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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 SEPTEMBER 30, 2002
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.)
THE REGISTRANT MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTION H(1)(A) AND
(B) OF FORM 10-Q AND IS THEREFORE FILING THIS FORM WITH THE REDUCED DISCLOSURE
FORMAT AS PERMITTED.
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 by check mark whether the Registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
Indicate the number of shares outstanding of each of the Registrant's classes of
common stock, as of September 30, 2002: Common Stock, $0.01 par value - 100
shares.
1
THE HERTZ CORPORATION AND SUBSIDIARIES
INDEX
Page
----
PART I. FINANCIAL INFORMATION
ITEM 1. Condensed Consolidated Financial Statements
Report of Independent Accountants................................................. 3
Consolidated Balance Sheet as of September 30, 2002
and December 31, 2001............................................................ 4
Consolidated Statement of Operations for the
three months ended September 30, 2002 and 2001................................... 5
Consolidated Statement of Operations for the
nine months ended September 30, 2002 and 2001.................................... 6
Consolidated Statement of Cash Flows for the
nine months ended September 30, 2002 and 2001.................................... 7
Notes to Condensed Consolidated Financial Statements.............................. 8 - 13
ITEM 2. Management's discussion and Analysis of Financial
Condition and Results of Operations.............................................. 14 - 19
ITEM 4. Controls and Procedures........................................................... 19
PART II. OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K.................................................. 20
SIGNATURES..................................................................................... 20
CERTIFICATIONS................................................................................. 21 - 22
EXHIBIT INDEX.................................................................................. 23
2
PART I - FINANCIAL INFORMATION
ITEM I. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
REPORT OF INDEPENDENT ACCOUNTANTS
To The Hertz Corporation:
We have reviewed the accompanying condensed consolidated balance sheet of The
Hertz Corporation (an indirect, wholly owned subsidiary of Ford Motor Company)
and its subsidiaries as of September 30, 2002, the related condensed
consolidated statement of operations for each of the three-month and nine month
periods ended September 30, 2002 and 2001, and the condensed consolidated
statement of cash flows for each of the nine month periods ended September 30,
2002 and 2001. These financial statements are the responsibility of the
Company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying condensed consolidated interim financial statements
for them to be in conformity with accounting principles generally accepted in
the United States of America.
We previously audited in accordance with auditing standards generally accepted
in the United States of America, the consolidated balance sheet as of December
31, 2001, and the related consolidated statements of income, stockholder's
equity and cash flows for the year then ended (not presented herein), and in our
report dated January 14, 2002, we expressed an unqualified opinion on those
consolidated financial statements. In our opinion, the information set forth in
the accompanying consolidated balance sheet as of December 31, 2001, is fairly
stated in all material respects in relation to the consolidated balance sheet
from which it has been derived.
PRICEWATERHOUSECOOPERS LLP
Florham Park, New Jersey
October 11, 2002
3
THE HERTZ CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS OF DOLLARS)
UNAUDITED
ASSETS
September 30, Dec. 31,
2002 2001
------------- -------------
Cash and equivalents $ 730,704 $ 213,997
Receivables, less allowance for
doubtful accounts of $40,129 and $38,886 1,028,678 919,041
Due from affiliates 109,215 143,302
Inventories, at lower of cost or market 72,156 65,881
Prepaid expenses and other assets 137,102 103,727
Revenue earning equipment, at cost:
Cars 6,689,740 5,821,722
Less accumulated depreciation (632,815) (601,318)
Other equipment 2,320,006 2,396,295
Less accumulated depreciation (833,559) (764,975)
------------- -------------
Total revenue earning equipment 7,543,372 6,851,724
------------- -------------
Property and equipment, at cost:
Land, buildings and leasehold improvements 1,106,083 1,013,376
Service equipment 994,427 917,118
------------- -------------
2,100,510 1,930,494
Less accumulated depreciation (993,417) (874,593)
------------- -------------
Total property and equipment 1,107,093 1,055,901
------------- -------------
Goodwill and other intangible assets (Note 3) 516,011 804,840
------------- -------------
Total assets $ 11,244,331 $ 10,158,413
============= =============
LIABILITIES AND STOCKHOLDER'S EQUITY
Accounts payable $ 623,020 $ 457,991
Accrued liabilities 800,186 655,288
Accrued taxes 106,641 72,077
Debt (Note 7) 7,082,981 6,314,032
Public liability and property damage 345,071 315,845
Deferred taxes on income 413,900 358,800
Stockholder's equity (Note 2):
Common Stock, $0.01 par value,
3,000 shares authorized, 100 shares issued - -
Additional capital paid-in 983,132 983,132
Retained earnings 936,602 1,105,083
Accumulated other comprehensive loss (Note 9) (47,202) (103,835)
------------- -------------
Total stockholder's equity 1,872,532 1,984,380
------------- -------------
Total liabilities and stockholder's equity $ 11,244,331 $ 10,158,413
============= =============
The accompanying notes are an integral part of this statement.
