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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549


FORM 10-K

| |   |                                                     
| | - | ----------------------------------------------------
| | x | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended December 31, 2003, or




| |   |                                                         
| | - | --------------------------------------------------------
| | o | 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
(State of Incorporation)                                                   |  | 13-1938568
(I.R.S. Employer Identification No.)
|                                                                                    |  |                                                
|225 Brae Boulevard,
Park Ridge, New Jersey
(Address of Principal Executive Offices) |  | 07656-0713
(Zip Code)                          

Registrants telephone number, including area code: 201-307-2000

Securities Registered Pursuant to Section 12(b) of the Act:

None

Securities Registered Pursuant to Section 12(g) of the Act:

None

The Registrant meets the conditions set forth in General Instruction I(1)(a)
and (b) of Form 10-K 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 o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrants knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. x

Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
Yes o No x

State the aggregate market value of the voting and non-voting common stock held
by non-affiliates of the Registrant: None (As of March 15, 2004, all of the
common stock of the Registrant is owned by its affiliate, Ford Holdings LLC).

Indicate the number of shares outstanding of each of the Registrants classes
of common stock, as of March 15, 2004: Common Stock, $0.01 par value per share
 100 shares.

Documents Incorporated By Reference

None





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|                                                  |                                                                                               |                                                |  |  |  |  |  | 
|------------------------------------------------- | --------------------------------------------------------------------------------------------- | ---------------------------------------------- |  |  |  |  |  | 
|PART I                                           
|                                                  | ITEM 1. Business                                                                             
|                                                  | ITEM 2. Properties                                                                           
|                                                  | ITEM 3. Legal Proceedings                                                                    
|                                                  | ITEM 4. Submission Of Matters To A Vote Of Security Holders                                  
|PART II                                          
|                                                  | ITEM 5. Market For Registrants Common Equity and Related Stockholder Matters                
|                                                  | ITEM 6. Selected Financial Data                                                              
|                                                  | ITEM 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
|                                                  | ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk                          
|                                                  | ITEM 8. Financial Statements and Supplementary Data                                          
|                                                  |                                                                                               | CONSOLIDATED BALANCE SHEET                    
|                                                  |                                                                                               | CONSOLIDATED STATEMENT OF OPERATIONS          
|                                                  |                                                                                               | CONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY
|                                                  |                                                                                               | CONSOLIDATED STATEMENT OF CASH FLOWS          
|                                                  |                                                                                               | CONSOLIDATED STATEMENT OF CASH FLOWS          
|                                                  |                                                                                               | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS    
|                                                  | ITEM 9. Changes In and Disagreements With Accountants on Accounting and Financial Disclosure 
|                                                  | ITEM 9A. Controls and Procedures                                                             
|PART III                                         
|                                                  | ITEM 10. Directors and Executive Officers of the Registrant                                  
|                                                  | ITEM 11. Executive Compensation                                                              
|                                                  | ITEM 12. Security Ownership of Certain Beneficial Owners and Management                      
|                                                  | ITEM 13. Certain Relationships and Related Transactions                                      
|                                                  | ITEM 14. Principal Accounting Fees and Services                                              
|PART IV                                          
|                                                  | ITEM 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K                     
|SIGNATURES                                       
|EXHIBIT INDEX                                    
|BY-LAWS                                          
|COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
|CONSENT OF INDEPENDENT AUDITORS                  
|CERTIFICATION OF CHIEF EXECUTIVE OFFICER         
|CERTIFICATION OF CHIEF FINANCIAL OFFICER         
|CERTIFICATION OF CHIEF EXECUTIVE OFFICER         
|CERTIFICATION OF CHIEF FINANCIAL OFFICER         



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PART I




ITEM 1. Business.

General

The Hertz Corporation (together with its subsidiaries, referred to herein as
Hertz or the Company) is an indirect wholly owned subsidiary of Ford Motor
Company (Ford). Ford first acquired an ownership interest in the Company in
1987. Hertz became a wholly owned subsidiary of Ford as a result of a series
of transactions in 1993 and 1994. Hertz continued as a wholly owned subsidiary
of Ford until April 1997. On April 30, 1997, Hertz completed a public offering
of approximately 50.6% of its Class A Common Stock (the Class A Common
Stock), which represented approximately 19.1% of the economic interest in
Hertz.

On March 9, 2001, Ford FSG, Inc. (FSG), an indirect wholly owned subsidiary
of 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 it 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). 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 Hertz
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 Hertz.

As a result of FSGs acquisition, 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.

In May 2001, the Company amended its certificate of incorporation to change the
shares of stock it is authorized to issue to a single class of common stock and
exchanged the outstanding shares of Class A Common Stock for the same number of
shares of the newly authorized common stock.

In 2003, FSG was dissolved and the shares of the Companys Common Stock owned
by FSG were distributed to Ford and Ford Holdings LLC. In February 2004, Ford
Holdings LLC became the sole owner of the Companys Common Stock.

The Company and its affiliates, associates and independent licensees represent
what the Company believes is the largest worldwide general use car rental brand
based upon revenues and one of the largest industrial and construction
equipment rental businesses in North America based upon revenues. The Companys
Hertz brand name is recognized worldwide as a leader in quality rental services
and products. The Company, together with its affiliates, associates and
independent licensees, currently rents cars and industrial and construction
equipment and operates its other businesses from approximately 7,200 locations
throughout the United States and in over 150 foreign countries and
jurisdictions. For the year ended December 31, 2003, the Company generated
revenues, income before income taxes and net income of $5.2 billion, $237.5
million and $158.6 million, respectively. On the basis of income before
cumulative change in accounting principles the Company and its predecessors
have been profitable in every year since 1952, when one of the Companys
predecessors first became a public company. See Note 2 to the Notes to the
Companys consolidated financial statements included in this Report.

The Company, which was incorporated in Delaware in 1967, is a successor to
corporations that have been engaged in the automobile and truck rental and
leasing business since 1918. Prior to December 1987, when Ford first acquired
an ownership interest in the Company, the Company had been a subsidiary of UAL
Corporation (formerly Allegis Corporation) (UAL), which had acquired the
Companys outstanding capital stock from RCA Corporation (RCA) in 1985. See
Note 1 to the Notes to the Companys consolidated financial statements included
in this Report.

The Companys principal executive offices are located at 225 Brae Boulevard,
Park Ridge, New Jersey 07656. The Companys telephone number is (201) 307-2000
and its website is www.hertz.com. Access to

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the Companys periodic reports filed with the Securities and Exchange
Commission is available through the Companys website.

Hertz, HERC, The Source, Hertz Local Edition, Hertz #1 Club Gold,
The Hertz #1 Club, and Hertz NeverLost are trademarks or service marks of
the Company. All other trademarks, service marks or brand names appearing in
this Report are the property of their respective holders.

Certain statements contained in this report under Business and Managements
Discussion and Analysis of Financial Condition and Results of Operations,
including, without limitation, those concerning (i) the Companys outlook and
(ii) the Companys liquidity and capital resources, 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, epidemic diseases, 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.

Car Rental

The Company maintains a substantial network of company-owned car rental
locations both in the United States and in Europe, and what it believes to be
the largest number of on-airport car rental locations in the world, enabling
the Company to provide consistent quality, pricing and service worldwide. The
Company derives approximately 74% of its car rental revenues from on-airport
locations.

The Companys Hertz #1 Club Gold service provides an expedited rental service
to members worldwide. Through its many travel industry relationships with
airlines and hotels, the Company has targeted the most frequent travelers to
become Hertz #1 Club Gold members.

The Companys worldwide car rental operations and certain other related
activities generated $4.3 billion in revenue and $279 million in income before
income taxes during 2003.

Industrial and Construction Equipment Rental

The Company, through its wholly owned subsidiary, Hertz Equipment Rental
Corporation (HERC), maintains a significant market share in the North
American industrial and construction equipment rental market. HERC rents a
broad range of earthmoving equipment, material handling equipment, aerial and
electrical equipment, air compressors, pumps, small tools, compaction equipment
and construction-related trucks. The Company currently operates what it
believes to be the third largest equipment rental business in Spain and the
fourth largest in France based upon revenues.

The Companys worldwide industrial and construction equipment rental operations
generated $905 million in revenue and $22 million in losses before income taxes
during 2003.

Other Activities

Other activities of the Company include self-insurance operations for both its
car rental and industrial and construction equipment rental businesses, the
sale of its used cars and equipment and third-party claim management services.

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Business Segments

The Companys business consists of two significant segments, the rental of cars
and light trucks (car rental), and the rental of industrial, construction and
material handling equipment (industrial and construction equipment rental).
Set forth below is certain information with respect to these segments, as well
as corporate and other, for the year ended December 31, 2003. Corporate and
other includes general corporate expenses, as well as other business
activities, such as claim management services. See Note 11 to the Notes to the
Companys consolidated financial statements included in this Report.

|                                                                |  |                              |       |        |  |                |       |           |  |   |     |   |  |   |       | 
|--------------------------------------------------------------- |  | ---------------------------- | ----- | ------ |  | -------------- | ----- | --------- |  | - | --- | - |  | - | ----- | 
|                                                                |  | Year Ended December 31, 2003
|                                                                |  |                             
|                                                                |  |                              |       |        |  | Industrial and |       |           |  |   |     |   |  |  
|                                                                |  |                              |       |        |  | Construction   |       |           |  |   |     |   |  |  
|                                                                |  |                              |       |        |  | Equipment      |       | Corporate |  |   |     |  
|                                                                |  | Car Rental                   |       | Rental |  | and Other      |       | Total    
|                                                                |  |                              |       |        |  |                |       |          
|                                                                |  | Dollars in millions         
|Revenues                                                        |  | $                            | 4,296 |        |  | $              | 905   |           |  | $ | 7   |   |  | $ | 5,208 | 
|Operating income (loss) (pre-tax
income (loss) before interest) |  |                              | 551   |        |  |                | 54    |           |  |   | (12 | ) |  |   | 593   | 
|Income (loss) before income taxes                               |  |                              | 279   |        |  |                | (22   | )         |  |   | (20 | ) |  |   | 237   | 
|Revenue earning equipment, net,
at end of year                  |  |                              | 6,462 |        |  |                | 1,331 |           |  |   |    |   |  |   | 7,793 | 

Set forth below is certain information with respect to the Companys U.S. and
foreign operations for the year ended December 31, 2003 (substantially all of
the Companys foreign operations consist of car rental and industrial and
construction equipment rental operations).

|                                                  |  |                              |       |         |  |       |       |  |  |   |       | 
|------------------------------------------------- |  | ---------------------------- | ----- | ------- |  | ----- | ----- |  |  | - | ----- | 
|                                                  |  | Year Ended December 31, 2003
|                                                  |  |                             
|                                                  |  | U.S.                         |       | Foreign |  | Total
|                                                  |  |                              |       |         |  |      
|                                                  |  | Dollars in millions         
|Revenues                                          |  | $                            | 3,769 |         |  | $     | 1,439 |  |  | $ | 5,208 | 
|Operating income (pre-tax income before interest) |  |                              | 449   |         |  |       | 144   |  |  |   | 593   | 
|Income before income taxes                        |  |                              | 132   |         |  |       | 105   |  |  |   | 237   | 
|Revenue earning equipment, net, at end of year    |  |                              | 5,873 |         |  |       | 1,920 |  |  |   | 7,793 | 

Worldwide Car Rental

U.S. Operations

Car Rental.The Company provides car rental services through facilities
operated at all major airports and in central business districts and key
suburban commercial centers throughout the United States.

The Company uses a wide variety of makes and models of cars for daily rental
purposes, nearly all of which are current year or the previous years models.
The Company rents cars on a daily, weekend, weekly or monthly basis, with
rental charges computed on a limited or unlimited mileage rate, or on a time
rate plus a mileage charge. The Companys rates vary at different locations
depending on local market, competitive and cost factors, and virtually all
rentals are made utilizing rate plans under which the customer is responsible
for gasoline used during the rental. While cars are often returned to the
location from which they are rented, the Company also allows one-way rentals of
its cars under its Rent It Here  Leave It There program. In addition to car
rentals and licensee fees, the Company generates revenues from providing
customers with ancillary products and services such as Hertz #1 Club Gold,
supplemental equipment (child seats and ski racks), loss or collision damage
waiver, liability insurance and personal effects coverage, Hertz NeverLost
navigation system and gasoline payment options.

The Company conducts operations in the United States through company-owned and
licensee operated locations. Company-owned locations are those locations
through which the Company rents cars that it owns, as compared to licensee
locations through which licensees rent cars that they own. The Company believes
that its extensive worldwide ownership of its operations contributes to the
consistency of its high-quality service, cost control, fleet utilization, yield
management, competitive pricing and the Companys

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ability to offer one-way rentals through its Rent It Here  Leave It There
program. However, in certain smaller domestic markets, the Company has found it
more efficient to operate through licensees. At December 31, 2003, the Company
owned 95% of all the cars in the combined company-owned and licensee fleet.

The Company maintains automobile maintenance centers at certain airports and in
certain urban and suburban areas, providing maintenance facilities for the
Companys rental fleet. Many of these facilities, which include sophisticated
car diagnostic and repair equipment, are accepted by automobile manufacturers
as eligible to perform and receive reimbursement for warranty work. Collision
damage and major repairs are generally performed by independent contractors.

Airport Operations.The Company has 349 concession agreements at airports in
the United States. These agreements are entered into with airport authorities,
through either negotiation or a bidding process, for a fixed number of car
rental counter positions. The agreements typically provide for concession
payments based upon a specified percentage of revenue generated at the airport,
subject to a minimum annual fee, and sometimes include fixed rent for terminal
counters or other leased properties and facilities.

Suburban Operations.The Companys expanding suburban operations include
locations that offer a range of services which may include customer pickup and
delivery, insurance replacement, automobile dealer service loaner programs and
local use commercial and leisure car rental services. These services are
available in major commercial centers and other suburban communities in the
United States. The services provided include renting replacement vehicles when
customers personal vehicles are out of service, generally due to an accident,
theft or mechanical problem. A significant percentage of these rentals are
referrals from insurance companies and car dealerships, which generally pay for
all or a significant portion of the costs of such rentals.

International Operations

At December 31, 2003, the Company and its affiliates, associates and licensees,
operated in over 150 foreign countries and jurisdictions. In general,
international operations are conducted similarly to those of the Company in the
United States. Although the Company has found it more efficient to conduct a
greater proportion of its international operations through licensees as
compared to the Companys U.S. operations, it continues to conduct its
operations primarily through company-owned locations in the major European
markets. The international car rental operations of the Company that generated
the highest volumes of business in 2003 were those conducted in France,
Germany, Italy, the United Kingdom, Canada, Australia, Spain, the Netherlands
and Switzerland. In addition, the Company owns operations in Puerto Rico, St.
Thomas (USVI), Brazil, New Zealand, Belgium and Luxembourg.

As in the United States, the Company offers Hertz #1 Club Gold service at most
major airport locations in countries with company-owned locations. The
Companys global reservations system and website allow customers worldwide to
book reservations in any of the Companys worldwide markets. Additionally, a
local or toll-free telephone number is offered in all major foreign countries
which provides access to the Companys global car rental reservations system.

Reservations

The Company accepts reservations for Hertz car rental services worldwide
through computerized reservations systems, also known as global distribution
systems, utilized by travel agents and, in major countries, including the
United States and all other countries with company-owned locations, through
local or toll-free telephone calls to Hertz reservations centers. In addition,
reservations are accepted through the Companys interactive website and
websites operated by third parties. The Companys website, which also allows
customers to enroll in its loyalty programs, obtain copies of bills for past
transactions and obtain information about the Companys rental offerings, has
grown significantly in importance as a reservations channel in recent years.

Car Acquisition

The Company believes it is one of the largest private purchasers of new cars in
the world. Consequently, the acquisition and disposition of cars are important
activities for the Company and have a significant impact on profitability. The
Company acquires, subject to availability, a majority of its cars pursuant to

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various fleet repurchase programs established by automobile manufacturers.
Under these programs, automobile manufacturers agree to repurchase cars at a
specified price during established repurchase periods, subject to certain car
condition and mileage requirements. Repurchase prices under the repurchase
programs are based on either (i) a predetermined percentage of original car
cost and the month in which the car is returned or (ii) the original
capitalization cost less a set daily depreciation amount. These repurchase
programs limit the Companys residual risk with respect to cars purchased under
the programs. For this reason, cars purchased by car rental companies under
repurchase programs are sometimes referred to by industry participants as
non-risk cars. Conversely, those cars not purchased under repurchase programs
for which the car rental company is exposed to residual risk are sometimes
referred to as at-risk cars. During 2003, non-risk cars as a percentage of
all cars purchased by the Companys U.S. operations and international
operations were approximately 83% and 78%, respectively.

Over the five years ended December 31, 2003, on a weighted-average basis,
approximately 60% of the cars acquired by the Company for its U.S. car rental
fleet, and approximately 28% of the cars acquired by the Company for its
international fleet, were manufactured by Ford and its subsidiaries. During
2003, approximately 55% of the cars acquired by the Company domestically were
manufactured by Ford and its subsidiaries and approximately 33% of the cars
acquired by the Company for its international fleet were manufactured by Ford
and its subsidiaries, which represented the largest percentage of any
automobile manufacturer in that year.

Purchases of cars are financed through funds provided from operations and by
active and ongoing global borrowing programs. See Managements Discussion and
Analysis of Financial Condition and Results of Operations  Liquidity and
Capital Resources.

Licensees

While the Company believes that its extensive worldwide ownership of its
operations provides an important competitive advantage, the Company has found
it more efficient to operate through licensees in certain markets. The
Companys licensees operate in over 150 countries and jurisdictions worldwide.
The Company believes that its licensee arrangements are important to the
Companys business because they enable the Company to offer expanded national
and international service and a broader one-way rental program. Licenses are
issued principally by the Companys wholly owned subsidiaries, Hertz System,
Inc. (System) and Hertz International, Ltd. (Hertz International), under
franchise arrangements to independent licensees and affiliates who are engaged
in the car rental business in the United States and in many foreign countries
and jurisdictions.

Licensees generally pay fees based on the number of cars they operate and/or on
revenues. The operations of all licensees, including the purchase and ownership
of vehicles, are financed independently by the licensee with the Company having
no investment interest in the licensee or in the licensees fleet. Licensees
also share in the cost of the Companys advertising program, reservations
system, sales force and certain other services. In return, licensees are
provided with the use of the Hertz brand name, management and administrative
assistance and training. In return, licensees are provided the use of the
Hertz brand name, management and administrative assistance and training,
reservations through the Companys reservations channels, the Hertz #1 Club and
#1 Club Gold expedited rental programs, the Rent It Here  Leave It There
one-way rental program and other services.

System licenses ordinarily are limited as to transferability without the
Companys consent and are terminable by the Company only for cause or after a
fixed term. Licensees may generally terminate for any reason on 90 days notice
to System. Initial license fees or the price for the sale to a licensee of a
company-owned location may be payable over a term of several years. New
licenses continue to be issued and, from time to time, licensee businesses are
purchased by the Company.

Car Leasing

Effective January 1, 2000, Hertz International entered into license and
management services agreements with Axus International, Inc. (Axus), a wholly
owned vehicle leasing subsidiary of Ford Motor Credit Company (Ford Credit),
under which Hertz International licensed the Hertz name and agreed to provide
management services to Axus for a five-year term. On August 31, 2000, the
Company transferred substantially all the net assets of its leasing operations
in Australia, New Zealand and the United Kingdom to Axus for $99.2 million. In
the fourth quarter of 2002, Ford Credit sold the Axus operations in Australia

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and New Zealand and in the first quarter of 2003, Axus operations in Europe
were sold. Hertz International continued to license the Hertz name and provide
management services until the dates of sale. During 2003, 2002 and 2001, fees
earned by the Company from these agreements were approximately $1.8 million,
$11.5 million and $8.7 million, respectively.

Industrial and Construction Equipment Rental

HERCs principal business is the rental of industrial and construction
equipment. HERC rents a broad range of equipment; major categories include
earthmoving equipment, material handling equipment, aerial and electrical
equipment, air compressors, pumps, compaction equipment and
construction-related trucks. HERC expanded its operations, mainly as a result
of acquisitions, from 1998 through 2000.

HERC is one of the largest sellers of used industrial and construction
equipment in the United States. It has developed an extensive used equipment
sales program. HERC has a dedicated used equipment sales force and has also
developed an export market through its overseas contacts. Additionally, HERC in
the past has employed and may, from time to time in the future, employ a broker
network in the United States to dispose of its used equipment.

HERCs comprehensive line of equipment enables HERC to supply equipment to a
wide range of customers from the local contractor to large industrial plants.
Also, larger companies, particularly those with industrial plant operations,
are requiring single source vendors, not only for equipment rental, but also
for management of their total equipment needs. This includes maintenance of
their owned equipment, tools and supplies for their labor force, and custom
management reports. HERC supports this through its dedicated in-plant
operations, tool trailers, and plant management systems.

HERCs rental locations generally are situated in industrial or commercial
zones. A growing number of locations have highway or major thoroughfare
visibility. The average location is two acres in size and includes a customer
service center, an equipment service area and storage facilities for equipment.
The branches are built or conformed to the specifications of the HERC prototype
branch, which stresses efficiency, safety and environmental compliance. Most
branches have stand-alone maintenance and fueling facilities and showrooms.

HERCs customers consist predominantly of commercial accounts and represent a
wide variety of industries, such as railroad, automobile manufacturing,
petrochemicals, movie production, shipbuilding and construction. Serving a
number of different industries enables HERC to reduce its dependence on a
single or limited number of customers in the same business. HERC primarily
targets customers in medium to large metropolitan markets.

Other Operations of the Company

Claim Management

The Companys wholly owned subsidiary, Hertz Claim Management Corporation
(HCM), provides claim administration services to the Company and to outside
customers. These services include investigating, evaluating, negotiating and
disposing of a wide variety of claims, including third party, first party,
bodily injury, property damage, general liability and product liability, but
not the underwriting of risks.

Insurance

For its domestic operations, the Company is, where permitted by applicable
local law, a qualified self-insurer against liability resulting from accidents
under certificates of self-insurance for financial responsibility in all states
where its vehicles are registered. The Company also self-insures general public
liability and property damage for all domestic operations. Effective December
15, 2002, all claims have been retained and borne by the Company up to a limit
of $10 million for each occurrence ($5 million prior to December 15, 2002), and
the Company maintains insurance with unaffiliated carriers in excess of $10
million up to $695 million per occurrence (in excess of $5 million up to $725
million from January 1, 2001 to December 15, 2002 and up to $450 million prior
to 2001). HCM administers this public liability and property damage program
through a network of eight regional offices throughout the United States.

For its international operations, the Company purchases insurance to comply
with local legal requirements. For most countries throughout Europe, vehicle
liability insurance is purchased from the Companys wholly owned subsidiary,
Probus Insurance Company Europe Limited (Probus), a direct

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writer domiciled in Dublin, Ireland. In Italy, a fronted policy was purchased
from an unaffiliated carrier effective October 1, 2003, which is reinsured
through Hertz International RE Limited, (HIRE), a wholly owned subsidiary of
the Company. HIRE operates as a reinsurer in Dublin, Ireland. Effective
December 15, 2003, Probus underwrites the Companys Pan European motor vehicle
liability program up to $10 million per occurrence ($5 million from December
15, 2002 to December 15, 2003 and $1 million prior to December 15, 2002).
Probus reinsures this risk through HIRE. Excess coverage for claims that exceed
$10 million per occurrence is maintained with unaffiliated carriers. Effective
December 15, 2003, in foreign operations outside Europe, the Company is
self-insured at various amounts up to $10 million per occurrence ($317,000
prior to December 15, 2003) and maintains with unaffiliated carriers excess
liability insurance coverage up to $695 million per occurrence ($725 million
from January 1, 2001 to December 15, 2002 and up to $450 million prior to
2001).

Provisions for public liability and property damage on self-insured domestic
and foreign claims are made by charges to expense based upon evaluations of
estimated ultimate liabilities on reported and unreported claims. At December
31, 2003, this liability was estimated at $398.8 million for combined domestic
and foreign operations.

Ordinarily, collision damage costs and the costs of stolen or unaccounted for
cars are carried on a self-insured basis, with such costs being charged to
expense as incurred. HERC generally requires its customers to provide their
own liability insurance on rented equipment with HERC held harmless under
various agreements.

Other types of insurance usually carried by business organizations, such as
workers compensation (i.e., on a fronted basis up to $5 million per
occurrence), property (including boiler and machinery and business
interruption), commercial crime and fidelity, performance bonds and directors
and officers liability insurance, are purchased from various insurance
companies in amounts deemed adequate by the Company for the respective hazards.
The Company and its directors and officers participate as additional insureds
in certain insurance policies maintained by Ford.

Competition

The markets in which the Company operates are highly competitive. In any given
location, the Company may encounter competition from national, regional and
local companies. In the United States, the Companys principal competitors in
the airport car rental market are Cendant Corporation, which operates the
Avis and Budget brands, Vanguard Car Rental USA Inc., which operates the
National Car Rental and Alamo brands and Dollar Thrifty Automotive Group,
Inc., which operates the Dollar and Thrifty brands. Enterprise Rent-A-Car
Company (Enterprise), which also competes in the airport car rental market,
is the Companys principal competitor in the suburban local use and insurance
replacement markets in the United States. In Europe, the Companys principal
competitors in the car rental market are Avis Europe plc, Europcar, Sixt,
National Car Rental and Enterprise. The Company competes primarily on the basis
of customer service and price. In addition, the Company believes extensive
worldwide ownership of its operations and its access to the global capital
markets provide it with an advantage over its competitors.

HERCs competitors in the equipment rental industry range from other large
national companies, such as United Rentals, Inc. and the Rental Service
Division of Atlas Copco Inc., to many small regional businesses. HERCs
competitive success is, in part, due to its systems and procedures for
monitoring, controlling and developing its branch network, its capacity to
maintain a comprehensive rental fleet and its established national accounts
program.

The Company believes that price is one of the primary competitive factors in
the car and industrial and construction equipment rental markets. Competitors
of the Company, some of which have access to substantial capital, may seek to
compete aggressively on the basis of pricing. To the extent that the Company
matches downward competitor pricing, it could have an adverse impact on the
Companys results of operations. To the extent that the Company is not willing
to match competitor pricing, it could also have an adverse impact on the
Companys results of operations as the Company may lose market share.

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Employees

On December 31, 2003, the Company employed approximately 29,300 persons in its
domestic and foreign operations. Labor contracts covering the terms of
employment of approximately 7,300 employees in the United States are presently
in effect under 145 active contracts with local unions, affiliated primarily
with the International Brotherhood of Teamsters and the International
Association of Machinists (AFL-CIO). Labor contracts covering approximately
2,500 of these employees will expire during 2004. Employee benefits in effect
include group life insurance, hospitalization and surgical insurance, pension
plans and a defined contribution plan. Overseas employees are covered by a wide
variety of union contracts and governmental regulations affecting, among other
things, compensation, job retention rights and pensions. The Company has had no
material work stoppage as a result of labor problems during the last 10 years.
The Company believes its labor relations to be good.

In addition to the employees referred to above, the Company employs a
substantial number of temporary workers, and engages outside services, as is
customary in the industry, principally for the non-revenue movement of the
rental fleet between locations.

Governmental Regulation and Environmental Matters

Throughout the world, the Company is subject to numerous types of governmental
controls, including those relating to price regulation and advertising, privacy
and data protection, currency controls, labor matters, charge card operations,
insurance, environmental protection, used car sales and franchising.

The Companys operations, as well as those of its competitors, could be
affected by any limitation in the fuel supply or by any imposition of mandatory
allocation or rationing regulations. In the event of a severe disruption of
fuel supplies, the operations of all car and industrial and construction
equipment renting and leasing companies could be adversely affected.
Historically, there has been no material disruption of operations resulting
from lack of fuel availability.

The environmental legal and regulatory requirements applicable to the Companys
operations pertain to (i) the operation and maintenance of automobiles, trucks
and other vehicles, such as heavy equipment, buses and vans; (ii) the ownership
and operation of tanks for the storage of petroleum products, including
gasoline, diesel fuel and used oil; and (iii) the generation, storage,
transportation and disposal of waste materials, including used oil, vehicle
wash sludge and waste water. The Company has made, and will continue to make,
expenditures to comply with applicable environmental laws and regulations.

