<PAGE>   1
 
                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 1934
                FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998, OR
 
       [ ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                        SECURITIES EXCHANGE ACT OF 1934
 
                         Commission File Number 1-7541
                             THE HERTZ CORPORATION
 
             (Exact Name of Registrant as Specified in its Charter)
 
<TABLE>
         <S>                                                   <C>
         DELAWARE                                              13-1938568
         (State of Incorporation)                              (I.R.S. Employer Identification No.)
         225 BRAE BOULEVARD,
         PARK RIDGE, NEW JERSEY                                07656-0713
         (Address of Principal Executive Offices)              (Zip Code)
</TABLE>
 
        Registrant's telephone number, including area code: 201-307-2000
 
          Securities Registered Pursuant to Section 12(b) of the Act:
 
<TABLE>
<CAPTION>
                                                               Name of Each Exchange
         Title of Each Class                                   On Which Registered
         -------------------                                   ---------------------
         <S>                                                   <C>
         Class A Common Stock, Par Value $.01 per share        New York Stock Exchange
         6 5/8% Junior Subordinated Notes due July 15, 2000    New York Stock Exchange
         7% Junior Subordinated Notes due July 15, 2003        New York Stock Exchange
</TABLE>
 
          Securities Registered Pursuant to Section 12(g) of the Act:
                                      NONE
 
Indicate by check mark whether the Registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X]  No [ ]
 
Indicate by check mark 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]
 
The aggregate market value of the voting stock held by non-affiliates of the
Registrant, based on the New York Exchange Composite Transaction closing price
of the Class A Common Stock ($42.875 per share), as of March 1, 1999, was
$872,890,152.75. For purposes of this computation, 5% beneficial owners of the
Registrant are deemed to be affiliates. Such determination should not be deemed
an admission that such beneficial owners are, in fact, affiliates of the
Registrant. At March 1, 1999, 40,604,787 shares of the Registrant's Class A
Common Stock, par value $0.01 per share, were outstanding and 67,310,167 shares
of the Registrant's Class B Common Stock, par value $0.01 per share, were
outstanding.
 
                      Documents Incorporated By Reference
 
<TABLE>
<CAPTION>
         Document                                              Where Incorporated
         --------                                              ------------------
         <S>                                                   <C>
         Proxy Statement for 1999                              Part III (Items 10, 11, 12 and 13)
         Annual Meeting of Stockholders
</TABLE>
<PAGE>   2
 
                                     PART I
 
ITEM 1.  BUSINESS.
 
GENERAL
The Hertz Corporation (together with its subsidiaries, referred to herein as
"Hertz" or the "Company") is a majority-owned subsidiary of Ford Motor Company
("Ford"). In April 1997, the Company reclassified all of its outstanding common
stock, par value $1.00 per share, owned by Ford into 67,310,167 shares of Class
B Common Stock, par value $.01 per share, (the "Class B Common Stock"), and
reclassified all of its outstanding 10% Cumulative Series A Preferred Stock and
variable rate Cumulative Series B Preferred Stock beneficially owned by Ford
into 20,245,833 shares of its Class A Common Stock, par value $.01 per share,
(the "Class A Common Stock").
 
On April 30, 1997, the Company issued and sold 20,010,000 shares of its Class A
Common Stock, in an initial public offering ("Offering"). After the Offering,
Ford beneficially owned (i) 49.4% of the outstanding Class A Common Stock (which
has one vote per share) and (ii) 100% of the outstanding Class B Common Stock of
the Company (which has five votes per share). At December 31, 1998, the common
stock beneficially owned by Ford represents in the aggregate 94.6% of the
combined voting power of all of the Company's outstanding common stock and 81.1%
of the economic interest in the Company. Accordingly, Ford is able to direct the
election of all of the members of the Company's Board of Directors and exercise
a controlling influence over the business and affairs of the Company.
 
The Company and its affiliates and independent licensees operate what the
Company believes is the largest car rental business in the world based upon
revenues and volume of rental transactions and one of the largest industrial and
construction equipment rental businesses in the United States based upon
revenues. The Company's Hertz(R) brand name is recognized worldwide as a leader
in quality rental and leasing services and products. The Company, together with
its affiliates and independent licensees, currently rents and leases cars and
light trucks, rents industrial and construction equipment and operates its other
businesses from over 5,000 locations throughout the United States and in
approximately 140 foreign countries and jurisdictions. For the year ended
December 31, 1998, the Company generated record revenues, income before income
taxes and net income of $4.2 billion, $465.4 million and $277.0 million,
respectively. 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.
 
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 expansion
plans for its various businesses, (ii) the Company's liquidity and capital
expenditures, (iii) the percentage of cars expected to be acquired from Ford in
the future, (iv) the terms upon which cars will be acquired, (v) the development
of the Company's strategic information systems and (vi) the effects on the
Company of certain legal proceedings, contain certain 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; limitations upon the Company's liquidity and capital raising
ability (see "Management's Discussion and Analysis of Financial Condition and
Results of Operations"); increases in the cost of cars and limitations on the
supply of competitively priced cars; Ford's control of the Company; and
seasonality in the Company's businesses.
 
CAR RENTAL
The Company believes it maintains the largest network of company-owned car
rental locations both in the United States and in Europe, and 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 82% of its car rental revenues from on-airport locations.
According to information disclosed by the largest 161 U.S. airports, the Company
maintained the leading on-airport car rental market share at such airports
during 1998 of over 30% in terms of revenues and has maintained market share at
approximately this level during each of the last five years.
 
During 1998, approximately 54% of the Company's worldwide car rental revenues
was generated from business travelers and approximately 46% from leisure
travelers. The Company has a worldwide marketing and sales organization focused
on both commercial accounts/group sales and the travel industry, including
travel agents, as well as a comprehensive program of retail and trade
advertising, internet, direct mail and other targeted marketing.
 
                                        1
<PAGE>   3
 
The Company's Hertz #1 Club Gold(R) service provides an expedited rental service
to members at over 700 locations worldwide. At December 31, 1998, there were
over 2.5 million active Hertz #1 Club Gold(R) members who accounted for
approximately 44% of the Company's U.S. car rental transactions in 1998. 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 $3.6 billion in revenue and $426 million in income before
income taxes during 1998.
 
INDUSTRIAL AND CONSTRUCTION EQUIPMENT RENTAL
The Company, through its wholly-owned subsidiary, Hertz Equipment Rental
Corporation ("HERC"), maintains a significant market share in the U.S.
industrial and construction equipment rental market. HERC rents a broad range of
earthmoving equipment, material handling equipment, aerial and electrical
equipment, air compressors, small tools, compaction equipment and
construction-related trucks through a network in North America of 206 branch
locations.
 
HERC maintains an established national accounts program with over 1,500
customers who generated 38% of HERC's North American revenues in 1998. As of
December 31, 1998, HERC maintained a fleet with an original investment cost of
approximately $1,654 million and a weighted-average age of 22 months. HERC
generated $631.3 million in revenue and $77.1 million in income before income
taxes during 1998.
 
OTHER ACTIVITIES
Other activities of the Company include self-insurance operations for both its
car rental and industrial and construction equipment rental businesses, car
leasing operations in certain international markets, the sales of its used cars
and equipment, third party claim management services and telecommunications
services in the United States.
 
The Company, which was incorporated in Delaware in 1967, is a successor to
corporations that have been engaged in the automobile and truck leasing and
rental business since 1918. As a result of a series of transactions in 1993 and
1994, the Company became a wholly-owned subsidiary of Ford. Prior to that time
and until 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 Notes 1 and 6 of 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.
 
"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.
 
BUSINESS SEGMENTS
The Company's business consists of two significant segments, rental and leasing
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,
1998. Corporate and other includes general corporate expenses, as well as other
business activities, such as claim management and telecommunication services.
See Note 12 of the Notes to the Company's consolidated financial statements
included in this Report.
 
                                        2
<PAGE>   4
 
<TABLE>
<CAPTION>
                                                              Year Ended December 31, 1998
                                                  -----------------------------------------------------
                                                                 Industrial and
                                                                  Construction
                                                                   Equipment       Corporate
                                                   Car Rental        Rental        and Other
                                                  ------------   --------------   ------------
                                                  Amount    %    Amount      %    Amount    %    Total
                                                  ------   ---   ------     ---   ------   ---   ------
                                                                   Dollars in millions
<S>                                               <C>      <C>   <C>        <C>   <C>      <C>   <C>
Revenues........................................  $3,573    84    $ 631      15     $ 34     1   $4,238
Amortization of intangibles.....................       5    19        4      15       17    66       26
Operating income (loss) (pre-tax income before
  interest).....................................     656    85      143      19      (27)  (4)      772
Income (loss) before income taxes...............     426    91       77      17      (38)  (8)      465
Revenue earning equipment, net, at end of
  year..........................................   4,473    77    1,309      23       --    --    5,782
</TABLE>
 
The Company and its subsidiaries, affiliates and independent licensees operate
locations throughout the United States and in approximately 140 foreign
countries and jurisdictions. Set forth below is certain information with respect
to the Company's U.S. and foreign operations for the year ended December 31,
1998 (substantially all of the Company's foreign operations consist of car
rental and leasing operations).
 
<TABLE>
<CAPTION>
                                                                  Year Ended December 31, 1998
                                                              ------------------------------------
                                                                  U.S.         Foreign
                                                              ------------   ------------
                                                              Amount    %    Amount    %    Total
                                                              ------   ---   ------   ---   ------
                                                                      Dollars in millions
<S>                                                           <C>      <C>   <C>      <C>   <C>
Revenues....................................................  $3,283    77   $  955    23   $4,238
Amortization of intangibles.................................      21    81        5    19       26
Operating income (pre-tax income before interest)...........     648    84      124    16      772
Income before income taxes..................................     377    81       88    19      465
Revenue earning equipment, net, at end of year..............   4,749    82    1,033    18    5,782
</TABLE>
 
WORLDWIDE CAR RENTAL
 
U.S. OPERATIONS
CAR RENTAL.  The Company provides car rental services throughout the United
States in or around all major U.S. cities and operates a nationwide, toll-free
reservations system. Car rental facilities are operated at all major airports
and in the central business districts and key suburban commercial centers in
major U.S. cities. The Company estimates that airport revenues accounted for
approximately 90% of its car rental revenues in the United States in 1998. The
Company also maintains arrangements with selected hotels and railroad terminals
to facilitate car rentals at such locations.
 