4
THE HERTZ CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS OF DOLLARS)
UNAUDITED
Three Months
Ended September 30,
---------------------------------
2002 2001
---------- ----------
Revenues:
Car rental $1,153,454 $1,077,526
Industrial and construction equipment rental 243,485 270,010
Other 19,666 21,690
---------- ----------
Total revenues 1,416,605 1,369,226
---------- ----------
Expenses:
Direct operating 644,955 690,422
Depreciation of revenue earning equipment (Note 6) 395,777 399,125
Selling, general and administrative 114,716 118,322
Interest, net of interest income of $3,548 and $1,503 98,721 107,171
---------- ----------
Total expenses 1,254,169 1,315,040
---------- ----------
Income before income taxes 162,436 54,186
Provision for taxes on income (Note 5) 54,341 28,667
---------- ----------
Net income $ 108,095 $ 25,519
========== ==========
The accompanying notes are an integral part of this statement.
5
THE HERTZ CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS OF DOLLARS)
UNAUDITED
Nine months
Ended September 30,
----------------------------------
2002 2001
----------- -----------
Revenues:
Car rental $ 3,052,745 $ 3,008,867
Industrial and construction equipment rental 662,994 755,254
Other 52,180 71,472
----------- -----------
Total revenues 3,767,919 3,835,593
----------- -----------
Expenses:
Direct operating 1,838,197 1,932,037
Depreciation of revenue earning equipment (Note 6) 1,113,165 1,091,987
Selling, general and administrative 356,284 365,506
Interest, net of interest income of $7,344 and $6,597 273,043 311,876
----------- -----------
Total expenses 3,580,689 3,701,406
----------- -----------
Income before income taxes 187,230 134,187
Provision for taxes on income (Note 5) 61,711 53,401
----------- -----------
Income before cumulative effect of change in accounting principle 125,519 80,786
Cumulative effect of change in accounting principle (Note 3) (294,000) -
----------- -----------
Net income (loss) $ (168,481) $ 80,786
=========== ===========
The accompanying notes are an integral part of this statement.
6
THE HERTZ CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS OF DOLLARS)
UNAUDITED
Nine months
Ended September 30,
----------------------------------
2002 2001
----------- -----------
Cash flows from operating activities:
Net income (loss) $ (168,481) $ 80,786
Cumulative effect of change in accounting principle 294,000 -
Adjustments to reconcile net income (loss)
to net cash used in operating activities (122,765) (530,756)
----------- -----------
Net cash provided by (used in) operating activities 2,754 (449,970)
----------- -----------
Cash flows from investing activities:
Property and equipment expenditures (175,768) (202,695)
Proceeds from sales of property and equipment 21,346 25,892
Available-for-sale securities:
Purchases (2,983) (6,392)
Sales 2,585 5,861
Changes in investment in joint venture 3,080 1,160
Purchases of various operations, net of cash
(see supplemental disclosure below) - (3,026)
----------- -----------
Net cash used in investing activities (151,740) (179,200)
----------- -----------
Cash flows from financing activities:
Proceeds from issuance of long-term debt 801,716 1,461,669
Repayment of long-term debt (411,508) (415,053)
Short-term borrowings:
Proceeds 557,573 786,332
Repayments (295,553) (606,032)
Ninety day term or less, net (504) (552,440)
Cash dividends paid on common stock - (16,185)
Proceeds from sale of treasury stock - 9,995
----------- -----------
Net cash provided by financing activities 651,724 668,286
----------- -----------
Effect of foreign exchange rate changes on cash 13,969 (61)
----------- -----------
Net increase in cash and equivalents during the period 516,707 39,055
Cash and equivalents at beginning of year 213,997 206,477
----------- -----------
Cash and equivalents at end of period $ 730,704 $ 245,532
=========== ===========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest (net of amounts capitalized) $ 288,230 $ 330,457
Income taxes 12,155 120,071
In connection with acquisitions made in the first nine months of 2001,
liabilities assumed were $13 million.
The accompanying notes are an integral part of this statement.
7
THE HERTZ CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED
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, 2001, filed by the registrant (the "Company") with the
Securities and Exchange Commission on March 27, 2002, has been followed in
preparing the accompanying consolidated financial statements.
The condensed consolidated financial statements for interim periods
included herein have been reviewed, but not audited, by the Company's
independent accountants. In the Company's opinion, all adjustments (which
include 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.
Certain prior year amounts have been reclassified to conform to the
current year presentation.
NOTE 2 - ACQUISITION OF SHARES OWNED BY PUBLIC STOCKHOLDERS
On March 9, 2001, Ford FSG, Inc., ("FSG"), an indirect wholly owned
subsidiary of Ford Motor Company ("Ford") that owned an approximate 81.5%
economic interest in the Company, completed its acquisition of all of the
Company's outstanding Class A Common Stock that FSG did not already own for
$35.50 per share, or approximately $735 million. The acquisition was
accomplished through a cash tender offer followed by a merger of a wholly owned
subsidiary of FSG with and into the Company, with the Company surviving the
merger (the "Merger").
The Company recognized $9.7 million of expenses associated with the
Merger in the first quarter of 2001. FSG's cost of acquiring the Company's
minority interest and the amortization expense related to acquired intangible
assets are not reflected in the accompanying condensed consolidated financial
statements. After the Merger, all outstanding shares of Class A Common Stock of
the Company were owned by FSG, and all shares of Class A Common Stock of the
Company previously held by the Company as treasury stock, along with all shares
of Class B Common Stock of the Company owned by a wholly owned subsidiary of
FSG, were cancelled. The Merger had no effect on the outstanding obligations
(including debt obligations, leases and guarantees) of the Company.
As a result of the Merger, the Company became an indirect wholly owned
subsidiary of Ford and the Company's Class A Common Stock was no longer traded
on the New York Stock Exchange. However, because certain of the Company's debt
securities were sold through public offerings, the Company continues to file
periodic reports under the Securities Exchange Act of 1934.
