<PAGE> 1
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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 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)
<TABLE>
<S> <C>
DELAWARE 13-1938568
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
</TABLE>
225 BRAE BOULEVARD, PARK RIDGE, NEW JERSEY 07656-0713
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(ZIP CODE)
(201) 307-2000
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
NOT APPLICABLE
(FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR,
IF CHANGED SINCE LAST REPORT.)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of March 31, 2000: Common Stock, $0.01 par
value -- Class A, 40,443,632 shares and Class B, 67,310,167 shares.
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<PAGE> 2
PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
THE HERTZ CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS OF DOLLARS)
UNAUDITED
<TABLE>
<CAPTION>
MARCH 31, DEC. 31,
2000 1999
----------- -----------
<S> <C> <C>
ASSETS
Cash and equivalents........................................ $ 171,592 $ 208,652
Receivables, less allowance for doubtful accounts of $23,741
and $24,299............................................... 941,470 1,092,955
Due from affiliates......................................... 333,663 698,612
Inventories, at lower of cost or market..................... 62,269 57,546
Prepaid expenses and other assets........................... 129,301 120,270
Revenue earning equipment, at cost:
Cars...................................................... 6,015,461 5,277,472
Less accumulated depreciation.......................... (523,558) (515,128)
Other equipment........................................... 1,957,582 1,953,854
Less accumulated depreciation.......................... (467,696) (452,420)
----------- -----------
Total revenue earning equipment................... 6,981,789 6,263,778
----------- -----------
Property and equipment, at cost:
Land, buildings and leasehold improvements................ 820,400 806,058
Service equipment......................................... 794,728 775,010
----------- -----------
1,615,128 1,581,068
Less accumulated depreciation.......................... (683,449) (673,710)
----------- -----------
Total property and equipment...................... 931,679 907,358
----------- -----------
Goodwill and other intangible assets, net of amortization
(Note 3).................................................. 808,240 787,536
----------- -----------
Total assets...................................... $10,360,003 $10,136,707
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable............................................ $ 633,397 $ 546,111
Accrued liabilities......................................... 548,359 604,307
Accrued taxes............................................... 165,052 146,405
Debt (Note 6)............................................... 6,745,593 6,602,220
Public liability and property damage........................ 283,329 292,573
Deferred taxes on income.................................... 278,900 271,100
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................................ 982,271 982,298
Unamortized restricted stock grants....................... (7,464) (3,452)
Retained earnings......................................... 817,417 766,513
Accumulated other comprehensive income (Note 9)........... (67,226) (52,499)
Treasury stock, at cost, 513,226 shares and 420,725
shares................................................. (20,708) (19,952)
----------- -----------
Total stockholders' equity........................ 1,705,373 1,673,991
----------- -----------
Total liabilities and stockholders' equity........ $10,360,003 $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 MARCH 31,
-----------------------
2000 1999
---------- ----------
<S> <C> <C>
Revenues:
Car rental................................................ $ 898,831 $ 827,253
Industrial and construction equipment rental.............. 202,031 175,533
Car leasing............................................... 10,604 9,186
Franchise fees and other revenue.......................... 23,739 20,983
---------- ----------
Total revenues.................................... 1,135,205 1,032,955
---------- ----------
Expenses:
Direct operating.......................................... 539,001 488,288
Depreciation of revenue earning equipment (Note 5)........ 304,030 276,725
Selling, general and administrative....................... 109,613 108,753
Interest, net of interest income of $3,517 and $2,504..... 89,275 77,150
---------- ----------
Total expenses.................................... 1,041,919 950,916
---------- ----------
Income before income taxes.................................. 93,286 82,039
Provision for taxes on income (Note 4)...................... 36,986 33,278
---------- ----------
Net income.................................................. $ 56,300 $ 48,761
========== ==========
Earnings per share (Note 2):
Basic..................................................... $ .52 $ .45
========== ==========
Diluted................................................... $ .52 $ .45
========== ==========
</TABLE>
The accompanying notes are an integral part of this statement.