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. 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(R), the Company's Rent It Here-Leave It There
program, supplemental equipment (child seats, ski racks and portable cellular
phones), loss or collision damage waiver, liability insurance and personal
effects coverage, Hertz NeverLost navigational 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, strict cost control, fleet utilization, yield
management, competitive pricing and the Company's 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. Together with its licensees, the Company operated a peak
domestic fleet of more than 263,000 cars in 1998. At December 31, 1998, the
Company owned 94% of all the cars in the combined Company-owned and licensee
fleet.
 
                                        3
<PAGE>   5
 
The Company has concession agreements at approximately 200 airports in the
United States. These agreements are entered into with airport authorities,
either through 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.
 
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.
 
HERTZ LOCAL EDITION -- LOCAL USE AND INSURANCE REPLACEMENT.  The Company, under
the Hertz Local Edition brand name, "HLE," provides local use and replacement
car rental services primarily to local customers in suburban neighborhoods
within the United States. These services include providing 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 cost of such rentals.
 
At December 31, 1998, HLE operated in eight states with approximately 6,300
cars. The Company intends to capitalize on agreements with major insurance
carriers and car dealerships and use its own sales, technology and marketing
expertise to increase its market share.
 
HLE rents cars on a daily, weekend, weekly or monthly basis and derives
additional revenues from the sale of collision damage waivers and refueling
options. Rates vary at different locations depending on local market conditions
and competitive factors. HLE's operations are subject to seasonal fluctuation,
with greater activity occurring during the summer months because of heavier
driving activity and the winter months because of hazardous driving conditions.
HLE generally will hold its cars for 18 to 24 months, compared with 5 to 12
months for the Company's domestic car rental business, resulting in lower
monthly holding costs. HLE is generally at risk with respect to the residual
values of its cars and disposes of these cars through the Company's retail sales
operations and auctions. See "Used Car Sales."
 
HERTZ TRUCK AND VAN RENTAL.  The Company is building a nationwide network of
truck and van rental locations across the United States to service the moving
and local transportation needs of American households and the needs of small to
medium-size businesses. Hertz Truck and Van Rentals provides trucks locally on a
short-term basis. Related moving supplies and accessories are also available for
sale and rental. Hertz' truck and van inventory includes two- and
four-wheel-drive pickup trucks, regular and extended cargo vans and 15-20- and
24-foot "box" trucks. At December 31, 1998, Hertz Truck and Van Rental operated
in 30 states.
 
INTERNATIONAL OPERATIONS
At December 31, 1998 the Company and its subsidiaries, affiliates and licensees,
operated in approximately 140 foreign countries and jurisdictions. Outside the
United States, and primarily in Europe, the Company operated a combined peak
fleet of approximately 168,000 cars during 1998. 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 1998 were those conducted in France, Germany, the United Kingdom, Italy,
Canada, Spain, Australia and Switzerland. In addition, the Company owns
operations in Puerto Rico, St. Thomas (USVI), New Zealand, Brazil, Belgium,
Luxembourg and The Netherlands. In May 1998, the Company franchised its
operations in Portugal, which had been corporately owned. See Note 6 to the
Notes to the Company's consolidated financial statements included in this
Report. The Company believes that, as in the United States, it maintains the
leading airport car rental market share in Europe with a 1998 market share of
approximately 28% in terms of revenues.
 
As in the United States, the Company offers Hertz #1 Club Gold(R) service at
most major airport locations within Europe, Canada, Australia and New Zealand.
The Company's global reservations system allows 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.
 
                                        4
<PAGE>   6
 
CUSTOMERS
To focus its marketing, sales and pricing functions, the Company divides its
customers into two groups, business and leisure. Business customers include
large commercial accounts, small business accounts and government authorities.
In 1998, business customers generated approximately 56% of the Company's U.S.
car rental revenue on 62% of the Company's U.S. car rental transactions.
 
Leisure customers, including wholesale tour customers, represent the balance of
the Company's U.S. car rental revenues and transactions, or approximately 44% of
the Company's U.S. car rental revenue on 38% of the Company's U.S. car rental
transactions. Revenue per transaction is higher for leisure rentals as compared
to business rentals because leisure rentals are generally for longer periods.
The Company's success in the leisure market is the result of its quality of
service and the Company's competitive pricing. A significant number of leisure
customers are the same customers who rent from the Company on business. Over the
last several years, the relative proportion of the Company's revenues from
business and leisure customers has remained relatively stable.
 
In 1998, the Company's business customers generated approximately 53% of the
Company's international car rental revenues on 62% of the Company's
international car rental transactions. In 1998, the Company's international
leisure customers generated approximately 47% of the Company's international car
rental revenues on 38% of the Company's international car rental transactions.
 
The Company believes that quality of service is of critical importance to
customer satisfaction and brand loyalty. Accordingly, the Company places a high
priority on monitoring and evaluating customer satisfaction through, among other
methods, a series of rating systems, car and location inspections and management
reporting.
 
REVENUE MANAGEMENT
The Company uses a point-of-sale revenue management program through which
counter sales representatives sell car upgrades, supplemental equipment and
optional services. This program of identifying and satisfying additional
customer requirements enhances the Company's revenues and transaction yields.
 
MARKETING, SALES AND ADVERTISING
The Company has a worldwide marketing and sales organization focused on both
commercial accounts/group sales and the travel industry, including travel
agents, as well as a comprehensive program of retail and trade advertising,
direct mail and other targeted marketing (such as special rental packages for
skiers and golfers).
 
The Company's commercial and group sales force supports larger commercial
accounts, smaller corporate affiliations, government and group relationships
(such as the American Automobile Association, the American Association of
Retired Persons, the American Bar Association and the American Medical
Association.). In order to provide targeted sales to the travel industry
community, the Company has sales employees and engages independent contractors
throughout the United States, all of whom are dedicated to serving travel
agents, airlines, tour wholesalers and related sources of rentals.
 
In the United States, the Company markets to leisure customers predominantly
through television and radio media advertising and through newspaper and
magazine print advertising. Print advertising is primarily rate-related,
highlighting leisure rates for weekly and weekend rentals.
 
The Company conducts an active national and international advertising program,
the cost of which is supported in part by contributions from the Company's
independent licensees. The Company is also a party to a cooperative advertising
agreement with Ford pursuant to which Ford shares some of the cost of certain of
the Company's advertising programs in the United States and abroad that feature
the Ford name or products. The advertising programs also involve cooperative
advertising arrangements with airlines, hotels and others in the travel
industry.
 
                                        5
<PAGE>   7
 
During the five-year period ended December 31, 1998, the Company's total
advertising and related expenditures (almost all of which were related to car
rental operations) and the sources contributing thereto were approximately as
follows:
 
<TABLE>
<CAPTION>
                    Paid By                        1998       1997       1996       1995       1994
                    -------                      --------   --------   --------   --------   --------
                                                                 Dollars in thousands
<S>                                              <C>        <C>        <C>        <C>        <C>
The Company and Subsidiaries...................  $159,610   $148,912   $148,034   $134,487   $133,600
Ford...........................................    44,254     45,162     45,459     44,112     41,994
Licensees......................................     8,599      8,660      8,454      8,740      8,800
                                                 --------   --------   --------   --------   --------
        Total..................................  $212,463   $202,734   $201,947   $187,339   $184,394
                                                 ========   ========   ========   ========   ========
</TABLE>
 
In addition, licensees spend additional amounts for local advertising and sales
promotions that feature the Hertz(R) name.
 
CAR ACQUISITION
The Company believes it is the largest single private purchaser of new cars in
the world, acquiring over 280,000 cars in the United States and a total of
approximately 433,000 cars worldwide during the 1998 model year. 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 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 1998, non-risk cars as a percentage of all cars purchased by the
Company's U.S. and international operations were approximately 83% and 78%,
respectively.
 
The holding period for the Company's rental cars ranges from five to 12 months.
The Company's flexibility to adjust the holding period for cars, particularly
under repurchase programs with automobile manufacturers, enables the Company to
adjust its fleet size up or down relatively quickly in response to changing
market conditions. At December 31, 1998, the average age of rental cars in the
Company's fleet was six months.
 
Over the five years ended December 31, 1998, on a weighted-average basis,
approximately 65% of the cars acquired by the Company for its U.S. car rental
fleet, and approximately 29% of the cars acquired by the Company for its
international fleet, were manufactured by Ford. During 1998, approximately 63%
of the cars acquired by the Company domestically were manufactured by Ford, 11%
were manufactured by Toyota, 7% were manufactured by General Motors Corporation,
4% were manufactured by DaimlerChrysler AG and the remainder were manufactured
by various Japanese, Korean and European manufacturers. The percentage of Ford
cars acquired by the Company for its U.S. car rental fleet is expected to remain
at these or higher levels in the future. See Note 9 to the Notes to the
Company's consolidated financial statements included in this Report. In its
foreign operations, the Company utilizes cars manufactured abroad by
subsidiaries of Ford and by other manufacturers. In 1998, approximately 26% of
the cars acquired by the Company for its international fleet were manufactured
by Ford, which represented the largest percentage of any automobile manufacturer
in that year. Negotiations with automobile manufacturers include determination
of the initial purchase price of the car and establishment of the payment terms.
New car repurchase programs or residual value guarantees, approval for using the
Company's facilities for warranty repairs, as well as the establishment of
cooperative advertising and promotion programs also are negotiated with the
manufacturers.
 
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."
 