The use of automobiles and other vehicles is subject to various governmental
requirements designed to limit environmental damage, including those caused by
emissions and noise. Generally, these requirements are met by the manufacturer,
except in the case of occasional equipment failure requiring repair by the
Company. Measures are taken at certain locations in states that require the
installation of Stage II Vapor Recovery equipment to reduce the loss of vapor
during the fueling process.

The Company operates approximately 400 underground tanks and 1,600 aboveground
tanks in the U.S. to store petroleum products, and the Company believes its
tanks are maintained in material compliance with environmental regulations,
including federal and state financial responsibility requirements for
corrective action and third-party claims due to releases. The Companys
compliance program for its tanks ensures that (i) the tanks are properly
registered with the state in which the tanks are located; and (ii) the tanks
have been either upgraded or replaced to meet federal and state leak detection
and spill, overfill and corrosion protection requirements. The Company spent
approximately $2.1 million in 2003 to register, upgrade or replace tanks
requiring such action.

The Company is also incurring and providing for expenses for the cleanup of
contamination from the discharge of petroleum substances at its owned and
leased properties, as well as contamination at other locations at which the
Companys wastes have reportedly been identified. With respect to cleanup
expenditures for the discharge of petroleum substances at the Companys owned
or leased properties, the Company has received reimbursement, in whole or in
part, from certain states that maintain underground storage tank petroleum
cleanup reimbursement funds. Such funds have been established to assist tank
owners in the payment of cleanup costs associated with releases from registered
tanks. The Company expects to continue to receive reimbursement for cleanup
costs incurred due to releases from certain of its tanks. With respect to
off-site locations at which the Companys wastes have reportedly been
identified, the Company has been and continues to be required to contribute to
cleanup costs due to strict joint and

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several cleanup liability imposed by the federal Comprehensive Environmental
Response, Compensation and Liability Act of 1980 and comparable state superfund
statutes. The Company has recovered a substantial amount of such costs incurred
through settlements with its insurance carriers.

Environmental legislation and regulations and related administrative policies
have changed rapidly in recent years. There is a risk that governmental
environmental requirements, or enforcement thereof, may become more stringent
in the future and that the Company may be subject to legal proceedings brought
by government agencies or private parties with respect to environmental
matters. In addition, with respect to cleanup of contamination, additional
locations at which wastes generated by the Company may have been released or
disposed, and of which the Company is currently unaware, may in the future
become the subject of cleanup for which the Company may be liable, in whole or
part. Further, at airport-leased properties, the Company may be subject to
environmental requirements imposed by airports that are more restrictive than
those obligations imposed by environmental regulatory agencies. Accordingly,
while the Company believes that it is in substantial compliance with applicable
requirements of environmental laws, there can be no assurance that the
Companys future environmental liabilities will not be material to the
Companys consolidated financial position or results of operations or cash
flows.




ITEM 2. Properties.

The Companys owned operations are carried on at 3,405 locations worldwide,
including rental and sales offices, car sales locations and service facilities
located on or near airports and in central business districts in major cities
and suburban areas. These premises are leased, except for 190 that are owned.
The Company has various concession agreements with governmental authorities and
private companies charged with the operation of airports under arrangements
generally providing for payment of rents and a percentage of revenues with a
guaranteed annual minimum fee. See Note 10 to the Notes to the Companys
consolidated financial statements included in this Report.

The Company owns four major facilities in the vicinity of Oklahoma City,
Oklahoma at which reservations for its worldwide car rental operations are
processed, global strategic information systems are serviced and major domestic
and international accounting functions are performed. The Company maintains its
executive offices in an owned facility in Park Ridge, New Jersey. The Company
also has an owned reservation and financial center near Dublin, Ireland, for
centralized European reservation operations and accounting functions, and
leases a reservation center in Saraland (Mobile County), Alabama to supplement
the capacity of its Oklahoma City reservation center.




ITEM 3. Legal Proceedings.

The Company is not required to disclose any pending legal proceedings in
response to Item 103 of Regulation S-K. The following information is furnished
on a supplemental basis.

On March 1, 2002, Bowdoin Square, L.L.C. v. Winn-Dixie Montgomery, Inc.,
Wal-Mart Stores East, Inc., The Hertz Corporation, et al.was commenced in the
Circuit Court for Madison County, Alabama. The complaint alleges that the
Company, Wal-Mart Stores East, Inc. and other defendants violated certain
private land use restrictions and intentionally interfered with plaintiffs
contractual relationship with its tenant, Winn-Dixie Montgomery, Inc., when the
Company subleased a former Wal-Mart store located in a shopping center in
Saraland (Mobile County), Alabama. The complaint also alleges that the Company
and other defendants negligently and wantonly injured the value of plaintiffs
interest in the shopping center. A motion to transfer the case to the Circuit
Court for Mobile County was granted in September 2002, and the Company filed
its answer to the complaint. The plaintiffs claims against Winn-Dixie
Montgomery, Inc. have been severed and will be tried separately from the claims
against Wal-Mart and the Company. A trial of the claims against Wal-Mart and
the Company is anticipated during the summer of 2004.

On July 29, 2002, James Han, individually and on behalf of all others similarly
situated, v. The Hertz Corporationwas commenced in the Supreme Court of the
State of New York, County of New York. Hanpurported to be a class action on
behalf of persons who rented private passenger vehicles from the Company in New
York under rental agreements containing provisions which allegedly violate the
express provisions of Section 396-z of the General Business Law of New York and
New Yorks consumer fraud statute (i.e., Section 349 of the General Business
Law). More specifically, the complaint alleged that rental agreements used by
the Company in New York included provisions that imposed liability upon

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renters beyond the statutorily permitted amounts and that the rental agreements
failed to disclose to renters their rights and responsibilities concerning
vehicle damage. On July 29, 2003, the Companys motion for summary judgment was
granted and an order of dismissal was thereafter entered. The plaintiff has
filed a notice of appeal.

On August 1, 2002, Jennifer Myers, an individual and on behalf of all others
similarly situated, v. The Hertz Corporationwas filed in the United States
District Court for the Eastern District of New York. The complaint alleges a
nationwide opt-in collective action on behalf of all Senior Station Managers,
Station Managers and B Station Managers employed by the Company throughout
the United States, contesting their exempt classification and seeking payment
of overtime compensation under the federal Fair Labor Standards Act (FLSA).
The complaint also contains a subclass for all such managers employed in New
York for alleged violations of state labor laws. Plaintiffs have not yet been
permitted to obtain a nationwide opt-in, as discovery has been thus far
limited to the location where the plaintiffs are employed, in an effort by the
court to determine the viability of a nationwide action. In the interim, the
plaintiffs have been permitted to amend their complaint to include an
allegation of pay docking of managers. Additional depositions have been taken
concerning this new allegation. The Company will be filing a motion for
summary judgment in the near future.

On June 16, 2003, Wide World Tours of Mission Valley, Inc., Travel Support
Systems, Inc., Vacation Marketing Group of Hawaii., Cecilia Pedroza, and
International Travel Bureau, Inc. v. Avis Rent A Car System, Inc., Budget Rent
A Car System, Inc., Dollar Rent A Car, Inc., Enterprise Rent-A-Car Company, The
Hertz Corporation, and Thrifty Rent-A-Car System, Inc.was commenced in
Superior Court of the State of California, for the County of San Diego. Wide
World Tourspurports to be a class action on behalf of certain United States
travel agents and agencies that regularly book customers with the major rental
car companies. The complaint alleges that the defendant rental car companies
breached their unwritten contracts with the plaintiffs by knowingly and
deliberately under-reporting and underpaying the commissions due to the
plaintiffs, that in so doing the defendants engaged in deceit and that the
defendants engaged in unfair competition by deducting processing fees or other
administrative fees from payments they make to travel agents. After the
defendants filed misjoinder motions, an amended complaint was filed against the
Company with a separate new lawsuit commenced against Avis. On November 25,
2003, the Company served its answer to the amended complaint, and discovery has
now commenced.

On August 28, 2003, Naomi R. Henderson, individually and on behalf of all
others similarly situated, v. The Hertz Corporationwas commenced in the
Superior Court of New Jersey, Essex County. Hendersonpurports to be a class
action on behalf of all persons who purchased optional insurance products in
the State of New Jersey or in other states from or through the Company at times
that the Company did not have required licenses to sell such insurance. On
January 29, 2004, the Companys motion to dismiss was granted and an order of
dismissal was thereafter entered.

On December 22, 2003, Stephen Moore on behalf of himself and all others
similarly situated, v. The Hertz Corporationwas commenced in the Circuit Court
of the Thirteenth Judicial Circuit of the State of Florida, in and for
Hillsborough County. Moorepurports to be a class action on behalf of persons
who rented vehicles from the Company in Florida and were allegedly overcharged
for the recovery of a tire and battery solid waste management fee and the
recovery of registration fees for the issuance of Florida license plates.
Similar lawsuits were separately commenced by the same plaintiff against Avis
Rent A Car System Inc. and Budget Rent A Car System, Inc. The Company has not
yet filed an answer to the complaint.

In addition, the Company is currently a defendant in numerous actions and has
received numerous claims on which actions have not yet been commenced for
bodily injury, including death, and property damage arising from the operation
of motor vehicles and equipment rented from the Company and its licensees.
Such actions and claims are provided for within the Companys public liability
and property damage (PL/PD) program. In aggregate, the Company can be
expected to expend material sums to defend and settle those actions and claims
or to pay judgments resulting from them. Within the PL/PD program, HERC has
been named as a co-defendant in over 100 multi-plaintiff lawsuits filed in
Mississippi and Texas seeking damages for injuries (silicosis) which the
plaintiffs allegedly sustained from the use of equipment rented from HERC. In
all of these lawsuits, HERC is named as a co-defendant with a

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minimum of 80 other co-defendants, including the equipment manufacturers. HERC
is continuing its attempt to tender the defense of these lawsuits to the
equipment manufacturers.

The Company believes it has meritorious defenses in the foregoing matters and
will defend itself vigorously.




ITEM 4. Submission Of Matters To A Vote Of Security Holders.

Omitted.




PART II




ITEM 5. Market For Registrants Common Equity and Related Stockholder
Matters.

All shares of the Companys Common Stock at December 31, 2003 were owned by
Ford and Ford Holdings LLC and, as such, there is no market for the Companys
Common Stock. In February 2004, Ford Holdings LLC became the sole owner of the
Companys Common Stock.

The Company did not pay any dividends in 2003 and 2002.

Based on the terms of an indenture dated April 1, 1986, under which the Company
has outstanding debt securities, the Companys ability to pay dividends is
restricted. Such restriction provides that the Company may not pay dividends,
invest in its own shares or permit investments by certain subsidiaries of the
Company (Restricted Subsidiaries) in the Companys shares subsequent to a
specified date if, together with total investments by the Company and its
Restricted Subsidiaries in subsidiaries that are not Restricted Subsidiaries
made subsequent to such specified date, the aggregate of any such dividends or
investments exceeds the sum of (i) a specified dollar amount, (ii) the
aggregate net income of the Company and its Restricted Subsidiaries earned
subsequent to such specified date and (iii) net proceeds received from capital
stock issued subsequent to such specified date. At December 31, 2003,
approximately $1,029 million of consolidated stockholders equity was free of
such limitations.

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ITEM 6. Selected Financial Data.

The selected consolidated income statement data for each of the years in the
three-year period ended December 31, 2003, and consolidated balance sheet data
as of December 31, 2003 and 2002 presented below (other than the ratio of
earnings to fixed charges) were derived from the audited consolidated financial
statements of the Company and the related notes thereto included in this
Report. The selected consolidated income statement data for each of the years
in the two-year period ended December 31, 2000, and consolidated balance sheet
data as of December 31, 2001, 2000, and 1999 presented below (other than the
ratio of earnings to fixed charges) were derived from audited consolidated
financial statements of the Company and the related notes thereto not included
in this Report. The financial data presented below and the related notes
thereto should be read in conjunction with the consolidated financial
statements of the Company and the related notes thereto included in this
Report.

|                      |                                                                   |                                                                         |                |          |                                 |         |      |          |                     |         |      |          |         |         |   |          |         |         |   |          |         |         | 
|--------------------- | ----------------------------------------------------------------- | ----------------------------------------------------------------------- | -------------- | -------- | ------------------------------- | ------- | ---- | -------- | ------------------- | ------- | ---- | -------- | ------- | ------- | - | -------- | ------- | ------- | - | -------- | ------- | ------- | 
|                      |                                                                   |                                                                         |                |          | Years ended, or at December 31,
|                      |                                                                   |                                                                         |                |          |                                
|                      |                                                                   |                                                                         |                |          | 2003                            |         | 2002 |          | 2001                |         | 2000 |          | 1999   
|                      |                                                                   |                                                                         |                |          |                                 |         |      |          |                     |         |      |          |        
|                      |                                                                   |                                                                         |                |          |                                 |         |      |          | Dollars in millions |         |      |          |        
|Income Statement Data |                                                                   |                                                                         |                |          |                                 |         |      |          |                     |         |      |          |         |         |   |          |         |         |   |         
|                      | Revenues                                                          |                                                                         |                |          |                                 |         |      |          |                     |         |      |          |         |         |   |          |         |         |   |          |        
|                      |                                                                   | Car rental                                                              |                | $        | 4,239.2                         |         |      | $        | 4,005.6             |         |      | $        | 3,823.9 |         |   | $        | 3,980.6 |         |   | $        | 3,728.5 |        
|                      |                                                                   | Industrial and construction equipment rental                            |                |          | 904.6                           |         |      |          | 892.6               |         |      |          | 1,003.4 |         |   |          | 969.6   |         |   |          | 842.9   |        
|                      |                                                                   | Other (a)                                                               |                |          | 64.1                            |         |      |          | 69.9                |         |      |          | 88.5    |         |   |          | 123.3   |         |   |          | 144.3   |        
|                      |                                                                   |                                                                         |                |          |                                 |         |      |          |                     |         |      |          |         |         |   |          |         |         |   |          |         |        
|                      |                                                                   |                                                                         | Total revenues |          |                                 | 5,207.9 |      |          |                     | 4,968.1 |      |          |         | 4,915.8 |   |          |         | 5,073.5 |   |          |         | 4,715.7 | 
|                      |                                                                   |                                                                         |                |          |                                 |         |      |          |                     |         |      |          |         |         |   |          |         |         |   |          |         |        
|                      | Expenses                                                          |                                                                         |                |          |                                 |         |      |          |                     |         |      |          |         |         |   |          |         |         |   |          |        
|                      |                                                                   | Direct operating                                                        |                |          | 2,596.7                         |         |      |          | 2,428.8             |         |      |          | 2,574.1 |         |   |          | 2,303.3 |         |   |          | 2,133.5 |        
|                      |                                                                   | Depreciation of revenue earning equipment (b)                           |                |          | 1,523.4                         |         |      |          | 1,499.5             |         |      |          | 1,462.3 |         |   |          | 1,323.5 |         |   |          | 1,228.0 |        
|                      |                                                                   | Selling, general and administrative                                     |                |          | 495.3                           |         |      |          | 457.0               |         |      |          | 472.0   |         |   |          | 451.0   |         |   |          | 452.4   |        
|                      |                                                                   | Interest, net of interest income of $17.9, $10.3,
$9.0, $13.5 and $12.2 |                |          | 355.0                           |         |      |          | 366.4               |         |      |          | 404.7   |         |   |          | 414.8   |         |   |          | 341.4   |        
|                      |                                                                   |                                                                         |                |          |                                 |         |      |          |                     |         |      |          |         |         |   |          |         |         |   |          |         |        
|                      |                                                                   |                                                                         | Total expenses |          |                                 | 4,970.4 |      |          |                     | 4,751.7 |      |          |         | 4,913.1 |   |          |         | 4,492.6 |   |          |         | 4,155.3 | 
|                      |                                                                   |                                                                         |                |          |                                 |         |      |          |                     |         |      |          |         |         |   |          |         |         |   |          |         |        
|                      | Income before income taxes                                        |                                                                         |                | 237.5    |                                 |         |      | 216.4    |                     |         |      | 2.7      |         |         |   | 580.9    |         |         |   | 560.4    |        
|                      | Provision (benefit) for taxes on income (c)                       |                                                                         |                | 78.9     |                                 |         |      | 72.4     |                     |         |      | (20.6    | )       |         |   | 222.5    |         |         |   | 224.4    |        
|                      |                                                                   |                                                                         |                |          |                                 |         |      |          |                     |         |      |          |         |         |   |          |         |         |   |          |         |        
|                      | Income before cumulative effect of change in accounting
principle |                                                                         |                | 158.6    |                                 |         |      | 144.0    |                     |         |      | 23.3     |         |         |   | 358.4    |         |         |   | 336.0    |        
|                      | Cumulative effect of change in accounting principle (d)           |                                                                         |                |         |                                 |         |      | (294.0   | )                   |         |      |         |         |         |   |         |         |         |   |         |        
|                      |                                                                   |                                                                         |                |          |                                 |         |      |          |                     |         |      |          |         |         |   |          |         |         |   |          |         |        
|                      | Net income (loss)                                                 |                                                                         | $              | 158.6    |                                 |         | $    | (150.0   | )                   |         | $    | 23.3     |         |         | $ | 358.4    |         |         | $ | 336.0    |        
|                      |                                                                   |                                                                         |                |          |                                 |         |      |          |                     |         |      |          |         |         |   |          |         |         |   |          |         |        
|                      | Ratio of earnings to fixed charges (e)                            |                                                                         |                | 1.5      |                                 |         |      | 1.4      |                     |         |      | 1.0      |         |         |   | 2.1      |         |         |   | 2.3      |        
|                      |                                                                   |                                                                         |                |          |                                 |         |      |          |                     |         |      |          |         |         |   |          |         |         |   |          |         |        
|Balance Sheet Data    |                                                                   |                                                                         |                |          |                                 |         |      |          |                     |         |      |          |         |         |   |          |         |         |   |         
|                      | Revenue earning equipment, net                                    |                                                                         |                |          |                                 |         |      |          |                     |         |      |          |         |         |   |          |         |         |   |          |        
|                      |                                                                   | Cars                                                                    |                | $        | 6,462.0                         |         |      | $        | 5,998.3             |         |      | $        | 5,220.4 |         |   | $        | 5,186.2 |         |   | $        | 4,762.3 |        
|                      |                                                                   | Other equipment                                                         |                |          | 1,331.3                         |         |      |          | 1,427.6             |         |      |          | 1,631.3 |         |   |          | 1,736.3 |         |   |          | 1,501.4 |        
|                      | Total assets                                                      |                                                                         |                | 12,579.0 |                                 |         |      | 11,128.9 |                     |         |      | 10,158.4 |         |         |   | 10,620.0 |         |         |   | 10,136.7 |        
|                      | Total debt                                                        |                                                                         |                | 7,627.9  |                                 |         |      | 7,043.2  |                     |         |      | 6,314.0  |         |         |   | 6,676.0  |         |         |   | 6,602.2  |        
|                      | Stockholders equity                                              |                                                                         |                | 2,225.4  |                                 |         |      | 1,921.9  |                     |         |      | 1,984.4  |         |         |   | 1,984.1  |         |         |   | 1,674.0  |        



|(a) |  | Includes fees from licensees (other than expense reimbursements) and
revenues from car leasing operations, telecommunications services through
2001 and claim management services. Certain foreign car leasing
operations were transferred to an affiliated company on August 31, 2000.                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(b) |  | For 2003, 2002, 2001, 2000 and 1999, depreciation of revenue earning
equipment includes a net loss of $0.8 million, net gain of $10.8 million,
a net loss of $1.6 million, and net gains of $54.5 million and $42.3
million, respectively, from the disposal of revenue earning equipment.
Effective January 1, 2000, certain estimated useful lives being used to
compute the provision for depreciation of revenue earning equipment used
in the industrial and construction equipment rental business were
increased to reflect changes in the estimated residual values to be
realized upon disposal of the equipment. As a result of this change,
depreciation of revenue earning equipment for the year 2000 decreased by
$12.9 million.
|   
|(c) |  | Includes benefits of $30.2 million in 2001 and $3.8 million in 2000 from
certain foreign tax credits.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   
|(d) |  | Cumulative effect of change in accounting principle represents a non-cash
charge in 2002, related to impairment of goodwill in the Companys
industrial and construction rental business, recognized in accordance with
the adoption of Statement of Financial Accounting Standards No. 142
Goodwill and Other Intangible Assets.                                                                                                                                                                                                                                                                                                                                                                                                           
|   
|(e) |  | Earnings have been calculated by adding interest expense and the portion
of rentals estimated to represent the interest factor to income before
income taxes. Fixed charges include interest charges (including
capitalized interest) and the portion of rentals estimated to represent
the interest factor.                                                                                                                                                                                                                                                                                                                                                                                                                                  

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ITEM 7. Managements Discussion and Analysis of Financial Condition and
Results of Operations.

General

The Company is engaged principally in the business of renting cars and renting
industrial and construction equipment.

The Companys revenues principally are derived from rental and related charges
and consist of:



| |  |  | Car rental revenues (revenues from all owned car operations, including
loss or collision damage waivers, liability insurance and other
products);              
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Industrial and construction equipment rental revenues; and                                                                                                     
|
| |  |  | Other revenues (fees from the Companys licensees, revenues from the
Companys claim management services and, prior to 2002, from
telecommunications services).

The Companys expenses consist of:



| |  |  | Direct operating expenses (primarily wages and related benefits;
concessions and commissions paid to airport authorities, travel agents
and others; and other costs relating to the operation and rental of the
revenue earning equipment, such as maintenance and reservations);
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Depreciation expense relating to revenue earning equipment (including
net gains or losses on the disposal of such equipment). Revenue earning
equipment includes cars and industrial and construction equipment;                                                                 
|
| |  |  | Selling, general and administrative expenses (including advertising); and                                                                                                                                                                                                        
|
| |  |  | Interest expense relating primarily to the funding of the acquisition of revenue earning equipment.                                                                                                                                                                              

The Companys profitability is primarily a function of the volume and pricing
of rental transactions and the utilization of cars and equipment. Significant
changes in the purchase price of cars and equipment or interest rates can also
have a significant effect on the Companys profitability depending on the
ability of the Company to adjust pricing for these changes. The Companys
business requires significant expenditures for cars and equipment and the
Company consequently requires substantial liquidity to finance such
expenditures.

The following discussion and analysis provides information that management
believes to be relevant to understanding the Companys consolidated financial
condition and results of operations. This discussion should be read in
conjunction with the financial statements and the related notes thereto
contained in the Companys consolidated financial statements included in this
Report.

Critical Accounting Policies and Estimates

The Companys discussion and analysis of its financial condition and results of
operations are based upon its consolidated financial statements, which have
been prepared in accordance with accounting principles generally accepted in
the United States. The preparation of these financial statements requires
management to make estimates and judgments that affect the reported amounts in
the consolidated financial statements and accompanying notes.

The Company believes the following critical accounting policies affect the more
significant judgments and estimates used in the preparation of the consolidated
financial statements. For additional discussion of the Companys accounting
policies, see Note 1 to the Notes to the Companys consolidated financial
statements included in this Report.

Revenue Earning Equipment

The Companys principal assets are Revenue Earning Equipment (REE), which
represents 62% of total assets at December 31, 2003. REE consists of vehicles
utilized in car rental operations and industrial and

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construction equipment rented by HERC. During 2003, 81% of the vehicles
purchased for the Companys U.S. and international car rental fleet were
subject to repurchase by automobile manufacturers under contractual guaranteed
repurchase programs, subject to certain manufacturers car condition and
mileage requirements, at a specific price during a specified time period.
These programs limit the Companys residual risk with respect to vehicles
purchased under the programs. For all other vehicles, as well as equipment
acquired by HERC, the Company uses historical experience and monitors market
conditions to set depreciation rates. When REE is acquired, the Company
estimates the period it will hold the asset. Depreciation is recorded on a
straight-line basis over the estimated holding period, with the objective of
minimizing gain or loss on the disposition of the REE. Upon disposal of the
REE, depreciation expense is adjusted for the difference between the net
proceeds from the sale and the remaining book value. As market conditions
change, the Company adjusts its depreciation rates prospectively, over the
remaining holding period, to reflect these changes in market conditions.

Public Liability and Property Damage

The obligation for public liability and property damage on self-insured
domestic and foreign vehicles and equipment represents an estimate for both
reported accident claims not yet paid, and claims incurred but not yet
reported. Reserve requirements are based on actuarial evaluations of
historical accident claim experience and trends, as well as future projections
of ultimate losses, expenses, premiums and administrative costs. The adequacy
of the liability is regularly monitored based on evolving accident claim
history. If actual results differ from these assumptions, the amount of the
Companys recorded liability is adjusted to reflect these results.

Pensions

The Companys employee pension costs and obligations are dependent on the
Companys assumptions used by actuaries in calculating such amounts. These
assumptions include discount rates, salary growth, long-term return on plan
assets, retirement rates, mortality rates and other factors. Actual results
that differ from the Companys assumptions are accumulated and amortized over
future periods and, therefore, generally affect the Companys recognized
expense and recorded obligation in such future periods. While the Company
believes that the assumptions used are appropriate, significant differences in
actual experience or significant changes in assumptions would affect the
Companys pension costs and obligations. See Note 6 to the Notes to the
Companys consolidated financial statements included in this Report.

Goodwill

The Company reviews goodwill for impairment whenever events or changes in
circumstances indicate that the carrying amount of the goodwill may not be
recoverable, and also reviews goodwill annually in accordance with Statement of
Financial Accounting Standards (SFAS) No. 142, Goodwill and Other Intangible
Assets. Under SFAS No. 142, goodwill impairment is deemed to exist if the
carrying value of goodwill exceeds its fair value. In addition, SFAS No. 142
requires that goodwill be tested at least annually using a two-step process.
The first step is to identify any potential impairment by comparing the
carrying value of the reporting unit to its fair value. If a potential
impairment is identified, the second step is to compare the implied fair value
of goodwill with its carrying amount to measure the impairment loss. The
Company estimates the fair value of its reporting units using a discounted cash
flow methodology. A significant decline in the projected cash flows used to
determine fair value could result in a goodwill impairment charge. See Note 2
to the Notes to the Companys consolidated financial statements included in
this Report.

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Results of Operations

The following table sets forth for each of the years indicated, the percentage
of operating revenues represented by certain items in the Companys
consolidated statement of operations:

|                                                                  |                                              |  |                        |      |      |  |       |      |   |  |       |      |  
|----------------------------------------------------------------- | -------------------------------------------- |  | ---------------------- | ---- | ---- |  | ----- | ---- | - |  | ----- | ---- | -
|                                                                  |                                              |  | Percentage of Revenues
|                                                                  |                                              |  |                       
|                                                                  |                                              |  | Years Ended           
|                                                                  |                                              |  | December 31,          
|                                                                  |                                              |  |                       
|                                                                  |                                              |  | 2003                   |      | 2002 |  | 2001 
|                                                                  |                                              |  |                        |      |      |  |      
|Revenues:                                                         |                                              |  |                        |      |      |  |       |      |   |  |       |     
|                                                                  | Car rental                                   |  |                        | 81.4 | %    |  |       | 80.6 | % |  |       | 77.8 | %
|                                                                  | Industrial and construction equipment rental |  |                        | 17.4 |      |  |       | 18.0 |   |  |       | 20.4 |  
|                                                                  | Other                                        |  |                        | 1.2  |      |  |       | 1.4  |   |  |       | 1.8  |  
|                                                                  |                                              |  |                        |      |      |  |       |      |   |  |       |     
|                                                                  |                                              |  | 100.0                  |      |      |  | 100.0 |      |   |  | 100.0 |     
|                                                                  |                                              |  |                        |      |      |  |       |      |   |  |       |     
|Expenses:                                                         |                                              |  |                        |      |      |  |       |      |   |  |       |     
|                                                                  | Direct operating                             |  |                        | 49.9 |      |  |       | 48.9 |   |  |       | 52.4 |  
|                                                                  | Depreciation of revenue earning equipment    |  |                        | 29.2 |      |  |       | 30.2 |   |  |       | 29.7 |  
|                                                                  | Selling, general and administrative          |  |                        | 9.5  |      |  |       | 9.2  |   |  |       | 9.6  |  
|                                                                  | Interest, net of interest income             |  |                        | 6.8  |      |  |       | 7.3  |   |  |       | 8.2  |  
|                                                                  |                                              |  |                        |      |      |  |       |      |   |  |       |     
|                                                                  |                                              |  | 95.4                   |      |      |  | 95.6  |      |   |  | 99.9  |     
|                                                                  |                                              |  |                        |      |      |  |       |      |   |  |       |     
|Income before income taxes                                        |                                              |  | 4.6                    |      |      |  | 4.4   |      |   |  | 0.1   |     
|Provision (benefit) for taxes on income                           |                                              |  | 1.6                    |      |      |  | 1.5   |      |   |  | (0.4  | )   
|                                                                  |                                              |  |                        |      |      |  |       |      |   |  |       |     
|Income before cumulative effect of change in accounting principle |                                              |  | 3.0                    | %    |      |  | 2.9   | %    |   |  | 0.5   | %   
|                                                                  |                                              |  |                        |      |      |  |       |      |   |  |       |     

Year Ended December 31, 2003 Compared with Year Ended December 31, 2002

Revenues

Total revenues of $5,207.9 million in 2003 increased by 4.8% from $4,968.1
million in 2002.