3
<PAGE> 4
THE HERTZ CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS OF DOLLARS)
UNAUDITED
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31,
-------------------------
2000 1999
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income................................................ $ 56,300 $ 48,761
Non-cash expenses:
Depreciation of revenue earning equipment............... 304,030 276,725
Depreciation of property and equipment.................. 31,610 30,970
Amortization of intangibles............................. 7,441 6,678
Amortization of restricted stock grants................. 1,000 1,098
Provision for public liability and property damage...... 25,364 25,934
Provision for losses for doubtful accounts.............. 6,639 1,907
Deferred income taxes................................... 7,800 3,300
Revenue earning equipment expenditures.................... (3,207,289) (2,652,135)
Proceeds from sales of revenue earning equipment.......... 2,171,978 1,884,077
Changes in assets and liabilities:
Receivables............................................. 123,629 61,069
Due from affiliates..................................... 364,949 75,789
Inventories and prepaid expenses and other assets....... (10,708) (17,042)
Accounts payable........................................ 94,656 56,328
Accrued liabilities..................................... (47,430) 6,487
Accrued taxes........................................... 16,663 34,454
Payments of public liability and property damage claims
and expenses............................................ (34,612) (37,797)
----------- -----------
Net cash used in operating activities.............. (87,980) (193,397)
----------- -----------
Cash flows from investing activities:
Property and equipment expenditures....................... (60,254) (77,767)
Proceeds from sales of property and equipment............. 6,205 10,165
Available-for-sale securities:
Purchases............................................... (2,255) (1,294)
Sales................................................... 2,108 1,470
Investment in joint venture............................... (2,700) --
Purchases of various operations, net of cash (see
supplemental disclosures below)......................... (49,000) (76,239)
----------- -----------
Net cash used in investing activities.............. (105,896) (143,665)
----------- -----------
Cash flows from financing activities:
Proceeds from issuance of long-term debt.................. 1,215 300,728
Repayment of long-term debt............................... (18,970) (100,502)
Short-term borrowings:
Proceeds................................................ 91,374 453,890
Repayments.............................................. (403,260) (461,943)
Ninety day term or less, net............................ 499,543 158,809
Cash dividends paid on common stock....................... (5,396) (5,395)
Purchases of treasury stock............................... (11,276) (2,518)
Proceeds from sale of treasury stock...................... 2,634 674
Tax benefit from employee stock compensation plans........ 2,846 378
----------- -----------
Net cash provided by financing activities.......... 158,710 344,121
----------- -----------
Effect of foreign exchange rate changes on cash............. (1,894) (1,409)
----------- -----------
Net (decrease) increase in cash and equivalents during the
period.................................................... (37,060) 5,650
Cash and equivalents at beginning of year................... 208,652 188,466
----------- -----------
Cash and equivalents at end of period....................... $ 171,592 $ 194,116
=========== ===========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest (net of amounts capitalized)................... $ 105,203 $ 90,347
Income taxes............................................ 17,809 10,001
</TABLE>
In connection with acquisitions made in the first quarter of 2000 and 1999,
liabilities assumed were $27.8 million and $39.4 million, respectively.
The accompanying notes are an integral part of this statement.
4
<PAGE> 5
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>
<CAPTION>
THREE MONTHS
ENDED MARCH 31,
---------------------------
2000 1999
------------ ------------
<S> <C> <C>
Basic earnings per share:
Net income....................................... $ 56,300 $ 48,761
------------ ------------
Average common shares outstanding................ 107,848,781 107,889,681
------------ ------------
Basic earnings per share......................... $ 0.52 $ 0.45
============ ============
Diluted earnings per share:
Net income....................................... $ 56,300 $ 48,761
------------ ------------
Average common shares outstanding................ 107,848,781 107,889,681
Dilutive effect of stock options................. 253,680 507,258
------------ ------------
Average diluted common shares outstanding........ 108,102,461 108,396,939
------------ ------------
Diluted earnings per share....................... $ 0.52 $ 0.45
============= ============
</TABLE>
For the three months ended March 31, 2000 and March 31, 1999, options to
purchase 3,054,255 shares and 997,345 shares, respectively, of common stock were
outstanding, but were not included in the computation of diluted earnings per
share because the options' exercise prices were greater than the average market
price of the common shares.