                                        6
<PAGE>   8
 
USED CAR SALES
The Company disposes of "at risk" cars as well as those "non-risk" cars that are
not returned to the manufacturer through auctions, 47 domestic retail car sales
locations and, in Europe, through wholesale operations. Upon the sale of a car,
the difference between the net proceeds from sale and the remaining book value
is recorded as an adjustment to depreciation in the period when sold. See Note 9
of the Notes to the Company's consolidated financial statements included in this
Report.
 
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 from approximately 140 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 Rent It Here-Leave It There program. The
Company's wholly-owned subsidiaries, Hertz System, Inc. ("System") and Hertz
International, Ltd. ("International"), issue licenses 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(R) brand name, management and administrative
assistance, training, the availability of the Company's charge cards, The Hertz
#1 Club(R), reservations service, the Rent It Here-Leave It There program and
other services. System, which owns the Company's service marks and trademarks
and certain proprietary know-how used by licensees, establishes the uniform
standards and procedures under which all such licensees operate.
 
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
corporate 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.
 
In 1988, the Company sold its 50% interest in Hertz Penske Truck Leasing, Inc.,
which has been succeeded by Penske Truck Leasing Co., L.P., ("Penske"), and
entered into a license agreement under which Penske had the right, as a licensee
of the Company, to conduct a one-way truck rental business (including trailers)
using the Hertz(R) name for a 10-year period, which ended in June 1998.
 
CAR LEASING
Hertz owns 100% of its car leasing operations in the United Kingdom, Australia,
New Zealand and Brazil. Leases are generally closed-end where the Company is
subject to risk with respect to the market value of cars at the time of
disposition. The Company is considering opportunities to expand its car leasing
business.
 
INDUSTRIAL AND CONSTRUCTION EQUIPMENT RENTAL OPERATIONS
 
OPERATIONS
Industrial and construction equipment rental represents HERC's principal service
offered. HERC rents over 200 types of equipment, major categories of which
include earthmoving equipment, material handling equipment, aerial and
electrical equipment, air compressors, compaction equipment and
construction-related trucks. Earthmoving, material handling and aerial equipment
accounted for 79% of HERC's original investment cost at December 31, 1998.
HERC's more than 76,000 pieces of rental equipment have a weighted-average age
of 22 months and an original investment cost of approximately $1,654 million at
December 31, 1998.
 
                                        7
<PAGE>   9
 
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
that disposed of equipment having an original cost of approximately $170 million
in 1998. HERC has a dedicated used equipment sales force and has also developed
an export market through its overseas contacts. Additionally, HERC has in the
past 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 responded to this by creating its Industrial Resources Group which
serves customers through its dedicated in-plant operations and regional
industrial centers.
 
FACILITIES
HERC operates across 37 states in the United States, four provinces in Canada
and in France and Spain. In 1998, HERC acquired 12 businesses and opened 23 new
rental branches in the United States and Canada. In addition, in 1998, HERC
opened six new branches in Spain, four in France and acquired one business in
France.
 
HERC's rental locations are generally 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. Each
branch has stand-alone maintenance and fueling facilities and showrooms.
 
CUSTOMERS
HERC's customers consist predominantly of commercial accounts and represent a
wide variety of industries, such as railroad, automobile manufacturing,
petrochemicals, movie production, ship building 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 maintains an
established national accounts program with over 1,500 customers who generated
38% of HERC's North American revenues in 1998. HERC has over 86,000 customers,
and in 1998 no single customer of HERC accounted for more than 3% of its
revenues. HERC primarily targets customers in medium to large metropolitan
markets.
 
HERC operations in North America are organized and managed in nine geographic
regions. During each of the five years ended December 31, 1998, no single
geographic region accounted for more than 20% of HERC's revenues. This
geographic diversification means HERC is better positioned to withstand a
regional recession than local or regional competitors who, the Company believes,
are more dependent on the economic condition of a single region.
 
EXPANSION AND ACQUISITIONS
The Company believes the equipment rental industry in the United States
generates approximately $20 billion in revenue annually. It is a large,
fragmented market that is currently undergoing a major consolidation process.
HERC has embarked on an active acquisition strategy to capitalize on its size,
purchasing power, experience in operating an established national network and
its strong, existing management team. This strategy is designed to provide
controlled growth and to augment the Company's geographic coverage, customer
base and product lines. The Company acquired 12 North American equipment rental
and sales companies during 1998, which contributed $80 million in revenue from
their respective dates of acquisition. See Note 6 to the Notes to the Company's
consolidated financial statements included in this Report.
 
                                        8
<PAGE>   10
 
SALES AND MARKETING
HERC focuses its major sales and marketing strategy on local, multi-regional and
national users of industrial and construction equipment. The strategy is led by
a national accounts sales organization and is backed by a field sales force of
highly trained sales professionals. Each branch has its own dedicated sales
force.
 
HERC's national sales force effectively emphasizes HERC's strengths such as its
geographically diverse system of branches and the size, consistency and quality
of its fleet. HERC reaches its smaller accounts through a local sales force. The
Company believes that the combination of HERC's professional sales force, high
quality fleet and the ability to transfer equipment from various locations to
satisfy local demands provides a competitive advantage.
 
EQUIPMENT ACQUISITION
HERC selectively buys its equipment from vendors with reputations for high
product quality, reliability and significant market share. Some of HERC's
leading suppliers include Case Corporation, Lull Industries, Inc., the Gradall
Co., Deere & Company (John Deere equipment), Ingersoll-Rand Company, JLG
Industries, Inc. and Ford.
 
Centralized purchasing has allowed HERC to standardize its equipment
specifications by model and geographic needs, allowing for economies of scale.
HERC has developed a fully automated fleet planning and purchasing process that
streamlines and expedites equipment orders.
 
The Company believes that HERC's equipment age is a major competitive advantage
and assures customer satisfaction with equipment as well as lower maintenance
costs. Through aggressive used equipment sales, the Company has been able to
maintain an average fleet age of 22 months.
 
The Company is generally at risk with respect to the residual value of all the
equipment used in its industrial and construction equipment rental operations.
 
EQUIPMENT DISPOSAL
The Company believes that HERC is one of the largest distributors of used
industrial and construction equipment in the United States and has established
itself as a highly reliable supplier of used equipment. In 1998, HERC disposed
of equipment having an original cost of approximately $170 million.
 
Pricing for used HERC equipment is centralized. Relationships with major
equipment brokers and wholesalers allow HERC to trim fleet levels and mix to
improve utilization. HERC publishes The Source magazine two to three times per
year and distributes it nationally to over 53,000 customers and prospects. This
full color publication advertises price, model, year and location of used
equipment for sale. The Company also maintains on its website a similar listing
of over 3,000 pieces of used equipment that can be searched by make, model or
location.
 
This overall used equipment strategy has allowed HERC to maintain what it
believes to be the youngest fleet in the industry by selling off assets that are
between 24 and 60 months old on average. With a younger fleet, HERC has
significantly reduced its maintenance and repair costs which are largely covered
by manufacturer warranties. The Company has been able to exploit its significant
presence in the U.S. market for sales of used industrial and construction
equipment, to actively manage its fleet size and, in particular, to reduce fleet
levels during typical seasonal downturns.
 
STRATEGIC INFORMATION SYSTEMS
Centralized control, achieved through the use of the Company's strategic systems
technology, of major business processes such as reservations, rate structures
and fleet control, provides the disciplined environment in which the Company can
deliver consistent quality service at its car rental and equipment rental
operations. The Company maintains real-time communications with its many
locations by means of what it believes is the largest private data network in
the industry.
 
GLOBAL CAR RENTAL RESERVATIONS SYSTEM
The Company's global car rental reservations system operates through real-time,
on-line centers on five continents. Direct access with other computerized
reservations systems allow real-time processing for travel agents and corporate
travel departments. Company rental locations worldwide depend upon the global
reservations system to provide information critical to fleet and personnel
planning, rate management and the timely computerized delivery of reserva-
 
                                        9
<PAGE>   11
 
tions. Customer information captured and made available in the reservations
process supports such premium services as Hertz #1 Club Gold(R).
 
The Company's reservations system annually handles approximately 40 million
incoming calls, during which customers inquire about locations, rates and
availability, and place or modify reservations. In addition, millions of
inquiries and reservations come to the Company through travel agents, travel
industry partners and the Company's website. The Company maintains and
continually monitors quality standards for accuracy and consistency in the
reservations process. Regardless of where in the world the customer may be, the
Company's reservations system is designed to ensure that availability of cars,
rates and personal profile information is reliably applied and that correct
information is delivered at the proper time to the customer's rental
destination.
 
The Company completed its transition to a state of the art, client-server based
reservations system at its Oklahoma City reservations center during 1998. This
new system allows for greater accuracy and speed in processing reservations,
thereby improving customer service. The client-server architecture minimizes the
need for additional computer equipment as the demands of the business grow.
Additionally, the design of the new system is more flexible, facilitating rapid
response to changing market demands.
 
The Company has consolidated individual European reservations centers into a
single facility in Ireland. As a result, the Company expects to realize
substantial cost savings, while providing uniformly high service levels. The
European and domestic reservation centers share the same system, providing for
global reservation capabilities.
 
YIELD MANAGEMENT SYSTEM
Yield management affords the opportunity to achieve greater returns from a fixed
number of assets. The Company's yield management system is designed to optimize
car rental revenue through controlling, simultaneously, the availability of
various rates as well as the availability of cars. The system monitors the flow
of demand over time on a location by location basis, in order to supply a
sufficient number of cars at those times when available rates are high.
 
Enhancements to the yield management system are produced on an ongoing basis. In
1998, the Company completed the development of a car distribution optimization
program, which is fully integrated with the yield management system, and is now
available throughout the Company's major locations in the United States. This
enhancement facilitates the distribution of cars among rental locations within a
regional area to take maximum advantage of demand and price opportunities over a
period of time.
 