NOTE 3 - ACCOUNTING CHANGE
In June 2001, the Financial Accounting Standards Board ("FASB") issued
Statements of Financial Accounting Standards ("SFAS") No. 141 "Business
Combinations" and No. 142 "Goodwill and Other Intangible Assets". SFAS No. 141
addresses financial accounting and reporting for business combinations and
requires all business combinations initiated after June 30, 2001 to be accounted
for using one method, the purchase method. SFAS No. 142 addresses financial
accounting for acquired goodwill and other intangible assets and how such assets
should be accounted for in financial statements upon their acquisition and after
they have been initially recognized in the financial statements. Under SFAS No.
142, goodwill is no longer amortized, but instead must be tested for impairment
at least annually. Other intangible assets continue to be amortized over their
useful lives. The Company adopted SFAS No. 141 and No. 142 beginning January 1,
2002. Application of the non-amortization provision of SFAS No. 142 resulted in
decreases of $7.6 million and $22.0 million in amortization and a $7.5 million
and $21.3 million increase in net income for the three and nine months ended
September 30, 2002, respectively.
Under SFAS No. 142, goodwill impairment is deemed to exist if the net
book value of a reporting unit exceeds its estimated fair value. The Company's
reporting units are generally consistent with the operating segments identified
in Note 8, Segment Information. Upon adoption of SFAS No. 142, the Company
recorded a one-time, non-cash charge of $294 million to reduce the carrying
value of its goodwill. The Company has recognized this impairment charge
effective as of January 1, 2002 as a cumulative effect of change in accounting
principle. In calculating the impairment charge, the fair value of the reporting
units underlying the segments was estimated as of January 1, 2002 using a
discounted cash flow methodology.
The goodwill impairment charge represents a portion of the goodwill of
the industrial and construction equipment rental segment. The goodwill write-off
was the result of a reduction in projected cash flows used to determine fair
value due to the unfavorable economic conditions as of the date of adoption,
which reduced demand for industrial and construction equipment in North America.
8
THE HERTZ CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED
NOTE 3 - ACCOUNTING CHANGE (CONTINUED)
The following summarizes the changes in the Company's goodwill, by
segment, and other intangible assets during the first nine months of 2002 (in
thousands of dollars):
Transitional
January 1, 2002(1) Other(2) Impairment Loss September 30, 2002
------------------ -------- --------------- ------------------
Goodwill
Car rental $358,631 $ 1,787 - $360,418
Industrial and construction
equipment rental 443,040 4,421 (294,000) 153,461
-------- ------- --------- --------
Total Goodwill 801,671 6,208 (294,000) 513,879
Other intangible assets 3,169 (1,037) - 2,132
-------- ------- --------- --------
Total $804,840 $ 5,171 $(294,000) $516,011
======== ======= ========= ========
(1) Reflects the reallocation of goodwill to the Company's reporting units
under SFAS No. 142.
(2) Comprises primarily amortization of certain intangible assets and changes
in foreign currency exchange rates from January 1, 2002 to September 30,
2002.
NOTE 4 - RECENT PRONOUNCEMENTS
In August 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets". SFAS No. 144 addresses financial
accounting and reporting for the impairment or disposal of long-lived assets and
for segments of a business to be disposed of. The Company adopted SFAS No. 144
effective January 1, 2002. The adoption of SFAS No. 144 did not have a material
effect on the Company's financial position, results of operations, or cash
flows.
In June 2002, the FASB issued SFAS No. 146 "Accounting for Costs
Associated with Exit or Disposal Activities". SFAS No. 146 addresses financial
accounting and recognition of liabilities for costs associated with exit or
disposal activities, requiring that such liabilities be recognized and measured
initially at fair value only when a liability is incurred. SFAS No. 146 will be
effective for disposal activities that are initiated after December 31, 2002.
Management does not believe the adoption of SFAS No. 146 will have a material
effect on the Company's financial position, results of operations, or cash
flows.
NOTE 5 - INCOME TAXES
The provision for income taxes is based upon the expected effective tax
rate applicable to the full year. The effective tax rate in 2002 is lower than
the U.S. statutory rate of 35% primarily due to the mix of pretax operating
results between countries with different tax rates.
9
THE HERTZ CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED
NOTE 6 - DEPRECIATION OF REVENUE EARNING EQUIPMENT
Depreciation of revenue earning equipment includes the following (in
thousands of dollars):
Three Months Ended
September 30,
--------------------------
2002 2001
-------- --------
Depreciation of revenue earning equipment $396,777 $390,431
Adjustment of depreciation upon disposal of the equipment (5,615) 4,831
Rents paid for vehicles leased 4,615 3,863
-------- --------
Total $395,777 $399,125
======== ========
Nine months Ended
September 30,
----------------------------
2002 2001
---------- ----------
Depreciation of revenue earning equipment $1,117,234 $1,088,584
Adjustment of depreciation upon disposal of the equipment (17,241) (7,941)
Rents paid for vehicles leased 13,172 11,344
---------- ----------
Total $1,113,165 $1,091,987
========== ==========
The adjustment of depreciation upon disposal of revenue earning equipment
for the three months ended September 30, 2002 and 2001 included net gains of
$1.3 million and $1.5 million, respectively, on the sale of equipment in the
Company's industrial and construction equipment rental operations and a net gain
of $4.3 million and a net loss of $6.3 million, respectively, in the car rental
operations.
