months Ended
June 30,
------------------
2000 1999
--------- ---------
<S> <C> <C>
Depreciation of revenue earning equipment $ 343,247 $ 310,005
Adjustment of depreciation upon disposal of the equipment (10,676) (5,952)
Rents paid for vehicles leased 3,497 4,083
--------- ---------
Total $ 336,068 $ 308,136
========= =========
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended
June 30,
2000 1999
---- ----
<S> <C> <C>
Depreciation of revenue earning equipment $ 652,518 $ 589,279
Adjustment of depreciation upon disposal of the equipment (19,200) (12,594)
Rents paid for vehicles leased 6,780 8,176
--------- ---------
Total $ 640,098 $ 584,861
========= =========
</TABLE>
Effective January 1, 2000, certain lives being used to compute the
provision for depreciation of revenue earning equipment used in the Company's
domestic industrial and construction equipment rental operations 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 and six months ended June 30, 2000 decreased $3.3
million and $7.0 million, respectively. Periodic evaluations of changes in
estimated residual values resulted in similar revisions to certain asset lives
in January 1997 and July 1994.
The adjustment of depreciation upon disposal of revenue earning equipment
for the three months ended June 30, 2000 and 1999 included net gains of $3.7
million and $6.5 million, respectively, on the sale of equipment in the
Company's industrial and construction equipment rental operations; and a net
gain of $7.0 million and a net loss of $0.5 million, respectively, in the car
rental and car leasing operations.
The adjustment of depreciation upon disposal of revenue earning equipment
for the six months ended June 30, 2000 and 1999 included net gains of $9.3
million and $12.3 million, respectively, on the sale of equipment in the
industrial and construction equipment rental operations; and net gains of $9.9
million and $.3 million, respectively, in the car rental and car leasing
operations.
During the six months ended June 30, 2000, 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 $1.4
billion.
7
<PAGE> 8
THE HERTZ CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 - DEBT
Debt at June 30, 2000 and December 31, 1999 consisted of the following
(in thousands of dollars):
<TABLE>
<CAPTION>
June 30, Dec. 31,
2000 1999
Notes payable, including commercial paper,
<S> <C> <C>
average interest rate: 2000, 6.6%; 1999, 6.0% $2,277,563 $2,082,417
Promissory notes, average interest rate:
2000, 7.1%; 1999, 6.9%; (effective average
interest rate: 2000, 7.2%; 1999, 6.9%);
net of unamortized discount: 2000, $10,389;
1999, $9,344; due 2001 to 2028 3,539,608 3,140,657
Junior subordinated promissory notes,
average interest rate 6.9%; net of unamortized
discount: 2000, $93; 1999, $115;
due 2000 to 2003 399,906 399,885
Subsidiaries' short-term debt, in dollars and foreign
currencies, including commercial paper in millions (2000, $737.7; 1999,
$482.1); and other borrowings; average interest rate:
2000, 5.3%; 1999, 4.6% 1,399,549 979,261
---------- ----------
Total $7,616,626 $6,602,220
========== ==========
</TABLE>
The aggregate amounts of maturities of debt for the twelve-month periods
following June 30, 2000 are as follows (in millions): 2001, $4,213.1 (including
$3,648.3 of commercial paper and short-term borrowings); 2002, $301.8; 2003,
$400.4; 2004, $250.4; 2005, $749.4; after 2005, $1,701.5.
At June 30, 2000, approximately $1,108 million of the Company's
consolidated stockholders' equity was free of dividend limitations pursuant to
its existing debt agreements.
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 June 30, 2000 of the swap agreements is to give the Company an overall
effective weighted-average rate on debt of 6.64%, with 47% of debt effectively
subject to variable interest rates, compared to a weighted-average interest rate
on debt of 6.63%, with 48% of debt subject to variable interest rates when not
considering the swap agreements. At June 30, 2000, these agreements expressed in
notional amounts aggregated $87.0 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 June 30, 2000, 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 receivable of $.4 million. The notional principal of $87.0
million matures as follows: $12.9, $32.5, $27.2, $13.4, and $1.0 in 2000, 2001,
2002, 2003 and 2004, respectively.