COMPETITIVE RATE DETECTION
The Company recognizes that it is essential to respond promptly to pricing
changes in the marketplace. The ability to respond rests on the ability to
detect pricing changes when they occur. The Company believes it has the most
sophisticated competitive price detection software in the industry. Developed
internally and using global distribution systems (such as United Airlines'
Apollo system and American Airlines' Sabre system) for its source of
information, competitors' rates are electronically canvassed nightly. "Scouting"
routines are used to identify future rates in the marketplace. If rate changes
are detected, they result in more in-depth canvassing, as appropriate. The
benefit of this system is to provide enhanced awareness of competitive rate
changes far more frequently, and for a greater number of locations and time
periods, than would otherwise be available.
 
Internationally, canvassing is generally done manually, due to the limited
information available concerning competitors in the global distribution systems.
However, the Company's European operations have in place a reporting system
which, while dependent on manual input, parallels the information available in
the United States.
 
COST ALLOCATION MODEL
The Company's cost allocation model supports the Company's objective that all
segments of its businesses must provide contributions above a strategically set
threshold. Contribution per rental day is determined by location, customer
segment and car and equipment category by using data from the financial
management system, the fleet accounting system, the marketing database and the
yield management process. Additional models, based on this core cost allocation
model, allow the sales department to determine the profitability of customer
accounts by rental location.
 
To support the Company's European operations, a comparable cost allocation model
is used to reflect the individual operating environments of the respective
countries and to manage profitability.
 
                                       10
<PAGE>   12
 
DISASTER RECOVERY
The Company's systems disaster recovery planning is a comprehensive, ongoing
process which is updated as products are developed, tested and modified.
Disaster recovery for reservations, financial and other strategic systems is
provided at alternative locations serviced by third parties or at Company
maintained facilities.
 
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 numerous
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. Prior to March 1, 1996, the Company, through a
subsidiary, also administered for the Company's operations and others, workers'
compensation and medical, dental and other employee health benefit claims. That
subsidiary was sold at a profit to an investor group during 1996. However, HCM
continues to administer liability claims for the Company and for outside
clients.
 
TELECOMMUNICATIONS
In 1991, the Company began purchasing and reselling telecommunications services
through its subsidiary, Hertz Technologies, Inc. ("HTI"). HTI takes advantage of
the Company's negotiated rates with its telecommunications carriers to market
custom designed rate packages and services to small and medium size businesses
throughout the United States. Over the past year, the customer base has been
expanded to include services to several larger wholesale customers. Available
services include call detail and management reports, inbound/outbound call
packages and travel calling card services that include voice mail and fax
options.
 
The knowledge of competitive telecommunications services gained from developing
a leading management information system for the Company's car rental operations
has resulted in significant savings to the Company. Due to the nature of the
telecommunications business, there is very little overhead or capital investment
required. Services are sold through independent sales agents and other groups.
HTI provides its services from Oklahoma City, Oklahoma.
 
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. Since July 1, 1987,
all claims have been retained and borne by the Company up to a limit of $5
million for each occurrence, and the Company maintains insurance with
unaffiliated carriers in excess of $5 million up to $450 million per occurrence.
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. From January 1, 1993 through December 31, 1996,
vehicle liability insurance purchased locally from unaffiliated carriers by
Company-owned operations in Europe was reinsured by Hertz International RE
Limited, a wholly-owned subsidiary of the Company operating as a reinsurer in
Dublin, Ireland. Hertz International RE Limited is responsible for the first
$1.5 million of motor vehicle liability for each accident during this period,
with excess liability insurance coverage maintained by the Company with
unaffiliated carriers. Effective January 1, 1997, the Company replaced the
unaffiliated carrier that was the fronted insurer for claims up to $1.5 million
by establishing a wholly-owned subsidiary, Probus Insurance Company Europe
Limited ("Probus"), a direct writer domiciled in Dublin, Ireland. Probus now
underwrites the Company's Pan-European motor vehicle liability program (except
in Switzerland) up to $1 million per occurrence. Excess coverage for claims that
exceed $1 million per occurrence continue to be maintained with unaffiliated
carriers. In the Company's international operations other than Europe, the
Company is self-insured at various amounts up to $150,000 per occurrence, and
maintains excess liability insurance coverage up to $450 million per occurrence
with unaffiliated carriers.
 
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, 1998, this liability was estimated at $307.2 million for combined domestic
and foreign operations.
 
                                       11
<PAGE>   13
 
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 car rental business market are Avis Rent A Car Systems, Inc. and National
Car Rental System, Inc. ("National"), and in the leisure market, the Company's
principal competitors are Alamo Rent-a-Car Inc. ("Alamo") and Budget Group, Inc.
National and Alamo are owned by Republic Industries, Inc. In Europe, the
Company's principal competitors in the car rental market are Avis Europe plc,
National Car Rental, Europcar and, operating principally through licensees,
Budget Rent-A-Car Corporation. 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.
 
The Company, through Hertz Local Edition, intends to expand its presence in the
insurance replacement market in the United States where Enterprise Rent-A-Car
Company is currently the Company's major competitor.
 
The Company believes that HERC is one of the largest equipment rental companies
in the United States. HERC's competitors range from other large national
companies, such as United Rentals and Rental Service Corp., 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, many 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.
 
EMPLOYEES
On December 31, 1998, the Company employed approximately 24,800 persons in its
domestic and foreign operations. Labor contracts covering the terms of
employment of approximately 5,400 employees in the United States are presently
in effect under 172 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
2,400 of these employees will expire during 1999. Employee benefits in effect
include group life insurance, hospitalization and surgical insurance, pension
plans and an income savings 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.
 
                                       12
<PAGE>   14
 
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, currency
controls, labor matters, charge card operations, 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 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 of automobiles, trucks and other
vehicles such as heavy equipment and buses; (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, car 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 that caused by
emissions and noise. Generally, these requirements are met by the manufacturer
except, on occasion, equipment failure requiring repair by the Company. Measures
are being 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 405 underground tanks nationwide 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 has established a compliance program for its
tanks to ensure 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 $2.4 million
in 1998 to complete the registration and upgrade or replacement of such tanks.
 
The Company is also incurring and providing for expenses for the cleanup of
contamination from petroleum discharges 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 petroleum
discharges 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 several cleanup
liability imposed by the federal Comprehensive Environmental Response,
Compensation and Liability Act of 1980 and state hazardous waste disposal site
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. 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 2,013 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 U.S.
cities and
 
                                       13
<PAGE>   15
 
suburban areas. Most of these premises are leased, except for 137 that are owned
in fee. The Company has various concession agreements with governmental
authorities 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 11 of the Notes to the Company's consolidated
financial statements included in this Report.
 
The Company owns three 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. In April 1997,
the Company purchased the remaining 50% equity interest in the joint venture
that owned the facility. The Company has constructed a reservation center near
Dublin, Ireland, which opened in October 1997. The reservation center has
centralized the Company's European reservation operations.
 
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.
 
The Company is currently a defendant in two purported class actions, as well as
one similar action, that have been brought in two states, in which the
plaintiffs seek unspecified damages and injunctive relief arising out of the
Company's allegedly improper sale of one or more optional insurance products
(liability insurance supplement and personal accident insurance/personal effects
coverage) in connection with vehicle rentals. A common feature of the actions is
a claim that applicable insurance laws were violated in the sale of optional
insurance products because the Company's counter sales representatives were not
licensed insurance salespersons. Details of those actions appear below. Other
similar actions in Texas, Alabama and Wisconsin have been concluded and/or
dismissed with no finding of liability to the Company.
 
On September 2, 1997, Ben C. Martin, Archie Powell, William Johnson,
individually and on behalf of all others similarly situated v. The Hertz
Corporation et al. was commenced in Circuit Court of Mobile County, Alabama. The
Company and the other defendant car rental companies removed the action to the
United States District Court for the Southern District of Alabama (Mobile); the
plaintiffs have moved to remand. The action has been stayed pending a ruling by
the United States Court of Appeals for the Eleventh Circuit in an unrelated
action that may provide a precedent bearing on the District Court's jurisdiction
over Martin. Martin purports to be a class action on behalf of all individuals
in the United States who rented from the defendants and paid for optional
insurance products.
 
On October 2, 1997, Shannon Leonard, Theresa Moore and Coley Whetstone, Jr. v.
Enterprise Rent A Car, Hertz et al. was commenced in Circuit Court of Coosa
County, Alabama. The Company and the other defendant car rental companies
removed the action to the United States District Court for the Middle District
of Alabama, Northern Division (Montgomery). As with Martin, Leonard purports to
be a class action on behalf of all persons in the United States who rented from
the defendants and, as part of that rental, purchased optional insurance
products. One cause of action has been dismissed based upon the judge's ruling
that a private right of action does not exist under Alabama law for the alleged
unlicensed sale of insurance. In view of that ruling the Company intends to seek
dismissal of all remaining causes of action.
 
On June 11, 1998, David Holt, on Behalf of Himself, and the General Public v.
The Hertz Corporation, et al. was commenced in Superior Court of the State of
California, Contra Costa County. At the outset, the Company filed a motion for a
temporary stay, pending action of the California Department of Insurance. In
August 1998, the court granted the motion, and the action was stayed, pending a
report being prepared by the Insurance Producer Licensing Working Group of the
California Department of Insurance covering, among other things, car rental
company insurance programs. The final report was issued in February 1999.
Accordingly, the stay has been lifted with the expectation that the Company will
file a motion for summary judgement following limited discovery. Technically not
a class action, Holt is a private attorney general action on behalf of those who
have rented cars from the Company in the State of California.
 
The Company believes it has meritorious defenses in the foregoing actions and
will defend itself vigorously.
 
                                       14
<PAGE>   16
 
ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
 
None.
 