The adjustment of depreciation upon disposal of revenue earning equipment
for the nine months ended September 30, 2002 and 2001 included net gains of $5.8
million and $8.3 million, respectively, on the sale of equipment in the
industrial and construction equipment rental operations and a net gain of $11.4
million and a net loss of $.4 million, respectively, in the car rental
operations.
During the nine months ended September 30, 2002, the Company purchased
Ford vehicles at a cost of approximately $3.9 billion, and sold Ford vehicles to
Ford or its affiliates under various repurchase programs for approximately $2.6
billion.
10
THE HERTZ CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED
NOTE 7 - DEBT
Debt at September 30, 2002 and December 31, 2001 consisted of the
following (in thousands of dollars):
September 30, Dec. 31,
2002 2001
------------- ----------
Notes payable, including commercial paper,
average interest rate: 2002, 2.2%; 2001, 2.9% $ 426,011 $ 452,497
Promissory notes, average interest rate: 2002, 6.4%;
2001, 6.2% (effective average interest rate:
2002, 6.4%; 2001, 6.3%); net of unamortized
discount: 2002, $14,194; 2001, $9,868; due 2003 to 2028 4,985,803 4,590,130
Junior subordinated promissory notes,
average interest rate 7.0%; net of unamortized
discount: 2002, $25; 2001, $47; due 2003 249,975 249,953
Subsidiaries' short-term debt, in dollars and foreign
currencies, including commercial paper in millions
(2002, $895.4; 2001, $571.6); and other borrowings; average
interest rate: 2002, 3.5%; 2001, 3.7% 1,421,192 1,021,452
---------- ----------
Total $7,082,981 $6,314,032
========== ==========
The aggregate amounts of maturities of debt for the twelve-month periods
following September 30, 2002 are as follows (in millions): 2003, $2,682.8
(including $1,831.2 of commercial paper and short-term borrowings); 2004,
$901.1; 2005, $505.7; 2006, $355.3; 2007, $497.9, after 2007, $2,140.2.
At September 30, 2002, approximately $1.0 billion of the Company's
consolidated stockholder's equity was free of dividend limitations pursuant to
its existing debt agreements.
During the third quarter of 2002, the Company established an Asset Backed
Securitization ("ABS") program to reduce its borrowing costs and enhance
financing resources for its domestic car rental fleet. The ABS program provides
for the initial issuance of up to $1 billion of asset backed commercial paper
and subsequent issuance of asset backed medium-term notes. These notes will be
issued by wholly owned and consolidated special purpose entities. All debt
issued under the ABS program will be collateralized by revenue earning vehicles
owned by the Company for use in its daily rental business.
11
THE HERTZ CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED
NOTE 8 - SEGMENT INFORMATION
The Company's business principally consists of two significant segments:
rental and leasing of cars ("car rental"); 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 (loss) before income taxes for the three
months and nine months ended September 30, 2002 and 2001 are summarized below
(in millions of dollars). Corporate and other includes general corporate
expenses, principally amortization of certain goodwill prior to 2002 and certain
interest, as well as other business activities such as claim management
services, and telecommunication services prior to 2002 (in millions of dollars).
Three Months Ended September 30,
---------------------------------------------------
Income (Loss)
Revenues Before Income Taxes
-------------------- ---------------------
2002 2001 2002 2001 (a)
-------- -------- ------- ------
Car rental $1,171.0 $1,095.0 $155.7 $48.1
Industrial and construction equipment rental 243.6 270.1 11.4 13.0
Corporate and other 2.0 4.1 (4.7) (6.9)
-------- -------- ------ -----
Consolidated total $1,416.6 $1,369.2 $162.4 $54.2
======== ======== ====== =====
Nine months Ended September 30,
---------------------------------------------------
Income (Loss)
Revenues Before Income Taxes
-------------------- ---------------------
2002 2001 2002 2001 (a)
-------- -------- -------- ------
Car rental $3,098.3 $3,053.9 $224.9 $155.7
Industrial and construction equipment rental 663.2 755.4 (27.7) 9.3
Corporate and other 6.4 26.3 (10.0) (30.8)(b)
-------- -------- ------ ------
Consolidated total $3,767.9 $3,835.6 $187.2 $134.2
======== ======== ====== ======
(a) For the three months and nine months ended September 30, 2001, includes
$7.6 million and $22.0 million, respectively, of amortization of
goodwill prior to the adoption of SFAS No. 142 as described in Note 3 to
the condensed consolidated financial statements.
(b) Includes $9.7 million of expenses associated with the Merger, as
described in Note 2 to the condensed consolidated financial statements.