Revenues from car rental operations of $4,239.2 million in 2003 increased by
5.8% from $4,005.6 million in 2002. This increase of $233.6 million was
primarily the result of the effects of foreign currency translation of
approximately $168.6 million and higher rental volume worldwide, partly offset
by a 1.5% decrease in pricing. The impact of changes in exchange rates on net
income is mitigated by the fact that not only foreign revenues but also most
foreign expenses are incurred in local currencies.

Revenues from industrial and construction equipment rental operations of $904.6
million in 2003 increased by 1.3% from $892.6 million in 2002. This $11.9
million increase was principally due to the effects of foreign currency
translation, mostly offset by a decrease in rental volume in the United States
which was the result of depressed capital spending for new non-residential
construction and its impact on the equipment rental industry.

Revenues from all other sources of $64.1 million in 2003 decreased by 8.3% from
$69.9 million in 2002, due to a decrease in license and management fees earned
from Axus. Axus was a wholly owned vehicle leasing subsidiary of Ford Credit
to which the Company had licensed the Hertz name and provided management
services prior to the completion of the sale of Axus by Ford Credit and
termination of the Hertz license in the first quarter of 2003.

Expenses

Total expenses of $4,970.4 million in 2003 increased by 4.6% from $4,751.7
million in 2002, principally due to the increase in revenues.

Direct operating expenses of $2,596.7 million in 2003 increased by 6.9% from
$2,428.8 million in 2002. The increase was primarily the result of the effects
of foreign currency translation, increases in wages and benefits, self
insurance and gasoline costs, partly offset by decreases in concession fees and
commissions in car rental operations and a gain of $8.0 million from the
condemnation of a car rental and support facility in Florida.

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Depreciation of revenue earning equipment for the car rental operations of
$1,258.3 million in 2003 increased by 2.4% from $1,228.5 million in 2002. The
increase was due to the effects of foreign currency translation. This increase
was partly offset by a one-time refund of $7.8 million which resulted from a
special transitional credit for rental car companies instituted by the
Australian Taxation Office for Goods and Services Tax. Taxes paid were
previously included in the capitalized cost of the vehicles in the Companys
Australian car rental fleet. Depreciation of revenue earning equipment for the
industrial and construction equipment rental operations of $265.1 million in
2003 decreased by 2.2% from $271.0 million in 2002 due to a decrease in the
size of the equipment rental fleet partly offset by lower net proceeds received
in excess of book value on the disposal of equipment in the United States.

Selling, general and administrative expenses of $495.3 million in 2003
increased by 8.4% from $457.0 million in 2002. The increase was principally
due to the effects of foreign currency translation and increases in
administrative and sales promotion expenses. Administrative expenses in 2003
included $6.0 million of stock-based employee compensation expense which
resulted from the adoption of the fair value recognition provisions of SFAS No.
123, effective January 1, 2003. See Notes 1 and 7 to the Notes to the
Companys consolidated financial statements included in this Report.

Interest expense of $355.0 million in 2003 decreased 3.1% from $366.4 million
in 2002, primarily due to a decrease in the weighted-average interest rate and
an increase in interest income in 2003, partly offset by higher average debt
levels.

The tax provision of $78.9 million in 2003 increased 9.0% from $72.3 million in
2002. The effective tax rate in 2003 was 33.2% as compared to 33.4% in 2002.
The increase in the tax provision was primarily the result of higher income
before income taxes in 2003. See Notes 1 and 9 to the Notes to the Companys
consolidated financial statements included in this Report.

Income before cumulative effect of change in accounting principle

The Company had income before cumulative effect of change in accounting
principle of $158.6 million in 2003, representing an increase of $14.6 million
from $144.0 million in 2002. The increase reflects improved car rental volume
worldwide partly offset by lower pricing in the Companys U.S. car rental
business and the impact the Iraqi conflict and severe acute respiratory
syndrome, or SARS had on the travel industry in 2003 as well as the net
effect of other contributing factors noted above.

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. See
Notes 1 and 2 to the Notes to the Companys consolidated financial statements
included in this Report.

Outlook

The Company expects an improving economic environment resulting in modest
increases in demand in both the car and equipment rental businesses during the
year 2004. Full year 2004 net income is anticipated to improve over 2003
levels. This assessment does not account for any impact that terrorist
attacks, epidemic disease or governmental responses thereto might have on the
travel or equipment rental industries or on the overall economy.

Year Ended December 31, 2002 Compared with Year Ended December 31, 2001

Revenues

Total revenues of $4,968.1 million in 2002 increased by 1.1% from $4,915.8
million in 2001.

Revenues from car rental operations of $4,005.6 million in 2002 increased by
4.8% from $3,823.9 million in 2001. This increase of $181.7 million was
primarily the result of an 8.5% increase in pricing worldwide and an increase
of approximately $48.3 million from the effects of foreign currency
translation, which was substantially offset by a 4.1% decrease in rental
transactions in the United States. 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.

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Revenues from industrial and construction equipment rental operations of $892.6
million in 2002 decreased by 11.0% from $1,003.4 million in 2001. This $110.8
million decrease was principally due to a decrease in rental volume resulting
from unfavorable economic conditions in the equipment rental industry
worldwide.

Revenues from all other sources of $69.9 million in 2002 decreased by 21.0%
from $88.5 million in 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 $4,751.7 million in 2002 decreased by 3.3% from $4,913.1
million in 2001, and total expenses as a percentage of revenues decreased to
95.6% in 2002 from 99.9% in 2001, principally due to an increase in revenues
and cost reductions.

Direct operating expenses of $2,428.8 million in 2002 decreased by 5.6% from
$2,574.1 million in 2001. The decrease was primarily the result of lower costs
in car rental and equipment rental operations, including 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 $29.2 million which
resulted from the elimination of goodwill amortization upon the Companys
adoption of SFAS No. 142, effective January 1, 2002. See Note 2 to the Notes
to the Companys consolidated financial statements included in this Report.

Depreciation of revenue earning equipment for the car rental operations of
$1,228.5 million in 2002 increased by 3.2% from $1,190.9 million in 2001,
principally due to an increase in the cost of cars operated in the United
States, partially offset by higher net proceeds received in excess of book
value on the disposal of vehicles in the United States.

Depreciation of revenue earning equipment for the industrial and construction
equipment rental operations of $271.0 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 equipment.

Selling, general and administrative expenses of $457.0 million in 2002
decreased by 3.2% from $472.0 million in 2001. The decrease was principally
due to decreases in advertising and sales promotion expenses. These decreases
were partly offset by an increase in administrative expenses attributable to an
increase in incentive compensation expense relating to the improvement in
earnings in 2002.

Interest expense of $366.4 million in 2002 decreased 9.5% from $404.7 million
in 2001, primarily due to a decrease in the weighted-average interest rate in
2002 and an increase in interest income.

A tax provision of $72.4 million was provided in 2002, as compared to a tax
benefit of $20.6 million recognized in 2001. The increase in the income tax
provision was primarily due to higher income before income taxes in 2002 and
higher foreign tax credits recorded in 2001. The effective tax rate in 2002
was 33.4%. The effective tax rate in 2001 was 31.5% after adjusting for the
effects of foreign tax credits, non-deductible goodwill amortization and an
increase in the valuation allowance. The increase in the effective tax rate
was due primarily to the mix of pretax operating results between countries with
different tax rates and restrictions in 2001 on the carryforward of certain
state tax losses. See Notes 1 and 9 to the Notes to the Companys consolidated
financial statements included in this Report.

Income before cumulative effect of change in accounting principle

The Company had income before cumulative effect of change in accounting
principle of $144.0 million in 2002, representing an increase of $120.7 million
from $23.3 million in 2001. The increase was primarily due to an improved
pricing environment in the Companys worldwide car rental business, lower
interest expense and cost reductions. These increases were partly offset by
continued lower car and equipment rental volumes after the terrorist attacks of
September 11, 2001 and overall economic conditions, which have negatively
impacted corporate spending levels in the United States and certain European
countries.

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Liquidity and Capital Resources

At December 31, 2003, the Company had cash and cash equivalents of $610.0
million, an increase of $8.7 million from December 31, 2002. In the third
quarter of 2003, the Company began making short-term investments with a related
party investment fund that pools and invests excess cash balances of certain
Ford subsidiaries to maximize returns. These short-term investments totaled
$500.1 million at December 31, 2003 and will be held until the funds are
required for operating purposes or used 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 2003 increased
approximately $340 million from 2002 primarily due to the decrease in net
revenue earning vehicle expenditures. For the year ended December 31, 2003,
the Companys expenditures for revenue earning equipment were $9.4 billion
(partially offset by proceeds from the sale of such equipment of $7.9 billion).
These assets are purchased by the Company in accordance with the terms of
programs negotiated with automobile and equipment manufacturers. For the year
ended December 31, 2003, the Companys capital expenditures for property and
non-revenue earning equipment were $226.7 million.

Financing

To finance its domestic operations, the Company maintains active unsecured and
asset backed commercial paper programs. 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 are
issued by wholly owned and consolidated special purpose financing entities and
are included in debt in the Companys consolidated balance sheet. The
commercial paper notes have ratings of A-1 by Standard & Poors Rating Services,
a division of McGraw-Hill Companies, Inc. (S&P), Prime-1 by Moodys Investors
Service, Inc. (Moodys) and F1 by Fitch Ratings (Fitch). Under certain
conditions, the commercial paper notes may be repaid by draws under a related
bank liquidity facility ($814 million), which expires in September 2004, or a
related letter of credit issued under a letter of credit facility ($215
million), which also expires in September 2004.

All debt issued under the ABS program is collateralized by the assets dedicated
to the ABS program, consisting of revenue earning vehicles used by the Company
in its domestic car rental business, restricted cash and investments, and
certain receivables related to the revenue earning vehicles. As of December
31, 2003, $723.1 million of asset backed commercial paper was outstanding.

On September 30, 2003, the Company issued $500 million of 4.7% Senior
Promissory Notes (the Notes) due on October 2, 2006. Effective September 30,
2003, the Company entered into interest rate swap agreements relating to the
Notes. Under these agreements, the Company pays interest at a variable rate in
exchange for fixed rate receipts, effectively transforming these Notes to
floating rate obligations with an effective interest rate at December 31, 2003
of 3.27%. See Note 3 to the Notes to the Companys consolidated financial
statements included in this Report.

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
December 31, 2003 was $4.9 billion with maturities ranging from 2004 to 2028.
From time to time, the Company files with the Securities and Exchange
Commission shelf registration statements to allow for the issuance of such debt
securities on terms to be determined at the time such securities are offered
for sale. At December 31, 2003, the Company had $3 billion available for
issuance under effective registration statements. At December 31, 2003, there
was no asset backed medium-term or long-term debt outstanding.

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 commercial paper borrowings of its subsidiaries

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in Belgium, Ireland and the Netherlands, and guarantees commercial paper and
short-term bank loans of its subsidiaries in Australia and Canada. All
borrowings by international operations are either in the international
operations local currency or, if in non-local currency, hedged to minimize
foreign exchange exposure. At December 31, 2003, total debt for the foreign
operations was $1,546 million, of which $1,538 million was short-term (original
maturity of less than one year) and $8 million was long-term. At December 31,
2003, the total amounts outstanding (in millions of U.S. dollars) under the
commercial paper programs in Australia, Belgium, Canada, Ireland and the
Netherlands were $2, $80, $361, $582 and $10, respectively.

Contractual Obligations

At December 31, 2003, the Companys contractual cash obligations, were as
follows (in millions of dollars):

|                                              |                            |       |                       |        |        |           |       |           |                        |         |       |    |       |    |     |   |     |   |           |   |       |   | 
|--------------------------------------------- | -------------------------- | ----- | --------------------- | ------ | ------ | --------- | ----- | --------- | ---------------------- | ------- | ----- | -- | ----- | -- | --- | - | --- | - | --------- | - | ----- | - | 
|                                              |                            |       |                       |        |        |           |       |           | Payments Due by Period
|                                              |                            |       |                       |        |        |           |       |           |                       
|                                              |                            |       |                       |        |        |           |       |           | Less than              |         |       |    |       |    |     |   |     |   | More than
|Contractual Obligations                       |                            | Total |                       | 1 Year |        | 1-3 Years |       | 3-5 Years |                        | 5 Years
|                                              |                            |       |                       |        |        |           |       |           |                        |        
|Debt (1)                                      |                            | $     | 7,628                 |        |        | $         | 3,622 |           |                        | $       | 1,364 |    |       | $  | 701 |   |     | $ | 1,941     |  
|Operating leases and
concession agreements(2) |                            |       | 1,232                 |        |        |           | 259   |           |                        |         | 382   |    |       |    | 217 |   |     |   | 374       |  
|Purchase obligations (3)                      |                            |       |                       |        |        |           |       |           |                        |         |       |    |       |    |     |   |     |   |           |  
|                                              |                            |       | Ford and subsidiaries |        |        | 2,934     |       |           |                        | 2,934   |       |    |       |   |     |   |     |  |           |   |       |  | 
|                                              |                            |       | All others            |        |        | 3,237     |       |           |                        | 3,158   |       |    |       | 77 |     |   |     | 2 |           |   |       |  | 
|                                              |                            |       |                       |        |        |           |       |           |                        |         |       |    |       |    |     |   |     |   |           |  
|                                              | Total purchase obligations |       |                       | 6,171  |        |           |       | 6,092     |                        |         |       | 77 |       |    |     | 2 |     |   |           |  |      
|                                              |                            |       |                       |        |        |           |       |           |                        |         |       |    |       |    |     |   |     |   |           |  
|                                              |                            | Total |                       | $      | 15,031 |           |       | $         | 9,973                  |         |       | $  | 1,823 |    |     | $ | 920 |   |           | $ | 2,315 |  
|                                              |                            |       |                       |        |        |           |       |           |                        |         |       |    |       |    |     |   |     |   |           |  



|(1) |  | Amounts represent debt obligations of the Company included in Debt in
the Companys consolidated balance sheet and includes $2,720 million of
commercial paper and other short term borrowings. See Note 3 to the Notes
to the Companys consolidated financial statements included in this
Report.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | Includes obligations under various concession agreements, which provide
for payment of rents and a percentage of revenue with a guaranteed
minimum, and lease agreements for real estate, revenue earning equipment
and office and computer equipment. Such obligations are reflected to the
extent of their minimum noncancelable terms. See Note 10 to the Notes to
the Companys consolidated financial statements included in this Report.                                                                                                                                                                                                                                                                                                                                                                                   
|   
|(3) |  | Purchase obligations represent agreements to purchase goods or services
that are legally binding on the Company and that specify all significant
terms, including fixed or minimum quantities; fixed, minimum or variable
price provisions; and the approximate timing of the transaction. Only the
minimum noncancelable portion of purchase agreements and related
cancellation penalties are included as obligations. In the case of
contracts, which state minimum quantities of goods or services, amounts
reflect only the stipulated minimums; all other contracts reflect
estimated amounts. Of the total purchase obligations at December 31,
2003, $5,973 million represent 2004 model year fleet purchases where
contracts have been signed or are pending with committed orders under the
terms of such arrangements.

Credit Facilities

At December 31, 2003, the Company had committed credit facilities totaling $2.8
billion.

Currently, $1.3 billion of the committed credit facilities are represented by a
combination of multi-year, 364-day global and other committed credit facilities
provided by 24 participating banks. In addition to direct borrowings by the
Company, the multi-year and 364-day global facilities allow certain
subsidiaries of the Company to borrow on the basis of a guarantee by the
Company. The multi-year facilities were re-negotiated effective July 1, 2003
and currently total $1,065 million with expirations as follows: $43 million on
June 30, 2004, $69 million on June 30, 2005, $35 million on June 30, 2006, $108
million on June 30, 2007 and $810 million on June 30, 2008. The multi-year
facilities that expire in 2008 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 19, 2003, the 364-day global committed
credit facilities, which total $115 million, were renegotiated and currently
expire on June 17, 2004. 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. The other committed facilities total $118 million and expire
at various times during 2004.

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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 the right to transfer them back to the 364-day global
committed credit facilities without the consent of the participating banks. As
of December 31, 2003, $814 million is currently available which expires in
September 2004. 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, which currently expires June 30,
2005. This line of credit has an evergreen feature that provides on an annual
basis for automatic one-year extensions of the expiration date, unless 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. A commitment fee of .2% per annum is
payable on the unused available credit.

Debt Ratings

The Companys short- and long-term debt is rated by the four
nationally-recognized statistical rating organizations: Fitch; Moodys; S&P
and Dominion Bond Rating Service Limited (DBRS) in Canada. Debt ratings
reflect an assessment by the rating agencies of the credit risk associated with
particular securities issued by the Company. Lower ratings generally result in
higher borrowing costs and reduced access to capital markets. Long- and
short-term debt ratings of BBB- and F3 or higher by Fitch, Baa3 and Prime-3 or
higher by Moodys, BBB- and A3 or higher by S&P, and BBB and R-2 or higher by
DBRS are considered investment grade. However, debt ratings are not
recommendations to buy, sell, or hold securities and are subject to revision or
withdrawal at any time by the assigning rating agency. Each rating agency may
have different criteria in evaluating the risk associated to a company, and
therefore ratings should be evaluated independently for each rating agency.

On November 12, 2003, S&P downgraded the long-term corporate credit ratings of
Ford, Ford Credit and the Company to BBB- with a stable outlook from BBB with a
negative outlook. S&P also downgraded the short-term ratings of Ford, Ford
Credit and the Company to A-3 fromA-2. This downgrade
did not substantially reduce the Companys ability to issue unsecured
commercial paper, nor is it expected to materially affect the Companys funding
mix for 2004. The Companys funding strategy continues to be focused on
maintaining liquidity and diverse and competitive funding sources. The Company
believes that its funding strategy will allow it to continue to fund its
operations in the future.

The ratings assigned to the Companys short- and long-term debt by Fitch,
Moodys and DBRS are F2/BBB+ with a negative outlook, P2/Baa2 with a negative
outlook and R-1 (low) with a stable trend / BBB(high) with a negative trend,
respectively.

Other Factors

The Companys decision to withdraw earnings or investments from foreign
countries is, in some cases, influenced by exchange controls and the
utilization of foreign tax credits, and may also be affected by fluctuations in
exchange rates for foreign currencies and by revaluation of such currencies in
relation to the U.S. dollar by the governments involved. Foreign operations
have been financed to a substantial extent through loans from local lending
sources in the currency of the countries in which such operations are
conducted. Car rental operations in foreign countries are, from time to time,
subject to governmental regulations imposing varying degrees of currency
restrictions. Currency restrictions and other regulations historically have not
had a material impact on the Companys operations as a whole.

By virtue of its 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 and equipment rental operations are seasonal businesses, with
decreased levels of business 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

20



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expenses, including rent, insurance, and administrative overhead, remain fixed
and cannot be adjusted for seasonal demand. In certain geographic car rental
markets, the impact of seasonality has been reduced by emphasizing leisure or
business travel in the off-seasons.

The table below shows capital expenditures (net of proceeds received from the
sale of revenue earning equipment) and financial results by quarter for 2003
and 2002.

|     |                |            |   |               |         |          |   |                 |         |               |   |                     |       |            |   |       |       |  |   |        |        |  
|---- | -------------- | ---------- | - | ------------- | ------- | -------- | - | --------------- | ------- | ------------- | - | ------------------- | ----- | ---------- | - | ----- | ----- |  | - | ------ | ------ | -
|     |                |            |   | Capital       |         |          |   |                 |         | Operating     |   | Income              |       |            |   |      
|     |                |            |   | Expenditures  |         |          |   |                 |         | Income        |   | (Loss)              |       |            |   |      
|     |                |            |   | (Net of Sales |         |          |   |                 |         | (Pre-Tax      |   | Before              |       |            |   |      
|     |                |            |   | Proceeds      |         |          |   |                 |         | Income Before |   | Income              |       | Net Income
|     |                |            |   | Received)     |         | Revenues |   | Interest)(1)(2) |         | Taxes(1)(2)   |   | (Loss)(3)          
|     |                |            |   |               |         |          |   |                 |         |               |   |                    
|     |                |            |   |               |         |          |   |                 |         |               |   | Dollars in millions |       |            |   |       |       |  |   |       
|2003 |                |            |   |               |         |          |   |                 |         |               |   |                     |       |            |   |       |       |  |   |       
|     | First Quarter  |            | $ | 436.4         |         |          | $ | 1,147.7         |         |               | $ | 32.1                |       |            | $ | (56.8 | )     |  | $ | (37.7  | )     
|     | Second Quarter |            |   | 1,217.6       |         |          |   | 1,269.8         |         |               |   | 149.0               |       |            |   | 59.6  |       |  |   | 39.6   |       
|     | Third Quarter  |            |   | (3.4          | )       |          |   | 1,489.5         |         |               |   | 276.5               |       |            |   | 187.6 |       |  |   | 126.7  |       
|     | Fourth Quarter |            |   | 83.7          |         |          |   | 1,300.9         |         |               |   | 134.9               |       |            |   | 47.1  |       |  |   | 30.0   |       
|     |                |            |   |               |         |          |   |                 |         |               |   |                     |       |            |   |       |       |  |   |        |       
|     |                | Total Year |   | $             | 1,734.3 |          |   | $               | 5,207.9 |               |   | $                   | 592.5 |            |   | $     | 237.5 |  |   | $      | 158.6  |  
|     |                |            |   |               |         |          |   |                 |         |               |   |                     |       |            |   |       |       |  |   |        |       
|2002 |                |            |   |               |         |          |   |                 |         |               |   |                     |       |            |   |       |       |  |   |       
|     | First Quarter  |            | $ | 861.4         |         |          | $ | 1,088.8         |         |               | $ | 25.9                |       |            | $ | (59.2 | )     |  | $ | (342.1 | )     
|     | Second Quarter |            |   | 1,160.8       |         |          |   | 1,262.5         |         |               |   | 173.2               |       |            |   | 84.0  |       |  |   | 65.5   |       
|     | Third Quarter  |            |   | (185.9        | )       |          |   | 1,416.6         |         |               |   | 261.2               |       |            |   | 162.4 |       |  |   | 108.1  |       
|     | Fourth Quarter |            |   | 233.3         |         |          |   | 1,200.2         |         |               |   | 122.5               |       |            |   | 29.2  |       |  |   | 18.5   |       
|     |                |            |   |               |         |          |   |                 |         |               |   |                     |       |            |   |       |       |  |   |        |       
|     |                | Total Year |   | $             | 2,069.6 |          |   | $               | 4,968.1 |               |   | $                   | 582.8 |            |   | $     | 216.4 |  |   | $      | (150.0 | )
|     |                |            |   |               |         |          |   |                 |         |               |   |                     |       |            |   |       |       |  |   |        |       



|(1) |  | Includes a gain of $8 million in the second quarter of 2003 from the
condemnation of a car rental and support facility in Florida.                                                                                                       
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | Includes a credit totaling $7.8 million in the first and second quarter
of 2003 from a one time refund of Goods and Service Tax related to the
Companys Australian car rental operations.                                               
|   
|(3) |  | Includes a $294 million non-cash charge in the first quarter of 2002
related to impairment of goodwill in the Companys industrial and
construction equipment rental segment, recognized in accordance with the
adoption of SFAS No. 142.

Market Risks

The Company is exposed to a variety of market risks, including the effects of
changes in interest rates and foreign currency exchange rates. The Company
manages its exposure to these market risks through its regular operating and
financing activities and, when deemed appropriate, through the use of
derivative financial instruments. Derivative financial instruments are viewed
as risk management tools and are not used for speculative or trading purposes.
In addition, derivative financial instruments are entered into with a
diversified group of major financial institutions in order to manage the
Companys exposure to counterparty nonperformance on such instruments. For more
information on these exposures see Note 14 to the Notes to the Companys
consolidated financial statements included in this Report.

Interest Rate Risk

From time to time, the Company and its subsidiaries enter into interest rate
swap agreements to manage their interest rate risk. Effective September 30,
2003, the Company entered into interest rate swap agreements relating to the
issuance of its 4.7% Senior Promissory notes due October 2, 2006. Under these
agreements, the Company pays interest at a variable rate in exchange for fixed
rate receipts, effectively transforming these notes to floating rate
obligations. The Company has assessed its exposure to changes in interest
rates by analyzing the sensitivity to its earnings assuming various changes in
market interest rates. Assuming an instantaneous increase of one percentage
point in interest rates on the existing debt portfolio at December 31, 2003,
the Companys net income would decline by approximately $18 million over a
12-month period.

21



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Foreign Currency Risk

The Company and its subsidiaries have purchased foreign exchange options to
manage exposure to fluctuations in foreign exchange rates, principally for
selected marketing programs. The effect of exchange rate changes on these
financial instruments would not materially affect the consolidated financial
position, results of operations or cash flows of the Company. The Companys
risks with respect to currency option contracts are limited to the premium paid
for the right to exercise the option and the future performance of the options
counterparty. Premiums paid for options outstanding at December 31, 2003, were
approximately $0.4 million and the Company limits counterparties to financial
institutions that have strong credit ratings.

Recently Adopted Pronouncements

In June 2001, the Financial Accounting Standard Board (FASB) issued Statement
of Financial Accounting Standards (SFAS) No. 143, Accounting for Asset
Retirement Obligations. SFAS No. 143 addresses financial accounting and
reporting for obligations associated with the retirement of tangible long-lived
assets and the associated asset retirement costs. This statement applies to
legal obligations associated with the retirement of long-lived assets that
result from the acquisition, construction, development and/or the normal
operation of a long-lived asset, except for certain obligations of lessees.
The Company adopted this statement, effective January 1, 2003 and it 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 is
effective for disposal activities that are initiated after December 31, 2002.
The Company adopted SFAS No. 146 as of January 1, 2003 and it did not have a
material effect on the Companys financial position, results of operations or
cash flows.

In November 2002, the FASB issued Interpretation No. 45 (FIN 45),
Guarantors Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others. FIN 45 requires a guarantor to
recognize, at the inception of certain guarantees, a liability for the fair
value of the obligation undertaken in issuing the guarantee. FIN 45 also
requires additional disclosure about the guarantors obligations under certain
guarantees that it has issued. The initial recognition and measurement
provisions of this interpretation are applicable prospectively to guarantees
issued or modified after December 31, 2002 and the disclosure requirements are
effective for financial statements issued after December 15, 2002. The
adoption of FIN 45 did not have a material effect on the Companys financial
position, results of operations or cash flows. See Note 12 to the Notes to the
Companys consolidated financial statements included in this report.

In December 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based
Compensation  Transition and Disclosure. SFAS No. 148 amends SFAS No. 123,
Accounting for Stock-Based Compensation to provide alternative methods of
transition for a voluntary change to the fair value based method of accounting
for stock-based employee compensation. In addition, this statement amends the
disclosure requirements of SFAS No. 123 to require more prominent and more
frequent disclosures in both annual and interim financial statements about the
effects of stock-based compensation. The annual and interim disclosure
guidance of SFAS No. 148 is effective for fiscal years ending after December
15, 2002. The Company adopted the fair value recognition provisions of SFAS
No. 123, effective January 1, 2003. Under the modified prospective method of
adoption selected by the Company, stock based compensation cost recognized in
2003 is the same as that which would have been recognized had the fair value
methods of SFAS No. 123 been applied from its original effective date. See
Note 7 to the Notes to the Companys consolidated financial statements included
in this report.