                      EXECUTIVE OFFICERS OF THE REGISTRANT
 
The following table sets forth certain information with respect to the executive
officers of the Company, and their ages as of March 1, 1999:
 
<TABLE>
<CAPTION>
NAME                                   AGE    POSITION AND OFFICE
----                                   ---    -------------------
<S>                                    <C>    <C>
Frank A. Olson.......................  66     Chairman of the Board, Chief Executive Officer and Director
Craig R. Koch........................  52     President, Chief Operating Officer and Director
Brian J. Kennedy.....................  57     Executive Vice President, Marketing and Sales
Joseph R. Nothwang...................  52     Executive Vice President and General Manager, Vehicle
                                              Rental and Leasing, Americas and Asia Pacific
Gerald A. Plescia....................  43     Executive Vice President and President, Hertz Equipment
                                              Rental Corporation
Paul J. Siracusa.....................  53     Executive Vice President and Chief Financial Officer
Robert J. Bailey.....................  64     Senior Vice President, Quality Assurance and Administration
Harold E. Rolfe......................  41     Senior Vice President and General Counsel
Donald F. Steele.....................  60     Senior Vice President, Employee Relations
Charles L. Shafer....................  55     Vice President and President, Hertz Europe Limited
Richard J. Foti......................  52     Controller
Robert H. Rillings...................  58     Treasurer
</TABLE>
 
None of the Company's officers has any family relationship with any director or
other officer. "Family relationship" for this purpose means any relationship by
blood, marriage or adoption, not more remote than first cousin.
 
Set forth below is the principal occupation of each of the executive officers
named above during the past five years.
 
Mr. Olson has been Chairman of the Board of Directors of the Company since June
1980, Chief Executive Officer since March 1977, and a director of the Company
since November 1974. From June 1987 to December 1987 he was also Chairman of the
Board, President and Chief Executive Officer of UAL Corporation, Elk Grove,
Illinois (the Company's former parent). He is a director of Becton, Dickinson
and Co., Franklin Lakes, New Jersey; Fund American Holdings, Inc., Lebanon, New
Hampshire; and Amerada Hess Corporation, New York, New York.
 
Mr. Koch was elected President and Chief Operating Officer of the Company in
September 1993. From February 1988 through August 1993 he served as Executive
Vice President and President of North America Car Rental operations of the
Company. He served as President and Chief Operating Officer of the Company from
May 1987 to February 1988. In October 1983, he became Executive Vice President
and General Manager of the Company's Car Rental Division after having served as
Vice President and General Manager since March 1980. He has been a director of
the Company since June 1994 and previously served as a director of the Company
from May 1987 to July 1993 and from October 1983 to September 1985.
 
Mr. Kennedy was elected Executive Vice President, Marketing and Sales of the
Company in February 1988. From May 1987 through January 1988, he served as
Executive Vice President and General Manager of the Car Rental Division of the
Company. Prior to that time, from October 1983, he served as Senior Vice
President, Marketing.
 
Mr. Nothwang is Executive Vice President of the Company and was named General
Manager of Vehicle Rental and Leasing, Americas and Asia Pacific in October
1998. From September 1995 through September 1998, he served as Executive Vice
President and General Manager, U.S. Car Rental. He served as Vice President and
General Manager U.S. Car Rental from September 1993 to August 1995. Previously,
he served as Division Vice President, Region Operations since 1985. He served in
various operating positions since 1976.
 
                                       15
<PAGE>   17
 
Mr. Plescia was elected Executive Vice President of the Company and President of
Hertz Equipment Rental Corporation in July 1997. He served as Division Vice
President, Field Operations for Hertz Equipment Rental from May 1992 to July
1997. Previously, he served in various operating positions since 1979.
 
Mr. Siracusa was elected Executive Vice President and Chief Financial Officer of
the Company in July 1997. He served as Vice President, Finance and Chief
Financial Officer, Hertz International, Ltd. from January 1996 to July 1997. He
served as Staff Vice President and Controller, Worldwide Car Rental from August
1994 to December 1995. He served as Division Vice President and Controller,
North America Car Rental from March 1988 to July 1994. Previously, he served in
various functions with the Company since 1969.
 
Mr. Bailey was elected Senior Vice President of the Company in May 1990.
Previously, he served in various functions with the Company since 1956, except
for the years 1966 and 1981.
 
Mr. Rolfe was elected Senior Vice President and General Counsel of the Company
in October 1998. He served as Vice President and General Counsel of Corporate
Property Investors, Inc. in New York from 1991. Previously, he served with the
law firm of Cravath, Swaine & Moore in New York for eight years since 1983.
 
Mr. Steele was elected Senior Vice President, Employee Relations of the Company
in July 1984. Previously, he served in various functions with the Company since
1972.
 
Mr. Shafer was elected Vice President of the Company in February 1998 and
President of Hertz Europe Limited, in January 1998. He served as U.S. Car Rental
Division Vice President, Region Operations, Western Region from January 1991 to
December 1997. Previously, he served in various functions with the Company since
1966.
 
Mr. Foti was elected Controller of the Company in July 1997. He served as Staff
Vice President, Internal Audit from February 1990 to July 1997. Previously, he
served in various positions with the Company since 1978.
 
Mr. Rillings was elected Treasurer of the Company in November 1986. Previously,
he served in various positions with the Company since 1961.
 
                                       16
<PAGE>   18
 
                                    PART II
 
ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
 
The Class A Common Stock of the Company is listed on the New York Stock
Exchange. The high and low sales prices for the Class A Common Stock and the
dividends paid per share on the Class A Common Stock and Class B Common Stock
for each quarterly period from April 25, 1997, the date the Class A Common Stock
began trading on the New York Stock Exchange, were as follows:
 
<TABLE>
<CAPTION>
                                                                Class A Common Stock Price Per Share*
                                                             -------------------------------------------
                                                              First      Second       Third      Fourth
                            1998                             Quarter     Quarter     Quarter     Quarter
                            ----                             -------     -------     -------     -------
<S>                                                          <C>         <C>         <C>         <C>
High........................................................    47          50 1/8      51 7/8      45 5/8
Low.........................................................    35 15/16    38          36 11/16    27 9/16
Dividends per share of Class A Common Stock and Class B
  Common Stock..............................................  $.05        $.05        $.05        $.05
1997
----
High........................................................   N/A          37 3/4      39 3/8      41 3/4
Low.........................................................   N/A          27 1/8      31 7/8      34
Dividends per share of Class A Common Stock and Class B
  Common Stock..............................................    --          --        $.05        $.05
</TABLE>
 
---------------
* Price reflects New York Stock Exchange Composite Transactions. The initial
  public offering price was $24.00 per share.
 
As of March 1, 1999, there were 8,146 holders of the Company's Class A Common
Stock and one holder of the Company's Class B Common Stock.
 
Dividends on the Company's common stock are paid when declared by the Board of
Directors. The Company paid cash dividends of $21.6 million on common stock in
1998 and $10.8 million in 1997.
 
On February 2, 1999, the Board of Directors declared a quarterly dividend of
$.05 per share on its Class A and Class B Common Stock payable on March 10, 1999
to shareholders of record as of February 15, 1999.
 
Certain debt instruments under which the Company has issued debt securities
restrict the Company's ability to pay dividends. Such restrictions generally
provide 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, 1998, approximately $728 million of consolidated
stockholders' equity was free of such limitations.
 
On February 27, 1997, the Company issued 1,290 shares of its 5.11% Cumulative
Series C Preferred Stock, par value $.01 per share, to Ford in exchange for U.S.
treasury securities having an aggregate fair market value at that time of $129
million. The Company believes that this transaction was exempt from registration
under Section 4(2) of the Securities Act of 1933 because the securities were
sold to a single sophisticated investor who was purchasing for investment
without a view to further distribution. On April 30, 1997, the Company redeemed
all the issued and outstanding shares of the Series C Preferred Stock.
 
                                       17
<PAGE>   19
 
ITEM 6.  SELECTED FINANCIAL DATA.
 
              SELECTED CONSOLIDATED FINANCIAL DATA OF THE COMPANY
 
The selected consolidated income statement data for each of the years in the
three-year period ended December 31, 1998, and consolidated balance sheet data
as of December 31, 1998 and 1997 presented below 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, 1995, and
consolidated balance sheet data as of December 31, 1996, 1995 and 1994 presented
below 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.
 
<TABLE>
<CAPTION>
                                                             Years ended or at December 31,
                                           -------------------------------------------------------------------
                                              1998          1997          1996          1995          1994
                                           -----------   -----------   -----------   -----------   -----------
                                                                   Dollars in millions
<S>                                        <C>           <C>           <C>           <C>           <C>
INCOME STATEMENT DATA
  Revenues
  Car rental.............................     $3,484.8      $3,329.9      $3,161.6      $2,911.7      $2,581.2
  Industrial and construction equipment
    rental...............................        631.3         444.5         392.3         332.3         263.1
  Car leasing............................         37.5          40.9          35.4          35.6         231.4
  Other(a)...............................         84.7          76.0          79.0         121.0         218.7
                                               -------       -------       -------       -------       -------
    Total revenues.......................      4,238.3       3,891.3       3,668.3       3,400.6       3,294.4
                                               -------       -------       -------       -------       -------
  Expenses
  Direct operating.......................      1,925.7       1,826.7       1,795.1       1,724.8       1,766.2
  Depreciation of revenue earning
    equipment(b).........................      1,078.0         979.6         892.7         803.9         702.7
  Selling, general and administrative....        462.9         439.5         425.2         392.5         385.5
  Interest, net of interest income of
    $11.5, $13.8, $10.4, $16.8 and
    $7.2.................................        306.3         302.2         298.8         307.1         277.2
                                               -------       -------       -------       -------       -------
    Total expenses.......................      3,772.9       3,548.0       3,411.8       3,228.3       3,131.6
                                               -------       -------       -------       -------       -------
  Income before income taxes.............        465.4         343.3         256.5         172.3         162.8
  Provision for taxes on income(c).......        188.4         141.7          97.9          67.1          71.7
                                               -------       -------       -------       -------       -------
  Net income.............................      $ 277.0       $ 201.6       $ 158.6       $ 105.2        $ 91.1
                                               -------       -------       -------       -------       -------
                                               -------       -------       -------       -------       -------
  Earnings Per Share(d)
    Basic................................      $  2.56       $  1.86       $  1.47       $   .97       $   .84
                                               -------       -------       -------       -------       -------
                                               -------       -------       -------       -------       -------
    Diluted..............................      $  2.55       $  1.86       $  1.46       $   .97       $   .84
                                               -------       -------       -------       -------       -------
                                               -------       -------       -------       -------       -------
  Weighted-average number of shares
    outstanding
    Basic................................  108,067,850   108,227,916   108,227,916   108,227,916   108,227,916
    Diluted..............................  108,561,352   108,630,236   108,630,236   108,630,236   108,630,236
  Ratio of earnings to
    fixed charges(e).....................          2.2           1.9           1.7           1.4           1.4
                                               -------       -------       -------       -------       -------
                                               -------       -------       -------       -------       -------
BALANCE SHEET DATA
  Revenue earning equipment
    Cars.................................     $4,472.5      $4,039.8      $4,318.3      $3,627.2      $3,854.4
    Other equipment......................      1,309.5         852.0         717.4         543.0         406.0
  Total assets...........................      8,872.6       7,435.5       7,649.2       6,656.6       6,520.8
  Total debt.............................      5,759.8       4,715.7       5,091.8       4,297.5       4,413.9
  Stockholders' equity...................      1,393.8       1,136.2         989.4         836.3         735.9
</TABLE>
 