8
<PAGE> 9
THE HERTZ CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7 - STOCK-BASED COMPENSATION
The Company sponsors a stock-based incentive plan (the "Plan") covering
certain officers and other executives of the Company. The Plan is administered
by the Compensation Committee of the Board of Directors. The total number of
shares of Class A Common Stock that may be subject to awards under the Plan is
8,120,000 shares. On January 1, 2000, the Company granted an additional award of
100,000 shares of restricted stock. On February 8, 2000, the Company granted
nonqualified stock options for 1,089,400 shares of Class A Common Stock. The
options were granted at the closing market price on that day of $41.94 per
share. As of June 30, 2000, 3,064,858 shares were available for awards under the
Plan.
The Company sponsors an Employee Stock Purchase Plan (the "ESPP"). The
ESPP became effective on July 1, 1999. The ESPP allows eligible employees an
opportunity to purchase shares of Class A Common Stock through accumulated
payroll deductions at 85% of the closing price at the end of each quarterly
offering period.
During the six months ended June 30, 2000, the Company acquired 651,127
shares of its Class A Common Stock for requirements under the above Plans.
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 ("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 six months ended June
30, 2000 and 1999 are summarized below (in millions of dollars). Corporate and
other includes general corporate expenses, principally amortization of certain
intangibles and certain interest, as well as other business activities, such as
claim management and telecommunication services (in millions of dollars).
<TABLE>
<CAPTION>
Three Months Ended June 30,
---------------------------
Income (Loss)
Revenues Before Income Taxes
------------------- -------------------
2000 1999 2000 1999
<S> <C> <C> <C> <C>
Car rental and leasing (a) $ 1,044.8 $ 951.9 $ 162.3 $ 140.3
---------- ---------- --------- ---------
Industrial and construction equipment rental 235.0 201.1 9.8 16.5
Corporate and other 9.5 14.4 (3.1) (9.9)
---------- ---------- --------- ---------
Consolidated total $ 1,289.3 $ 1,167.4 $ 169.0 $ 146.9
========== ========== ========= =========
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended June 30,
-------------------------
Income (Loss)
Revenues Before Income Taxes
------------------- -------------------
2000 1999 2000 1999
<S> <C> <C> <C> <C>
Car rental and leasing (a) $ 1,965.4 $ 1,800.0 $ 255.4 $ 215.9
---------- ---------- --------- ---------
Industrial and construction equipment rental 437.1 376.7 13.8 24.6
Corporate and other 22.0 23.6 (6.9) (11.5)
---------- ---------- --------- ---------
Consolidated total $ 2,424.5 $ 2,200.3 $ 262.3 $ 229.0
========== ========== ========= =========
</TABLE>
(a) Income before income taxes includes a gain of $9.0 million in 2000 from
the condemnation of a car rental and support facility in California.
9
<PAGE> 10
THE HERTZ CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9 - COMPREHENSIVE INCOME
Accumulated other comprehensive income includes an accumulated
translation loss (in thousands of dollars) of $70,145 and $50,878 at June 30,
2000 and December 31, 1999, respectively. Comprehensive income for the three
months and six months ended June 30, 2000 and 1999 was as follows (in thousands
of dollars):
<TABLE>
<CAPTION>
Three Months Ended
June 30,
----------------
2000 1999
---- ----
<S> <C> <C>
Net income $ 103,731 $ 87,903
--------- ---------
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments (4,559) (6,385)
Unrealized gains (losses) on available-for-
sale securities 21 (162)
--------- ---------
Other comprehensive loss (4,538) (6,547)
--------- ---------
Comprehensive income $ 99,193 $ 81,356
========= =========
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended
June 30,
----------------
2000 1999
---- ----
<S> <C> <C>
Net income $ 160,031 $ 136,664
--------- ---------
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments (19,267) (24,727)
Unrealized gains (losses) on available
for-sale securities 2 (233)
--------- ---------
Other comprehensive loss (19,265) (24,960)
--------- ---------
Comprehensive income $ 140,766 $ 111,704
========= =========
</TABLE>
10
<PAGE> 11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 2000 COMPARED WITH THREE MONTHS ENDED JUNE 30, 1999
SUMMARY
The following table sets forth for the three months ended June 30, 2000 and