5
<PAGE> 6
THE HERTZ CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 3 -- ACQUISITIONS
During the three months ended March 31, 2000, the Company acquired one
European and three U.S. equipment rental and sales companies. The aggregate
purchase price of the acquisitions was $49.0 million, net of cash acquired, plus
the assumption of $18.1 million of debt. The aggregate consideration exceeded
the fair value of the net assets acquired by approximately $30.7 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
MARCH 31,
-------------------
2000 1999
-------- --------
<S> <C> <C>
Depreciation of revenue earning equipment................... $309,271 $279,274
Adjustment of depreciation upon disposal of the equipment... (8,524) (6,642)
Rents paid for vehicles leased.............................. 3,283 4,093
-------- --------
Total............................................. $304,030 $276,725
======== ========
</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 months ended March 31, 2000 decreased $3.7 million.
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 March 31, 2000 and 1999 included net gains of $5.7
million and $5.9 million, respectively, on the sale of equipment in the
Company's industrial and construction equipment rental operations; and net gains
of $2.8 million and $.7 million, respectively, in the car rental and car leasing
operations.
During the three months ended March 31, 2000, the Company purchased Ford
vehicles at a cost of approximately $1.3 billion, and sold Ford vehicles to Ford
or its affiliates under various repurchase programs for approximately $.8
billion.
6
<PAGE> 7
THE HERTZ CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 6 -- DEBT
Debt at March 31, 2000 and December 31, 1999 consisted of the following (in
thousands of dollars):
<TABLE>
<CAPTION>
MARCH 31, DEC. 31,
2000 1999
---------- ----------
<S> <C> <C>
Notes payable, including commercial paper, average interest
rate: 6.0%................................................ $2,129,642 $2,082,417
Promissory notes, average interest rate:
6.9%, net of unamortized discount:
2000, $8,949; 1999, $9,344; due 2000 to 2028.............. 3,141,051 3,140,657
Junior subordinated promissory notes, average interest rate
6.9%; net of unamortized discount: 2000, $104; 1999, $115;
due 2000 to 2003.......................................... 399,896 399,885
Subsidiaries' short-term debt, in dollars and foreign
currencies, including commercial paper in millions (2000,
$566.5; 1999, $482.1); and other borrowings; average
interest rate:
2000, 4.5%; 1999, 4.6%.................................... 1,075,004 979,261
---------- ----------
Total............................................. $6,745,593 $6,602,220
========== ==========
</TABLE>
The aggregate amounts of maturities of debt for the twelve-month periods
following March 31, 2000 are as follows (in millions): 2001, $3,594.7 (including
$3,164.6 of commercial paper and short-term borrowings); 2002, $252.2; 2003,
$700.3; 2004, $250.3; 2005, $250.2, after 2005, $1,697.9.
At March 31, 2000, approximately $1,038 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 March 31, 2000 of the swap agreements is to give the Company an
overall effective weighted-average rate on debt of 6.28%, with 46% of debt
effectively subject to variable interest rates, compared to a weighted-average
interest rate on debt of 6.27%, with 47% of debt subject to variable interest
rates when not considering the swap agreements. At March 31, 2000, these
agreements expressed in notional amounts aggregated $80.5 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 March 31, 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 $1.0 million. The notional principal of $80.5
million matures as follows: $19.8, $30.8, $26.6, $3.0, and $.3 in 2000, 2001,
2002, 2003 and 2004, respectively.