In January 2003, the FASB issued FIN 46, Consolidation of Variable Interest
Entities, an Interpretation of Accounting Research Bulletin No. 51, which
expands upon and strengthens existing accounting guidance concerning when a
company should include in its financial statements the assets, liabilities and
activities of another entity. Prior to the issuance of FIN 46, a company
generally included another entity in its consolidated financial statements only
if it controlled the entity through voting interests. FIN 46 now requires a
Variable Interest Entity (VIE), as defined in FIN 46, to be consolidated by a
company if that company is the primary beneficiary. The primary beneficiary is
the entity subject to a majority of the risk of loss from the VIEs activities
or entitled to receive a majority of the VIEs residual returns, or both. FIN
46

22



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also requires disclosures about VIEs that a company is not required to
consolidate but in which it has a significant variable interest. The Company
adopted FIN 46 as of July 1, 2003 and the Revised Interpretation (FIN 46-R)
as of December 15, 2003. The adoption of FIN 46 and FIN 46-R did not affect
the Companys financial position, results of operations or cash flows.

In December 2003, the FASB issued SFAS No. 132 (revised 2003), Employers
Disclosures about Pensions and Other Postretirement Benefits. SFAS No. 132,
as revised, improves financial statement disclosures for defined benefit plans.
The change replaces existing SFAS 132 disclosure requirements for pensions and
other postretirement benefits and revises employers disclosures about pension
plans and other postretirement benefit plans. It does not change the
measurement of recognition of those plans required by SFAS No. 87, Employers
Accounting for Pensions, SFAS No. 88, Employers Accounting for Settlements
and Curtailments of Defined Benefit Pension Plans and for Termination
Benefits, and SFAS No. 132, as revised, retains the disclosure requirements
contained in the original SFAS No. 132, but requires additional disclosures
about the plan assets, obligations, cash flows, and net periodic benefit cost
of defined benefit pension plans and other defined benefit postretirement
plans. SFAS No. 132, as revised, is effective for annual and interim periods
with fiscal years ending after December 15, 2003. See Note 6 to the Notes
to the Companys consolidated financial statements included in this report.




ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk.

See Managements Discussion and Analysis of Financial Condition and Results of
Operations, which appears on pages 13 to 23 of this Report.

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ITEM 8. Financial Statements and Supplementary Data.

REPORT OF INDEPENDENT AUDITORS

To The Hertz Corporation:

In our opinion, the consolidated financial statements listed in the index
appearing under Item 15(a)1 on page 58 present fairly, in all material
respects, the financial position of The Hertz Corporation and its subsidiaries
(the Company) at December 31, 2003 and 2002, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 2003, in conformity with accounting principles generally accepted
in the United States of America. In addition, in our opinion, the financial
statement schedule listed in the index appearing under
Item 15(a)2 on page 58
presents fairly, in all material respects, the information set forth therein
when read in conjunction with the related consolidated financial statements.
These financial statements and financial statement schedule are the
responsibility of the Companys management; our responsibility is to express an
opinion on these financial statements and financial statement schedule based on
our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States of America, which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

As discussed in Notes 1 and 7 to the consolidated financial statements, the
Company adopted Statement of Financial Accounting Standard No. 148, Accounting
for Stock-Based Compensation  Transition and Disclosure, effective January 1,
2003.

As discussed in Note 2 to the consolidated financial statements, the Company
adopted Statement of Financial Accounting Standard No. 142, Goodwill and Other
Intangible Assets, effective January 1, 2002.

|                         |  |                           
|------------------------ |  | --------------------------
|                         |  | PRICEWATERHOUSECOOPERS LLP
|                         |  |                           
|Florham Park, New Jersey |  |                           
|January 14, 2004         |  |                           

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THE HERTZ CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET

|                                                                                  |                                                                           |                                                        |                               |                                            |           |                      |            |      |           |            |            | 
|--------------------------------------------------------------------------------- | ------------------------------------------------------------------------- | ------------------------------------------------------ | ----------------------------- | ------------------------------------------ | --------- | -------------------- | ---------- | ---- | --------- | ---------- | ---------- | 
|                                                                                  |                                                                           |                                                        |                               |                                            |           | December 31,        
|                                                                                  |                                                                           |                                                        |                               |                                            |           |                     
|                                                                                  |                                                                           |                                                        |                               |                                            |           | 2003                 |            | 2002
|                                                                                  |                                                                           |                                                        |                               |                                            |           |                      |            |     
|                                                                                  |                                                                           |                                                        |                               |                                            |           | Dollars in thousands
|                                                                                  |                                                                           |                                                        |                               | ASSETS                                     |           |                      |            |      |           |            |            | 
|Cash and equivalents (Note 14)                                                    |                                                                           | $                                                      | 609,986                       |                                            |           | $                    | 601,263    |     
|Short-term investments (Note 14)                                                  |                                                                           |                                                        | 500,108                       |                                            |           |                      |           |     
|Receivables, less allowance for doubtful accounts of $35,758 and
$29,047 (Note 3) |                                                                           |                                                        | 1,238,853                     |                                            |           |                      | 1,021,663  |     
|Due from affiliates (Note 8)                                                      |                                                                           |                                                        | 520,842                       |                                            |           |                      | 251,299    |     
|Inventories, at lower of cost or market                                           |                                                                           |                                                        | 73,354                        |                                            |           |                      | 71,842     |     
|Prepaid expenses and other assets (Notes 3, 4 and 5)                              |                                                                           |                                                        | 135,922                       |                                            |           |                      | 126,180    |     
|Revenue earning equipment, at cost (Notes 3 and 8):                               |                                                                           |                                                        |                               |                                            |           |                      |            |     
|                                                                                  |                                                                           | Cars                                                   |                               |                                            | 7,168,688 |                      |            |      | 6,708,139 |           
|                                                                                  |                                                                           |                                                        | Less accumulated depreciation |                                            |           | (706,719             | )          |      |           | (709,817   | )         
|                                                                                  |                                                                           | Other equipment                                        |                               |                                            | 2,214,901 |                      |            |      | 2,290,394 |           
|                                                                                  |                                                                           |                                                        | Less accumulated depreciation |                                            |           | (883,623             | )          |      |           | (862,808   | )         
|                                                                                  |                                                                           |                                                        |                               |                                            |           |                      |            |     
|                                                                                  |                                                                           |                                                        |                               | Total revenue earning equipment            |           |                      | 7,793,247  |      |           |            | 7,425,908  | 
|                                                                                  |                                                                           |                                                        |                               |                                            |           |                      |            |     
|Property and equipment, at cost:                                                  |                                                                           |                                                        |                               |                                            |           |                      |            |     
|                                                                                  |                                                                           | Land, buildings and leasehold improvements             |                               |                                            | 1,221,423 |                      |            |      | 1,123,779 |           
|                                                                                  |                                                                           | Service equipment                                      |                               |                                            | 1,114,875 |                      |            |      | 1,011,581 |           
|                                                                                  |                                                                           |                                                        |                               |                                            |           |                      |            |     
|                                                                                  |                                                                           |                                                        | 2,336,298                     |                                            |           |                      | 2,135,360  |     
|                                                                                  |                                                                           |                                                        | Less accumulated depreciation |                                            |           | (1,166,529           | )          |      |           | (1,023,591 | )         
|                                                                                  |                                                                           |                                                        |                               |                                            |           |                      |            |     
|                                                                                  |                                                                           |                                                        |                               | Total property and equipment               |           |                      | 1,169,769  |      |           |            | 1,111,769  | 
|                                                                                  |                                                                           |                                                        |                               |                                            |           |                      |            |     
|Goodwill and other intangible assets (Notes 2 and 5)                              |                                                                           |                                                        | 536,929                       |                                            |           |                      | 519,021    |     
|                                                                                  |                                                                           |                                                        |                               |                                            |           |                      |            |     
|                                                                                  |                                                                           |                                                        |                               | Total assets                               |           | $                    | 12,579,010 |      |           | $          | 11,128,945 | 
|                                                                                  |                                                                           |                                                        |                               |                                            |           |                      |            |     
|                                                                                  |                                                                           |                                                        |                               | LIABILITIES AND STOCKHOLDERS EQUITY       |           |                      |            |      |           |            |            | 
|Accounts payable (Note 8)                                                         |                                                                           | $                                                      | 757,869                       |                                            |           | $                    | 506,170    |     
|Accrued salaries and other compensation                                           |                                                                           |                                                        | 287,676                       |                                            |           |                      | 322,612    |     
|Other accrued liabilities                                                         |                                                                           |                                                        | 448,690                       |                                            |           |                      | 466,752    |     
|Accrued taxes                                                                     |                                                                           |                                                        | 111,432                       |                                            |           |                      | 52,753     |     
|Debt (Notes 3 and 14)                                                             |                                                                           |                                                        | 7,627,930                     |                                            |           |                      | 7,043,197  |     
|Public liability and property damage                                              |                                                                           |                                                        | 398,822                       |                                            |           |                      | 353,474    |     
|Deferred taxes on income (Note 9)                                                 |                                                                           |                                                        | 721,200                       |                                            |           |                      | 462,100    |     
|Commitments and contingencies (Notes 10, 12 and 14)                               |                                                                           |                                                        |                               |                                            |           |                      |            |     
|Stockholders equity (Notes 1 and 3):                                             |                                                                           |                                                        |                               |                                            |           |                      |            |     
|                                                                                  | Common Stock, $0.01 par value, 3,000 shares authorized,
100 shares issued |                                                        |                               |                                           |           |                      |            |     |          
|                                                                                  |                                                                           | Additional capital paid-in                             |                               |                                            | 983,132   |                      |            |      | 983,132   |           
|                                                                                  |                                                                           | Retained earnings                                      |                               |                                            | 1,113,746 |                      |            |      | 955,131   |           
|                                                                                  |                                                                           | Accumulated other comprehensive income (loss) (Note 4) |                               |                                            | 128,513   |                      |            |      | (16,376   | )         
|                                                                                  |                                                                           |                                                        |                               |                                            |           |                      |            |     
|                                                                                  |                                                                           |                                                        |                               | Total stockholders equity                 |           |                      | 2,225,391  |      |           |            | 1,921,887  | 
|                                                                                  |                                                                           |                                                        |                               |                                            |           |                      |            |     
|                                                                                  |                                                                           |                                                        |                               | Total liabilities and stockholders equity |           | $                    | 12,579,010 |      |           | $          | 11,128,945 | 
|                                                                                  |                                                                           |                                                        |                               |                                            |           |                      |            |     

The accompanying notes are an integral part of this statement.

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THE HERTZ CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS

|                                                                  |                                                                          |                |         |                          |           |      |          |           |           |   |         |           |           | 
|----------------------------------------------------------------- | ------------------------------------------------------------------------ | -------------- | ------- | ------------------------ | --------- | ---- | -------- | --------- | --------- | - | ------- | --------- | --------- | 
|                                                                  |                                                                          |                |         | Years ended December 31,
|                                                                  |                                                                          |                |         |                         
|                                                                  |                                                                          |                |         | 2003                     |           | 2002 |          | 2001     
|                                                                  |                                                                          |                |         |                          |           |      |          |          
|                                                                  |                                                                          |                |         | Dollars in thousands    
|Revenues:                                                         |                                                                          |                |         |                          |           |      |          |           |           |   |         |          
|                                                                  | Car rental                                                               |                | $       | 4,239,244                |           |      | $        | 4,005,620 |           |   | $       | 3,823,946 |          
|                                                                  | Industrial and construction equipment rental                             |                |         | 904,582                  |           |      |          | 892,646   |           |   |         | 1,003,379 |          
|                                                                  | Other (Note 5)                                                           |                |         | 64,103                   |           |      |          | 69,873    |           |   |         | 88,466    |          
|                                                                  |                                                                          |                |         |                          |           |      |          |           |           |   |         |          
|                                                                  |                                                                          | Total revenues |         |                          | 5,207,929 |      |          |           | 4,968,139 |   |         |           | 4,915,791 | 
|                                                                  |                                                                          |                |         |                          |           |      |          |           |           |   |         |          
|Expenses:                                                         |                                                                          |                |         |                          |           |      |          |           |           |   |         |          
|                                                                  | Direct operating                                                         |                |         | 2,596,727                |           |      |          | 2,428,820 |           |   |         | 2,574,063 |          
|                                                                  | Depreciation of revenue earning equipment (Note 8)                       |                |         | 1,523,391                |           |      |          | 1,499,568 |           |   |         | 1,462,310 |          
|                                                                  | Selling, general and administrative                                      |                |         | 495,276                  |           |      |          | 456,986   |           |   |         | 472,018   |          
|                                                                  | Interest, net of interest income of $17,881, $10,339 and $9,034
(Note 3) |                |         | 355,043                  |           |      |          | 366,371   |           |   |         | 404,677   |          
|                                                                  |                                                                          |                |         |                          |           |      |          |           |           |   |         |          
|                                                                  |                                                                          | Total expenses |         |                          | 4,970,437 |      |          |           | 4,751,745 |   |         |           | 4,913,068 | 
|                                                                  |                                                                          |                |         |                          |           |      |          |           |           |   |         |          
|Income before income taxes                                        |                                                                          |                | 237,492 |                          |           |      | 216,394  |           |           |   | 2,723   |          
|Provision (benefit) for taxes on income (Note 9)                  |                                                                          |                | 78,877  |                          |           |      | 72,346   |           |           |   | (20,544 | )        
|                                                                  |                                                                          |                |         |                          |           |      |          |           |           |   |         |          
|Income before cumulative effect of change in accounting principle |                                                                          |                | 158,615 |                          |           |      | 144,048  |           |           |   | 23,267  |          
|Cumulative effect of change in accounting principle (Note 2)      |                                                                          |                |        |                          |           |      | (294,000 | )         |           |   |        |          
|                                                                  |                                                                          |                |         |                          |           |      |          |           |           |   |         |          
|Net income (loss)                                                 |                                                                          | $              | 158,615 |                          |           | $    | (149,952 | )         |           | $ | 23,267  |          
|                                                                  |                                                                          |                |         |                          |           |      |          |           |           |   |         |          

The accompanying notes are an integral part of this statement.

26



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##### Table of Contents






THE HERTZ CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY

|                  |                                                      |                                                            |                            |        |        |   |         |        |            |   |            |       |               |   |           |         |                      |   |             |   |         |   |         |        |  |   |           |         |          |         |  
|----------------- | ---------------------------------------------------- | ---------------------------------------------------------- | -------------------------- | ------ | ------ | - | ------- | ------ | ---------- | - | ---------- | ----- | ------------- | - | --------- | ------- | -------------------- | - | ----------- | - | ------- | - | ------- | ------ |  | - | --------- | ------- | -------- | ------- | -
|                  |                                                      |                                                            |                            |        |        |   |         |        |            |   |            |       | Unamortized   |   |           |         |                      |   | Accumulated |   |         |   |         |        |  |   |          
|                  |                                                      |                                                            |                            |        |        |   |         |        | Additional |   | Restricted |       |               |   |           |         | Other                |   |             |   |         |   | Total  
|                  |                                                      |                                                            |                            |        | Common |   | Capital |        | Stock      |   | Retained   |       | Comprehensive |   | Treasury  |         | Stockholders       
|                  |                                                      |                                                            |                            |        | Stock  |   | Paid-In |        | Grants     |   | Earnings   |       | Income (Loss) |   | Stock     |         | Equity              
|                  |                                                      |                                                            |                            |        |        |   |         |        |            |   |            |       |               |   |           |         |                     
|                  |                                                      |                                                            |                            |        |        |   |         |        |            |   |            |       |               |   |           |         | Dollars in thousands |   |             |   |         |   |         |        | 
|Balance at        |                                                      |                                                            |                            |        |        |   |         |        |            |   |            |       |               |   |           |         |                      |   |             |   |         |   |         |        |  |   |           |        
|DECEMBER 31, 2000 |                                                      | $                                                          | 1,083                      |        |        | $ | 995,871 |        |            | $ | (5,518     | )     |               | $ | 1,103,401 |         |                      | $ | (84,270     | ) |         | $ | (26,498 | )      |  | $ | 1,984,069 |        
|                  | Comprehensive Income                                 |                                                            |                            |        |        |   |         |        |            |   |            |       |               |   |           |         |                      |   |             |   |         |   |         |        |  |   |           |         |         
|                  |                                                      | Net income                                                 |                            |        |        |   |         |        |            |   |            |       |               |   |           |         | 23,267               |   |             |   |         |   |         |        |  |   |           |         | 23,267   |        
|                  |                                                      | Translation adjustment changes                             |                            |        |        |   |         |        |            |   |            |       |               |   |           |         |                      |   |             |   | (19,919 | ) |         |        |  |   |           |         | (19,919  | )      
|                  |                                                      | Unrealized holding losses on
securities, net of tax of $1  |                            |        |        |   |         |        |            |   |            |       |               |   |           |         |                      |   |             |   | (5      | ) |         |        |  |   |           |         | (5       | )      
|                  |                                                      | Minimum pension liability
adjustment, net of tax of $16    |                            |        |        |   |         |        |            |   |            |       |               |   |           |         |                      |   |             |   | 359     |   |         |        |  |   |           |         | 359      |        
|                  |                                                      |                                                            |                            |        |        |   |         |        |            |   |            |       |               |   |           |         |                      |   |             |   |         |   |         |        |  |   |           |        
|                  |                                                      |                                                            | Total Comprehensive Income |        |        |   |         |        |            |   |            |       |               |   |           |         |                      |   |             |   |         |   |         |        |  |   |           |         |          | 3,702   |  
|                  |                                                      |                                                            |                            |        |        |   |         |        |            |   |            |       |               |   |           |         |                      |   |             |   |         |   |         |        |  |   |           |        
|                  | Cash dividends on Common Stock                       |                                                            |                            |        |        |   |         |        |            |   |            |       |               |   |           | (21,585 | )                    |   |             |   |         |   |         |        |  |   |           | (21,585 | )       
|                  | Exercise of stock options                            |                                                            |                            |        |        |   |         | (5,609 | )          |   |            |       |               |   |           |         |                      |   |             |   |         |   |         | 15,602 |  |   |           | 9,993   |         
|                  | Tax benefits from stock options
and restricted stock |                                                            |                            |        |        |   |         | 2,683  |            |   |            |       |               |   |           |         |                      |   |             |   |         |   |         |        |  |   |           | 2,683   |         
|                  | Amortization of restricted
stock grants              |                                                            |                            |        |        |   |         |        |            |   |            | 5,518 |               |   |           |         |                      |   |             |   |         |   |         |        |  |   |           | 5,518   |         
|                  | Ford acquisition of
minority interest                |                                                            |                            | (1,083 | )      |   |         | (9,813 | )          |   |            |       |               |   |           |         |                      |   |             |   |         |   |         | 10,896 |  |   |           |        |         
|                  |                                                      |                                                            |                            |        |        |   |         |        |            |   |            |       |               |   |           |         |                      |   |             |   |         |   |         |        |  |   |           |        
|DECEMBER 31, 2001 |                                                      |                                                            |                           |        |        |   | 983,132 |        |            |   |           |       |               |   | 1,105,083 |         |                      |   | (103,835    | ) |         |   |        |        |  |   | 1,984,380 |        
|                  | Comprehensive Income                                 |                                                            |                            |        |        |   |         |        |            |   |            |       |               |   |           |         |                      |   |             |   |         |   |         |        |  |   |           |         |         
|                  |                                                      | Net Loss                                                   |                            |        |        |   |         |        |            |   |            |       |               |   |           |         | (149,952             | ) |             |   |         |   |         |        |  |   |           |         | (149,952 | )      
|                  |                                                      | Translation adjustment changes                             |                            |        |        |   |         |        |            |   |            |       |               |   |           |         |                      |   |             |   | 93,537  |   |         |        |  |   |           |         | 93,537   |        
|                  |                                                      | Unrealized holding gains on
securities, net of tax of $53  |                            |        |        |   |         |        |            |   |            |       |               |   |           |         |                      |   |             |   | 475     |   |         |        |  |   |           |         | 475      |        
|                  |                                                      | Minimum pension liability
adjustment, net of tax of $3,040 |                            |        |        |   |         |        |            |   |            |       |               |   |           |         |                      |   |             |   | (6,553  | ) |         |        |  |   |           |         | (6,553   | )      
|                  |                                                      |                                                            |                            |        |        |   |         |        |            |   |            |       |               |   |           |         |                      |   |             |   |         |   |         |        |  |   |           |        
|                  |                                                      |                                                            | Total Comprehensive Loss   |        |        |   |         |        |            |   |            |       |               |   |           |         |                      |   |             |   |         |   |         |        |  |   |           |         |          | (62,493 | )
|                  |                                                      |                                                            |                            |        |        |   |         |        |            |   |            |       |               |   |           |         |                      |   |             |   |         |   |         |        |  |   |           |        
|DECEMBER 31, 2002 |                                                      |                                                            |                           |        |        |   | 983,132 |        |            |   |           |       |               |   | 955,131   |         |                      |   | (16,376     | ) |         |   |        |        |  |   | 1,921,887 |        
|                  | Comprehensive Income                                 |                                                            |                            |        |        |   |         |        |            |   |            |       |               |   |           |         |                      |   |             |   |         |   |         |        |  |   |           |         |         
|                  |                                                      | Net income                                                 |                            |        |        |   |         |        |            |   |            |       |               |   |           |         | 158,615              |   |             |   |         |   |         |        |  |   |           |         | 158,615  |        
|                  |                                                      | Translation adjustment changes                             |                            |        |        |   |         |        |            |   |            |       |               |   |           |         |                      |   |             |   | 149,037 |   |         |        |  |   |           |         | 149,037  |        
|                  |                                                      | Unrealized holding losses on
securities, net of tax of $61 |                            |        |        |   |         |        |            |   |            |       |               |   |           |         |                      |   |             |   | (551    | ) |         |        |  |   |           |         | (551     | )      
|                  |                                                      | Minimum pension liability
adjustment, net of tax of $1,748 |                            |        |        |   |         |        |            |   |            |       |               |   |           |         |                      |   |             |   | (3,597  | ) |         |        |  |   |           |         | (3,597   | )      
|                  |                                                      |                                                            |                            |        |        |   |         |        |            |   |            |       |               |   |           |         |                      |   |             |   |         |   |         |        |  |   |           |        
|                  |                                                      |                                                            | Total Comprehensive Income |        |        |   |         |        |            |   |            |       |               |   |           |         |                      |   |             |   |         |   |         |        |  |   |           |         |          | 303,504 |  
|                  |                                                      |                                                            |                            |        |        |   |         |        |            |   |            |       |               |   |           |         |                      |   |             |   |         |   |         |        |  |   |           |        
|DECEMBER 31, 2003 |                                                      | $                                                          |                           |        |        | $ | 983,132 |        |            | $ |           |       |               | $ | 1,113,746 |         |                      | $ | 128,513     |   |         | $ |        |        |  | $ | 2,225,391 |        
|                  |                                                      |                                                            |                            |        |        |   |         |        |            |   |            |       |               |   |           |         |                      |   |             |   |         |   |         |        |  |   |           |        

The accompanying notes are an integral part of this statement.

27



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##### Table of Contents






THE HERTZ CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CASH FLOWS

|                                      |                                                                                       |                                                           |                                                     |                                                                 |         |                          |   |            |        |           |   |            |         |           |       | 
|------------------------------------- | ------------------------------------------------------------------------------------- | --------------------------------------------------------- | --------------------------------------------------- | --------------------------------------------------------------- | ------- | ------------------------ | - | ---------- | ------ | --------- | - | ---------- | ------- | --------- | ----- | 
|                                      |                                                                                       |                                                           |                                                     |                                                                 |         | Years ended December 31,
|                                      |                                                                                       |                                                           |                                                     |                                                                 |         |                         
|                                      |                                                                                       |                                                           |                                                     |                                                                 |         | 2003                     |   | 2002       |        | 2001     
|                                      |                                                                                       |                                                           |                                                     |                                                                 |         |                          |   |            |        |          
|                                      |                                                                                       |                                                           |                                                     |                                                                 |         | Dollars in thousands    
|Cash flows from operating activities: |                                                                                       |                                                           |                                                     |                                                                 |         |                          |   |            |        |           |   |           
|                                      | Net income (loss)                                                                     |                                                           | $                                                   | 158,615                                                         |         |                          | $ | (149,952   | )      |           | $ | 23,267     |        
|                                      | Non-cash expenses:                                                                    |                                                           |                                                     |                                                                 |         |                          |   |            |        |           |   |            |        
|                                      |                                                                                       |                                                           | Cumulative effect of change in accounting principle |                                                                 |         |                         |   |            |        | 294,000   |   |            |         |          |      
|                                      |                                                                                       |                                                           | Depreciation of revenue earning equipment           |                                                                 |         | 1,523,391                |   |            |        | 1,499,568 |   |            |         | 1,462,310 |      
|                                      |                                                                                       |                                                           | Depreciation of property and equipment              |                                                                 |         | 151,706                  |   |            |        | 155,424   |   |            |         | 166,526   |      
|                                      |                                                                                       |                                                           | Amortization of intangibles                         |                                                                 |         | 1,024                    |   |            |        | 1,346     |   |            |         | 30,697    |      
|                                      |                                                                                       |                                                           | Amortization of restricted stock grants             |                                                                 |         |                         |   |            |        |          |   |            |         | 5,518     |      
|                                      |                                                                                       |                                                           | Stock-based employee compensation                   |                                                                 |         | 6,039                    |   |            |        |          |   |            |         |          |      
|                                      |                                                                                       |                                                           | Provision for public liability and property damage  |                                                                 |         | 178,292                  |   |            |        | 145,010   |   |            |         | 136,772   |      
|                                      |                                                                                       |                                                           | Provision for losses for doubtful accounts          |                                                                 |         | 23,053                   |   |            |        | 15,570    |   |            |         | 44,316    |      
|                                      |                                                                                       |                                                           |                                                     | Tax benefit from exercise of stock options and restricted
stock |         |                          |  |            |        |           |  |            |         |           | 2,683 | 
|                                      |                                                                                       |                                                           | Deferred income taxes                               |                                                                 |         | 260,848                  |   |            |        | 106,340   |   |            |         | (47,716   | )    
|                                      | Revenue earning equipment expenditures                                                |                                                           |                                                     | (9,436,581                                                      | )       |                          |   | (9,946,271 | )      |           |   | (9,284,021 | )      
|                                      | Proceeds from sales of revenue earning equipment                                      |                                                           |                                                     | 7,874,414                                                       |         |                          |   | 8,065,848  |        |           |   | 7,839,440  |        
|                                      | Changes in assets and liabilities, net of effects of purchase and
sale of operations: |                                                           |                                                     |                                                                 |         |                          |   |            |        |           |   |            |        
|                                      |                                                                                       |                                                           | Receivables                                         |                                                                 |         | (95,527                  | ) |            |        | (3,179    | ) |            |         | 128,837   |      
|                                      |                                                                                       |                                                           | Due from affiliates                                 |                                                                 |         | (269,543                 | ) |            |        | (107,997  | ) |            |         | 200,266   |      
|                                      |                                                                                       |                                                           | Inventories and prepaid expenses and other assets   |                                                                 |         | (3,981                   | ) |            |        | (27,990   | ) |            |         | 35,869    |      
|                                      |                                                                                       |                                                           | Accounts payable                                    |                                                                 |         | 182,264                  |   |            |        | 1,099     |   |            |         | (77,781   | )    
|                                      |                                                                                       |                                                           | Accrued liabilities                                 |                                                                 |         | (111,439                 | ) |            |        | 88,481    |   |            |         | 80,563    |      
|                                      |                                                                                       |                                                           | Accrued taxes                                       |                                                                 |         | 49,825                   |   |            |        | (19,713   | ) |            |         | (82,770   | )    
|                                      | Payments of public liability and property damage claims and
expenses                  |                                                           |                                                     | (155,241                                                        | )       |                          |   | (120,486   | )      |           |   | (90,996    | )      
|                                      |                                                                                       |                                                           |                                                     |                                                                 |         |                          |   |            |        |           |   |           
|                                      |                                                                                       | Net cash flows provided by (used in) operating activities |                                                     | $                                                               | 337,159 |                          |   | $          | (2,902 | )         |   | $          | 573,780 |          
|                                      |                                                                                       |                                                           |                                                     |                                                                 |         |                          |   |            |        |           |   |           

The accompanying notes are an integral part of this statement.