1999 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
June 30,
----------------------
2000 1999
---- ----
<S> <C> <C>
Revenues:
Car rental 79.2% 79.6%
Industrial and construction equipment rental 18.2 17.2
Car leasing .8 .9
Franchise fees and other revenue 1.8 2.3
----- -----
100.0 100.0
----- -----
Expenses:
Direct operating 44.2 44.4
Depreciation of revenue earning equipment 26.0 26.4
Selling, general and administrative 9.0 9.8
Interest, net of interest income 7.7 6.8
----- -----
86.9 87.4
----- -----
Income before income taxes 13.1 12.6
Provision for taxes on income 5.1 5.1
----- -----
Net income 8.0% 7.5%
===== =====
</TABLE>
The following table sets forth certain selected operating data of the
Company for the three months ended June 30, 2000 and 1999:
<TABLE>
<CAPTION>
Three Months Ended
June 30,
------------------
2000 1999
---- ----
<S> <C> <C>
Car rental and other operations:
Average number of owned cars operated
during period 371,000 332,000
Number of transactions of owned car
rental operations during period 6,626,000 6,055,000
Average revenue per transaction of owned
car rental operations during period (in whole dollars) $ 154.19 $ 153.48
Equipment rental operations:
Average cost of rental equipment operated during
period (in millions) $ 2,078 $ 1,792
</TABLE>
REVENUES
The Company achieved record revenues of $1,289.3 million in the second
quarter of 2000, which increased by 10.4% from $1,167.4 million in the second
quarter of 1999. Revenues from car rental operations of $1,021.7 million in the
second quarter of 2000 increased by $92.4 million, or 9.9% from $929.3 million
in the second quarter of 1999. The increase was primarily the result of a
worldwide increase in transactions of 9.4% that contributed $87.4 million in
increased revenue. In addition, improved revenue per transaction worldwide,
resulting from longer length rentals, contributed $27.9 million. This increase
was partially offset by a decrease of $22.9 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.
11
<PAGE> 12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
Revenues from industrial and construction equipment rental of $235.0
million in the second quarter of 2000 increased by 16.9% from $201.0 million in
the second quarter of 1999. Of this $34.0 million increase, approximately $24.5
million was due to the inclusion of businesses acquired worldwide since the
first quarter of 1999.
Revenues from all other sources of $32.6 million in the second quarter of
2000 decreased by 11.7% from $37.0 million in the second quarter of 1999,
primarily due to a decrease in telecommunications revenue.
EXPENSES
Total expenses of $1,120.3 million in 2000 increased by 9.8% from
$1,020.5 million in 1999; however, total expenses as a percentage of revenues
decreased to 86.9% in 2000 from 87.4% in 1999.
Direct operating expenses of $569.5 million in 2000 increased by 9.9%
from $518.2 million in 1999. The increase was primarily the result of the
expansion of the industrial and construction equipment rental business and
higher wages, facility costs and self insurance costs in car rental operations,
which correspond with the increase in transaction volume. These increases were
partly offset by higher recoveries of concession fees and a gain of $9.0 million
in 2000 from the condemnation of a car rental and support facility in
California.
Depreciation of revenue earning equipment for the car rental and car
leasing operations of $279.9 million in the second quarter of 2000 increased by
8.7% from $257.5 million in 1999, primarily due to an increase in the number of
cars operated worldwide. This increase was partly offset by an increase of $7.5
million in the net proceeds received in excess of book value on the disposal of
vehicles. Depreciation of revenue earning equipment for the industrial and
construction equipment rental operations of $56.2 million in 2000 increased by
11.1% from $50.6 million in 1999, primarily due to acquisitions of equipment
rental and sales companies and an increase in equipment operated. This increase
was partly offset by a reduction in depreciation of $3.3 million, due to changes
made effective January 1, 2000 to increase certain estimated useful lives being
used to compute the provision for depreciation of revenue earning equipment and
to reflect changes in the estimated residual values of the equipment. Periodic
evaluations of changes in estimated residual values resulted in similar
revisions to certain asset lives in January 1997 and July 1994.