                                       18
<PAGE>   20
 
<TABLE>
<CAPTION>
                                                             Years ended or at December 31,
                                           -------------------------------------------------------------------
                                              1998          1997          1996          1995          1994
                                           -----------   -----------   -----------   -----------   -----------
                                                                   Dollars in millions
<S>                                        <C>           <C>           <C>           <C>           <C>
SELECTED OPERATING DATA
  Car rental and other operations:
    Peak number of owned and licensee
      cars operated during period........      431,000       400,600       389,000       376,800       378,700
    Average number of owned cars operated
      during period......................      302,900       289,900       283,900       263,600       276,100
    Number of transactions of owned car
      rental operations during period (in
      thousands).........................       21,858        21,075        20,110        18,799        17,811
    Average revenue per transaction of
      owned car rental operations during
      period (in whole dollars)..........         $159          $158          $157          $155          $145
  Equipment rental operations:
    Average cost of rental equipment
      operated during period (in
      millions)..........................     $1,356.6      $1,015.5        $822.9        $650.4        $504.1
</TABLE>
 
---------------
(a) Includes fees from licensees (other than expense reimbursement from
    licensees), revenue from claim management and telecommunications services
    and, prior to 1995, revenues from a car dealership operation in Europe.
 
(b) For 1998, 1997, 1996, 1995 and 1994 includes net credits of $17.8 million,
    $3.3 million, $23.2 million, $6.4 million and $23.0 million, respectively,
    primarily from net proceeds received in excess of book value on the disposal
    of revenue earning equipment. Effective January 1, 1997 and July 1, 1994,
    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 years 1997, 1995 and 1994 decreased by $10.4 million, $12.0 million and
    $9.6 million, respectively.
 
(c) Includes credits of $13.9 million for the year 1996, resulting from
    adjustments made to tax accruals in connection with tax audit evaluations
    and the effects of prior years' tax-sharing arrangements between the Company
    and its former parent companies, UAL and RCA. For the year 1995, includes
    $6.5 million of credits relating to foreign taxes which were offset against
    U.S. income tax liabilities.
 
(d) The basic and diluted earnings per share for the years ended December 31,
    1996, 1995 and 1994 assumes that the weighted-average shares outstanding
    during 1997 were outstanding for the corresponding periods in 1996, 1995 and
    1994.
 
(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.
 
                                       19
<PAGE>   21
 
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 and leasing 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 and truck operations,
      including loss or collision damage waivers, liability insurance and other
      products)
 
    - Industrial and construction equipment rental revenues
 
    - Car leasing revenues
 
    - Other revenues (fees from the Company's licensees, revenues from the
      Company's claim management and 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)
 
    - 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.
 
At December 31, 1998, 75% of the cars in the Company's car rental fleet were
subject to repurchase by automobile manufacturers under guaranteed repurchase
programs pursuant to which automobile manufacturers agree to repurchase cars,
subject to certain car conditions and mileage requirements, at a specified price
after a minimum period of service. See "Business -- Worldwide Car Rental -- Car
Acquisition." The Company's industrial and construction equipment is not subject
to such guaranteed repurchase programs.
 
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.
 
                                       20
<PAGE>   22
 
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 income:
 
<TABLE>
<CAPTION>
                                                               Percentage of Revenues
                                                              ------------------------
                                                                    Years Ended
                                                                    December 31,
                                                              ------------------------
                                                               1998     1997     1996
                                                              ------   ------   ------
<S>                                                           <C>      <C>      <C>
Revenues:
  Car rental................................................   82.2%    85.5%    86.2%
  Industrial and construction equipment rental..............   14.9     11.4     10.7
  Car leasing...............................................     .9      1.1       .9
  Other.....................................................    2.0      2.0      2.2
                                                              -----    -----    -----
                                                              100.0    100.0    100.0
                                                              -----    -----    -----
Expenses:
  Direct operating..........................................   45.5     46.9     48.9
  Depreciation of revenue earning equipment.................   25.4     25.2     24.3
  Selling, general and administrative.......................   10.9     11.3     11.6
  Interest, net of interest income..........................    7.2      7.8      8.2
                                                              -----    -----    -----
                                                               89.0     91.2     93.0
                                                              -----    -----    -----
Income before income taxes..................................   11.0      8.8      7.0
Provision for taxes on income...............................    4.5      3.6      2.7
                                                              -----    -----    -----
Net income..................................................    6.5%     5.2%     4.3%
                                                              =====    =====    =====
</TABLE>
 
YEAR ENDED DECEMBER 31, 1998 COMPARED WITH YEAR ENDED
DECEMBER 31, 1997
 
REVENUES
The Company achieved record revenues of $4,238.3 million in 1998, which
increased by 8.9% from $3,891.3 million in 1997.
 
Revenues from car rental operations of $3,484.8 million in 1998 increased by
4.7% from $3,329.9 million in 1997. This increase of $154.9 million was the
result of a worldwide increase in transactions of 3.7% and pricing of
approximately 3.7%, partially offset by a decrease in average transaction length
in the United States, that contributed $184.7 million in increased revenue.
Revenue was reduced by $29.8 million from the effect of the strong U.S. dollar
on foreign currency translation. The translation impact of exchange rates on net
income is not significant because the majority of the Company's foreign expenses
are also incurred in local currencies.
 
Revenues from industrial and construction equipment rental of $631.3 million in
1998 increased by 42.0% from $444.5 million in 1997. Of this $186.8 million
increase, approximately $120.3 million was due to an increase in volume
resulting from the inclusion of 13 acquired businesses and the opening of 33 new
locations worldwide in the last 12 months, and approximately $66.5 million was
due to increased activity from existing locations which grew 15%.
 
Revenues from all other sources of $122.2 million in 1998 increased by 4.5% from
$116.9 million in 1997, primarily due to an increase in franchise revenues. This
increase was partly offset by the effects of foreign currency translation.
 
EXPENSES
Total expenses of $3,772.9 million in 1998 increased by 6.3% from $3,548.0
million in 1997, although total expenses as a percentage of revenues decreased
to 89.0% in 1998 from 91.2% in 1997.
 
Direct operating expenses of $1,925.7 million in 1998 increased by 5.4% from
$1,826.7 million in 1997, but were lower in 1998 as a percentage of revenues due
to more efficient fixed cost coverage. The increase was primarily due to
increased wage, commission, facility and reservation costs in car rental
operations, which corresponds with the
 
                                       21
<PAGE>   23
 
increase in transaction volume, and in industrial and construction equipment
rental operations which opened or acquired 105 worldwide locations in 1998. The
overall increase was moderated by foreign currency translation changes,
recoveries of concession fees and refueling costs and favorable self-insurance
claims experience and decreases in vehicle damage and other vehicle operating
costs in car rental operations.
 
Depreciation of revenue earning equipment for the car rental and car leasing
operations of $924.4 million in 1998 increased by 4.9% from $881.1 million in
1997, primarily due to an increase in the number of cars operated worldwide and
an increase in the cost of cars in international operations. These increases
were partly offset by an increase in the net proceeds received in 1998 in excess
of book value on the disposal of the cars (which resulted in a loss of $.5
million in 1998 as compared to a loss of $10.5 million in 1997).
 
Depreciation of revenue earning equipment for the industrial and construction
equipment rental operations of $153.6 million in 1998 increased by 55.9% from
$98.5 million in 1997, primarily due to acquisitions of equipment rental and
sales companies and an increase in both the volume and cost of equipment
operated. This increase was partly offset by an increase in the net proceeds
received in excess of book value on the disposal of the equipment resulting in a
$18.3 million gain in 1998 versus a $13.8 million gain in 1997.
 
Selling, general and administrative expenses of $462.9 million in 1998 increased
by 5.3% from $439.5 million in 1997, but decreased as a percentage of revenue to
10.9% in 1998 from 11.3% in 1997. The increase in 1998 resulted from increases
in advertising and sales promotion expenses, primarily as a result of the growth
of the industrial and construction equipment rental operations.
 
Interest expense of $306.3 million in 1998 increased 1.4% from $302.2 million in
1997, primarily due to higher debt levels and lower interest income in 1998,
partially offset by a lower weighted-average interest rate in 1998 and interest
expense of $4.3 million incurred in 1997, relating to funding the $460 million
dividend paid by the Company on its common stock to Ford in 1997.
 
The tax provision of $188.4 million in 1998 increased 33.0% from $141.7 million
in 1997. The effective tax rate in 1998 was 40.5% as compared to 41.3% in 1997.
The increase in provision was due to higher income before income taxes in 1998.
The decrease in the effective tax rate is primarily due to the impact of foreign
earnings. See Notes 1 and 10 of the Notes to the Company's consolidated
financial statements included in this Report.
 
NET INCOME
The Company achieved record net income of $277.0 million in 1998, or $2.55 per
share, on a diluted basis, representing an increase of 37.4% from $201.6
million, or $1.86 per share on a diluted basis, in 1997. This increase was
primarily due to higher revenues and improved profit margins in the worldwide
car rental operations and the net effect of other contributing factors noted
above.
 