7
<PAGE> 8
THE HERTZ CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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
8,120,026 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 1,090,800 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 March 31, 2000, 3,040,127 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 three months ended March 31, 2000, the Company acquired 293,572
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 ended March 31, 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 MARCH 31,
------------------------------------
INCOME (LOSS)
BEFORE INCOME
REVENUES TAXES
------------------- -------------
2000 1999 2000 1999
-------- -------- ----- -----
<S> <C> <C> <C> <C>
Car rental and leasing................................... $ 920.6 $ 848.0 $93.1 $75.6
Industrial and construction equipment rental............. 202.1 175.7 4.0 8.1
Corporate and other...................................... 12.5 9.3 (3.8) (1.7)
-------- -------- ----- -----
Consolidated total..................................... $1,135.2 $1,033.0 $93.3 $82.0
======== ======== ===== =====
</TABLE>
NOTE 9 -- COMPREHENSIVE INCOME
Accumulated other comprehensive income includes an accumulated translation
loss (in thousands of dollars) of $65,586 and $50,878 at March 31, 2000 and
December 31, 1999, respectively. Comprehensive income for the three months ended
March 31, 2000 and 1999 was as follows (in thousands of dollars):
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------
2000 1999
-------- --------
<S> <C> <C>
Net income.................................................. $56,300 $48,761
------- -------
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments.................. (14,708) (18,342)
Unrealized losses on available-for-sale securities........ (19) (71)
------- -------
Other comprehensive loss............................... (14,727) (18,413)
------- -------
Comprehensive income........................................ $41,573 $30,348
======= =======
</TABLE>
8
<PAGE> 9
THE HERTZ CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Three Months ended March 31, 2000 Compared with Three Months ended March
31, 1999
SUMMARY
The following table sets forth for the three months ended March 31, 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
MARCH 31,
----------------------
2000 1999
------- -------
<S> <C> <C>
Revenues:
Car rental................................................ 79.2% 80.1%
Industrial and construction equipment rental.............. 17.8 17.0
Car leasing............................................... .9 .9
Franchise fees and other revenue.......................... 2.1 2.0
----- -----
100.0 100.0
----- -----
Expenses:
Direct operating.......................................... 47.5 47.3
Depreciation of revenue earning equipment................. 26.8 26.8
Selling, general and administrative....................... 9.6 10.5
Interest, net of interest income.......................... 7.9 7.5
----- -----
91.8 92.1
----- -----
Income before income taxes.................................. 8.2 7.9
Provision for taxes on income............................... 3.2 3.2
----- -----
Net income.................................................. 5.0% 4.7%
===== =====
</TABLE>
The following table sets forth certain selected operating data of the
Company for the three months ended March 31, 2000 and 1999:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------------------------
2000 1999
---------- ----------
<S> <C> <C>
Car rental and other operations:
Average number of owned cars operated during period....... 326,000 297,000
Number of transactions of owned car rental operations
during period.......................................... 5,720,000 5,292,000
Average revenue per transaction of owned car rental
operations during period (in whole dollars)............ $ 157.13 $ 156.31
Equipment rental operations:
Average cost of rental equipment operated during period
(in millions).......................................... $ 1,950 $ 1,685
</TABLE>
REVENUES
The Company achieved record revenues of $1,135.2 million in the first
quarter of 2000, which increased by 9.9% from $1,033.0 million in the first
quarter of 1999. Revenues from car rental operations of $898.8 million in the
first quarter of 2000 increased by $71.6 million, or 8.7% from $827.3 million in
the first quarter of 1999. The increase was primarily the result of a worldwide
increase in transactions of 8.1% that contributed $67.2 million in increased
revenue. In addition, improved revenue per transaction worldwide, resulting
from longer length rentals, contributed $22.2 million. This increase was
partially offset by a decrease of $17.8 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.
9
<PAGE> 10
THE HERTZ CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Revenues from industrial and construction equipment rental of $202.0
million in the first quarter of 2000 increased by 15.1% from $175.5 million in
the first quarter of 1999. Of this $26.5 million increase, approximately $19.7
million was due to the inclusion of businesses acquired worldwide during 1999
and the first quarter of 2000.
Revenues from all other sources of $34.3 million in the first quarter of
2000 increased by 13.8% from $30.2 million in the first quarter of 1999,
primarily due to an increase in telecommunications revenue.
EXPENSES
Total expenses of $1,041.9 million in 2000 increased by 9.6% from $950.9
million in 1999; however, total expenses as a percentage of revenues decreased
to 91.8% in 2000 from 92.1% in 1999.
Direct operating expenses of $539.0 million in 2000 increased by 10.4% from
$488.3 million in 1999. The increase was primarily due to higher wages and
benefits, facility costs, fuel costs, and other equipment rental operating costs
due to the expansion of the industrial and construction equipment rental
business.
Depreciation of revenue earning equipment for the car rental and car
leasing operations of $254.0 million in 2000 increased by 5.8% from $240.1
million in 1999, primarily due to an increase in the number of cars operated
worldwide. Depreciation of revenue earning equipment for the industrial and
construction equipment rental operations of $50.0 million in 2000 increased by
36.6% from $36.6 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 $3.7 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 $109.6 million in 2000
increased by .8% from $108.8 million in 1999. The increase was primarily due to
an increase in administrative and sales promotion expenses. These increases were
offset by a decrease in advertising costs.