12
THE HERTZ CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED
NOTE 9 - COMPREHENSIVE INCOME (LOSS)
Accumulated other comprehensive income (loss) includes an accumulated
translation loss (in thousands of dollars) of $46,639 and $102,976 at September
30, 2002 and December 31, 2001, respectively. Comprehensive income (loss) for
the three and nine months ended September 30, 2002 and 2001 was as follows (in
thousands of dollars):
Three Months Ended
September 30,
------------------------
2002 2001
-------- -------
Net Income $108,095 $25,519
-------- -------
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments (7,363) 31,515
Unrealized gain on available-for-sale
securities 152 173
-------- -------
Total other comprehensive income (loss) (7,211) 31,688
-------- -------
Comprehensive income $100,884 $57,207
======== =======
Nine months Ended
September 30,
------------------------
2002 2001
--------- -------
Net Income (loss) $(168,481) $80,786
--------- -------
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments 56,337 (5,149)
Unrealized gain on available-for-sale
securities 296 134
--------- -------
Total other comprehensive income (loss) 56,633 (5,015)
--------- -------
Comprehensive income (loss) $(111,848) $75,771
========= =======
13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Certain statements appearing below, including, without limitation, those
concerning (i) the Company's outlook and (ii) the Company's liquidity and
capital expenditures, contain forward-looking statements concerning the
Company's operations, economic performance and financial condition. Because such
statements involve risks and uncertainties, actual results may differ materially
from those expressed or implied by such forward-looking statements. Factors that
could cause such differences include, but are not limited to, economic downturn;
competition; the Company's dependence on air travel; terrorist attacks, acts of
war or measures taken by governments in response thereto that negatively affect
the travel industry; limitations upon the Company's liquidity and capital
raising ability; increases in the cost of cars and limitations on the supply of
competitively priced cars; seasonality in the Company's businesses; and Ford's
continued control of the Company.
THREE MONTHS ENDED SEPTEMBER 30, 2002 COMPARED WITH THREE MONTHS ENDED SEPTEMBER
30, 2001
SUMMARY
The following table sets forth for the three months ended September 30,
2002 and 2001 the percentage of operating revenues represented by certain items
in the Company's consolidated statement of operations:
Percentage of Revenues
Three Months Ended
September 30,
------------------------
2002 2001
-------- --------
Revenues:
Car rental 81.4% 78.7%
Industrial and construction equipment rental 17.2 19.7
Other 1.4 1.6
------ ------
100.0 100.0
------ ------
Expenses:
Direct operating 45.5 50.4
Depreciation of revenue earning equipment 27.9 29.2
Selling, general and administrative 8.1 8.6
Interest, net of interest income 7.0 7.8
------ ------
88.5 96.0
------ ------
Income before income taxes 11.5 4.0
Provision for income taxes 3.9 2.1
------ ------
Net income 7.6% 1.9%
====== ======
REVENUES
Total revenues in the third quarter of 2002 of $1,416.6 million increased
by 3.5% from $1,369.2 million in the third quarter of 2001. Revenues from car
rental operations of $1,153.4 million in the third quarter of 2002 increased by
$75.9 million, or 7.0% from $1,077.5 million in the third quarter of 2001. The
increase was primarily the result of an 9.1% increase in pricing worldwide on
relatively no change in rental transactions, and an increase of approximately
$24.4 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 currency.
Revenues from industrial and construction equipment rental operations of
$243.5 million in the third quarter of 2002 decreased by $26.5 million, or 9.8%
from $270.0 million in the third quarter of 2001. The decrease was principally
due to a decrease in rental volume resulting from continued unfavorable economic
conditions in the equipment rental industry.
Revenues from all other sources of $19.7 million in the third quarter of
2002 decreased by 9.3% from $21.7 million in the third quarter of 2001,
principally due to a decline in telecommunication revenues which resulted from
the Company's decision, in the fourth quarter of 2001, to exit the
telecommunications resale business.
14
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
EXPENSES
Total expenses of $1,254.2 million in 2002 decreased by 4.6% from
$1,315.0 million in 2001, and total expenses as a percentage of revenues
decreased to 88.5% in the third quarter of 2002 as compared to 96.0% in 2001.
Direct operating expenses of $645.0 million in 2002 decreased by 6.6%
from $690.4 million in 2001. The decrease was primarily the result of lower
costs in car rental and equipment rental operations, including wages,
commissions, vehicle maintenance costs and discretionary cutbacks in other car
rental and equipment rental operating costs. The decrease also included a
reduction of $7.6 million which resulted from the elimination of goodwill
amortization upon the Company's adoption of SFAS No. 142 "Goodwill and Other
Intangible Assets", effective January 1, 2002. See Note 3 to the Notes to the
Company's condensed consolidated financial statements.
Depreciation of revenue earning equipment for the car rental operations
of $329.1 million in the third quarter of 2002 was slightly above 2001 levels.
Depreciation of revenue earning equipment for the industrial and construction
equipment rental operations of $66.7 million in 2002 decreased by 6.6% from
$71.4 million in 2001 due to a decrease in the size of the equipment rental
fleet.
Selling, general and administrative expenses of $114.7 million in 2002
decreased by 3.0% from $118.3 million in 2001. The decrease was primarily due to
decreases in advertising and sales promotion expenses partly offset by an
increase in administrative expenses.
Interest expense of $98.7 million in 2002 decreased 7.9% from $107.2
million in 2001, primarily due to a decrease in the weighted-average interest
rate, lower average debt levels in 2002 and an increase in interest income.
The tax provision of $54.3 million in 2002 increased 89.6% from $28.7
million in 2001, primarily due to higher income before income taxes in 2002. The
effective tax rate in 2002 is 33.5% as compared to 52.9% in 2001. The decrease
in the effective tax rate is due primarily to the mix of pretax operating
results between countries with different tax rates, and an adjustment in the
third quarter of 2001 to reflect a change in the Company's estimated full year
effective tax rate. See Note 5 to the Notes to the Company's condensed
consolidated financial statements.