28



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THE HERTZ CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CASH FLOWS

|                                                     |                                                                                   |                                       |                                                     |          |           |                          |         |          |          |          |         |           |            |          |   | 
|---------------------------------------------------- | --------------------------------------------------------------------------------- | ------------------------------------- | --------------------------------------------------- | -------- | --------- | ------------------------ | ------- | -------- | -------- | -------- | ------- | --------- | ---------- | -------- | - | 
|                                                     |                                                                                   |                                       |                                                     |          |           | Years ended December 31,
|                                                     |                                                                                   |                                       |                                                     |          |           |                         
|                                                     |                                                                                   |                                       |                                                     |          |           | 2003                     |         | 2002     |          | 2001    
|                                                     |                                                                                   |                                       |                                                     |          |           |                          |         |          |          |         
|                                                     |                                                                                   |                                       |                                                     |          |           | Dollars in thousands    
|Cash flows from investing activities:                |                                                                                   |                                       |                                                     |          |           |                          |         |          |          |          |         |          
|                                                     | Purchase of short-term investments, net                                           |                                       | $                                                   | (500,108 | )         |                          | $       |         |          |          | $       |          |           
|                                                     | Property and equipment expenditures                                               |                                       |                                                     | (226,747 | )         |                          |         | (221,227 | )        |          |         | (266,625  | )         
|                                                     | Proceeds from sales of property and equipment                                     |                                       |                                                     | 54,638   |           |                          |         | 32,035   |          |          |         | 35,744    |           
|                                                     | Available-for-sale securities:                                                    |                                       |                                                     |          |           |                          |         |          |          |          |         |           |           
|                                                     |                                                                                   | Purchases                             |                                                     |          | (12,114   | )                        |         |          | (4,587   | )        |         |           | (7,755     | )       
|                                                     |                                                                                   | Sales                                 |                                                     |          | 10,246    |                          |         |          | 4,082    |          |         |           | 6,332      |         
|                                                     | Changes in investment in joint venture                                            |                                       |                                                     | 5,640    |           |                          |         | 6,560    |          |          |         | 2,160     |           
|                                                     | Purchases of various operations, net of cash (see
supplemental disclosures below) |                                       |                                                     |         |           |                          |         |         |          |          |         | (3,026    | )         
|                                                     |                                                                                   |                                       |                                                     |          |           |                          |         |          |          |          |         |          
|                                                     |                                                                                   |                                       | Net cash used in investing activities               |          |           | (668,445                 | )       |          |          | (183,137 | )       |           |            | (233,170 | )
|                                                     |                                                                                   |                                       |                                                     |          |           |                          |         |          |          |          |         |          
|Cash flows from financing activities:                |                                                                                   |                                       |                                                     |          |           |                          |         |          |          |          |         |          
|                                                     | Proceeds from issuance of long-term debt                                          |                                       |                                                     | 510,853  |           |                          |         | 809,426  |          |          |         | 1,466,614 |           
|                                                     | Repayment of long-term debt                                                       |                                       |                                                     | (712,057 | )         |                          |         | (559,858 | )        |          |         | (430,890  | )         
|                                                     | Short-term borrowings:                                                            |                                       |                                                     |          |           |                          |         |          |          |          |         |           |           
|                                                     |                                                                                   | Proceeds                              |                                                     |          | 1,094,152 |                          |         |          | 730,731  |          |         |           | 871,272    |         
|                                                     |                                                                                   | Repayments                            |                                                     |          | (721,333  | )                        |         |          | (557,755 | )        |         |           | (865,037   | )       
|                                                     |                                                                                   | Ninety-day term or less, net          |                                                     |          | 130,294   |                          |         |          | 127,767  |          |         |           | (1,361,041 | )       
|                                                     | Cash dividends paid on common stock                                               |                                       |                                                     |         |           |                          |         |         |          |          |         | (21,585   | )         
|                                                     | Exercise of stock options                                                         |                                       |                                                     |         |           |                          |         |         |          |          |         | 9,993     |           
|                                                     |                                                                                   |                                       |                                                     |          |           |                          |         |          |          |          |         |          
|                                                     |                                                                                   |                                       | Net cash provided by (used in) financing activities |          |           | 301,909                  |         |          |          | 550,311  |         |           |            | (330,674 | )
|                                                     |                                                                                   |                                       |                                                     |          |           |                          |         |          |          |          |         |          
|Effect of foreign exchange rate changes on cash      |                                                                                   |                                       | 38,100                                              |          |           |                          | 22,994  |          |          |          | (2,416  | )        
|                                                     |                                                                                   |                                       |                                                     |          |           |                          |         |          |          |          |         |          
|Net increase in cash and equivalents during the year |                                                                                   |                                       | 8,723                                               |          |           |                          | 387,266 |          |          |          | 7,520   |          
|Cash and equivalents at beginning of year            |                                                                                   |                                       | 601,263                                             |          |           |                          | 213,997 |          |          |          | 206,477 |          
|                                                     |                                                                                   |                                       |                                                     |          |           |                          |         |          |          |          |         |          
|Cash and equivalents at end of year                  |                                                                                   | $                                     | 609,986                                             |          |           | $                        | 601,263 |          |          | $        | 213,997 |          
|                                                     |                                                                                   |                                       |                                                     |          |           |                          |         |          |          |          |         |          
|Supplemental disclosures of cash flow information:   |                                                                                   |                                       |                                                     |          |           |                          |         |          |          |          |         |          
|                                                     | Cash paid (received) during the year for:                                         |                                       |                                                     |          |           |                          |         |          |          |          |         |           |           
|                                                     |                                                                                   | Interest (net of amounts capitalized) |                                                     | $        | 357,585   |                          |         | $        | 389,893  |          |         | $         | 420,026    |         
|                                                     |                                                                                   | Income taxes                          |                                                     |          | 31,481    |                          |         |          | (3,854   | )        |         |           | 121,828    |         

In connection with acquisitions made during 2001, liabilities assumed were $13
million.

The accompanying notes are an integral part of this statement.

29



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THE HERTZ CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1  Summary of Significant Accounting Policies

Background

The Hertz Corporation (together with its subsidiaries, referred to herein as
Hertz or the Company), which was incorporated in Delaware in 1967, is a
successor to corporations which were engaged in the automobile and truck rental
and leasing business since 1918. UAL Corporation (UAL) purchased the Company
from RCA Corporation (RCA) in August 1985. Park Ridge Corporation (Park
Ridge), which was 80%-owned by Ford Motor Company (Ford), purchased the
Company from UAL in December 1987. On April 29, 1994, Ford purchased all of
the common stock of the Company owned by Park Ridge Limited Partnership which
resulted in the Company becoming a wholly owned subsidiary of Ford.

On April 30, 1997, the Company issued and sold 20,010,000 shares of its Class A
Common Stock in an initial public offering (the Offering) and received net
proceeds of $453 million from the sale, and redeemed its 1,290 shares of Series
C Preferred Stock for $130 million. The net proceeds received from the Offering
were used to pay down notes payable.

On March 9, 2001, Ford FSG, Inc., (FSG), an indirect wholly owned subsidiary
of 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 it 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 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.

In May 2001, the Company amended its certificate of incorporation to change the
shares of stock it is authorized to issue to a single class of common stock and
exchanged the outstanding shares of Class A Common Stock for the same number of
shares of the newly authorized common stock.

In 2003, FSG was dissolved and the shares of the Companys Common Stock owned
by FSG were distributed to Ford and Ford Holdings LLC. In February 2004, Ford
Holdings LLC became the sole owner of the Companys common stock.

Principles of Consolidation

The consolidated financial statements include the accounts of The Hertz
Corporation and its domestic and foreign subsidiaries. All significant
intercompany transactions have been eliminated.

Revenue Recognition

Revenue is recognized over the period the revenue earning equipment is rented
based on the terms of the rental or leasing contract.

Consolidated Statement of Cash Flows

For purposes of this statement, the Company considers all highly liquid debt
instruments purchased with an original maturity of three months or less to be
cash equivalents.

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THE HERTZ CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

Depreciable Assets

The provisions for depreciation and amortization are computed on a
straight-line basis over the estimated useful lives of the respective assets,
as follows:

|                                   |  |               
|---------------------------------- |  | --------------
|Revenue Earning Equipment (REE): |  |               
|Cars                               |  | 3 to 6 years  
|Other equipment                    |  | 3 to 10 years 
|Buildings                          |  | 20 to 50 years
|Leasehold improvements             |  | Term of lease 
|Capitalized internal use software  |  | 1 to 10 years 
|Service cars and service equipment |  | 3 to 25 years 
|Intangible assets                  |  | 5 to 15 years 

Hertz follows the practice of charging maintenance and repairs, including the
cost of minor replacements, to maintenance expense accounts. Costs of major
replacements of units of property are charged to property and equipment
accounts and depreciated on the basis indicated above. Gains and losses on
dispositions of property and equipment are included in income as realized. When
REE is acquired, the Company estimates the period it will hold the asset.
Depreciation is recorded on a straight-line basis over the estimated holding
period, with the objective of minimizing gain or loss on the disposition of the
REE. Upon disposal of the REE, depreciation expense is adjusted for the
difference between the net proceeds from the sale and the remaining book value.
As market conditions change, the Company adjusts its depreciation rates
prospectively, over the remaining holding period, to reflect these changes in
market conditions.

Environmental Conservation

The use of automobiles and other vehicles is subject to various governmental
controls designed to limit environmental damage, including that caused by
emissions and noise. Generally, these controls are met by the manufacturer,
except in the case of occasional equipment failure requiring repair by Hertz.
To comply with environmental regulations, measures are taken at certain
locations to reduce the loss of vapor during the fueling process and to
maintain, upgrade and replace underground fuel storage tanks. Hertz also incurs
and provides for expenses for the cleanup of petroleum discharges and other
alleged violations of environmental laws arising from the disposition of waste
products. Hertz does not believe that it will be required to make any material
capital expenditures for environmental control facilities or to make any other
material expenditures to meet the requirements of governmental authorities in
this area. Liabilities for these expenditures are recorded when it is probable
that obligations have been incurred and the amounts can be reasonably
estimated.

Public Liability and Property Damage

Provisions for public liability and property damage on self-insured domestic
and foreign claims are made by charges to expense based upon evaluations of
estimated ultimate liabilities on reported and unreported claims. For its
domestic operations, the Company is, where permitted by applicable local law, a
qualified self-insurer against liability resulting from accidents under
certificates of self-insurance for financial responsibility in all states where
its vehicles are registered. The Company also self-insures general public
liability and property damage for all domestic operations. Effective December
15, 2002, all claims have been retained and borne by the Company up to a limit
of $10 million for each occurrence ($5 million prior to December 15, 2002), and
the Company maintains insurance with unaffiliated carriers in excess of $10
million up to $695 million per occurrence (in excess of $5 million up to $725
million from January 1, 2001 to December 15, 2002 and up to $450 million prior
to 2001).

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THE HERTZ CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

For its international operations, the Company purchases insurance to comply
with local legal requirements. In Europe, vehicle liability insurance is
purchased from the Companys wholly owned subsidiary, Probus Insurance Company
Europe Limited (Probus), a direct writer domiciled in Dublin, Ireland. In
Italy, a fronted policy was purchased from an unaffiliated carrier, effective
October 1, 2003, which is reinsured through Hertz International RE Limited
(HIRE), a wholly owned subsidiary of the Company. HIRE operates as a
reinsurer in Dublin, Ireland. Effective December 15, 2003, Probus underwrites
the Companys Pan European motor vehicle liability program up to $10 million
per occurrence ($5 million from December 15, 2002 to December 15, 2003 and $1
million prior to December 15, 2002). Probus reinsures this risk through HIRE.
Excess coverage for claims that exceed $10 million per occurrence is maintained
with unaffiliated carriers. Effective December 15, 2003, in foreign operations
outside Europe, the Company is self-insured at various amounts up to $10
million per occurrence ($317,000 prior to December 15, 2003) and maintains with
unaffiliated carriers excess liability insurance coverage up to $695 million
per occurrence ($725 million from January 1, 2001 to December 15, 2002 and up
to $450 million prior to 2001).

Foreign Currency Translation

Assets and liabilities of foreign subsidiaries are translated at the rate of
exchange in effect on the balance sheet date; income and expenses are
translated at the average rate of exchange prevailing during the year. The
related translation adjustments are reflected in Accumulated other
comprehensive income (loss) in the stockholders equity section of the
consolidated balance sheet. The accumulated foreign currency translation gain
was $139.6 million at December 31, 2003 and the accumulated foreign currency
translation loss was $9.4 million at December 31, 2002. Foreign currency gains
and losses resulting from transactions are included in earnings.

Income Taxes

The Company and its domestic subsidiaries file consolidated Federal income tax
returns with Ford. The Company provides for current and deferred taxes as if it
filed a separate consolidated tax return with its domestic subsidiaries, except
that under a tax sharing arrangement with Ford, the Companys right to
reimbursement for foreign tax credits is determined based on the usage of such
foreign tax credits by the consolidated group. As of December 31, 2003, U.S.
income taxes have not been provided on $381 million in undistributed earnings
of foreign subsidiaries that have been or are intended to be indefinitely
reinvested outside the United States or are expected to be remitted free of
taxes.

Advertising

Advertising and sales promotion costs are expensed as incurred. Hertz is a
party to a cooperative advertising agreement with Ford pursuant to which Ford
participates in some of the cost of certain of Hertz advertising programs in
the United States and abroad which feature the Ford name or products. The
amounts contributed by Ford for the years ended December 31, 2003, 2002 and
2001 were (in millions) $47.9, $48.4 and $43.2, respectively. The Company
incurred net advertising expense for the years ended December 31, 2003, 2002
and 2001 of (in millions) $123.4, $114.8 and $138.1, respectively.

Impairment of Long-Lived Assets and Intangibles

The Company evaluates the carrying value of goodwill for impairment at least
annually in accordance with Financial Accounting Standards Board (FASB)
Statement of Financial Accounting Standards (SFAS) No. 142 Goodwill and
Other Intangible Assets. See Note 2  Goodwill and Other Intangible Assets.
Long-lived assets, other than goodwill, are reviewed for impairment in
accordance with SFAS No. 144, Accounting for the Impairment or Disposal of
Long-Lived Assets. Under SFAS No. 144, these assets are tested for
recoverability whenever events or changes in circumstances indicate that the
carrying amounts of long-lived assets exceed their fair value. The fair values
of the assets are based upon Company estimates of the undiscounted cash flows
that are expected to result from the use and eventual disposition of the
assets. An impairment charge is recognized for the amount, if any, by which
the carrying value of an asset exceeds its fair value. The Companys adoption
of SFAS No. 144 as of January 1, 2002 did not have a material effect on the
Companys financial position, results of operations or cash flows.

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THE HERTZ CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

Stock Options

Certain employees of the Company participate in the stock option plan of Ford
under Fords 1998 Long-Term Incentive Plan. Effective January 1, 2003, the
Company adopted the fair value recognition provisions of SFAS No. 123,
Accounting for Stock-Based Compensation. Prior to January 1, 2003, the Company
applied the recognition and measurement principles of Accounting Principles
Board Opinion No. 25, Accounting for Stock Issued to Employees and related
Interpretations, in accounting for the plan. Prior to January 1, 2003, no
stock-based employee compensation expense has been reflected in earnings as all
options granted under the plan have an exercise price equal to the market value
of the underlying common stock on the date of grant. See Recently Adopted
Pronouncements, below.

Use of Estimates and Assumptions

Use of estimates and assumptions as determined by management is required in the
preparation of consolidated financial statements in conformity with generally
accepted accounting principles. Actual results could differ from those
estimates and assumptions.

Reclassifications

Certain prior year amounts have been reclassified to conform with current
reporting.

Recently Adopted Pronouncements

In June 2001, the FASB issued SFAS No. 143, Accounting for Asset Retirement
Obligations. SFAS No. 143 addresses financial accounting and reporting for
obligations associated with the retirement of tangible long-lived assets and
the associated asset retirement costs. This statement applies to legal
obligations associated with the retirement of long-lived assets that result
from the acquisition, construction, development and/or the normal operation of
a long-lived asset, except for certain obligations of lessees. The Company
adopted this statement, effective January 1, 2003 and it 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 is
effective for disposal activities that are initiated after December 31, 2002.
The Company adopted SFAS No. 146 as of January 1, 2003 and it did not have a
material effect on the Companys financial position, results of operations or
cash flows.

In November 2002, the FASB issued Interpretation No. 45 (FIN 45),
Guarantors Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others. FIN 45 requires a guarantor to
recognize, at the inception of certain guarantees, a liability for the fair
value of the obligation undertaken in issuing the guarantee. FIN 45 also
requires additional disclosure about the guarantors obligations under certain
guarantees that it has issued. The initial recognition and measurement
provisions of this interpretation are applicable prospectively to guarantees
issued or modified after December 31, 2002 and the disclosure requirements are
effective for financial statements issued after December 15, 2002. The
adoption of FIN 45 did not have a material effect on the Companys financial
position, results of operations or cash flows. See Note 12  Litigation and
Guarantees.

In December 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based
Compensation  Transition and Disclosure. SFAS No. 148 amends SFAS No. 123,
Accounting for Stock-Based Compensation to provide alternative methods of
transition for a voluntary change to the fair value based method of accounting
for stock-based employee compensation. In addition, this statement amends the
disclosure requirements of SFAS No. 123 to require more prominent and more
frequent disclosures in both annual and interim financial statements about the
effects of stock-based compensation. The annual and interim disclosure
guidance of SFAS No. 148 is effective for fiscal years ending after December
15, 2002. The Company adopted the fair value recognition provisions of SFAS
No. 123, effective January 1, 2003. Under the modified prospective method of
adoption selected by the Company, stock based employee compensation cost
recognized in 2003 is the same as that which would have been recognized had the
fair value methods of SFAS No. 123 been applied from its original effective
date. See Note 7  Stock Based Employee Compensation.

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THE HERTZ CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

In January 2003, the FASB issued FIN 46, Consolidation of Variable Interest
Entities, an Interpretation of Accounting Research Bulletin No. 51, which
expands upon and strengthens existing accounting guidance concerning when a
company should include in its financial statements the assets, liabilities and
activities of another entity. Prior to the issuance of FIN 46, a company
generally included another entity in its consolidated financial statements only
if it controlled the entity through voting interests. FIN 46 now requires a
Variable Interest Entity (VIE), as defined in FIN 46, to be consolidated by a
company if that company is the primary beneficiary. The primary beneficiary is
the entity subject to a majority of the risk of loss from the VIEs activities
or entitled to receive a majority of the VIEs residual returns, or both. FIN
46 also requires disclosures about VIEs that a company is not required to
consolidate but in which it has a significant variable interest. The Company
adopted FIN 46 as of July 1, 2003 and the Revised Interpretation (FIN 46-R)
as of December 15, 2003. The adoption of FIN 46 and FIN 46-R did not affect
the Companys financial position, results of operations or cash flows.

In December 2003, the FASB issued SFAS No. 132 (revised 2003), Employers
Disclosures about Pensions and Other Postretirement Benefits. SFAS No. 132, as
revised, improves financial statement disclosures for defined benefit plans.
The change replaces existing SFAS 132 disclosure requirements for pensions and
other postretirement benefits and revises employers disclosures about pension
plans and other postretirement benefit plans. It does not change the
measurement of recognition of those plans required by SFAS No. 87, Employers
Accounting for Pensions, SFAS No. 88, Employers Accounting for Settlements
and Curtailments of Defined Benefit Pension Plans and for Termination
Benefits, and SFAS No. 132, as revised, retains the disclosure requirements
contained in the original SFAS No. 132, but requires additional disclosures
about the plan assets, obligations, cash flows, and net periodic benefit cost
of defined benefit pension plans and other defined benefit postretirement
plans. SFAS No. 132, as revised, is effective for annual and interim periods
with fiscal years ending after December 15, 2003. See Note 6  Employee Retirement Benefits.

Note 2  Goodwill and Other Intangible Assets

The Company accounts for its goodwill under SFAS No. 142 Goodwill and Other
Intangible Assets. 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. Adoption of the
non-amortization provision of SFAS No. 142 at the beginning of the first
quarter of 2001 would have resulted in a decrease of $29.2 million in
amortization and an increase of $27.6 million in net income for the year ended
December 31, 2001.

The Company adopted SFAS No. 142 beginning January 1, 2002. Upon its adoption,
the Company recorded a one-time, non-cash charge of $294 million to reduce the
carrying value of its goodwill. The Company recognized this impairment charge
effective as of January 1, 2002 as a cumulative effect of change in accounting
principle.

The goodwill impairment charge represented 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. The Company conducted the required annual goodwill impairment test in
the second quarter of 2003, and determined that there was no additional
impairment.

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THE HERTZ CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

The following summarizes the changes in the Companys goodwill, by segment, and
other intangible assets for the years ended December 31, 2003 and 2002 (in
thousands of dollars):

|                          |                              |   |            |       |                  |   |                |          |        |   |            |          |       |   |       |        |   |   |         |          |  
|------------------------- | ---------------------------- | - | ---------- | ----- | ---------------- | - | -------------- | -------- | ------ | - | ---------- | -------- | ----- | - | ----- | ------ | - | - | ------- | -------- | -
|                          |                              |   | Goodwill   |       |                  |   |                |          |        |   |           
|                          |                              |   |            |       |                  |   |                |          |        |   |           
|                          |                              |   |            |       |                  |   | Industrial and |          |        |   |            |          | Other |   |       |        |  
|                          |                              |   |            |       |                  |   | construction   |          | Total  |   | intangible |          |       |   |      
|                          |                              |   | Car rental |       | equipment rental |   | goodwill       |          | assets |   | Total     
|                          |                              |   |            |       |                  |   |                |          |        |   |           
|Balance December 31, 2001 |                              | $ | 358,631    |       |                  | $ | 443,040        |          |        | $ | 801,671    |          |       | $ | 3,169 |        |   | $ | 804,840 |         
|                          | Transitional Impairment Loss |   |            |      |                  |   |                | (294,000 | )      |   |            | (294,000 | )     |   |       |       |   |   |         | (294,000 | )
|                          | Other changes (1)            |   |            | 2,288 |                  |   |                | 7,014    |        |   |            | 9,302    |       |   |       | (1,121 | ) |   |         | 8,181    |  
|                          |                              |   |            |       |                  |   |                |          |        |   |            |          |       |   |       |        |   |   |         |         
|Balance December 31, 2002 |                              |   | 360,919    |       |                  |   | 156,054        |          |        |   | 516,973    |          |       |   | 2,048 |        |   |   | 519,021 |         
|                          | Other changes (1)            |   |            | 3,241 |                  |   |                | 14,912   |        |   |            | 18,153   |       |   |       | (245   | ) |   |         | 17,908   |  
|                          |                              |   |            |       |                  |   |                |          |        |   |            |          |       |   |       |        |   |   |         |         
|Balance December 31, 2003 |                              | $ | 364,160    |       |                  | $ | 170,966        |          |        | $ | 535,126    |          |       | $ | 1,803 |        |   | $ | 536,929 |         
|                          |                              |   |            |       |                  |   |                |          |        |   |            |          |       |   |       |        |   |   |         |         



|(1) |  | Consists of changes primarily resulting from the translation of foreign
currencies at different exchange rates from the beginning of the year to
the end of the year and amortization of certain intangible assets.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Note 3  Debt

Debt of the Company and its subsidiaries (in thousands of dollars) consists of
the following:

|                                                                                                                                                                                                       |                                                                   |                                                                 |           |              |           |      |           |        |         | 
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | ----------------------------------------------------------------- | --------------------------------------------------------------- | --------- | ------------ | --------- | ---- | --------- | ------ | ------- | 
|                                                                                                                                                                                                       |                                                                   |                                                                 |           | December 31,
|                                                                                                                                                                                                       |                                                                   |                                                                 |           |             
|                                                                                                                                                                                                       |                                                                   |                                                                 |           | 2003         |           | 2002
|                                                                                                                                                                                                       |                                                                   |                                                                 |           |              |           |     
|Notes payable, including commercial paper, average interest
rate: 2003, 1.3%; 2002, 1.7%                                                                                                               |                                                                   | $                                                               | 1,187,142 |              |           | $    | 769,045   |       
|Promissory notes, average interest rate: 2003, 6.2%; 2002, 6.3%
(effective average interest rate: 2003, 6.2%; 2002, 6.4%);
net of unamortized discount: 2003, $11,676; 2002, $13,648;
due 2004 to 2028 |                                                                   |                                                                 | 4,895,180 |              |           |      | 4,843,211 |       
|Junior subordinated promissory notes, average interest rate 7.0%; net of unamortized discount: 2002, $17                                                                                               |                                                                   |                                                                 |          |              |           |      | 249,983   |       
|Foreign subsidiaries debt in foreign currencies:                                                                                                                                                      |                                                                   |                                                                 |           |              |           |      |           |       
|                                                                                                                                                                                                       | Short-term borrowings:                                            |                                                                 |           |              |           |      |           |        |        
|                                                                                                                                                                                                       |                                                                   | Banks, average interest rate: 2003, 3.6%; 2002, 3.8%            |           |              | 502,573   |      |           |        | 452,073 | 
|                                                                                                                                                                                                       |                                                                   | Commercial paper, average interest rate: 2003, 2.7%; 2002, 3.3% |           |              | 1,034,912 |      |           |        | 718,786 | 
|                                                                                                                                                                                                       | Other borrowings, average interest rate: 2003, 12.7%; 2002, 10.1% |                                                                 |           | 8,123        |           |      |           | 10,099 |        
|                                                                                                                                                                                                       |                                                                   |                                                                 |           |              |           |      |           |       
|Total                                                                                                                                                                                                  |                                                                   | $                                                               | 7,627,930 |              |           | $    | 7,043,197 |       
|                                                                                                                                                                                                       |                                                                   |                                                                 |           |              |           |      |           |       

The aggregate amounts of maturities of debt, in millions, are as follows: 2004,
$3,621.8 (including $2,719.6 of commercial paper, demand and other short-term
borrowings); 2005, $606.6; 2006, $756.9; 2007, $501.1; 2008, $200.0; after
2008, $1,941.5.

During the year ended December 31, 2003, short-term borrowings, in millions,
were as follows: maximum amounts outstanding $3,059.8 commercial paper and
$528.7 banks; monthly average amounts outstanding $2,301.2 commercial paper
(weighted-average interest rate 2.1%) and $429.3 banks (weighted-average
interest rate 3.5%).

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THE HERTZ CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

During the year ended December 31, 2002, short-term borrowings, in millions,
were as follows: maximum amounts outstanding $2,041.0 commercial paper and
$592.9 banks; monthly average amounts outstanding $1,409.2 commercial paper
(weighted-average interest rate 2.7%) and $422.0 banks (weighted-average
interest rate 4.0%).

During the year ended December 31, 2001, short-term borrowings, in millions,
were as follows: maximum amounts outstanding $3,119.0 commercial paper and
$647.5 banks; monthly average amounts outstanding $2,187.1 commercial paper
(weighted-average interest rate 4.3%) and $472.7 banks (weighted-average
interest rate 5.3%).

The net amortized discount charged to interest expense for the years ended
December 31, 2003, 2002 and 2001 relating to debt and other liabilities, in
millions, was $2.1, $2.1 and $1.9, respectively.

On September 30, 2003, the Company issued $500 million of 4.7% Senior
Promissory Notes (the Notes) due on October 2, 2006. Effective September 30,
2003, the Company entered into interest rate swap agreements relating to the
Notes. Under these agreements, the Company pays interest at a variable rate in
exchange for fixed rate receipts, effectively transforming these Notes to
floating rate obligations with an effective interest rate at December 31, 2003
of 3.27%. The swaps are designated as a fair value hedge with no
ineffectiveness, as defined by SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities. Changes in the fair value of the interest
rate swaps offset changes in the fair value of the fixed rate debt due to
changes in market interest rates. See Note 14  Financial Instruments.