Interest expense of $89.3 million in 2000 increased 15.7% from $77.2
million in 1999, primarily due to higher average debt levels and an increase in
the weighted-average interest rate in 2000.
The tax provision of $37.0 million in 2000 increased 11.1% from $33.3
million in 1999, primarily due to the higher income before income taxes in 2000.
The effective tax rate in 2000 is 39.6% as compared to 40.6% in 1999. See Note 4
to the Notes to the Company's consolidated financial statements.
NET INCOME
The Company achieved record first quarter net income of $56.3 million in
2000, or $.52 per share on a diluted basis, representing an increase of 15.5%
from $48.8 million, or $.45 per share on a diluted basis, in the first quarter
of 1999. This increase was primarily due to higher revenues and improved profit
margins in worldwide car rental operations 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 three months ended
March 31, 2000, the Company's expenditures for revenue earning equipment were
$3.2 billion (partially offset by proceeds from the sale of such equipment of
$2.2 billion). These assets are purchased by the Company in accordance with the
terms of programs negotiated with automobile and equipment manufacturers. In the
first quarter, the Company expended $49.0 million for new businesses acquired
and assumed $18.1 million of related debt and invested $2.7 million in a
business venture. For the three months ended March 31, 2000, the Company's
capital investments for property and non-revenue earning equipment were $60.3
million.
10
<PAGE> 11
THE HERTZ CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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 March
31, 2000 was $3.6 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
March 31, 2000, the total debt for the foreign operations was $1,070 million, of
which $1,065 million was short-term (original maturity of less than one year)
and $5 million was long-term. At March 31, 2000, the total amounts outstanding
(in millions of U.S. dollars) under the Australian, Canadian and Irish
commercial paper programs were $98, $214 and $254 respectively.
At March 31, 2000, the Company had committed credit facilities totaling
$3.2 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 February 9, 2000, the multi-year facilities
totaling $1,151 million were renegotiated. Currently, $63 million expires on
June 30, 2002, $137 million expires on June 30, 2003, and $951 million expires
on June 30, 2004. The 364-day facilities totaling $1,062 million expire on June
21, 2000. The multi-year facilities that expire in 2004 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 $987 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,
2001. 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, 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 February
15, 2000.
On April 21, 2000, the Board of Directors declared a quarterly dividend of
$.05 per share on its Class A and Class B Common Stock, payable on June 9, 2000
to shareholders of record as of May 15, 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, remains 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.
11
<PAGE> 12
PART II -- OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
10 Material Contracts. Employment Agreement between the Company and
Brian J. Kennedy.
27 Consolidated Financial Data Schedule for the three months ended
March 31, 2000.
(b) Reports on Form 8-K:
The Company filed a Form 8-K dated January 20, 2000 reporting the
issuance of a press release with respect to its fourth quarter and full
year 1999 earnings.
The Company filed a Form 8-K dated February 8, 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)
By: /s/ PAUL J. SIRACUSA
--------------------------------------
Paul J. Siracusa
Executive Vice President and
Chief Financial Officer
(principal financial officer and
duly authorized officer)
Date: May 12, 2000
12
<PAGE> 13
COMMISSION FILE NUMBER 1-7541
- - - - - - - - --------------------------------------------------------------------------------
- - - - - - - - --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
EXHIBITS
FILED WITH
FORM 10-Q
FOR THE QUARTER ENDED
MARCH 31, 2000
UNDER
THE SECURITIES EXCHANGE ACT OF 1934
------------------------
THE HERTZ CORPORATION
COMMISSION FILE NUMBER 1-7541
- - - - - - - - --------------------------------------------------------------------------------
- - - - - - - - --------------------------------------------------------------------------------
13
<PAGE> 14
EXHIBIT INDEX
<TABLE>
<C> <S>
10 Material Contracts. Employment Agreement between the Company
and Brian J. Kennedy.
27 Consolidated Financial Data Schedule for the three months
ended March 31, 2000.