NET INCOME
The Company had net income of $108.1 million in the third quarter of 2002
(seasonally, the Company's most profitable quarter), representing an increase of
323.6% from $25.5 million in 2001. The increase was primarily due to an improved
competitive pricing environment in the Company's worldwide car rental business,
the continued recovery from the adverse impact the terrorist attacks of
September 11, 2001 had on business travel during the third quarter of 2001,
management directed cost controls, and the net effect of other contributing
factors discussed above.
15
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
NINE MONTHS ENDED SEPTEMBER 30, 2002 COMPARED WITH NINE MONTHS ENDED SEPTEMBER
30, 2001
SUMMARY
The following table sets forth for the nine months ended September 30,
2002 and 2001 the percentage of operating revenues represented by certain items
in the Company's consolidated statement of operations:
Percentage of Revenues
Nine months Ended
September 30,
--------------------------
2002 2001
------ ------
Revenues:
Car rental 81.0% 78.4%
Industrial and construction equipment rental 17.6 19.7
Other 1.4 1.9
----- -----
100.0 100.0
----- -----
Expenses:
Direct operating 48.8 50.4
Depreciation of revenue earning equipment 29.5 28.5
Selling, general and administrative 9.5 9.5
Interest, net of interest income 7.2 8.1
----- -----
95.0 96.5
----- -----
Income before income taxes 5.0 3.5
Provision for taxes on income 1.7 1.4
----- -----
Income before cumulative effect of change in
accounting principle 3.3% 2.1%
===== =====
REVENUES
Total revenues in the first nine months of 2002 of $3,767.9 million
decreased by 1.8% from $3,835.6 million in the first nine months of 2001.
Revenues from car rental operations of $3,052.7 million in the first nine months
of 2002 increased by $43.9 million, or 1.5% from $3,008.9 million in the first
nine months of 2001. The increase was primarily the result of a 7.1% increase in
pricing worldwide and an increase of approximately $28.6 million from the
effects of foreign currency translation, which was substantially offset by a
5.2% decrease in rental transactions. 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 currency.
Revenues from industrial and construction equipment rental operations of
$663.0 million in the first nine months of 2002 decreased by $92.3 million, or
12.2% from $755.3 million in the first nine months of 2001. The decrease was
principally due to a decrease in rental volume resulting from unfavorable
economic conditions in the equipment rental industry.
Revenues from all other sources of $52.2 million in the first nine months
of 2002 decreased by 27.0% from $71.5 million in the first nine months of 2001,
principally due to a decline in telecommunication revenues which resulted from
the Company's decision, in the fourth quarter of 2001, to exit the
telecommunications resale business.
EXPENSES
Total expenses of $3,580.7 million in 2002 decreased by 3.3% from
$3,701.4 million in 2001, and total expenses as a percentage of revenues
decreased to 95.0% in 2002 from 96.5% in 2001.
Direct operating expenses of $1,838.2 million in 2002 decreased by 4.9%
from $1,932.0 million in 2001. The decrease was primarily the result of lower
costs in car rental and equipment rental operations, including wages,
commissions, concession fees, reservation costs, other equipment rental
operating costs and the elimination of costs associated with the former
telecommunications resale business. The decrease also included a reduction of
$22.0 million which resulted from the elimination of goodwill amortization upon
the Company's adoption of SFAS No. 142, effective January 1, 2002. See Note 3 to
the Notes to the Company's condensed consolidated financial statements.
16
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
Depreciation of revenue earning equipment for the car rental operations
of $912.7 million in 2002 increased by 2.4% from $891.2 million in 2001,
principally due to an increase in the cost of cars operated in the United
States. Depreciation of revenue earning equipment for the industrial and
construction equipment rental operations of $200.5 million in 2002 remained at
2001 levels with a decrease in the size of the fleet being offset by lower net
proceeds received in excess of book value on the disposal of used equipment.
Selling, general and administrative expenses of $356.3 million in 2002
decreased by 2.5% from $365.5 million in 2001. The decrease was principally due
to decreases in advertising and sales promotion expenses. The decrease also
included $9.7 million of expenses recorded in the first quarter of 2001 related
to the merger of the Company with a wholly owned subsidiary of Ford. See Note 2
to the Notes to the Company's condensed consolidated financial statements.
Interest expense of $273.0 million in 2002 decreased 12.5% from $311.9
million in 2001, primarily due to a decrease in the weighted-average interest
rate and lower average debt levels in 2002 and an increase in interest income.
The tax provision of $61.7 million in the first nine months of 2002
increased 15.6% from $53.4 million in 2001, primarily due to higher income
before income taxes in 2002. The effective tax rate in 2002 is 33.0% as compared
to 39.8% in 2001. The decrease in the effective tax rate is due primarily to the
mix of pretax operating results between countries with different tax rates and
the impact on the effective tax rate from the adoption of SFAS No. 142 in 2002
resulting in the elimination of goodwill amortization. See Note 5 to the Notes
to the Company's condensed consolidated financial statements.
INCOME BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE
The Company had income before cumulative effect of change in accounting
principle of $125.5 million in the first nine months of 2002, representing an
increase of $44.7 million from $80.8 million in 2001. The increase was primarily
due to improved pricing in the Company's worldwide car rental business and
management directed cost controls. These increases were partly offset by
continued lower rental volumes after the terrorist attacks of September 11, 2001
and overall economic conditions which have negatively impacted corporate
spending levels.