Selling, general and administrative expenses of $115.7 million in 2000
increased by .9% from $114.7 million in 1999. The increase was primarily due to
an increase in administrative expenses. These increases were offset by a
decrease in sales promotion and advertising costs.
Interest expense of $99.0 million in 2000 increased 24.8% from $79.3
million in 1999, primarily due to higher average debt levels and an increase in
the weighted-average interest rate in the second quarter of 2000.
These increases were partly offset by higher interest income in 2000.
The tax provision of $65.3 million in 2000 increased 10.6% from $59.0
million in 1999, primarily due to the higher income before income taxes in 2000.
The effective tax rate in 2000 is 38.6% as compared to 40.2% in 1999. The
effective tax rate fluctuates due to changes in the expected levels of pre-tax
income in countries that operate with different tax rates. See Note 4 to the
Notes to the Company's consolidated financial statements.
NET INCOME
The Company achieved record second quarter net income of $103.7 million
in 2000, or $.96 per share on a diluted basis, representing an increase of 18.0%
from $87.9 million, or $.81 per share on a diluted basis, in the second quarter
of 1999. This increase was primarily due to higher revenues and improved profit
margins in worldwide car rental operations, $5.4 million from the condemnation
of a car rental facility in California, and the net effect of other contributing
factors noted above.
12
<PAGE> 13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
SIX MONTHS ENDED JUNE 30, 2000 COMPARED WITH SIX MONTHS ENDED JUNE 30, 1999
SUMMARY
The following table sets forth for the six months ended June 30, 2000
and 1999 the percentage of operating revenues represented by certain items in
the Company's consolidated statement of income:
<TABLE>
<CAPTION>
Percentage of Revenues
Six Months Ended
June 30,
2000 1999
------ ------
<S> <C> <C>
Revenues:
Car rental 79.2% 79.8%
Industrial and construction equipment rental 18.0 17.1
Car leasing .9 .9
Franchise fees and other revenue 1.9 2.2
----- -----
100.0 100.0
----- -----
Expenses:
Direct operating 45.7 45.7
Depreciation of revenue earning equipment 26.4 26.6
Selling, general and administrative 9.3 10.2
Interest, net of interest income 7.8 7.1
----- -----
89.2 89.6
----- -----
Income before income taxes 10.8 10.4
Provision for taxes on income 4.2 4.2
----- -----
Net income 6.6% 6.2%
===== =====
</TABLE>
The following table sets forth certain selected operating data of the
Company for the six months ended June 30, 2000 and 1999:
<TABLE>
<CAPTION>
Six Months Ended
June 30,
----------------
2000 1999
---- ----
<S> <C> <C>
Car rental and other operations:
Average number of owned cars operated
during period 349,000 315,000
Number of transactions of owned car
rental operations during period 12,347,000 11,347,000
Average revenue per transaction of owned
car rental operations during period (in whole dollars) $ 155.54 $ 154.80
Equipment rental operations:
Average cost of rental equipment operated
during period (in millions) $ 2,022 $ 1,741
</TABLE>
REVENUES
The Company achieved record revenues of $2,424.5 million in the first
half of 2000, which increased by 10.2% from $2,200.3 million in the first half
of 1999. Revenues from car rental operations of $1,920.5 million in the first
half of 2000 increased by $163.9 million, or 9.3% from $1,756.6 million in the
first half of 1999. The increase was primarily the result of a worldwide
increase in transactions of 8.8% that contributed $154.7 million in increased
revenue. In addition, improved revenue per transaction worldwide, resulting from
longer length rentals, contributed $49.9 million. This increase was partially
offset by a decrease of $40.7 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.
13
<PAGE> 14
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
Revenues from industrial and construction equipment rental of $437.0
million in the first half of 2000 increased by 16.1% from $376.6 million in the
second quarter of 1999. Of this $60.4 million increase, approximately $46.2
million was due to the inclusion of businesses acquired worldwide during 1999
and the first half of 2000.
Revenues from all other sources of $67.0 million in the second quarter of
2000 decreased by .2% from $67.2 million in the first half of 1999, primarily
due to a decrease in telecommunications revenue mostly offset by an increase in
car leasing revenue.