</TABLE>
14
<PAGE> 1
EXHIBIT 10
EMPLOYMENT AGREEMENT
AGREEMENT, dated as of February 29, 2000 between The Hertz Corporation, a
Delaware corporation (the "Corporation"), and Brian J. Kennedy, (the
"Executive").
WHEREAS, the Corporation currently employs the Executive in the capacity of
Executive Vice President, Marketing and Sales, of The Hertz Corporation, and the
Executive is a key executive officer of the Corporation; and
WHEREAS, the Corporation desires that the Executive continue in the employ
of the Corporation in his present position, or other senior executive position,
and the Executive desires to continue to be so employed, and both parties are
willing to make a commitment to continue this employment relationship for the
term of this Agreement, as set forth in Section 2 hereof (the "Term");
NOW, THEREFORE, in consideration of the mutual promises contained herein
and other good and valuable consideration, the parties hereby agree as follows:
1. EMPLOYMENT.
The Corporation hereby agrees to continue to employ and engage the services
of the Executive during the Term as an executive officer of the Corporation and
the Executive agrees to serve the Corporation in such capacity and position
during the Term.
2. TERM.
The Term shall consist of a period commencing on the date hereof and ending
on February 12, 2001, unless terminated earlier pursuant to Section 5 hereof;
provided however, that in no event shall the term of this Agreement extend
beyond the Executive's normal retirement date under the Corporation's retirement
policies existing on the date hereof or under any policy established for the
Executive with his consent.
3. POSITION AND DUTIES.
(a) At the present time, Executive is Executive Vice President, Marketing
and Sales, of the Corporation. During the Term, the Executive's position, duties
and responsibilities shall be those of a senior executive of the Corporation,
recognizing that, notwithstanding any provision of the Agreement to the
contrary, the Corporation shall have the absolute right to modify or change the
position, duties, responsibilities and title of the Executive in any respect;
provided, however, that the Executive shall continue to be employed in a senior
executive capacity during the Term.
(b) The Executive agrees to devote his full business time during normal
business hours to the business and affairs of the Corporation and to use his
best efforts to promote the interests of the Corporation and to perform
faithfully and efficiently the responsibilities assigned to him in accordance
with the terms of this Agreement, to the extent necessary to discharge such
responsibilities, except for (i) services on corporate, civic or charitable
boards or committees not significantly interfering with the performance of such
responsibilities and (ii) periods of vacation and sick leave to which he is
entitled. It is expressly understood and agreed that the Executive's continuing
service on any boards and committees with which he shall be connected, as a
member or otherwise, as of the date hereof, or any such service approved by the
Corporation during the term of employment, shall not be deemed to interfere with
the performance of the Executive's services for the Corporation pursuant to this
paragraph (b).
1
<PAGE> 2
(c) During the Term and so long as any payments are being made under
Section 4 hereof, the Executive shall refrain from engaging in any activity that
is directly or indirectly in competition with any activity, or is inimical to
the bests interests, of the Corporation or any of its subsidiaries or
affiliates.
4. COMPENSATION AND OTHER TERMS OF EMPLOYMENT.
(a) Base Salary. During the Term, the Executive shall receive an annual
base salary ("Base Salary"), payable in equal installments not less frequently
than twice per month, at an annual rate at least equal to the aggregate annual
base salary payable to the Executive by the Corporation and any of its
affiliated companies as of the date hereof. The Base Salary shall be reviewed
and may be increased at any time and from time to time in accordance with the
Corporation's regular practices. Any increase in the Base Salary shall not serve
to limit or reduce any other obligation of the Corporation hereunder, and after
any such increase the Base Salary shall not be reduced from such increased level
during the Term. As used in this Agreement, the term "affiliated companies"
shall mean any company (or other business entity) controlling, controlled by, or
under common control with the Corporation.
(b) Incentive Compensation. As further compensation, the Executive will be
eligible for awards ("Incentive Compensation") under the Corporation's bonus and
incentive compensation plans determined on no less favorable a basis than those
provided to the Executive under such plans as in effect as of the date hereof.