During 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 are issued by wholly owned and
consolidated special purpose financing entities and are included in debt in the
consolidated balance sheet. All debt issued under the ABS program is
collateralized by the assets of the special purpose entities, consisting of
revenue earning vehicles used by the Companys domestic car rental business,
restricted cash and investments and certain receivables related to revenue
earning vehicles. The asset backed note indenture provides for additional
credit enhancement through letters of credit or maintenance of a liquidity
reserve or through over collateralization of the vehicle fleet. The titles to
all of the vehicles that collateralize this funding are held in a bankruptcy
remote entity and the Company acts as a servicer of the vehicles.

At December 31, 2003, $723.1 million of asset backed commercial paper was
outstanding under the ABS program. The average interest rate as of December
31, 2003 was 1.1%. The asset backed commercial paper has a maximum term at
issuance of 58 days. At December 31, 2003, the outstanding commercial paper
was collateralized by $663.2 million of net book value of revenue earning
vehicles, $88.3 million of receivables and $5.1 million of restricted cash.
(Restricted cash is included in Prepaid expenses and other assets in the
consolidated balance sheet.)

At December 31, 2003, the Company had committed credit facilities totaling $2.8
billion.

Currently, $1.3 billion of the committed credit facilities are represented by a
combination of multi-year, 364-day global and other committed credit facilities
provided by 24 participating banks. In addition to direct borrowings by the
Company, the multi-year and 364-day global facilities allow certain
subsidiaries of the Company to borrow on the basis of a guarantee by the
Company. The multi-year facilities were re-negotiated effective July 1, 2003
and currently total $1,065 million with expirations as follows: $43 million on
June 30, 2004, $69 million on June 30, 2005, $35 million on June 30, 2006, $108
million on June 30, 2007 and $810 million on June 30, 2008. The multi-year
facilities that expire in 2008 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 19, 2003, the 364-day global committed
credit facilities, which total $115 million, were renegotiated and currently
expire on June 17, 2004. 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. The other facilities total $118 million and expire at various
times during 2004.

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THE HERTZ CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

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 the right to transfer them back to the 364-day global
committed credit facilities without the consent of the participating banks. As
of December 31, 2003, $814 million is currently available which expires in
September 2004. 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, which currently expires June 30,
2005. This line of credit has an evergreen feature that provides on an annual
basis for automatic one-year extensions of the expiration date, unless 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. A commitment fee of .2% per annum is
payable on the unused available credit.

The Company maintains a Sales Agency Agreement with Ford Financial Services,
Inc. (FFS), a NASD registered broker/dealer and an indirect wholly owned
subsidiary of Ford, whereby FFS acts as a dealer for the Companys domestic
commercial paper programs. The Company pays fees to FFS, which range from .03%
to .05% per annum of commercial paper placed depending upon the monthly average
dollar value of the notes outstanding in the portfolios. In 2003, the Company
paid FFS $111,383 of such fees. FFS is under no obligation to purchase any of
the notes for its own account. The Company, through its subsidiary Hertz
Australia Pty. Limited, has a similar agreement with Ford Credit Australia
Limited, also an indirect wholly owned subsidiary of Ford.

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 commercial paper borrowings of its subsidiaries in
Belgium, Ireland and the Netherlands, and guarantees commercial paper and
short-term bank loans of its subsidiaries in Australia and Canada. All
borrowings by international operations either are in the international
operations local currency or, if in non-local currency, hedged to minimize
foreign exchange exposure. At December 31, 2003, total debt for the foreign
operations was $1,546 million, of which $1,538 million was short-term (original
maturity of less than one year) and $8 million was long-term. At December 31,
2003, total amounts outstanding (in millions of U.S. dollars) under the
commercial paper programs in Australia, Belgium, Canada, Ireland and
Netherlands were $2, $80, $361, $582 and $10, respectively.

Based on the terms of an indenture dated April 1, 1986, under which the Company
has issued debt securities, the Companys ability to pay dividends is
restricted. Such restriction provides that the Company may not pay dividends,
invest in its own shares or permit investments by certain subsidiaries of the
Company (Restricted Subsidiaries) in the Companys shares subsequent to a
specified date if, together with total investments by the Company and its
Restricted Subsidiaries in subsidiaries that are not Restricted Subsidiaries
made subsequent to such specified date, the aggregate of any such dividends or
investments exceeds the sum of (i) a specified dollar amount, (ii) the
aggregate net income of the Company and its Restricted Subsidiaries earned
subsequent to such specified date and (iii) net proceeds received from capital
stock issued subsequent to such specified date. At December 31, 2003,
approximately $1,029 million of consolidated stockholders equity was free of
such limitations.

37



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##### Table of Contents



THE HERTZ CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

Note 4  Available-for-Sale Securities

As of December 31, 2003 and 2002, Prepaid expenses and other assets in the
consolidated balance sheet include available-for-sale securities at fair value.
The fair value is calculated using information provided by independent
quotation services. These securities include various governmental and corporate
debt obligations. For the years ended December 31, 2003, 2002 and 2001,
proceeds, in millions, of $10.3, $4.1 and $6.3, respectively, were received
from the sale of available-for-sale securities, and gross realized gains, in
whole dollars, of $413,302, $134,061 and $218,538 and gross realized losses of
$54,433, $29,177 and $62,162, respectively, were included in earnings. Actual
cost was used in computing the realized gain and loss on the sale. Unrealized
gains and losses are included in Accumulated other comprehensive income
(loss) in the consolidated balance sheet.

The following is a summary of available-for-sale securities at December 31,
2003 and December 31, 2002 (in thousands):

|                            |       |   |       |        |       |   |            |     |            |   |           |     |   |   |       |        | 
|--------------------------- | ----- | - | ----- | ------ | ----- | - | ---------- | --- | ---------- | - | --------- | --- | - | - | ----- | ------ | 
|                            |       |   |       |        |       |   | Gross      |     | Gross      |   | Estimated
|                            |       |   |       |        |       |   | Unrealized |     | Unrealized |   | Fair     
|                            |       |   | Cost  |        | Gains |   | Losses     |     | Value     
|                            |       |   |       |        |       |   |            |     |           
|December 31, 2003           |       |   |       |        |       |   |            |     |            |   |           |     |   |   |       |       
|Government debt obligations |       | $ | 2,619 |        |       | $ | 15         |     |            | $ | (44       | )   |   | $ | 2,590 |       
|Corporate debt obligations  |       |   | 8,068 |        |       |   | 137        |     |            |   | (27       | )   |   |   | 8,178 |       
|                            |       |   |       |        |       |   |            |     |            |   |           |     |   |   |       |       
|                            | Total |   | $     | 10,687 |       |   | $          | 152 |            |   | $         | (71 | ) |   | $     | 10,768 | 
|                            |       |   |       |        |       |   |            |     |            |   |           |     |   |   |       |       
|December 31, 2002           |       |   |       |        |       |   |            |     |            |   |           |     |   |   |       |       
|Government debt obligations |       | $ | 2,528 |        |       | $ | 136        |     |            | $ | (2        | )   |   | $ | 2,662 |       
|Corporate debt obligations  |       |   | 5,796 |        |       |   | 560        |     |            |   | (1        | )   |   |   | 6,355 |       
|                            |       |   |       |        |       |   |            |     |            |   |           |     |   |   |       |       
|                            | Total |   | $     | 8,324  |       |   | $          | 696 |            |   | $         | (3  | ) |   | $     | 9,017  | 
|                            |       |   |       |        |       |   |            |     |            |   |           |     |   |   |       |       

The cost and estimated fair value of available-for-sale securities at December
31, 2003 are as follows (in thousands):

|                                       |       |   |       |        |            |   |           |        | 
|-------------------------------------- | ----- | - | ----- | ------ | ---------- | - | --------- | ------ | 
|                                       |       |   |       |        |            |   | Estimated
|                                       |       |   | Cost  |        | Fair Value
|                                       |       |   |       |        |           
|Due in one year or less                |       | $ | 240   |        |            | $ | 236       |       
|Due after one year through five years  |       |   | 8,542 |        |            |   | 8,614     |       
|Due after five years through ten years |       |   | 1,905 |        |            |   | 1,918     |       
|                                       |       |   |       |        |            |   |           |       
|                                       | Total |   | $     | 10,687 |            |   | $         | 10,768 | 
|                                       |       |   |       |        |            |   |           |       

Note 5  Purchases and Sales of Operations

During the year ended December 31, 2001, the Company acquired one European
equipment rental and sales company, one North American car rental company and
one Australian car rental company. The aggregate purchase price of the
acquisitions was $3.0 million, net of cash acquired, plus the assumption of
$9.0 million of debt. The aggregate consideration exceeded the fair value of
the net assets acquired by approximately $4.7 million, which has been
recognized as goodwill. The goodwill relating to acquisitions made prior to
July 1, 2001 has been amortized over periods from 25 to 40 years through
December 31, 2001 (see Note 2  Goodwill and Other Intangible Assets -
accounting change relating to the amortization of goodwill, effective January
1, 2002). 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.

38



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##### Table of Contents



THE HERTZ CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

Effective January 1, 2000, Hertz International, Ltd., (Hertz International),
entered into license and management services agreements with Axus
International, Inc. (Axus), a wholly owned vehicle leasing subsidiary of Ford
Motor Credit Company (Ford Credit), under which Hertz International licensed
the Hertz name and agreed to provide management services to Axus for a
five-year term. On August 31, 2000, the Company transferred substantially all
the net assets of its leasing operations in Australia, New Zealand and the
United Kingdom to Axus for $99.2 million. Through the third quarter of 2002,
Axus operated throughout Europe and in New Zealand and Australia. In the
fourth quarter of 2002, Ford Credit sold the Axus operations in Australia and
New Zealand and announced an agreement to sell the Axus operations in Europe.
In the first quarter of 2003, Ford Credit completed the sale of the Axus
operations in Europe. The Company continued to license the Hertz name and
provide management services relating to the European operations through the
completion of the sale. During 2003, 2002 and 2001, fees earned by the Company
from these agreements were approximately $1.8 million, $11.5 million and $8.7
million, respectively.

In June 1999, the Company entered into a Limited Liability Company Agreement
(LLC Agreement) with a subsidiary of Orbital Sciences Corporation
(Orbital), whereby Navigation Solutions LLC (Navigation Solutions), a
limited liability company, was formed to purchase NeverLost vehicle navigation
systems from another subsidiary of Orbital for installation in selected
vehicles in the Companys North American fleet. During 2003 and 2002, the
Company received distributions of $5.6 million and $6.6 million, respectively,
under the LLC Agreement, which represents a 40% ownership interest. The net
investment of $6.9 million as of December 31, 2003, (included in Prepaid
expense and other assets in the consolidated balance sheet) is accounted for
using the equity method of accounting. In July 2001, Orbitals subsidiary sold
its interest in the limited liability company to a subsidiary of Thales North
America, Inc. (Thales), which also acquired the Orbital subsidiary from whom
the NeverLost vehicle navigation systems are purchased. In January 2004, the
Company and Thales amended the LLC Agreement to provide for the Company to
increase its ownership interest to 65% and for the limited liability company to
purchase additional NeverLost vehicle navigation systems. The increase in
ownership interest will result in the consolidation of Navigation Solutions;
however, the Company does not believe this will have a material effect on the
Companys financial position, results of operations or cash flows.

Note 6  Employee Retirement Benefits

Qualified domestic employees, after completion of specified periods of service,
are eligible to participate in The Hertz Corporation Account Balance Defined
Benefit Pension Plan (Hertz Retirement Plan), a cash balance plan. Under
this qualified Hertz Retirement Plan, the Company pays the entire cost and
employees are not required to contribute.

Most of the Companys foreign subsidiaries have defined benefit retirement
plans or participate in various insured or multi-employer plans. In certain
countries, when the subsidiaries make the required funding payments, they have
no further obligations under such plans.

Company plans are generally funded, except for certain unqualified U.S. defined
benefit plans and in Germany, where unfunded liabilities are recorded.

The Company sponsors defined contribution plans for certain eligible U.S. and
non-U.S. employees. The Company matches contributions of participating
employees on the basis specified in the plans.

The Company also sponsors health care and life insurance benefits for a limited
number of employees with hire dates prior to January 1, 1990. The
postretirement health care plan is contributory with participants
contributions adjusted annually. An unfunded liability is recorded.

The Company uses a December 31 measurement date for the majority of its plans.

39



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##### Table of Contents



THE HERTZ CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

The following tables set forth the funded status and the net periodic pension
cost of the Hertz Retirement Plan,other postretirement benefit plans for
health care and life insurance covering domestic (U.S.) employees and the
retirement plans for foreign operations (Non-U.S.), together with amounts
included in the consolidated balance sheet and statement of operations (in
millions of dollars):

|                                                                                         |                                              |                              |       |                  |       |                |       |                       |       |      |      |       |      |      |      |       |       |   |   |       |       |   |   |       |       |  
|---------------------------------------------------------------------------------------- | -------------------------------------------- | ---------------------------- | ----- | ---------------- | ----- | -------------- | ----- | --------------------- | ----- | ---- | ---- | ----- | ---- | ---- | ---- | ----- | ----- | - | - | ----- | ----- | - | - | ----- | ----- | -
|                                                                                         |                                              |                              |       | Pension Benefits |       |                |       |                       |       |      |      |      
|                                                                                         |                                              |                              |       |                  |       | Health Care & 
|                                                                                         |                                              |                              |       | U.S. Plans       |       | Non-U.S. Plans |       | Life Insurance (U.S.)
|                                                                                         |                                              |                              |       |                  |       |                |       |                      
|                                                                                         |                                              |                              |       | 2003             |       | 2002           |       | 2003                  |       | 2002 |      | 2003  |      | 2002
|                                                                                         |                                              |                              |       |                  |       |                |       |                       |       |      |      |       |      |     
|Change in Benefit Obligation                                                             |                                              |                              |       |                  |       |                |       |                       |       |      |      |       |      |      |      |       |       |   |   |       |       |   |   |      
|                                                                                         | Benefit obligation at January 1              |                              | $     | 235.9            |       |                | $     | 197.6                 |       |      | $    | 69.4  |      |      | $    | 56.3  |       |   | $ | 10.3  |       |   | $ | 8.3   |      
|                                                                                         | Service cost                                 |                              |       | 17.3             |       |                |       | 16.3                  |       |      |      | 3.3   |      |      |      | 2.9   |       |   |   | .4    |       |   |   | .2    |      
|                                                                                         | Interest cost                                |                              |       | 15.5             |       |                |       | 14.1                  |       |      |      | 4.1   |      |      |      | 3.7   |       |   |   | .8    |       |   |   | .7    |      
|                                                                                         | Amendments                                   |                              |       |                 |       |                |       |                      |       |      |      |      |      |      |      |      |       |   |   |      |       |   |   |      |      
|                                                                                         | Employee contributions                       |                              |       |                 |       |                |       |                      |       |      |      | 1.2   |      |      |      | 1.1   |       |   |   | .1    |       |   |   | .1    |      
|                                                                                         | Benefits paid                                |                              |       | (6.9             | )     |                |       | (6.8                  | )     |      |      | (2.2  | )    |      |      | (1.8  | )     |   |   | (.8   | )     |   |   | (.8   | )    
|                                                                                         | Foreign exchange translation                 |                              |       |                 |       |                |       |                      |       |      |      | 10.0  |      |      |      | 7.5   |       |   |   |      |       |   |   |      |      
|                                                                                         | Actuarial loss (gain)                        |                              |       | 14.4             |       |                |       | 14.7                  |       |      |      | 11.8  |      |      |      | (.3   | )     |   |   | 3.3   |       |   |   | 1.8   |      
|                                                                                         |                                              |                              |       |                  |       |                |       |                       |       |      |      |       |      |      |      |       |       |   |   |       |       |   |   |      
|                                                                                         | Benefit obligation at December 31            |                              | $     | 276.2            |       |                | $     | 235.9                 |       |      | $    | 97.6  |      |      | $    | 69.4  |       |   | $ | 14.1  |       |   | $ | 10.3  |      
|                                                                                         |                                              |                              |       |                  |       |                |       |                       |       |      |      |       |      |      |      |       |       |   |   |       |       |   |   |      
|Change in Plan Assets                                                                    |                                              |                              |       |                  |       |                |       |                       |       |      |      |       |      |      |      |       |       |   |   |       |       |   |   |      
|                                                                                         | Fair value of plan assets at January 1       |                              | $     | 123.9            |       |                | $     | 128.7                 |       |      | $    | 38.6  |      |      | $    | 38.5  |       |   | $ |      |       |   | $ |      |      
|                                                                                         | Actual return on plan assets                 |                              |       | 26.9             |       |                |       | (10.8                 | )     |      |      | 7.3   |      |      |      | (7.0  | )     |   |   |      |       |   |   |      |      
|                                                                                         | Company contributions                        |                              |       | 56.6             |       |                |       | 13.2                  |       |      |      | 14.4  |      |      |      | 2.9   |       |   |   | .7    |       |   |   | .7    |      
|                                                                                         | Employee contributions                       |                              |       |                 |       |                |       |                      |       |      |      | 1.2   |      |      |      | 1.1   |       |   |   | .1    |       |   |   | .1    |      
|                                                                                         | Benefits paid                                |                              |       | (6.9             | )     |                |       | (6.8                  | )     |      |      | (2.2  | )    |      |      | (1.8  | )     |   |   | (.8   | )     |   |   | (.8   | )    
|                                                                                         | Foreign exchange translation                 |                              |       |                 |       |                |       |                      |       |      |      | 4.4   |      |      |      | 4.3   |       |   |   |      |       |   |   |      |      
|                                                                                         | Other                                        |                              |       |                 |       |                |       | (.4                   | )     |      |      | .1    |      |      |      | .6    |       |   |   |      |       |   |   |      |      
|                                                                                         |                                              |                              |       |                  |       |                |       |                       |       |      |      |       |      |      |      |       |       |   |   |       |       |   |   |      
|                                                                                         | Fair value of plan assets at December 31     |                              | $     | 200.5            |       |                | $     | 123.9                 |       |      | $    | 63.8  |      |      | $    | 38.6  |       |   | $ |      |       |   | $ |      |      
|                                                                                         |                                              |                              |       |                  |       |                |       |                       |       |      |      |       |      |      |      |       |       |   |   |       |       |   |   |      
|Funded Status of the Plan                                                                |                                              |                              |       |                  |       |                |       |                       |       |      |      |       |      |      |      |       |       |   |   |       |       |   |   |      
|                                                                                         | Plan assets less than benefit obligation     |                              | $     | (75.7            | )     |                | $     | (112.0                | )     |      | $    | (33.8 | )    |      | $    | (30.8 | )     |   | $ | (14.1 | )     |   | $ | (10.3 | )    
|                                                                                         | Unamortized:                                 |                              |       |                  |       |                |       |                       |       |      |      |       |      |      |      |       |       |   |   |       |       |   |   |       |      
|                                                                                         |                                              | Transition obligation        |       |                  |      |                |       |                       |      |      |      |       | .2   |      |      |       | .1    |   |   |       |      |   |   |       |      |  
|                                                                                         |                                              | Prior service cost           |       |                  | 4.6   |                |       |                       | 5.0   |      |      |       | .1   |      |      |       | .1    |   |   |       |      |   |   |       |      |  
|                                                                                         |                                              | Net losses (gains) and other |       |                  | 22.0  |                |       |                       | 19.8  |      |      |       | 25.4 |      |      |       | 18.1  |   |   |       | 2.6   |   |   |       | (.5   | )
|                                                                                         |                                              |                              |       |                  |       |                |       |                       |       |      |      |       |      |      |      |       |       |   |   |       |       |   |   |      
|                                                                                         | Net amount recognized                        |                              | $     | (49.1            | )     |                | $     | (87.2                 | )     |      | $    | (8.1  | )    |      | $    | (12.5 | )     |   | $ | (11.5 | )     |   | $ | (10.8 | )    
|                                                                                         |                                              |                              |       |                  |       |                |       |                       |       |      |      |       |      |      |      |       |       |   |   |       |       |   |   |      
|Amounts Recognized in the Balance Sheet
Assets/(Liabilities)                             |                                              |                              |       |                  |       |                |       |                       |       |      |      |       |      |      |      |       |       |   |   |       |       |   |   |      
|                                                                                         | Intangible assets (including prepaid assets) |                              | $     | 3.6              |       |                | $     | 1.7                   |       |      | $    | 8.5   |      |      | $    | .3    |       |   | $ |      |       |   | $ |      |      
|                                                                                         | Accrued liabilities                          |                              |       | (57.4            | )     |                |       | (91.6                 | )     |      |      | (28.4 | )    |      |      | (21.2 | )     |   |   | (11.5 | )     |   |   | (10.8 | )    
|                                                                                         | Deferred Income Tax                          |                              |       | 1.6              |       |                |       | .9                    |       |      |      | 3.7   |      |      |      | 2.6   |       |   |   |      |       |   |   |      |      
|                                                                                         | Accumulated other comprehensive loss         |                              |       | 3.1              |       |                |       | 1.8                   |       |      |      | 8.1   |      |      |      | 5.8   |       |   |   |      |       |   |   |      |      
|                                                                                         |                                              |                              |       |                  |       |                |       |                       |       |      |      |       |      |      |      |       |       |   |   |       |       |   |   |      
|                                                                                         |                                              | Net amount recognized        |       | $                | (49.1 | )              |       | $                     | (87.2 | )    |      | $     | (8.1 | )    |      | $     | (12.5 | ) |   | $     | (11.5 | ) |   | $     | (10.8 | )
|                                                                                         |                                              |                              |       |                  |       |                |       |                       |       |      |      |       |      |      |      |       |       |   |   |       |       |   |   |      
|Pension Plans in Which Accumulated Benefit
Obligation Exceeds Plan Assets at December 31 |                                              |                              |       |                  |       |                |       |                       |       |      |      |       |      |      |      |       |       |   |   |       |       |   |   |      
|                                                                                         | Projected benefit obligation                 |                              | $     | 39.0             |       |                | $     | 235.9                 |       |      | $    | 93.7  |      |      | $    | 68.8  |       |   |   |       |       |   |   |       |      
|                                                                                         | Accumulated benefit obligation               |                              |       | 33.2             |       |                |       | 192.7                 |       |      |      | 80.0  |      |      |      | 58.1  |       |   |   |       |       |   |   |       |      
|                                                                                         | Fair value of plan assets                    |                              |       |                 |       |                |       | 123.9                 |       |      |      | 60.2  |      |      |      | 37.8  |       |   |   |       |       |   |   |       |      
|Accumulated Benefit Obligation at December 31                                            |                                              |                              | 229.1 |                  |       |                | 192.7 |                       |       |      | 83.0 |       |      |      | 58.7 |       |       |   |   |       |       |   |   |      
|Weighted-average assumptions as of December 31                                           |                                              |                              |       |                  |       |                |       |                       |       |      |      |       |      |      |      |       |       |   |   |       |       |   |   |      
|                                                                                         | Discount rate                                |                              |       | 6.25             | %     |                |       | 6.75                  | %     |      |      | 5.5   | %    |      |      | 5.75  | %     |   |   | 6.25  | %     |   |   | 6.75  | %    
|                                                                                         | Expected return on assets                    |                              |       | 8.75             | %     |                |       | 8.75                  | %     |      |      | 5.7   | %    |      |      | 5.7   | %     |   |   | N/A   |       |   |   | N/A   |      
|                                                                                         | Average rate of increase in compensation     |                              |       | 4.4              | %     |                |       | 5.3                   | %     |      |      | 3.4   | %    |      |      | 3.0   | %     |   |   | N/A   |       |   |   | N/A   |      
|                                                                                         | Initial health care cost trend rate          |                              |       |                 |       |                |       |                      |       |      |      |      |      |      |      |      |       |   |   | 10.0  | %     |   |   | 7.5   | %    
|                                                                                         | Ultimate health care cost trend rate         |                              |       |                 |       |                |       |                      |       |      |      |      |      |      |      |      |       |   |   | 5.0   | %     |   |   | 5.0   | %    
|                                                                                         | Number of years to ultimate trend rate       |                              |       |                 |       |                |       |                      |       |      |      |      |      |      |      |      |       |   |   | 10    |       |   |   | 4     |      

40



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##### Table of Contents



THE HERTZ CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

|                                                            |                                     |                         |      |                          |     |                  |      |      |     |          |      |       |     |          |      |      |    |  |     |       |      |   |     |      |    |  |      |                    |    |  |      |    |   |  |     |    |     |  
|----------------------------------------------------------- | ----------------------------------- | ----------------------- | ---- | ------------------------ | --- | ---------------- | ---- | ---- | --- | -------- | ---- | ----- | --- | -------- | ---- | ---- | -- |  | --- | ----- | ---- | - | --- | ---- | -- |  | ---- | ------------------ | -- |  | ---- | -- | - |  | --- | -- | --- | -
|                                                            |                                     |                         |      | Years ended December 31,
|                                                            |                                     |                         |      |                         
|                                                            |                                     |                         |      |                          |     |                  |      |      |     |          |      |       |     |          |      |      |    |  |     |       |      |   |     |      |    |  |      | Health Care & Life
|                                                            |                                     |                         |      | Pension Benefits         |     | Insurance (U.S.)
|                                                            |                                     |                         |      |                          |     |                 
|                                                            |                                     |                         |      | 2003                     |     | 2002             |      | 2001 |     | 2003     |      | 2002  |     | 2001    
|                                                            |                                     |                         |      |                          |     |                  |      |      |     |          |      |       |     |         
|                                                            |                                     |                         |      | U.S.                     |     | Non-U.S.         |      | U.S. |     | Non-U.S. |      | U.S.  |     | Non-U.S. |      |      |    |  |     |       |      |   |     |      |    | 
|                                                            |                                     |                         |      |                          |     |                  |      |      |     |          |      |       |     |          |      |      |    |  |     |       |      |   |     |      |    | 
|Components of Net Periodic Benefit
Cost:                    |                                     |                         |      |                          |     |                  |      |      |     |          |      |       |     |          |      |      |    |  |     |       |      |   |     |      |    |  |      |                    |    |  |      |    |   |  |     |   
|                                                            | Service cost                        |                         | $    | 17.3                     |     |                  | $    | 3.3  |     |          | $    | 16.3  |     |          | $    | 2.9  |    |  | $   | 15.8  |      |   | $   | 2.3  |    |  | $    | .4                 |    |  | $    | .2 |   |  | $   | .2 |    
|                                                            | Interest cost                       |                         |      | 15.5                     |     |                  |      | 4.1  |     |          |      | 14.1  |     |          |      | 3.7  |    |  |     | 12.5  |      |   |     | 3.1  |    |  |      | .8                 |    |  |      | .7 |   |  |     | .6 |    
|                                                            | Expected return on plan assets      |                         |      | (15.9                    | )   |                  |      | (2.8 | )   |          |      | (13.3 | )   |          |      | (3.1 | )  |  |     | (12.7 | )    |   |     | (3.3 | )  |  |      |                   |    |  |      |   |   |  |     |   |    
|                                                            | Amortization:                       |                         |      |                          |     |                  |      |      |     |          |      |       |     |          |      |      |    |  |     |       |      |   |     |      |    |  |      |                    |    |  |      |    |   |  |     |    |    
|                                                            |                                     | Transition              |      |                          |    |                  |      |      | .7  |          |      |       |    |          |      |      | .1 |  |     |       |     |   |     |      |   |  |      |                    |   |  |      |    |  |  |     |    |    |  
|                                                            |                                     | Amendments              |      |                          | .5  |                  |      |      |    |          |      |       | .4  |          |      |      |   |  |     |       | .3   |   |     |      | .1 |  |      |                    |   |  |      |    |  |  |     |    |    |  
|                                                            |                                     | Losses(gains) and other |      |                          | 2.1 |                  |      |      | 1.2 |          |      |       | (.6 | )        |      |      | .3 |  |     |       | (1.0 | ) |     |      | .1 |  |      |                    | .1 |  |      |    |  |  |     |    | (.2 | )
|                                                            |                                     |                         |      |                          |     |                  |      |      |     |          |      |       |     |          |      |      |    |  |     |       |      |   |     |      |    |  |      |                    |    |  |      |    |   |  |     |    |    
|                                                            | Net pension/post-retirement
expense |                         | $    | 19.5                     |     |                  | $    | 6.5  |     |          | $    | 16.9  |     |          | $    | 3.9  |    |  | $   | 14.9  |      |   | $   | 2.3  |    |  | $    | 1.3                |    |  | $    | .9 |   |  | $   | .6 |    
|                                                            |                                     |                         |      |                          |     |                  |      |      |     |          |      |       |     |          |      |      |    |  |     |       |      |   |     |      |    |  |      |                    |    |  |      |    |   |  |     |    |    
|Weighted-average discount rate for
expense                  |                                     |                         | 6.75 | %                        |     |                  | 5.75 | %    |     |          | 7.25 | %     |     |          | 5.75 | %    |    |  | 7.5 | %     |      |   | 6.3 | %    |    |  | 6.75 | %                  |    |  | 7.25 | %  |   |  | 7.5 | % 
|Weighted-average assumed long-term
rate of return on assets |                                     |                         | 8.75 | %                        |     |                  | 5.7  | %    |     |          | 9.5  | %     |     |          | 7.4  | %    |    |  | 9.5 | %     |      |   | 6.4 | %    |    |  |      |                    |    |  |      |    |   |  |     |   
|Initial health care cost trend rate                         |                                     |                         |     |                          |     |                  |     |      |     |          |     |       |     |          |     |      |    |  |    |       |      |   |    |      |    |  | 10.0 | %                  |    |  | 8.5  | %  |   |  | 7.0 | % 
|Ultimate health care cost trend rate                        |                                     |                         |     |                          |     |                  |     |      |     |          |     |       |     |          |     |      |    |  |    |       |      |   |    |      |    |  | 5.0  | %                  |    |  | 5.0  | %  |   |  | 5.0 | % 
|Number of years to ultimate trend
rate                      |                                     |                         |     |                          |     |                  |     |      |     |          |     |       |     |          |     |      |    |  |    |       |      |   |    |      |    |  | 11   |                    |    |  | 5    |    |   |  | 8   |   

Changing the assumed health care cost trend rates by one percentage point is
estimated to have the following effects in whole dollars:

|                                                        |  |                |         |                |  |   |         | 
|------------------------------------------------------- |  | -------------- | ------- | -------------- |  | - | ------- | 
|                                                        |  | One Percentage |         | One Percentage
|                                                        |  | Point Increase |         | Point Decrease
|                                                        |  |                |         |               
|Effect on total of service and interest cost components |  | $              | 96,600  |                |  | $ | 84,100  | 
|Effect on postretirement benefit obligation             |  |                | 926,600 |                |  |   | 810,800 | 

The estimated cost for postretirement health care and life insurance benefits
is accrued on an actuarially determined basis. Retirement rate and salary
increase assumptions were changed in 2003 to reflect historical experience, the
effect of which was not considered material. The 2003 increase in the number
of years to ultimate trend rate resulted from changes in trend assumptions.