YEAR ENDED DECEMBER 31, 1997 COMPARED WITH YEAR ENDED
DECEMBER 31, 1996
 
REVENUES
The Company achieved record revenues of $3,891.3 million in 1997, which
increased by 6.1% from $3,668.3 million in 1996.
 
Revenues from car rental operations of $3,329.9 million in 1997 increased by
5.3% from $3,161.6 million in 1996. This increase of $168.3 million was the
result of a worldwide increase in transactions of 4.8% and an increase in
pricing in the United States of approximately 7.5%, partially offset by a
decrease in average transaction length in the United States that contributed
$254.0 million in increased revenue. These increases were partly offset by
decreases of $85.7 million from the effect of the strong U.S. dollar on foreign
currency translation and a decrease in pricing in foreign operations. The
translation impact of exchange rates on net income is not significant because
the majority of the Company's foreign expenses are also incurred in local
currencies.
 
Revenues from industrial and construction equipment rental of $444.5 million in
1997 increased by 13.3% from $392.3 million in 1996. Of this $52.2 million
increase, approximately $12.0 million was due to an increase in volume resulting
from the opening of 20 new domestic locations within the last 12 months and
approximately $40.2 million was due to increased activity from existing
locations.
 
                                       22
<PAGE>   24
 
Revenues from all other sources of $116.9 million in 1997 increased by 2.2% from
$114.4 million in 1996, primarily due to increased revenues from car leasing
operations, as a result of an acquisition made in June 1996 of a foreign
licensee operation, and the recognition of the initial fee from the franchising
of Denmark and Norway car rental operations, which had been corporately owned.
This increase was partly offset by lower revenues in claim administration
service operations, a large part of which was sold as of February 29, 1996.
 
EXPENSES
Total expenses of $3,548.0 million in 1997 increased by 4.0% from $3,411.8
million in 1996, although total expenses as a percentage of revenues decreased
to 91.2% in 1997 from 93.0% in 1996.
 
Direct operating expenses of $1,826.7 million in 1997 increased by 1.8% from
$1,795.1 million in 1996, but were lower in 1997 as a percentage of revenues due
to more efficient fixed cost coverage. The increase was primarily due to
increased costs in car rental operations, which corresponds with the increase in
transaction volume, and in industrial and construction equipment rental
operations which opened 20 new domestic locations in 1997. The overall increase
was moderated by foreign currency translation changes and decreases in vehicle
damage and other vehicle operating costs in car rental operations. Concessions,
commissions and reservation costs decreased as a percentage of revenues.
 
Depreciation of revenue earning equipment for the car rental and car leasing
operations of $881.1 million in 1997 increased by 8.1% from $814.8 million in
1996, primarily due to an increase in the number of cars operated and an
increase in the cost of cars acquired in the United States. These increases also
include a decrease in the net proceeds received in 1997 in excess of book value
on the disposal of the cars (which resulted in a loss of $10.5 million in 1997
as compared to a gain of $2.5 million in 1996).
 
Depreciation of revenue earning equipment for the industrial and construction
equipment rental operations of $98.5 million in 1997 increased by 26.4% from
$77.9 million in 1996, primarily due to an increase in both the volume and cost
of equipment operated and decreases in the net proceeds received in excess of
book value on the disposal of the equipment resulting in a $13.8 million gain in
1997 versus a $20.7 million gain in 1996. These increases were partly offset by
a reduction in depreciation of $10.4 million, due to changes made effective
January 1, 1997 to increase certain estimated useful lives and changes in
estimated residual values of the equipment.
 
Selling, general and administrative expenses of $439.5 million in 1997 increased
by 3.4% from $425.2 million in 1996, but decreased as a percentage of revenue to
11.3% in 1997 from 11.6% in 1996. The increase in 1997 primarily resulted from
increases in general and administrative costs and sales expenses.
 
Interest expense of $302.2 million in 1997 increased 1.1% from $298.8 million in
1996, primarily due to higher average debt levels (which were required to
finance growth and increases in the cost of cars and industrial and construction
equipment) and interest expense of $4.3 million incurred relating to funding the
$460 million dividend paid by the Company on its common stock to Ford in 1997.
This increase was partially offset by a lower weighted-average interest rate in
1997 as compared to 1996 and higher interest income received.
 
The tax provision of $141.7 million in 1997 increased 44.7% from $97.9 million
in 1996. The effective tax rate in 1997 was 41.3% as compared to 38.2% in 1996.
This change was primarily due to higher income before income taxes in 1997, and
a credit adjustment of $13.9 million included in 1996, which resulted from
changes made to tax accruals in connection with tax audit evaluations and the
effects of prior years' tax sharing arrangements between the Company and its
former parent companies. The tax provisions for 1997 and 1996 also include a
required tax provision of $5.8 million resulting from the amortization of
intangible assets that is not deductible for tax purposes. See Notes 1 and 10 of
the Notes to the Company's consolidated financial statements included in this
Report.
 
NET INCOME
The Company achieved record net income of $201.6 million in 1997, or $1.86 per
share, on a diluted basis, representing an increase of 27.1% from $158.6
million, or $1.46 per share on a diluted basis, in 1996. This increase was
primarily due to higher revenues in the U.S. car rental operations and a $6.3
million ($.06 per share) decrease in depreciation expense, net of taxes, for the
industrial and construction equipment rental business for changes made effective
January 1, 1997 to the estimated useful lives being used to compute depreciation
of revenue earning equipment. This increase in net income was partly offset by:
(i) increased costs in the industrial and construction equipment rental business
relating to the additional depreciation for equipment purchased and other
expenses incurred
 
                                       23
<PAGE>   25
 
to service new industrial customers and (ii) losses incurred in a foreign car
rental and leasing operation which was acquired from a licensee in June 1996.
 
LIQUIDITY AND CAPITAL RESOURCES
The Company's domestic and foreign operations are funded by cash provided by
operating activities, and by extensive financing arrangements maintained by the
Company in the United States, Europe, Australia, New Zealand, Canada and Brazil.
The Company's investment grade credit ratings provide it with access to global
capital markets to meet its borrowing needs. The Company primarily uses funds
for the acquisition of revenue earning equipment which consists of cars and
industrial and construction equipment. For the year ended December 31, 1998, the
Company's expenditures for revenue earning equipment were $7,705.1 million
(offset by proceeds from the sale of such equipment of $5,914.8 million). These
assets are purchased by the Company in accordance with the terms of programs
negotiated with automobile and equipment manufacturers. In 1998, the Company
expended $343.9 million for new businesses acquired and assumed $94.0 million of
related debt. For the year ended December 31, 1998, the Company's capital
investments for property and non-revenue earning equipment were $246.6 million.
 
To finance its domestic requirements, the Company maintains an active commercial
paper program. The Company is also active in the domestic medium-term and
long-term debt markets. From time to time, the Company files with the Securities
and Exchange Commission shelf registration statements relating to debt
securities to allow for the issuance of unsecured senior, senior subordinated
and junior subordinated debt securities on terms to be determined at the time
the securities are offered for sale. At December 31, 1998, the Company had
available $550 million for issuance under an effective registration statement.
The total amount of medium-term and long-term debt outstanding as of December
31, 1998 was $2.9 billion with maturities ranging from 1999 to 2028. This
included a $250 million term loan from Ford, which matures on November 15, 1999.
 
Borrowing for the Company's international operations consists mainly of loans
obtained from local and international banks and commercial paper programs
established in Australia, Canada and Ireland. The Company guarantees only the
borrowings of its subsidiaries in Australia, Canada and Ireland, which consist
principally of commercial paper and short-term bank loans. All borrowings by
international operations either are in the international operation's local
currency or, if in non-local currency, fully hedged to minimize foreign exchange
exposure. At December 31, 1998, total debt for the foreign operations was $759
million, of which $757 million was short-term (original maturity of less than
one year) and $2 million was long-term. At December 31, 1998 outstanding (in
millions of U.S. dollars) under the Australian and Canadian commercial paper
programs were $88 and $118, respectively. The Irish commercial paper program had
no amounts outstanding at December 31, 1998.
 
At December 31, 1998, the Company had committed credit facilities totaling $2.7
billion. Of this amount, $2.1 billion is represented by a combination of
multi-year and 364-day global committed credit facilities provided by 31
relationship banks. In addition to direct borrowings by the Company, these
facilities allow any subsidiary of the Company to borrow on the basis of a
guarantee by the Company. Effective July 1, 1998, the multi-year facilities
totaling $1,196 million were renegotiated. Currently, $63 million expires on
June 30, 2002, and $1,133 million expires on June 30, 2003. The 364-day
facilities, totaling $857 million, expire on June 23, 1999. The multi-year
facilities that expire in 2003 have an evergreen feature which provides for the
automatic extension of the expiration date one year forward unless timely notice
is provided by the bank. The 364-day facilities permit the Company to convert
any amount outstanding prior to expiration into a four-year term loan.
 
In addition to these bank credit facilities, in February 1997, Ford extended to
the Company a line of credit of $500 million, which currently expires June 30,
2000. This line of credit has an evergreen feature that provides on an annual
basis for automatic one-year extensions of the expiration date, unless timely
notice is provided by Ford at least one year prior to the then scheduled
expiration date.
 
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.
 
                                       24
<PAGE>   26
 
On August 1, 1997, the Company announced a program to repurchase from time to
time up to 1.15 million shares of its Class A Common Stock for requirements
under its incentive stock plan. Through December 31, 1998, 0.4 million shares
were repurchased under this program.
 
Car rental is a seasonal business, with decreased travel in both the business
and leisure segments in the winter months and heightened activity during the
spring and summer. To accommodate increased demand, the Company increases its
available fleet and staff during the second and third quarters. As business
demand declines, fleet and staff are decreased as well. However, certain
operating expenses, including rent, insurance, and administrative overhead,
remain fixed and cannot be adjusted for seasonal demand. In certain geographic
markets, the impact of seasonality has been reduced by emphasizing leisure or
business travel in the off-seasons.
 