(c) Retirement, Savings and Stock Option Plans. In addition to the Base
Salary and Incentive Compensation payable as hereinabove provided, during the
Term the Executive shall be entitled to participate in all savings, stock
option, retirement and employee welfare and benefit plans and programs, and
fringe benefit, vacation, sick leave, insurance and perquisite policies, on a
basis providing him with the opportunity to receive aggregate compensation and
benefits, on a before-tax basis, not less favorable than those provided by the
Corporation and its affiliated companies to the Executive under such plans,
programs and policies as in effect as of the date hereof. Nothing herein shall
be construed to prevent the Corporation or such affiliated companies from
amending or altering any such plans or programs so long as the Executive
continues to have the opportunity to receive aggregate compensation and
benefits, on a before tax basis, at a level not less favorable than those
currently provided. All existing agreements between the Corporation and the
Executive providing for special pension, retirement or similar benefits are
automatically continued for the Term. Any rights to benefits which become vested
under the terms of such plans, programs, policies and agreements but which are
to be paid or provided in future periods shall continue to be so vested
notwithstanding the prior termination of this Agreement.
(d) Expenses. During the Term the Executive shall be entitled to receive
prompt reimbursement for all reasonable expenses incurred by the Executive in
accordance with the policies and procedures of the Corporation in effect as of
the date hereof or as they may be amended from time to time.
5. TERMINATION.
(a) Death. Except for the obligations of the Corporation set forth in
Section 4(c) hereof, this Agreement shall terminate automatically upon the
Executive's death. All benefits and compensation then accrued hereunder, and
under any plans provided for under Section 4(c) hereof, shall be paid to the
Executive's beneficiaries, legal representatives, or heirs as appropriate.
2
<PAGE> 3
(b) Disability. If, as a result of the Executive's incapacity due to
physical or mental illness the Executive shall have been absent from the
full-time performance of his duties with the Corporation for six (6) consecutive
months, and within thirty (30) days after written notice of termination is given
the Executive shall not have returned to the full-time performance of his
duties, the Executive's employment may be terminated for disability. During such
period of absence, the Executive shall continue to receive the benefits provided
in Section 4 hereof and thereafter the Executive's benefits shall be determined
under the Corporation's disability insurance plans and policies provided under
Section 4(c) hereof.
(c) Cause. The Corporation may terminate the Executive's employment for
Cause. For purposes of this Agreement, "Cause" shall mean (i) an act or acts of
dishonesty on the Executive's part which are intended to result in his
substantial personal enrichment at the expense of the Corporation or the
Executives conviction of a felony; (ii) any material violation by the Executive
of his responsibilities set forth in Section 3 hereof; or (iii) any material
breach of any provision of this agreement by Executive. If the Executive's
employment is terminated for Cause, the Corporation shall pay the Executive his
full accrued Base Salary through the date of such termination at the rate in
effect at the time of such termination, and the Corporation shall have no
further obligations to the Executive under this Agreement. The Executive's
employment shall not be terminated for Cause unless there shall have been
delivered to the Executive a resolution duly adopted by the Board of Directors
of the Corporation at a meeting of the Board which the Executive, together with
his counsel, has an opportunity upon reasonable notice to attend and to address
the Board, such resolution setting forth with particularity the basis for
terminating the Executive for Cause.
(d) Retirement. The Executive may terminate his employment hereunder by
retirement, including early retirement, during the Term of the Agreement, under
the Corporation's retirement policies existing on the date hereof or under any
policy established for the Executive with his consent, provided that the
Corporation consents to such retirement action.
6. NON-EXCLUSIVITY OF RIGHTS.
Nothing in this Agreement shall prevent or limit the Executive's continuing
or future participation in any benefit, bonus, incentive or other plan or
program provided by the Corporation or any of its affiliated companies and for
which the Executive may qualify, nor shall anything herein limit or otherwise
affect such rights as the Executive may have under any stock option or other
agreements with the Corporation or any of its affiliated companies, unless this
Agreement is terminated for breach of the provisions contained in Section 3(c)
hereof. Amounts which are vested benefits under any plan or program of the
Corporation or any of its affiliated companies shall be payable in accordance
with the terms of such plan or program.