The provisions charged to income for the years ended December 31, 2003, 2002
and 2001 for all other pension plans were approximately (in millions) $7.3,
$7.2 and $7.7, respectively.

The provisions charged to income for the years ended December 31, 2003, 2002
and 2001 for the defined contribution plans were approximately (in millions)
$12.3, $11.4 and $10.4, respectively.

Plan Assets

The Companys U.S. pension plan weighted-average asset allocations at December
31, 2003 and 2002, by asset category, are as follows:

|                  |       |      |                      |       |   |  |      |       |  
|----------------- | ----- | ---- | -------------------- | ----- | - |  | ---- | ----- | -
|                  |       |      | Plan assets for year
|                  |       |      | ending December 31, 
|                  |       |      |                     
|Asset Category    |       | 2003 |                      | 2002 
|                  |       |      |                      |      
|Equity securities |       |      | 64.1                 | %     |   |  | 52.7 | %    
|Debt securities   |       |      | 35.8                 |       |   |  | 47.2 |      
|Other             |       |      | 0.1                  |       |   |  | 0.1  |      
|                  |       |      |                      |       |   |  |      |      
|                  | Total |      |                      | 100.0 | % |  |      | 100.0 | %
|                  |       |      |                      |       |   |  |      |      

41



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##### Table of Contents



THE HERTZ CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

The Company has a long-term investment outlook for the assets held in the Hertz
Retirement Plan, which is consistent with the long-term nature of the Plans
liabilities. At year-end 2003, the target asset allocation of the Plan was 65%
equity and 35% fixed income. The equity portion of the Plan is invested in
professionally managed equity index funds, which are expected to track the
return characteristics of the S&P 500 Index. The fixed income portion of the
Plan is actively managed by a professional investment manager and is
benchmarked to the Citigroup Broad Bond Index.

The assumption for the rate of return on assets represents the expected
long-term annual weighted-average return for the Plan in total. The 8.75% rate
of return on assets assumption is conservative when compared to the 10 year
historical annual weighted average return of 9.91% actually achieved by the
assets of the Plan as well as the 10 year historical returns of the Plans
target benchmark of 10.1%.

Contributions

The Companys policy for funded plans is to contribute annually, at a minimum,
amounts required by applicable laws, regulations, and union agreements. The
Company from time to time makes contributions beyond those legally required.
In 2003, the Company made approximately $54 million of discretionary cash
contributions to the U.S. pension plan. In 2004, the Company expects to
contribute, at a minimum, approximately $5.3 million to its worldwide pension
plans, including contributions required by funding regulations, discretionary
contributions and benefit payments for unfunded plans.

Note 7  Stock-Based Employee Compensation

Certain employees of the Company participate in the stock option plan of Ford
under Fords 1998 Long-Term Incentive Plan (the Plan). Grants may be made
under the Plan through April 2008. Options granted under the Plan become
exercisable 33% after one year from the date of grant, 66% after two years and
in full after three years. Options under the Plan expire after 10 years from
the date of grant.

Effective January 1, 2003, the Company adopted the fair value recognition
provisions of SFAS No. 123, Accounting for Stock-Based Compensation,
prospectively to all unvested employee stock options as of January 1, 2003, and
all new awards granted to employees after January 1, 2003. Prior to January 1,
2003, the Company elected to follow APB Opinion No. 25, Accounting for Stock
Issued to Employees. Under APB 25, no compensation expense was recognized for
the options because their exercise price equaled the market price of the
underlying stock on the date of grant.

The following table illustrates the effect on net income (loss) as if the fair
value based method had been applied to all outstanding and unvested stock
options in each period.

|                               |  |                                                                                                                                     |         |                          |        |      |           |      |        |   |        |  |        |  
|------------------------------ |  | ----------------------------------------------------------------------------------------------------------------------------------- | ------- | ------------------------ | ------ | ---- | --------- | ---- | ------ | - | ------ |  | ------ | -
|                               |  |                                                                                                                                     |         | Years ended December 31,
|                               |  |                                                                                                                                     |         |                         
|                               |  |                                                                                                                                     |         | 2003                     |        | 2002 |           | 2001
|                               |  |                                                                                                                                     |         |                          |        |      |           |     
|Net income (loss), as reported |  | $                                                                                                                                   | 158,615 |                          |        | $    | (149,952  | )    |        | $ | 23,267 | 
|Add:                           |  | Stock-based employee compensation expense
included in reported net income, net of related tax effects                               |         |                          | 3,925  |      |           |      |       |   |        |  |       |  
|Deduct:                        |  | Total stock-based employee compensation
expense determined under fair value based method
for all awards, net of related tax effects |         |                          | (3,925 | )    |           |      | (7,228 | ) |        |  | (9,721 | )
|                               |  |                                                                                                                                     |         |                          |        |      |           |      |        |   |        |  |        |  
|Pro forma net income (loss)    |  | $                                                                                                                                   | 158,615 |                          |        | $    | (157,180) |      |        | $ | 13,546 | 

The fair values for these options were estimated at the date of grant using a
Black-Scholes option pricing model with the following assumptions used for
grants in 2003, 2002 and 2001: risk-free interest rate of 3.7%, 5.22% and
5.16%, respectively; volatility factors of 39%, 35% and 44%, respectively;
dividend yields of 5.3%, 2.37% and 3.97%, respectively; and an average expected
life of the options of seven years for 2003 and 2002, and five years for 2001.
For purposes of pro forma disclosures, the estimated fair values of the options
are amortized to expense over the options vesting periods.

42



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##### Table of Contents



THE HERTZ CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

A summary of option transactions is presented below:

|                                                           |  |           |           |          |  |           |       |          |  |           |           |          |  |   |       |  |  |          |           |   |  |   |       | 
|---------------------------------------------------------- |  | --------- | --------- | -------- |  | --------- | ----- | -------- |  | --------- | --------- | -------- |  | - | ----- |  |  | -------- | --------- | - |  | - | ----- | 
|                                                           |  | 2003      |           | 2002     |  | 2001     
|                                                           |  |           |           |          |  |          
|                                                           |  |           |           |          |  | Weighted  |       |          |  |           |           | Weighted |  |   |       |  |  | Weighted
|                                                           |  |           |           |          |  | Average   |       |          |  |           |           | Average  |  |   |       |  |  | Average 
|                                                           |  | Number of |           | Exercise |  | Number of |       | Exercise |  | Number of |           | Exercise
|                                                           |  | Shares    |           | Price    |  | Shares    |       | Price    |  | Shares    |           | Price   
|                                                           |  |           |           |          |  |           |       |          |  |           |           |         
|Outstanding at January 1                                   |  |           | 5,994,339 |          |  | $         | 29.43 |          |  |           | 4,647,127 |          |  | $ | 33.46 |  |  |          | 3,446,621 |   |  | $ | 40.39 | 
|Granted                                                    |  |           |          |          |  |           |       |          |  |           |          |          |  |   |       |  |  |          | 5,000     |   |  | $ | 34.00 | 
|Expired or canceled                                        |  |           |          |          |  |           |       |          |  |           |          |          |  |   |       |  |  |          | (384,227  | ) |  | $ | 41.05 | 
|Exercised                                                  |  |           |          |          |  |           |       |          |  |           |          |          |  |   |       |  |  |          | (416,404  | ) |  | $ | 24.00 | 
|Ford adjustment (a)                                        |  |           |          |          |  |           |       |          |  |           |          |          |  |   |       |  |  |          | 576,245   |   |  |   |       | 
|Ford stock options granted                                 |  |           | 1,473,625 |          |  | $         | 7.55  |          |  |           | 1,499,900 |          |  | $ | 16.91 |  |  |          | 1,581,525 |   |  | $ | 27.42 | 
|Ford stock options cancelled                               |  |           | (240,147  | )        |  | $         | 25.38 |          |  |           | (152,688  | )        |  | $ | 24.84 |  |  |          | (161,633  | ) |  | $ | 32.70 | 
|                                                           |  |           |           |          |  |           |       |          |  |           |           |          |  |   |       |  |  |          |           |   |  |   |       | 
|Outstanding at December 31                                 |  |           | 7,227,817 |          |  | $         | 25.10 |          |  |           | 5,994,339 |          |  | $ | 29.43 |  |  |          | 4,647,127 |   |  | $ | 33.46 | 
|                                                           |  |           |           |          |  |           |       |          |  |           |           |          |  |   |       |  |  |          |           |   |  |   |       | 
|Options exercisable at year-end                            |  |           | 4,305,981 |          |  | $         | 30.57 |          |  |           | 3,015,727 |          |  | $ | 35.35 |  |  |          | 1,783,032 |   |  | $ | 37.77 | 
|Weighted-average fair value of
options granted during year |  |           |           |          |  | $         | 1.90  |          |  |           |           |          |  | $ | 6.01  |  |  |          |           |   |  | $ | 8.64  | 



|(a) |  | Outstanding Company stock option grants were converted to Ford stock
option grants as a result of the Merger. The Company previously sponsored
a long-term equity compensation plan (the LTECP) covering certain
employees of the Company. The LTECP provided for the grant of incentive
and nonqualified stock options, stock appreciation rights, restricted
stock, performance shares and performance units (Awards). Prior to the
Merger, Awards granted under the LTECP were options on, and restricted
shares of, the Companys Class A Common Stock. As a consequence of the
Merger, outstanding options to purchase the Companys Class A Common Stock
under the LTECP (other than options held by non-employee directors of the
Company) were converted into options to purchase shares of common stock of
Ford, as determined and approved by the Company and Ford. In addition,
holders of restricted stock awarded under the LTECP received the same
consideration as all other holders of the Companys Class A Common Stock
received in the Merger. Total compensation cost charged against income
related to restricted stock awards was $5.5 million in 2001.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The following table summarizes information about stock options outstanding at
December 31, 2003:

|                         |  |                        |           |                        |  |          |     |             |  |           |       |         |  |          |           |  |  |   |       | 
|------------------------ |  | ---------------------- | --------- | ---------------------- |  | -------- | --- | ----------- |  | --------- | ----- | ------- |  | -------- | --------- |  |  | - | ----- | 
|                         |  | Options Outstanding at |           | Options Exercisable at
|                         |  | December 31, 2003      |           | December 31, 2003     
|                         |  |                        |           |                       
|                         |  |                        |           |                        |  | Weighted |     | Weighted    |  |           |       |         |  | Weighted
|                         |  |                        |           |                        |  | Average  |     | Average     |  | Number of |       | Average
|                         |  | Number of              |           | Remaining              |  | Exercise |     | Shares      |  | Exercise 
|Range of Exercise Prices |  | Shares                 |           | Contractual Life       |  | Price    |     | Exercisable |  | Price    
|                         |  |                        |           |                        |  |          |     |             |  |          
|$30.19  $42.52          |  |                        | 671,232   |                        |  |          | 4.3 |             |  | $         | 41.42 |         |  |          | 671,232   |  |  | $ | 41.42 | 
|$35.19                   |  |                        | 974,617   |                        |  |          | 5.1 |             |  | $         | 35.19 |         |  |          | 974,617   |  |  | $ | 35.19 | 
|$30.19  $35.77          |  |                        | 1,090,226 |                        |  |          | 6.1 |             |  | $         | 35.67 |         |  |          | 1,090,226 |  |  | $ | 35.67 | 
|$27.42  $30.19          |  |                        | 1,646,117 |                        |  |          | 7.2 |             |  | $         | 27.79 |         |  |          | 1,102,898 |  |  | $ | 27.78 | 
|$16.91                   |  |                        | 1,415,175 |                        |  |          | 8.2 |             |  | $         | 16.91 |         |  |          | 467,008   |  |  | $ | 16.91 | 
|$7.55                    |  |                        | 1,430,450 |                        |  |          | 9.2 |             |  | $         | 7.55  |         |  |          |          |  |  |   |      | 

43



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##### Table of Contents



THE HERTZ CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

Note 8  Revenue Earning Equipment

Revenue earning equipment consists of rental cars and industrial and
construction equipment and leased cars under closed-end leases where the
disposition of the cars upon termination of the lease is for the account of the
Company. Over the three years ended December 31, 2003, on a weighted-average
basis, approximately 57% of the cars acquired by the Company for its U.S. car
rental fleet, and approximately 28% of the cars acquired by the Company for its
international fleet, were manufactured by Ford and subsidiaries. During 2003,
approximately 55% of the cars acquired by the Company domestically were
manufactured by Ford and subsidiaries and approximately 33% of the cars
acquired by the Company for its international fleet were manufactured by Ford
and subsidiaries, which represented the largest percentage of any automobile
manufacturer in that year.

Depreciation of revenue earning equipment includes the following (in thousands
of dollars):

|                                                          |       |   |                          |           |      |   |           |           |  |   |           |           | 
|--------------------------------------------------------- | ----- | - | ------------------------ | --------- | ---- | - | --------- | --------- |  | - | --------- | --------- | 
|                                                          |       |   | Years ended December 31,
|                                                          |       |   |                         
|                                                          |       |   | 2003                     |           | 2002 |   | 2001     
|                                                          |       |   |                          |           |      |   |          
|Depreciation of revenue earning equipment                 |       | $ | 1,504,482                |           |      | $ | 1,492,292 |           |  | $ | 1,443,893 |          
|Adjustment of depreciation upon disposal of the equipment |       |   | 808                      |           |      |   | (10,801   | )         |  |   | 1,610     |          
|Rents paid for vehicles leased                            |       |   | 18,101                   |           |      |   | 18,077    |           |  |   | 16,807    |          
|                                                          |       |   |                          |           |      |   |           |           |  |   |           |          
|                                                          | Total |   | $                        | 1,523,391 |      |   | $         | 1,499,568 |  |   | $         | 1,462,310 | 
|                                                          |       |   |                          |           |      |   |           |           |  |   |           |          

The adjustment of depreciation upon disposal of revenue earning equipment for
the years ended December 31, 2003, 2002 and 2001 included (in millions) a net
loss of $1.9 and net gains of $7.1 and $13.0, respectively, on the sale of
industrial and construction equipment, and net gains of $1.1 and $3.7 and a net
loss of $14.6, respectively, on the sale of cars used in the car rental and car
leasing operations.

The Company and Ford have entered into a Car Supply Agreement, which commenced
on September 1, 1997 for a period of ten years. Under the Car Supply Agreement,
Ford and the Company have agreed to negotiate in good faith on an annual basis
with respect to the supply of cars. For each model year, Ford must supply cars
to the Company on terms and conditions that are no less favorable than those
offered by Ford to other daily car rental companies. During the years ended
December 31, 2003, 2002 and 2001, the Company purchased cars from Ford and its
subsidiaries at a cost of approximately (in billions) $4.9, $5.1 and $4.4,
respectively and sold cars to Ford and its subsidiaries under various
repurchase programs for approximately $3.8, $3.8 and $3.3, respectively.

As of December 31, 2003 and 2002, Ford owed the Company and its subsidiaries
$520.8 million and $251.3 million, respectively, the majority of which relates
to various car repurchase and warranty programs. The balance at December 31,
2003 also includes $250.7 million which represents amounts due under a tax
sharing agreement with Ford. As of December 31, 2003 and 2002, the Company and
its subsidiaries owed Ford $119.9 million and $66.0 million, respectively
(which amounts are included in Accounts payable in the consolidated balance
sheet), relating to vehicles purchased, and in 2003, includes the liability for
stock-based employee compensation.

44



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##### Table of Contents



THE HERTZ CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

Note 9  Taxes on Income

The provision (benefit) for taxes on income consists of the following (in
thousands of dollars):

|          |                 |                |                           |          |                          |        |      |         |         |        |   |         |         |         |  
|--------- | --------------- | -------------- | ------------------------- | -------- | ------------------------ | ------ | ---- | ------- | ------- | ------ | - | ------- | ------- | ------- | -
|          |                 |                |                           |          | Years ended December 31,
|          |                 |                |                           |          |                         
|          |                 |                |                           |          | 2003                     |        | 2002 |         | 2001   
|          |                 |                |                           |          |                          |        |      |         |        
|Current:  |                 |                |                           |          |                          |        |      |         |         |        |   |        
|          | Federal         |                | $                         | (214,487 | )                        |        | $    | (37,368 | )       |        | $ | 12,100  |        
|          | Foreign         |                |                           | 22,341   |                          |        |      | 6,085   |         |        |   | 13,372  |        
|          | State and local |                |                           | 10,175   |                          |        |      | (2,711  | )       |        |   | 1,700   |        
|          |                 |                |                           |          |                          |        |      |         |         |        |   |        
|          |                 | Total current  |                           |          | (181,971                 | )      |      |         | (33,994 | )      |   |         | 27,172  |        
|          |                 |                |                           |          |                          |        |      |         |         |        |   |        
|Deferred: |                 |                |                           |          |                          |        |      |         |         |        |   |        
|          | Federal         |                |                           | 270,248  |                          |        |      | 91,940  |         |        |   | (46,916 | )      
|          | Foreign         |                |                           | (6,400   | )                        |        |      | 3,300   |         |        |   | 900     |        
|          | State and local |                |                           | (3,000   | )                        |        |      | 11,100  |         |        |   | (1,700  | )      
|          |                 |                |                           |          |                          |        |      |         |         |        |   |        
|          |                 | Total deferred |                           |          | 260,848                  |        |      |         | 106,340 |        |   |         | (47,716 | )      
|          |                 |                |                           |          |                          |        |      |         |         |        |   |        
|          |                 |                | Total provision (benefit) |          | $                        | 78,877 |      |         | $       | 72,346 |   |         | $       | (20,544 | )
|          |                 |                |                           |          |                          |        |      |         |         |        |   |        

The principal items in the deferred tax provision (benefit) are as follows (in
thousands of dollars):

|                                                                            |                                    |   |                          |         |      |   |          |         |  |   |         |         |  
|--------------------------------------------------------------------------- | ---------------------------------- | - | ------------------------ | ------- | ---- | - | -------- | ------- |  | - | ------- | ------- | -
|                                                                            |                                    |   | Years ended December 31,
|                                                                            |                                    |   |                         
|                                                                            |                                    |   | 2003                     |         | 2002 |   | 2001    
|                                                                            |                                    |   |                          |         |      |   |         
|Difference between tax and book depreciation                                |                                    | $ | 145,208                  |         |      | $ | 464,653  |         |  | $ | (10,284 | )      
|Accrued and prepaid expense deducted for tax purposes
when paid or incurred |                                    |   | (32,267                  | )       |      |   | (3,078   | )       |  |   | (12,283 | )      
|Tax operating loss utilized (carryforwards)                                 |                                    |   | 288,783                  |         |      |   | (365,982 | )       |  |   | 7,029   |        
|Foreign tax credit (carryforwards) utilized                                 |                                    |   | (105,980                 | )       |      |   | 8,595    |         |  |   | (30,026 | )      
|Federal alternative minimum tax credit (carryforwards) utilized             |                                    |   | (34,896                  | )       |      |   | 2,152    |         |  |   | (2,152  | )      
|                                                                            |                                    |   |                          |         |      |   |          |         |  |   |         |        
|                                                                            | Total deferred provision (benefit) |   | $                        | 260,848 |      |   | $        | 106,340 |  |   | $       | (47,716 | )
|                                                                            |                                    |   |                          |         |      |   |          |         |  |   |         |        

The principal items in the deferred tax liability at December 31, 2003 and 2002
are as follows (in thousands of dollars):

|                                                                            |       |   |           |         |      |   |           |         | 
|--------------------------------------------------------------------------- | ----- | - | --------- | ------- | ---- | - | --------- | ------- | 
|                                                                            |       |   | 2003      |         | 2002
|                                                                            |       |   |           |         |     
|Difference between tax and book depreciation                                |       | $ | 1,190,822 |         |      | $ | 1,045,614 |        
|Accrued and prepaid expense deducted for tax purposes when
paid or incurred |       |   | (220,254  | )       |      |   | (186,239  | )      
|Tax operating loss carryforwards                                            |       |   | (82,495   | )       |      |   | (371,278  | )      
|Foreign tax credit carryforwards                                            |       |   | (131,977  | )       |      |   | (25,997   | )      
|Federal alternative minimum tax credit carryforwards                        |       |   | (34,896   | )       |      |   |          |        
|                                                                            |       |   |           |         |      |   |           |        
|                                                                            | Total |   | $         | 721,200 |      |   | $         | 462,100 | 
|                                                                            |       |   |           |         |      |   |           |        

At December 31, 2003 the Company had operating loss carryforwards for federal,
state and foreign tax purposes totaling $82.5 million, of which $60.2 million
expire through 2023. The remaining $22.3 million may be carried forward
indefinitely. It is anticipated that such operations will become profitable in
the future and the carryforwards will be fully utilized. The foreign tax
credit carryforwards at

45



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THE HERTZ CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) December 31, 2003 of $132.0 million expire through 2008 and are expected to be fully
utilized in the consolidated U.S. tax return of Ford. In connection
with the filing of the 2002 consolidated tax return, net operating
losses of the Company were carried back to prior periods, which
increased the amount of foreign tax credit carryforwards. The federal alternative minimum tax credit carryforwards of $34.9
million may be used indefinitely to reduce federal income taxes. The principal items accounting for the difference in taxes on income computed
at the U.S. statutory rate of 35% and as recorded are as follows (in thousands
of dollars): Years ended December 31,2003
    
    2002
    
    2001Computed tax at statutory rate
    
    $
    83,122
    
    
    $
    75,738
    
    
    $
    953State and local income taxes, net of Federal income tax benefit
    
    
    4,664
    
    
    
    5,453
    
    
    
    Foreign tax credits
    
    
    
    
    
    
    
    
    
    
    (30,175
    )Tax effect on the amortization of goodwill
    
    
    
    
    
    
    
    
    
    
    7,482Increase in valuation allowance
    
    
    
    
    
    
    
    
    
    
    6,934Income taxes on foreign earnings at effective rates different from the U.S.

statutory rate, including the anticipated realization of certain foreign tax
benefits and the effect of subsidiaries gains and losses and exchange
adjustments with no tax effect
    
    
    (9,949
    )
    
    
    (5,989
    )
    
    
    (3,272
    )All other items, net
    
    
    1,040
    
    
    
    (2,856
    )
    
    
    (2,466
    )Total provision (benefit)
    
    $
    78,877
    
    
    $
    72,346
    
    
    $
    (20,544
    )
 Note 10  Lease and Concession Agreements Hertz has various concession agreements, which provide for payment of rents and
a percentage of revenue with a guaranteed minimum,and real estate leases under
which the following amounts were expensed (in thousands of dollars): Years ended December 31,2003
    
    2002
    
    2001Rents
    
    $
    90,421
    
    
    $
    80,857
    
    
    $
    76,920Concession fees:Minimum fixed obligations
    
    
    230,443
    
    
    
    215,385
    
    
    
    208,569Additional amounts, based on revenues
    
    
    132,860
    
    
    
    139,918
    
    
    
    138,526Total
    
    $
    453,724
    
    
    $
    436,160
    
    
    $
    424,015
 As of December 31, 2003, minimum obligations under existing agreements referred
to above are approximately as follows (in thousands of dollars): Rents
    
    ConcessionsYears ended December 31,2004
    
    $
    70,083
    
    
    $
    174,0592005
    
    
    57,732
    
    
    
    146,9802006
    
    
    47,052
    
    
    
    117,1832007
    
    
    38,032
    
    
    
    94,6632008
    
    
    29,871
    
    
    
    54,177Years after 2008
    
    
    100,938
    
    
    
    273,493
 46




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THE HERTZ CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) In addition to the above, Hertz has various leases on revenue earning equipment
and office and computer equipment under which the following amounts were
expensed (in thousands of dollars): Years ended December 31,2003
    
    2002
    
    2001Revenue earning equipment
    
    $
    18,101
    
    
    $
    18,077
    
    
    $
    16,807Office and computer equipment
    
    
    13,075
    
    
    
    11,732
    
    
    
    12,907Total
    
    $
    31,176
    
    
    $
    29,809
    
    
    $
    29,714
 As of December 31, 2003, minimum obligations under existing agreements referred
to above that have a maturity of more than one year are as follows (in
thousands): 2004, $14,840; 2005, $8,900; 2006, $4,471; 2007, $471; 2008, $9,
after 2008, $2. Note 11  Segment Information The Company follows SFAS No. 131, Disclosures about Segments of an Enterprise
and Related Information. The statement requires companies to disclose segment
data based on how management makes decisions about allocating resources to
segments and measuring their performance. The Company has identified two significant segments: rental of cars and light
trucks (car rental); and rental of industrial, construction and materials
handling equipment (industrial and construction equipment rental). The
contribution of these segments, as well as corporate and other, for each of
the three years ended December 31, 2003 are summarized below (in millions of
dollars). Corporate and other includes general corporate expenses, principally
amortization of intangibles, certain interest expense, as well as other
business activities, such as claim management and, prior to 2003,
telecommunication services (in millions of dollars). Years ended December 31,2003
    
    2002
    
    2001RevenuesCar rental
    
    $
    4,296
    
    
    $
    4,066
    
    
    $
    3,883Industrial and construction equipment rental
    
    
    905
    
    
    
    893
    
    
    
    1,004Corporate and other
    
    
    7
    
    
    
    9
    
    
    
    29Total
    
    $
    5,208
    
    
    $
    4,968
    
    
    $
    4,916Income (loss) before income taxesCar rental
    
    $
    279
    
    
    $
    264
    
    
    $
    45Industrial and construction equipment rental
    
    
    (22
    )
    