EXPENSES
Total expenses of $2,162.2 million in 2000 increased by 9.7% from
$1,971.4 million in 1999; however, total expenses as a percentage of revenues
decreased to 89.2% in 2000 from 89.6% in 1999.
Direct operating expenses of $1,108.5 million in 2000 increased by 10.1%
from $1,006.5 million in 1999. The increase was primarily the result of the
expansion of the industrial and construction equipment rental business and
higher wages and facility costs in car rental operations which correspond with
the increase in transaction volume. These increases were partly offset by higher
recoveries of concession fees and a gain of $9.0 million in 2000 from the
condemnation of a car rental and support facility in California.
Depreciation of revenue earning equipment for the car rental and car
leasing operations of $533.9 million in 2000 increased by 7.3% from $497.6
million in 1999, primarily due to an increase in the number of cars operated
worldwide. This increase was partly offset by an increase of $9.6 million in the
net proceeds received in excess of book value on the disposal of vehicles.
Depreciation of revenue earning equipment for the industrial and construction
equipment rental operations of $106.2 million in 2000 increased by 21.6% from
$87.3 million in 1999, primarily due to acquisitions of equipment rental and
sales companies and an increase in equipment operated. This increase was partly
offset by a reduction in depreciation of $7.0 million, due to changes made
effective January 1, 2000 to increase certain estimated useful lives being used
to compute the provision for depreciation of revenue earning equipment and to
reflect changes in the estimated residual values of the equipment. Periodic
evaluations of changes in estimated residual values resulted in similar
revisions to certain asset lives in January 1997 and July 1994.
Selling, general and administrative expenses of $225.3 million in 2000
increased by .8% from $223.5 million in 1999. The increase was primarily due to
an increase in administrative expenses. These increases were partly offset by a
decrease in advertising and sales promotion costs.
Interest expense of $188.3 million in 2000 increased 20.3% from $156.5
million in 1999, primarily due to higher average debt levels and an increase in
the weighted-average interest rate in the second quarter of 2000.
These increases were partly offset by higher interest income in 2000.
The tax provision of $102.3 million in 2000 increased 10.8% from $92.3
million in 1999, primarily due to the higher income before income taxes in 2000.
The effective tax rate in 2000 is 39.0% as compared to 40.3% in 1999. The
effective tax rate fluctuates due to changes in the expected levels of pre-tax
income in countries that operate with different tax rates. See Note 4 to the
Notes to the Company's consolidated financial statements.
NET INCOME
The Company achieved record net income of $160.0 million in the first
half of 2000, or $1.48 per share on a diluted basis, representing an increase of
17.1% from $136.7 million, or $1.26 per share on a diluted basis, in the first
half of 1999. This increase was primarily due to higher revenues and improved
profit margins in worldwide car rental operations, $5.4 million from the
condemnation of a car rental facility in California, and the net effect of other
contributing factors noted 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 six months ended June
30, 2000, the
14
<PAGE> 15
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
Company's expenditures for revenue earning equipment were $5.9 billion
(partially offset by proceeds from the sale of such equipment of $3.5 billion).
These assets are purchased by the Company in accordance with the terms of
programs negotiated with automobile and equipment manufacturers. In 2000, the
Company expended $76.4 million for new businesses acquired and assumed $28.0
million of related debt and invested $2.7 million in a business venture. For the
six months ended June 30, 2000, the Company's capital investments for property
and non-revenue earning equipment were $128.8 million.
To finance its domestic operations, the Company maintains an active
commercial paper program. The Company is also active in the domestic medium-term
and long-term debt markets. As the need arises, it is the Company's intention to
issue either unsecured senior, senior subordinated or junior subordinated debt
securities on terms to be determined at the time the securities are offered for
sale. The total amount of medium-term and long-term debt outstanding as of June
30, 2000 was $4.0 billion with maturities ranging from 2000 to 2028. 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 operations' local currency or, if in
non-local currency, are fully hedged to minimize foreign exchange exposure. At
June 30, 2000, the total debt for the foreign operations was $1,394 million, of
which $1,386 million was short-term (original maturity of less than one year)
and $8 million was long-term. At June 30, 2000, the total amounts outstanding
(in millions of U.S. dollars) under the Australian, Canadian and Irish
commercial paper programs were $95, $323 and $320, respectively.