7. NO SET-OFF; LEGAL FEES.
The Corporation's obligation to make the payments provided for herein and
otherwise to perform its obligations hereunder shall not be affected by any
circumstances, including without limitation any set-off, counterclaim,
recoupment, defense or other right which the Corporation may have against the
Executive or others unless this Agreement is terminated for cause for breach of
the conditions set forth in Section 3(c) hereof. Unless it is finally determined
by a court of competent jurisdiction that the Corporation has validly terminated
the Executive's employment for Cause, the Corporation agrees to pay, to the full
extent permitted by law, all legal fees and expenses which the Executive may
reasonably incur in defending any contest by the Corporation or others of the
validity or enforceability of, or liability under, any provision of this
Agreement, plus interest on the total unpaid amount determined to be payable
hereunder, for the period commencing on the date of such contest and ending on
the date on which the Corporation shall pay such total amount, provided
Executive prevails in such contest.
3
<PAGE> 4
8. RECEIPT OF CERTAIN BENEFITS.
It is the mutual intention of the Corporation and the Executive that the
Executive shall receive the full benefit of those compensation plans and
programs of the Corporation, including its retirement and pension plans and
programs, being provided pursuant to Section 4 hereof which provide for benefits
payable over periods beyond the particular year of employment ("Long-Term
Plans"). Accordingly, the parties intend that, in the event of any breach by the
Corporation of the terms hereof, damages for such breach shall include
consequential damages for the loss of any benefits under such Long-Term Plans,
which benefits would have become payable under such plans had the Executive
completed the Term remaining at the time of such breach but which are not
payable under such plans by reason of such breach.
9. CONFIDENTIAL INFORMATION.
The Executive shall hold in a fiduciary capacity for the benefit of the
Corporation all secret or confidential information, knowledge or data relating
to the Corporation, Ford Motor Company, or any of their subsidiaries or
affiliates, and their respective businesses, which shall have been obtained by
the Executive during his employment by the Corporation or any of its affiliated
companies and which shall not be public knowledge. During and after the end of
the term of employment, the Executive shall not, without the prior written
consent of the Corporation, communicate or divulge any such information,
knowledge or data to anyone other than the Corporation and those designated by
it.
10. NO ASSIGNMENT; ASSUMPTION.
This Agreement is personal to the Executive and without the prior written
consent of the Corporation shall not be assignable by the Executive other than
by will or the laws of descent and distribution. This Agreement shall inure to
the benefit of and be enforceable by the Executive's legal representatives. This
Agreement shall be binding upon any successor to the business or assets of the
Corporation which assumes this Agreement expressly, by operation of law or
otherwise.
11. MISCELLANEOUS.
(a) This Agreement shall be governed by and construed in accordance with
the laws of the State of Delaware, without reference to principles of conflict
of laws. The captions of this Agreement are not part of the provisions hereof
and shall have no force or effect. This Agreement may not be amended or modified
other than by a written agreement executed by the parties hereto or their
respective successors and legal representatives.
(b) All notices and other communications hereunder shall be in writing and
shall be given by hand delivery to the other party or by registered or certified
mail, return receipt requested, postage prepaid, addressed as follows:
If to the Executive:
163 Bay Lane
Water Mill, New York 11976
If to the Corporation:
225 Brae Boulevard
Park Ridge, New Jersey 07656
Attention: General Counsel
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice and communications shall be effective
when actually received by the addressee.
4
<PAGE> 5
(c) The invalidity or unenforceability of any provision of this Agreement
shall not affect the validity or enforceability of any other provision of this
Agreement.
(d) The Corporation may withhold from any amounts payable under this
Agreement such federal, state or local taxes as shall be required to be withheld
pursuant to any applicable law or regulation.
12. INTEGRATION AND SUPERSESSION.
This Agreement contains the entire understanding of the parties hereto with
respect to the subject matter hereof. Upon execution by both parties, this
Agreement shall supersede and replace all prior agreements.
IN WITNESS WHEREOF, the Corporation has caused this Agreement to be signed
in its corporate name and its corporate seal to be hereunto affixed and to be
attested by its Secretary or one of its Assistant Secretaries, and the Executive
has hereunto set his hand, all as of the day and year first above written.
--------------------------------------
Executive
THE HERTZ CORPORATION
By
--------------------------------------
Its
--------------------------------------
ATTEST:
- - - - - - - - --------------------------------------
Secretary
(SEAL)
5
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