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE
The Company recorded a non-cash charge of $294 million upon the adoption
of SFAS No. 142 effective January 1, 2002. The charge related to the industrial
and construction equipment rental segment. The goodwill write-off was the result
of a reduction in projected cash flows used to determine fair value due to the
unfavorable economic conditions as of the date of adoption, which reduced demand
for industrial and construction equipment in North America.
OUTLOOK
The Company believes that vehicle and equipment rentals will remain at
diminished levels, primarily reflecting reduced corporate spending in the United
States throughout the remainder of 2002. While full year 2002 income before
cumulative effect of change in accounting principle will significantly exceed
2001 earnings, it is expected to be substantially below the levels of earnings
the Company achieved in the late 1990s and in 2000.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 2002, the Company had cash and cash equivalents of
$730.7 million, an increase of $516.7 million from December 31, 2001. The
balance at September 30, 2002 included $527.5 million of related party
investments, with $446.1 million representing short-term investments in
commercial paper issued by Ford Motor Credit Company. These investments are
being held until the funds are required for operating purposes or to reduce
indebtedness.
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 primary use of funds is for the acquisition of revenue
earning equipment, which consists of cars and industrial and construction
equipment. Net cash provided by operating activities during the first nine
months of 2002 increased approximately $453 million from the first nine months
of 2001 primarily due to the decrease in the number of vehicles operated. For
the nine months ended September 30, 2002, the Company's expenditures for revenue
earning equipment were $7.4 billion (partially offset by proceeds from the sale
of such equipment of $5.7 billion). These assets are purchased by the Company in
accordance with the terms of programs negotiated with automobile and equipment
manufacturers. For the nine months ended September 30, 2002, the Company's
capital expenditures for property and non-revenue earning equipment were $175.8
million.
17
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
To finance its domestic operations, the Company maintains an active
unsecured commercial paper program. The Company is also active in the domestic
unsecured medium-term and long-term debt markets.
During the third quarter of 2002, the Company established an Asset Backed
Securitization ("ABS") program for its domestic car rental fleet to reduce its
borrowing costs and enhance its financing resources. The ABS program provides
for the initial issuance of up to $1 billion of asset backed commercial paper
and subsequent issuance of asset backed medium-term notes. These notes will be
issued by wholly owned and consolidated special purpose entities and will be
classified as debt on the Company's consolidated balance sheet. The commercial
paper notes will have ratings of 'A-1' by Standard & Poors Rating Services,
'Prime-1' by Moody's Investors Service, Inc. and 'F1' by Fitch Ratings. Under
certain conditions, the commercial paper notes may be repaid by draws under a
related bank liquidity facility ($928 million) which expires in September 2003,
or a related letter of credit issued under a letter of credit facility ($215
million) which expires in September 2004.
All debt issued under the ABS program will be collateralized by revenue
earning vehicles acquired by the Company for use in its daily rental fleet. As
of September 30, 2002, there has been no debt issuance under the Company's ABS
program, but the Company plans to issue debt under this program in the fourth
quarter of 2002.
As the need arises, it is the Company's intention to issue either unsecured
senior, senior subordinated, junior subordinated or asset backed securities on
terms to be determined at the time the securities are offered for sale. The
total amount of unsecured medium-term and long-term debt outstanding as of
September 30, 2002 was $5.3 billion with maturities ranging from 2003 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, Belgium, Ireland and the Netherlands. The
Company guarantees only the borrowings under these commercial paper programs and
certain credit facilities extended by local banks to the Company's subsidiaries
in Canada and Australia. All borrowings by international operations either are
in the international operations' local currency or, if in non-local currency,
hedged to minimize foreign exchange exposure. At September 30, 2002, the total
debt for the foreign operations was $1,421 million, of which $1,410 million was
short-term (original maturity of less than one year) and $11 million was
long-term. At September 30, 2002, the total amounts outstanding (in millions of
U.S. dollars) under the commercial paper programs in Canada, Ireland, Belgium,
the Netherlands and Australian commercial paper programs were $365, $279, $195,
$50 and $6, respectively.
At September 30, 2002, the Company had committed credit facilities totaling
$3.1 billion. Currently $1.3 billion of the committed credit facilities are
represented by a combination of multi-year and 364-day global committed credit
facilities provided by 26 participating 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. The multi-year facilities were
re-negotiated effective July 1, 2002 and currently total $1,212 million with
expirations as follows: $137 million on June 30, 2003, $43 million on June 30,
2004, $69 million on June 30, 2005 and $963 million on June 30, 2007. The
multi-year facilities that expire in 2007 have an evergreen feature, which
provides for the automatic extension of the expiration date one year forward
unless the bank provides timely notice. Effective June 20, 2002, the 364-day
facilities were renegotiated and currently $115 million expires on June 19,
2003. Under the terms of the 364-day facilities, the Company is permitted to
convert any amount outstanding prior to expiration into a two-year loan.
Effective September 18, 2002, as part of the ABS program, the Company
transferred $928 million of the 364-day global committed credit facilities to
the ABS program. As part of the agreement to transfer these commitments, the
Company has waived any right to transfer these commitments back to the 364-day
global committed credit facilities without the consent of the participating
banks. In addition to the transfer of the 364-day commitments, the Company
raised $215 million of committed credit support through an ABS letter of credit
from banks that participate in the Company's multi-year global committed credit
facilities. In exchange for this credit support, the Company agreed to reduce
the bank's multi-year facility commitment by one half of the amount of their ABS
letter of credit participation. In addition to these bank credit facilities, in
February 1997, Ford extended to the Company a line of credit of $500 million
that currently expires on June 30, 2004. 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. Obligations of the Company under
this agreement would rank pari passu with the Company's senior debt securities.