At June 30, 2000, the Company had committed credit facilities totaling
$3.4 billion. Of this amount, $2.2 billion is represented by a combination of
multi-year and 364-day global committed credit facilities provided by 31
relationship banks. In addition to direct borrowings by the Company, these
facilities allow any subsidiary of the Company to borrow on the basis of a
guarantee by the Company. Effective July 1, 2000, the multi-year facilities
totaling $1,162 million were renegotiated. Currently, $63 million expires on
June 30, 2002, $137 million expires on June 30, 2003, $46 million expires on
June 30, 2004 and $916 million expires on June 30, 2005. Effective June 22,
2000, the 364-day facilities totaling $1,050 million were renegotiated and
currently expire on June 20, 2001. The multi-year facilities that expire in 2005
have an evergreen feature which provides for the automatic extension of the
expiration date one year forward unless timely notice is provided by the bank.
Under the terms of 364-day facilities totaling $975 million, the Company is
permitted 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, expiring June 30,
2002. 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 June 9, 2000, 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,
2000.
On August 1, 2000, the Board of Directors declared a quarterly dividend
of $.05 per share on its Class A and Class B Common Stock, payable on September
11, 2000 to shareholders of record as of August 16, 2000.
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.
15
<PAGE> 16
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) On May 19, 2000, the 2000 Annual Meeting of
Stockholders of the Company was held.
(b) The Company's stockholders elected Frank A. Olson,
Craig R. Koch, W. Wayne Booker, Louis C. Burnett,
Michael T. Monahan, Peter J. Pestillo, John M.
Rintamaki, John M. Thompson and Joseph A. Walker as
directors of the Company.
(c) The Company's stockholders voted for the election of
directors listed in paragraph (b) based on the
number of votes set forth opposite their respective
names:
<TABLE>
<CAPTION>
Nominee Number of Votes
--------------- ---------------
For Not For
--------------- ---------------
<S> <C> <C>
W. Wayne Booker 374,460,917 846,721
Louis C. Burnett 374,535,454 772,184
Craig R. Koch 374,461,724 845,914
Michael T. Monahan 374,535,254 772,384
Frank A. Olson 372,293,650 3,013,988
Peter J. Pestillo 374,461,685 845,953
John M. Rintamaki 374,460,954 846,684
John M. Thompson 374,536,015 771,623
Joseph A. Walker 374,460,704 846,934
</TABLE>
The Company's stockholders also adopted the proposal to ratify the selection of
PricewaterhouseCoopers LLP as independent public accountants to audit the books
of account and other corporate records of the Company for 2000. The votes for
this proposal were cast as follows: 375,294,848 votes cast for, 6,938 votes cast
against, 5,852 votes abstained and no broker non-votes.
16
<PAGE> 17
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
12 Consolidated Computation of Ratio of Earnings to Fixed
Charges for the six months ended June 30, 2000 and
1999.
27 Consolidated Financial Data Schedule for
the six months ended June 30, 2000.
(b) Reports on Form 8-K:
The Company filed a Form 8-K dated April 17, 2000
reporting the issuance of a press release with respect
to its first quarter 2000 earnings.
The Company filed a Form 8-K dated May 2, 2000
reporting the issuance of a press release with respect
to the declaration of a quarterly dividend.
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: August 11, 2000 By:/s/ Paul J. Siracusa
----------------------
Paul J. Siracusa
Executive Vice
President and
Chief Financial Officer
(principal financial
officer and duly
authorized officer)
17
<PAGE> 18
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------------
EXHIBITS
FILED WITH
FORM 10-Q
FOR THE QUARTER ENDED
JUNE 30, 2000
UNDER
THE SECURITIES EXCHANGE ACT OF 1934
---------------------------
THE HERTZ CORPORATION
COMMISSION FILE NUMBER 1-7541
18
<PAGE> 19
EXHIBIT INDEX
12 Consolidated Computation of Ratio of Earnings to Fixed
Charges for the six months ended June 30, 2000 and 1999.
27 Consolidated Financial Data Schedule for the six months ended
June 30, 2000.
19