    
    (38
    )
    
    
    (9
    )Corporate and other
    
    
    (20
    )
    
    
    (10
    )
    
    
    (33
    )Total
    
    $
    237
    
    
    $
    216
    
    
    $
    3Depreciation of revenue earning equipmentCar rental
    
    $
    1,258
    
    
    $
    1,229
    
    
    $
    1,191Industrial and construction equipment rental
    
    
    265
    
    
    
    271
    
    
    
    271Corporate and other
    
    
    
    
    
    
    
    
    
    
    Total
    
    $
    1,523
    
    
    $
    1,500
    
    
    $
    1,462Depreciation of property and equipmentCar rental
    
    $
    111
    
    
    $
    116
    
    
    $
    124Industrial and construction equipment rental
    
    
    36
    
    
    
    35
    
    
    
    39Corporate and other
    
    
    5
    
    
    
    4
    
    
    
    4Total
    
    $
    152
    
    
    $
    155
    
    
    $
    167
 47




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THE HERTZ CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) Years ended December 31,2003
    
    2002
    
    2001Amortization of intangiblesCar rental
    
    $
    
    
    
    $
    
    
    
    $
    3Industrial and construction equipment rental
    
    
    1
    
    
    
    1
    
    
    
    12Corporate and other
    
    
    
    
    
    
    
    
    
    
    16Total
    
    $
    1
    
    
    $
    1
    
    
    $
    31Operating income (loss) (pre-tax income (loss) before interest)Car rental
    
    $
    551
    
    
    $
    530
    
    
    $
    334Industrial and construction equipment rental
    
    
    54
    
    
    
    52
    
    
    
    95Corporate and other
    
    
    (12
    )
    
    
    1
    
    
    
    (22
    )Total
    
    $
    593
    
    
    $
    583
    
    
    $
    407Total assets at end of yearCar rental
    
    $
    9,310
    
    
    $
    8,354
    
    
    $
    7,146Industrial and construction equipment rental
    
    
    1,891
    
    
    
    1,965
    
    
    
    2,480Corporate and other
    
    
    1,378
    
    
    
    810
    
    
    
    532Total
    
    $
    12,579
    
    
    $
    11,129
    
    
    $
    10,158Revenue earning equipment, net, at end of yearCar rental
    
    $
    6,462
    
    
    $
    5,998
    
    
    $
    5,221Industrial and construction equipment rental
    
    
    1,331
    
    
    
    1,428
    
    
    
    1,631Corporate and other
    
    
    
    
    
    
    
    
    
    
    Total
    
    $
    7,793
    
    
    $
    7,426
    
    
    $
    6,852Revenue earning equipment and property and equipmentCar rentalExpenditures
    
    $
    9,292
    
    
    $
    9,891
    
    
    $
    9,141Proceeds from sale
    
    
    (7,701
    )
    
    
    (7,901
    )
    
    
    (7,700
    )Net expenditures
    
    $
    1,591
    
    
    $
    1,990
    
    
    $
    1,441Revenue earning equipment and property and equipmentIndustrial and construction equipment rentalExpenditures
    
    $
    368
    
    
    $
    272
    
    
    $
    404Proceeds from sale
    
    
    (228
    )
    
    
    (197
    )
    
    
    (175
    )Net expenditures
    
    $
    140
    
    
    $
    75
    
    
    $
    229Corporate and otherExpenditures
    
    $
    3
    
    
    $
    4
    
    
    $
    6Proceeds from sale
    
    
    
    
    
    
    
    
    
    
    Net expenditures
    
    $
    3
    
    
    $
    4
    
    
    $
    6
 48




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THE HERTZ CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

The Company operates in the United States and in foreign countries. Foreign
operations are substantially in Europe. The operations within major geographic
areas are summarized as follows (in millions of dollars):

Years ended December 31,2003
    
    2002
    
    2001RevenuesUnited States
    
    $
    3,769
    
    
    $
    3,748
    
    
    $
    3,765Foreign
    
    
    1,439
    
    
    
    1,220
    
    
    
    1,151Total
    
    $
    5,208
    
    
    $
    4,968
    
    
    $
    4,916Income (loss) before income taxesUnited States
    
    $
    132
    
    
    $
    131
    
    
    $
    (47
    )Foreign
    
    
    105
    
    
    
    85
    
    
    
    50Total
    
    $
    237
    
    
    $
    216
    
    
    $
    3Depreciation of revenue earning equipmentUnited States
    
    $
    1,241
    
    
    $
    1,252
    
    
    $
    1,246Foreign
    
    
    282
    
    
    
    248
    
    
    
    216Total
    
    $
    1,523
    
    
    $
    1,500
    
    
    $
    1,462Depreciation of property and equipmentUnited States
    
    $
    114
    
    
    $
    124
    
    
    $
    138Foreign
    
    
    38
    
    
    
    31
    
    
    
    29Total
    
    $
    152
    
    
    $
    155
    
    
    $
    167Amortization of intangiblesUnited States
    
    $
    1
    
    
    $
    1
    
    
    $
    26Foreign
    
    
    
    
    
    
    
    
    
    
    5Total
    
    $
    1
    
    
    $
    1
    
    
    $
    31Operating income (pre-tax income before interest)United States
    
    $
    449
    
    
    $
    461
    
    
    $
    306Foreign
    
    
    144
    
    
    
    122
    
    
    
    101Total
    
    $
    593
    
    
    $
    583
    
    
    $
    407Total assets at end of yearUnited States
    
    $
    9,014
    
    
    $
    8,423
    
    
    $
    7,878Foreign
    
    
    3,565
    
    
    
    2,706
    
    
    
    2,280Total
    
    $
    12,579
    
    
    $
    11,129
    
    
    $
    10,158Revenue earning equipment, net, at end of yearUnited States
    
    $
    5,873
    
    
    $
    5,908
    
    
    $
    5,586Foreign
    
    
    1,920
    
    
    
    1,518
    
    
    
    1,266Total
    
    $
    7,793
    
    
    $
    7,426
    
    
    $
    6,852Revenue earning equipment and property and equipmentUnited StatesExpenditures
    
    $
    6,801
    
    
    $
    7,714
    
    
    $
    7,291Proceeds from sale
    
    
    (5,453
    )
    
    
    (5,995
    )
    
    
    (5,916
    )Net expenditures
    
    $
    1,348
    
    
    $
    1,719
    
    
    $
    1,375ForeignExpenditures
    
    $
    2,862
    
    
    $
    2,453
    
    
    $
    2,260Proceeds from sale
    
    
    (2,476
    )
    
    
    (2,103
    )
    
    
    (1,959
    )Net expenditures
    
    $
    386
    
    
    $
    350
    
    
    $
    301






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THE HERTZ CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) Note 12  Litigation and Guarantees Litigation On March 1, 2002, Bowdoin Square, L.L.C. v. Winn-Dixie Montgomery, Inc.,
Wal-Mart Stores East, Inc., The Hertz Corporation, et al.was commenced in the
Circuit Court for Madison County, Alabama. The complaint alleges that the
Company, Wal-Mart Stores East, Inc. and other defendants violated certain
private land use restrictions and intentionally interfered with plaintiffs
contractual relationship with its tenant, Winn-Dixie Montgomery, Inc., when the
Company subleased a former Wal-Mart store located in a shopping center in
Saraland (Mobile County), Alabama. The complaint also alleges that the Company
and other defendants negligently and wantonly injured the value of plaintiffs
interest in the shopping center. A motion to transfer the case to the Circuit
Court for Mobile County was granted in September 2002, and the Company filed
its answer to the complaint. The plaintiffs claims against Winn-Dixie
Montgomery, Inc. have been severed and will be tried separately from the claims
against Wal-Mart and the Company. A trial of the claims against Wal-Mart and
the Company is anticipated during the summer of 2004. On July 29, 2002, James Han, individually and on behalf of all others similarly
situated, v. The Hertz Corporationwas commenced in the Supreme Court of the
State of New York, County of New York. Hanpurported to be a class action on
behalf of persons who rented private passenger vehicles from the Company in New
York under rental agreements containing provisions which allegedly violate the
express provisions of Section 396-z of the General Business Law of New York and
New Yorks consumer fraud statute (i.e., Section 349 of the General Business
Law). More specifically, the complaint alleged that rental agreements used by
the Company in New York included provisions that imposed liability upon renters
beyond the statutorily permitted amounts and that the rental agreements failed
to disclose to renters their rights and responsibilities concerning vehicle
damage. On July 29, 2003, the Companys motion for summary judgment was granted
and an order of dismissal was thereafter entered. The plaintiff has filed a
notice of appeal. On August 1, 2002, Jennifer Myers, an individual and on behalf of all others
similarly situated, v. The Hertz Corporationwas filed in the United States
District Court for the Eastern District of New York. The complaint alleges a
nationwide opt-in collective action on behalf of all Senior Station Managers,
Station Managers and B Station Managers employed by the Company throughout
the United States, contesting their exempt classification and seeking payment
of overtime compensation under the federal Fair Labor Standards Act (FLSA).
The complaint also contains a subclass for all such managers employed in New
York for alleged violations of state labor laws. Plaintiffs have not yet been
permitted to obtain a nationwide opt-in, as discovery has been thus far
limited to the location where the plaintiffs are employed, in an effort by the
court to determine the viability of a nationwide action. In the interim, the
plaintiffs have been permitted to amend their complaint to include an
allegation of pay docking of managers. The Companys opposition to the
plaintiffs motion for leave to amend has been filed and the Company awaits a
determination. Additional depositions have been taken concerning this new
allegation. The Company will be filing a motion for summary judgment in the
near future. On June 16, 2003, Wide World Tours of Mission Valley, Inc., Travel Support
Systems, Inc., Vacation Marketing Group of Hawaii., Cecilia Pedroza, and
International Travel Bureau, Inc. v. Avis Rent A Car System, Inc., Budget Rent
A Car System, Inc., Dollar Rent A Car, Inc., Enterprise Rent-A-Car Company, The
Hertz Corporation, and Thrifty Rent-A-Car System, Inc.was commenced in
Superior Court of the State of California, for the County of San Diego. Wide
World Tourspurports to be a class action on behalf of certain United States
travel agents and agencies that regularly book customers with the major rental
car companies. The complaint alleges that the defendant rental car companies
breached their unwritten contracts with the plaintiffs by knowingly and
deliberately under-reporting and underpaying the commissions due to the
plaintiffs, that in so doing the defendants engaged in deceit and that the
defendants engaged in unfair competition by deducting processing fees or other
administrative fees from payments they make to travel agents. After the
defendants filed misjoinder motions, an amended complaint was filed against the
Company with a separate new lawsuit commenced against Avis. On November 25,
2003, the Company served its answer to the amended complaint, and discovery has
now commenced. 50




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THE HERTZ CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) On August 28, 2003, Naomi R. Henderson, individually and on behalf of all
others similarly situated, v. The Hertz Corporationwas commenced in the
Superior Court of New Jersey, Essex County. Hendersonpurports to be a class
action on behalf of all persons who purchased optional insurance products in
the State of New Jersey or in other states from or through the Company at times
that the Company did not have required licenses to sell such insurance. On
January 29, 2004, the Companys motion to dismiss was granted and an order of
dismissal was thereafter entered. On December 22, 2003, Stephen Moore on behalf of himself and all others
similarly situated, v. The Hertz Corporationwas commenced in the Circuit Court
of the Thirteenth Judicial Circuit of the State of Florida, in and for
Hillsborough County. Moorepurports to be a class action on behalf of persons
who rented vehicles from the Company in Florida and were allegedly overcharged
for the recovery of a tire and battery solid waste management fee and the
recovery of registration fees for the issuance of Florida license plates.
Similar lawsuits were separately commenced by the same plaintiff against Avis
Rent A Car System Inc. and Budget Rent A Car System, Inc. The Company has not
yet filed an answer to the complaint. In addition, the Company is currently a defendant in numerous actions and has
received numerous claims on which actions have not yet been commenced for
bodily injury, including death, and property damage arising from the operation
of motor vehicles and equipment rented from the Company and its licensees.
Such actions and claims are provided for within the Companys public liability
and property damage (PL/PD) program. In aggregate, the Company can be
expected to expend material sums to defend and settle those actions and claims
or to pay judgments resulting from them. Within the PL/PD program, HERC has
been named as a co-defendant in over 100 multi-plaintiff lawsuits filed in
Mississippi and Texas seeking damages for injuries (silicosis) which the
plaintiffs allegedly sustained from the use of equipment rented from HERC. In
all of these lawsuits, HERC is named as a co-defendant with a minimum of 80
other co-defendants, including the equipment manufacturers. HERC is continuing
its attempt to tender the defense of these lawsuits to the equipment
manufacturers. The Company believes it has meritorious defenses in the foregoing matters and
will defend itself vigorously. In addition to the foregoing, various legal actions, claims and governmental
inquiries and proceedings are pending or may be instituted or asserted in the
future against the Company and its subsidiaries. Litigation is subject to many
uncertainties, and the outcome of the individual litigated matters is not
predictable with assurance. It is possible that certain of the actions,
claims, inquiries or proceedings, including those discussed above, could be
decided unfavorably to the Company or the subsidiary involved. Although the
amount of liability with respect to these matters cannot be ascertained,
potential liability in excess of related accruals is not expected to materially
affect the consolidated financial position or results of operations or cash
flows of the Company. Guarantees At December 31, 2003, the following guarantees were issued and outstanding: Indemnifications:In the ordinary course of business, the Company executes
contracts involving indemnifications standard in the industry and
indemnifications specific to a transaction such as sale of a business. These
indemnifications might include claims against any of the following:
environmental and tax matters; intellectual property rights; governmental
regulations and employment-related matters; customer, supplier and other
commercial contractual relationships; and financial matters. Performance under
these indemnities would generally be triggered by a breach of terms of the
contract or by a third party claim. The Company regularly evaluates the
probability of having to incur costs associated with these indemnifications and
has accrued for expected losses that are probable. The types of
indemnifications for which payments are possible include the following: 51




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THE HERTZ CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) Environmental: The Company has indemnified various parties for the costs
associated with remediating numerous hazardous substance storage, recycling
or disposal sites in many states and, in some instances, for natural
resource damages. The amount of any such costs or damages for which the
Company may be held responsible could be substantial. The contingent losses
that the Company expects to incur in connection with many of these sites
have been accrued and those losses are reflected in its financial statements
in accordance with generally accepted accounting principles. The aggregate
amount accrued for environmental liabilities reflected in the Companys
consolidated balance sheet at December 31, 2003 is $5.9 million. The
accrual represents the estimated cost to study potential environmental
issues at sites deemed investigation or cleanup activities, and the
estimated cost to implement remediation actions, including on-going
maintenance, as required. Cost estimates are developed by site. Initial
cost estimates are based on historical experience at similar sites and are
refined over time on the basis of in-depth studies of the site. For many sites, the remediation costs and other damages for which the
Company ultimately may be responsible cannot be reasonably estimated because
of uncertainties with respect to factors such as the Companys connection to
the site, the materials there, the involvement of other potentially
responsible parties, the application of laws and other standards or
regulations, site conditions, and the nature and scope of investigations,
studies, and remediation to be undertaken (including the technologies to be
required and the extent, duration, and success of remediation). As a
result, the Company is unable to estimate a maximum amount for costs or
other damages for which it is potentially responsible in connection with
these indemnifications, which are generally uncapped. Tax: The Company provides various tax-related indemnifications as part of
transactions. The indemnified party typically is protected from certain
events that result in a tax treatment different from that originally
anticipated. In some cases, tax indemnifications relate to representations
or warranties given by the Company. The Companys liability typically is
fixed when a final determination of the indemnified partys tax liability is
made. In some cases, a payment under a tax indemnification may be offset in
whole or in part by refunds from the applicable governmental taxing
authority. The Company is party to a number of tax indemnifications and
many of these indemnities do not limit potential payment; therefore, the
Company is unable to estimate a maximum amount of potential future payments
that could result from claims made under these indemnities. 52




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THE HERTZ CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) Note 13  Quarterly Financial Information (Unaudited) A summary of the quarterly operating results during 2003 and 2002 were as
follows (in thousands): Operating Income
    
    Income (Loss)
    
    Net(Pre-tax Income
    
    Before Income
    
    IncomeRevenues
    
    Before Interest)(1)(2)
    
    Taxes(1)(2)
    
    (Loss)(3)2003First quarter
    
    $
    1,147,660
    
    
    $
    32,052
    
    
    $
    (56,836
    )
    
    $
    (37,692
    )Second quarter
    
    
    1,269,809
    
    
    
    149,046
    
    
    
    59,624
    
    
    
    39,590Third quarter
    
    
    1,489,544
    
    
    
    276,549
    
    
    
    187,583
    
    
    
    126,695Fourth quarter
    
    
    1,300,916
    
    
    
    134,888
    
    
    
    47,121
    
    
    
    30,022Total Year
    
    $
    5,207,929
    
    
    $
    592,535
    
    
    $
    237,492
    
    
    $
    158,6152002First quarter
    
    $
    1,088,822
    
    
    $
    25,867
    
    
    $
    (59,240
    )
    
    $
    (342,133
    )Second quarter
    
    
    1,262,492
    
    
    
    173,249
    
    
    
    84,034
    
    
    
    65,557Third quarter
    
    
    1,416,605
    
    
    
    261,157
    
    
    
    162,436
    
    
    
    108,095Fourth quarter
    
    
    1,200,220
    
    
    
    122,492
    
    
    
    29,164
    
    
    
    18,529Total Year
    
    $
    4,968,139
    
    
    $
    582,765
    
    
    $
    216,394
    
    
    $
    (149,952
    )
  (1)
    
    Includes a gain of $8 million in the second quarter of 2003 from the
condemnation of a car rental and support facility in Florida.  (2)
    
    Includes a credit totaling $7.8 million in the first and second quarters
of 2003 from a one time refund of Goods and Service Tax related to the
Companys Australian car rental operations.  (3)
    
    Includes a $294 million non-cash charge in the first quarter of 2002
related to impairment of goodwill in the Companys industrial and
construction equipment rental segment, recognized in accordance with the
adoption of SFAS No. 142. Note 14  Financial Instruments Financial instruments, which potentially subject the Company to concentrations
of credit risk, consist principally of cash equivalents, short term investments
and trade receivables. The Company places its cash equivalents with a number of
financial institutions and investment funds to limit the amount of credit
exposure to any one financial institution. Concentrations of credit risk with
respect to trade receivables are limited due to the large number of customers
comprising the Companys customer base, and their dispersion across different
businesses and geographic areas. As of December 31, 2003, the Company had no
significant concentration of credit risk. Cash and Equivalents Fair value approximates cost indicated on the balance sheet at December 31,
2003 because of the short-term maturity of these instruments. Short-Term Investments Fair value approximates cost indicated on the balance sheet at December 31,
2003 because of the short-term maturity of these instruments. The balance at
December 31, 2003, of $500.1 million consists of investments with a related
party investment fund that pools and invests excess cash balances of Ford and
certain Ford subsidiaries. Debt For borrowings with an initial maturity of 93 days or less, fair value
approximates carrying value because of the short-term nature of these
instruments. For all other debt, fair value is estimated based on quoted
market rates as well as borrowing rates currently available to the Company for
loans with similar terms and average maturities. The fair value of all debt at
December 31, 2003 and December 31, 2002 approximated $7.89 billion and $7.32
billion, respectively, compared to carrying value of $7.63 billion and $7.04
billion, respectively. 53




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##### Table of Contents



THE HERTZ CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) Derivative Financial Instruments From time to time, the Company and its subsidiaries enter 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. Effective September 30,
2003, the Company entered into interest rate swap agreements relating to the
issuance of its 4.7% Senior Promissory notes due October 2, 2006. Under these
agreements, the Company pays interest at a variable rate in exchange for fixed
rate receipts, effectively transforming these notes to floating rate
obligations. See Note 3  Debt. The Company and its subsidiaries have entered into arrangements to manage
exposure to fluctuations in foreign exchange rates, principally for selected
marketing programs. These arrangements consist of the purchase of foreign
exchange options. At December 31, 2003, the total notional amount of these
instruments was $13.0 million, maturing at various dates in 2004 and 2005, and
the fair value of all outstanding contracts, was approximately $.1 million.
The fair value of the foreign currency instruments was estimated using market
prices provided by financial institutions. Gains and losses resulting from
changes in the fair value of these instruments are included in earnings. The
total notional amount included options to sell British Pounds, Euros, Yen and
Canadian dollars in the notional amounts of $8.0 million, $2.4 million, $1.8
million and $.8 million, respectively. 54




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##### Table of Contents



SCHEDULE II THE HERTZ CORPORATION AND SUBSIDIARIES VALUATION AND QUALIFYING ACCOUNTS
For the Years Ended December 31, 2003, 2002 and 2001 AdditionsBalance atBeginning of
    
    Charged to
    
    Translation
    
    
    
    
    
    Balance atYear
    
    Income
    
    Adjustments
    
    Deductions
    
    End of YearDollars in thousands2003Allowance for doubtful accounts
    
    $
    29,047
    
    
    $
    23,053
    
    
    $
    3,646
    
    
    $
    19,988
    (a)
    
    $
    35,7582002Allowance for doubtful accounts
    
    $
    38,886
    
    
    $
    15,570
    
    
    $
    2,900
    
    
    $
    28,309
    (a)
    
    $
    29,0472001Allowance for doubtful accounts
    
    $
    34,788
    
    
    $
    44,316
    
    
    $
    (985
    )
    
    $
    39,233
    (a)
    
    $
    38,886
   (a)
    
    Amounts written off, net of recoveries. 55




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##### Table of Contents



ITEM 9. Changes In and Disagreements With Accountants on Accounting and Financial Disclosure. None. 
 ITEM 9A. 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 Chairman of the Board and 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, the Certifying
Officers carried out an evaluation of the effectiveness of the design and
operation of the Companys disclosure controls and procedures as of December
31, 2003. 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. The Companys internal control over financial reporting is a process designed
by, or under the supervision of, the Certifying Officers and effected by the
Companys Board of Directors, management and other personnel, to provide
reasonable assurance regarding the reliability of the Companys financial
reporting and the preparation of the Companys financial statements for
external purposes in accordance with generally accepted accounting principles.
Internal control over financial reporting includes policies and procedures that
pertain to the maintenance of records that in reasonable detail accurately and
fairly reflect transactions relating to the Companys assets; provide
reasonable assurance that transactions are recorded as necessary to permit
preparation of the Companys financial statements in accordance with generally
accepted accounting principles, and that the Companys receipts and
expenditures are being made only in accordance with the authorization of the
Companys Board of Directors and management; and provide reasonable assurance
regarding prevention or timely detection of unauthorized acquisition, use or
disposition of the Companys assets that could have a material effect on its
financial statements. There has been no change in the Companys internal
control over financial reporting that occurred in the quarter ended December
31, 2003, that has materially affected, or is reasonably likely to affect, the
Companys internal control over financial reporting. 56




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##### Table of Contents



PART III 
 ITEM 10. Directors and Executive Officers of the Registrant. Omitted. 
 ITEM 11. Executive Compensation. Omitted. 
 ITEM 12. Security Ownership of Certain Beneficial Owners and Management. Omitted. 
 ITEM 13. Certain Relationships and Related Transactions. Omitted. 
 ITEM 14. Principal Accounting Fees and Services. The aggregate fees billed by PricewaterhouseCoopers, LLC (PwC), the Companys
principal auditor, were as follows (in thousands of dollars): 2003
    
    2002Fees:Audit
    
    $
    1,933
    
    
    $
    1,740Audit-related
    
    
    234
    
    
    
    312Tax
    
    
    718
    
    
    
    819All other
    
    
    240
    
    
    
    569Total
    
    $
    3,125
    
    
    $
    3,440
 Audit-related fees were for services in connection with debt offerings, due
diligence and assurance services. Tax fees related to tax compliance,
preparation of tax returns, tax planning and tax assistance for international
service employees. All other fees were principally related to actuarial
services which were transitioned from PwC in 2003. 57




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##### Table of Contents



PART IV 
 ITEM 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K. Page(a) 1.
    
    
    Financial Statements:The Hertz Corporation and Subsidiaries Report of Independent Auditors
    
    
    24Consolidated Balance Sheet at December 31, 2003 and 2002
    
    
    25Consolidated Statement of Operations for the years ended December 31, 2003, 2002 and 2001
    
    
    26Consolidated Statement of Stockholders Equity for the years ended
December 31, 2003, 2002 and 2001
    
    
    27Consolidated Statement of Cash Flows for the years ended
December 31, 2003, 2002 and 2001
    
    
    28-29Notes to Consolidated Financial Statements
    
    
    30-542.
    
    
    Financial Statement Schedules:The Hertz Corporation and Subsidiaries Schedule II  Valuation and Qualifying Accounts for the years ended
December 31, 2003, 2002 and 2001
    
    
    553.
    
    
    Exhibits:
  (3)
    
    Articles of Incorporation and By-Laws  (a)
    
    Restated Certificate of Incorporation of the Company (filed as Exhibit (3)(i) to the
Companys Quarterly Report on Form 10-Q for the quarter ended June 30, 2001).(b)
    
    By-Laws of the Company, effective January 1, 2004.  (4)
    
    Instruments defining the rights of security holders, including indentures  (a)
    
    At December 31, 2003, the Company had various obligations which could be considered as
long-term debt, none of which exceeded 10% of the total assets of the Company on a
consolidated basis. The Company agrees to furnish to the Commission upon request a copy of any
such instrument defining the rights of the holders of such long-term debt.  (10)
    
    Material Contracts.  (a)
    
    Car Supply Agreement between the Company and Ford.*(b)
    
    Joint Advertising Agreement between the Company and Ford.*(c)
    
    Tax-Sharing Agreement between the Company and Ford.*  (12)
    
    Computation of Consolidated Ratio of Earnings to Fixed Charges for each of the five years in the period ended December 31, 2003.  (23)
    
    Consent of Independent Accountants.(31.1)
    
    Certification of the Chief Executive Officer Pursuant to Rule 15d  14(a).(31.2)
    
    Certification of the Chief Financial Officer Pursuant to Rule 15d 14(a).(32.1)
    
    Certification of the Chief Executive Officer Pursuant to 18 U.S.C. Section 1350.(32.2)
    
    Certification of the Chief Financial Officer Pursuant to 18 U.S.C. Section 1350.   *
    
    Incorporated herein by reference from the Companys Registration
Statement No. 333-22517 on Form S-1. (b) Reports on Form 8-K. None Schedules and exhibits not included above have been omitted because the
information required has been included in the financial statements or notes
thereto or are not applicable or not required. 58




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##### Table of Contents



SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized. THE HERTZ CORPORATION
(Registrant)By:
    /s/ Paul J. SiracusaPaul J. SiracusaExecutive Vice President and

Chief Financial Officer March 15, 2004 Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the date indicated. /s/ Craig R. Koch

Craig R. Koch
    
    Director, Chairman of the Board and Chief Executive Officer
(Principal Executive Officer)/s/ Allan Gilmour
Allan Gilmour
    
    Director/s/ Greg C. Smith

Greg C. Smith
    
    Director/s/ John M. Rintamaki

John M. Rintamaki
    
    Director/s/ Paul J. Siracusa

Paul J. Siracusa
    
    Director, Executive Vice President and Chief Financial Officer
(Principal Financial Officer)/s/ Richard J. Foti

Richard J. Foti
    
    Staff Vice President and Controller
(Principal Accounting Officer)
 59




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##### Table of Contents



EXHIBIT INDEX (3)(b)
    
    By-Laws of the Company, effective January 1, 2004.(12)
    
    Computation of Consolidated Ratio of Earnings to Fixed Charges for each of the five years in the period
ended December 31, 2003.(23)
    
    Consent of Independent Accountants.(31.1)
    
    Certification of the Chief Executive Officer Pursuant to Rule 15d  14(a).(31.2)
    
    Certification of the Chief Financial Officer Pursuant to Rule 15d  14(a).(32.1)
    
    Certification of the Chief Executive Officer Pursuant to 18 U.S.C. Section 1350.(32.2)
    
    Certification of the Chief Financial Officer Pursuant to 18 U.S.C. Section 1350.
 60