On October 16, 2002, Standard & Poors Ratings Services ("S&P") placed the
long-term debt ratings of the Company on credit watch with negative
implications. At the same time, S&P affirmed the Company's 'A-2' commercial
paper rating. On October 30, 2002, S&P affirmed the Company's long-term debt
ratings, including its 'BBB' corporate credit rating, after determining the
Company's stand-alone credit strength is sufficient to justify maintaining this
rating. On October 31, 2002, Fitch Ratings affirmed the Company's long and
short-term debt ratings at 'BBB+' and 'F2' respectively, with a negative
outlook.
18
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
By virtue of its indirect 100% ownership interest in the Company, Ford
has the right to make any changes that it deems appropriate in the Company's
assets, corporate structure, capitalization, operations, properties and policies
(including dividend policies).
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.
OTHER FINANCIAL INFORMATION
The interim financial information included in this 10-Q Report has not
been audited by PricewaterhouseCoopers LLP ("PwC"). In reviewing such
information, PwC has applied limited procedures in accordance with professional
standards for reviews of interim financial information. Accordingly, you should
restrict your reliance on their reports on such information. PwC is not subject
to the liability provisions of Section 11 of the Securities Act of 1933 for
their reports on the interim financial information because such reports do not
constitute "reports" or "parts" of the registration statements prepared or
certified by PwC within the meaning of Sections 7 and 11 of the Securities Act
of 1933.
ITEM 4. CONTROLS AND PROCEDURES
Disclosure controls and procedures are controls and other procedures that
are designed to ensure that information required to be disclosed in company
reports filed or submitted under the Securities Exchange Act of 1934 (the
"Exchange Act") is recorded, processed, summarized and reported, within the time
periods specified in the Securities and Exchange Commission's rules and forms.
Disclosure controls and procedures include, without limitation, controls and
procedures designed to ensure that information required to be disclosed in
company reports filed under the Exchange Act is accumulated and communicated to
management, including the Company's Chief Executive Officer and Executive Vice
President and Chief Financial Officer (the "Certifying Officers"), as
appropriate to allow timely decisions regarding required disclosure.
As required by Rules 13a-15 and 15d-15 under the Exchange Act, within the
90 days prior to the filing date of this report, the Certifying Officers carried
out an evaluation of the effectiveness of the design and operation of the
Company's disclosure controls and procedures. Their evaluation was carried out
with the participation of other members of the Company's management. Based upon
their evaluation, the Certifying Officers concluded that the Company's
disclosure controls and procedures were effective. There have been no
significant changes in the Company's internal controls, or in other factors
which could significantly affect internal controls, subsequent to the date of
the evaluation.
19
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
12 Consolidated Computation of Ratio of Earnings to Fixed
Charges for the nine months ended September 30, 2002 and
2001.
15 Letter of PricewaterhouseCoopers LLP, Independent
Accountants, dated October 11, 2002, relating to
Financial Information.
99.1 Certification of President and Chief Executive Officer
Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002.
99.2 Certification of Executive Vice President and Chief
Financial Officer Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.
(b) Reports on Form 8-K:
None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Company has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE HERTZ CORPORATION
(Registrant)
Date: November 13, 2002 By: /s/ Paul J. Siracusa
---------------------------------------
Paul J. Siracusa
Executive Vice President and
Chief Financial Officer
(principal financial officer and duly
authorized officer)
20
CERTIFICATIONS
I, Craig R. Koch, certify that:
1. I have reviewed this quarterly report on Form 10-Q of The Hertz Corporation
(the "Company");
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the Company as of, and for, the periods presented in this quarterly
report;
4. The Company's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the Company and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the Company, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;
b) evaluated the effectiveness of the Company's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The Company's other certifying officer and I have disclosed, based on our
most recent evaluation, to the Company's auditors and the audit committee of
the Company's board of directors:
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the Company's ability to record,
process, summarize and report financial data and have identified for the
Company's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the Company's internal
controls; and
6. The Company's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
Date: November 13, 2002
By: /s/ Craig R. Koch
--------------------------------
Craig R. Koch
President and Chief Executive Officer
21
I, Paul J. Siracusa, certify that:
1. I have reviewed this quarterly report on Form 10-Q of The Hertz Corporation
(the "Company");
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the Company as of, and for, the periods presented in this quarterly
report;
4. The Company's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the Company and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the Company, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;
b) evaluated the effectiveness of the Company's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The Company's other certifying officer and I have disclosed, based on our
most recent evaluation, to the Company's auditors and the audit committee of
the Company's board of directors:
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the Company's ability to record,
process, summarize and report financial data and have identified for the
Company's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the Company's internal
controls; and
6. The Company's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
Date: November 13, 2002
By: /s/ Paul J. Siracusa
---------------------------------
Paul J. Siracusa
Executive Vice President and
Chief Financial Officer
22
EXHIBIT INDEX
12 Consolidated Computation of Ratio of Earnings to Fixed Charges for the
nine months ended September 30, 2002 and 2001.
15 Letter of PricewaterhouseCoopers LLP, Independent Accountants, dated
October 11, 2002, relating to Financial Information.
99.1 Certification of President and Chief Executive Officer Pursuant to
18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
99.2 Certification of Executive Vice President and Chief Financial Officer
Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.
23