The table below shows capital expenditures (net of proceeds received from the
sale of revenue earning equipment) and financial results by quarter for 1998 and
1997.
 
<TABLE>
<CAPTION>
                                  Capital                   Operating
                                Expenditures                 Income       Income               Earnings
                                (Net of Sale                (Pre-Tax      Before               Per Share
                                  Proceeds                Income Before   Income    Net     ---------------
                                 Received)     Revenues     Interest)     Taxes    Income   Basic   Diluted
                                ------------   --------   -------------   ------   ------   -----   -------
                                                            Dollars in millions
<S>                             <C>            <C>        <C>             <C>      <C>      <C>     <C>
1998
----
  First Quarter...............    $  661.8     $  898.8      $129.4       $ 60.7   $ 35.4   $ .33    $ .33
  Second Quarter..............     1,289.4      1,048.4       200.7        127.3     75.0     .69      .69
  Third Quarter...............        63.4      1,225.1       286.2        200.3    118.7    1.10     1.09
  Fourth Quarter..............         5.3      1,066.0       155.4         77.1     47.9     .44      .44
                                  --------     --------      ------       ------   ------   -----    -----
    Total Year................    $2,019.9     $4,238.3      $771.7       $465.4   $277.0   $2.56    $2.55
                                  ========     ========      ======       ======   ======   =====    =====
1997
----
  First Quarter...............    $  591.4     $  878.4      $107.2       $ 33.9   $ 19.7   $ .18    $ .18
  Second Quarter..............       832.4        976.3       171.4         93.1     53.9     .50      .50
  Third Quarter...............       (75.5)     1,102.1       242.5        161.7     93.4     .86      .86
  Fourth Quarter..............      (243.6)       934.5       124.4         54.6     34.6     .32      .32
                                  --------     --------      ------       ------   ------   -----    -----
    Total Year................    $1,104.7     $3,891.3      $645.5       $343.3   $201.6   $1.86    $1.86
                                  ========     ========      ======       ======   ======   =====    =====
</TABLE>
 
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 15 of the Notes to the Company's Consolidated financial
statements included in this Report.
 
INTEREST RATE RISK
The Company and its subsidiaries have entered into arrangements to manage
exposures to fluctuations in interest rates. These arrangements consist of
interest rate swap agreements. The effect of these agreements is to make the
Company less susceptible to changes in interest rates by effectively converting
certain variable rate debt to fixed rate debt. 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, the Company's net income would decline by approximately $19
million over a 12-month period.
 
                                       25
<PAGE>   27
 
FOREIGN CURRENCY RISK
The Company and its subsidiaries have entered into arrangements to manage
exposure to fluctuations in foreign exchange rates for certain foreign currency
loans and selected marketing programs. These arrangements consist of foreign
exchange forward contracts and the purchase of foreign exchange options. 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.
 
YEAR 2000
The Company initiated a comprehensive year 2000 date conversion project plan in
early 1997. The Company's year 2000 effort includes worldwide computer-based
applications, operating software, computer hardware, telecommunications systems,
external data exchanges, electronic equipment and facilities systems.
 
STATE OF READINESS:  The plan is structured into five primary phases: inventory,
assessment, correction, testing and implementation. The inventory is an
investigation of all information technology ("IT") and non-IT hardware and
software components used by the Company. The assessment is an analysis of each
component to determine date sensitivity to the year 2000. The correction phase
is the effort to fix, replace, upgrade or eliminate non-compliant hardware and
software. The testing phase involves verifying the results of the correction
effort, and implementation is the effort to deploy the fixes into a production
environment. The Company has completed the inventory and assessment of all
critical components and is 75% complete with correction of known non-compliant
components, 60% complete with testing and 50% complete with implementation. The
Company expects its year 2000 date conversion project to be completed on a
timely basis. Project completion is planned for the middle of 1999.
 
The Company has initiated ongoing communications with its significant vendors
and service providers to determine the extent to which the Company is vulnerable
to those third-parties' failures to remediate their own year 2000 issue. To
date, none of the Company's vendors or service providers has disclosed that they
anticipate a business interruption. There can be no assurance that the systems
of other companies on which the Company's systems rely will be converted in a
timely manner or that any such failure to convert by another company would not
have a material adverse effect on the Company.
 
COSTS TO ADDRESS YEAR 2000 ISSUES:  The total estimated cost of the conversion
is $21 million to $23 million. Software remediation is being expensed as
incurred. Approximately $9.9 million of the cost of conversion was incurred in
1998. The Company has expended approximately $12 million from inception through
December 31, 1998. The costs are being funded through operating cash flows.
These costs represent 9% of the Company's annual information technology budget.
The Company has contracted with outside vendors to perform remediations. In
addition, the Company has invested in technologies that allow concurrent
application development. As a result, the Company has not deferred any
significant information technology projects to address the year 2000 issue.
 
THE RISKS:  The worst case scenarios for the Company with respect to year 2000
problems involve: (1) a temporary disruption due to service providers' system
failures or localized power failures which could result in longer transaction
times and problems with reservations; (2) an interruption in airline operations
affecting the level of airport rental activity; or (3) a temporary inability to
obtain rental vehicles or equipment to meet rental demand due to the failure of
one or more suppliers which could be mitigated by retaining vehicles or
equipment longer than planned. The occurrence of any of these events could have
a material adverse impact on the Company's business and results of operations.
 
CONTINGENCY PLANS:  Contingency measures are included within the structure of
the year 2000 project. Such plans include the identification of preemptive
strategies and the development and distribution of business continuity
procedures in the event computer systems, local energy sources or
telecommunications systems are temporarily not available.
 
EURO CURRENCY CONVERSION
The single European currency ("euro") was introduced on January 1, 1999 with a
complete transition to this new currency by January 1, 2002. The Company plans
to price its product in euros during the transition period as the market and
customers require. The Company does not believe the increased price transparency
between participating countries will have a material adverse effect on pricing,
since costs incurred by the Company and its competitors vary by country.
 
                                       26
<PAGE>   28
 
The conversion to the euro may reduce the Company's exposure to changes in
foreign exchange rates and hedging costs. However, because there will be less
diversity in foreign currencies, changes in the euro's value in relation to the
U.S. dollar could have a more pronounced effect, either positive or negative,
when translating and consolidating these operations.
 
The Company has made required information system changes. These changes were
minimal and only involved systems that interface with customers, such as billing
systems. The Company presents invoices to customers in euros as well as local
currency. The Company's systems support currency triangulation; therefore, no
additional expense was incurred to incorporate this functionality.
 
The Company is preparing for a conversion to the euro for internal accounting
purposes at the end of the year 2001. Earlier implementation may take place in
certain countries where it would be operationally feasible to do so. Human
resource costs will be incurred in planning and coordinating the conversion;
however, these costs are not expected to be material. The Company believes major
information technology system changes to support this conversion will not be
required.
 
Pursuant to the Private Securities Litigation Reform Act of 1995, certain
statements contained in this Report under "Management's Discussion and Analysis
of Financial Condition and Results of Operations," including, without
limitation, those concerning the Company's year 2000 date conversion project,
may contain forward-looking statements concerning the Company's operations,
economic performance and financial condition. Because such statements involve
risks and uncertainties, actual results may differ materially from those
expressed or implied by such forward-looking statements.
 
RECENT PRONOUNCEMENTS
In March 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-1, "Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use" ("SOP 98-1"), dealing with the costs of
internal use software. The treatment accorded such costs in the past has been
very diverse in practice. The SOP will require capitalization of such costs
after certain preliminary development efforts have been made. Costs to be
capitalized are direct costs and interest costs related to development efforts.
The SOP is effective for fiscal years beginning after December 15, 1998. The
Company currently expenses these costs as incurred. The Company will adopt SOP
98-1 beginning January 1, 1999. The adoption of SOP 98-1 is not expected to have
a material effect on the Company's financial position or results of operations
or cash flows.
 
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 establishes a new model for
accounting for derivatives and hedging activities and is effective for fiscal
years beginning after June 15, 1999. The Company will adopt SFAS No. 133
beginning January 1, 2000. The adoption of SFAS No. 133 is not expected to have
a material effect on the Company's financial position or results of operations
or cash flows.
 
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 20 to 27 of this Report.
 
                                       27
<PAGE>   29
 
ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
 
                       REPORT OF INDEPENDENT ACCOUNTANTS
 
To The Hertz Corporation:
 
In our opinion, the accompanying consolidated financial statements present
fairly, in all material respects, the financial position of The Hertz
Corporation (a majority-owned subsidiary of Ford Motor Company) and its
subsidiaries as of December 31, 1998 and 1997, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1998, in conformity with generally accepted accounting principles.
In addition, in our opinion, the financial statement schedule listed in Item
14(a)2, 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
generally accepted auditing standards 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 the opinion expressed
above.
 
                                           PRICEWATERHOUSECOOPERS LLP
 
Florham Park, New Jersey
January 19, 1999
 
                                       28
<PAGE>   30
 
                     THE HERTZ CORPORATION AND SUBSIDIARIES
 
                           CONSOLIDATED BALANCE SHEET
 
<TABLE>
<CAPTION>
                                                                    December 31,
                                                              ------------------------
                                                                 1998          1997
                                                              ----------    ----------
                                                                Dollars in thousands
<S>                                                           <C>           <C>
                                        ASSETS
Cash and equivalents (Note 15)..............................  $  188,466    $  152,620
Receivables, less allowance for doubtful accounts of $16,040
  (1997 -- $13,927) (Schedule II)...........................     893,440       763,145
Due from affiliates (Note 9)................................     430,169       423,434
Inventories, at lower of cost or market.....................      39,502        17,941
Prepaid expenses and other assets (Note 5)..................      85,823        86,297
Revenue earning equipment, at cost (Note 9):
  Cars......................................................   4,980,516     4,435,546
    Less accumulated depreciation...........................    (508,008)     (395,728)
  Other equipment...........................................   1,653,941     1,089,888
    Less accumulated depreciation...........................    (344,416)     (237,840)
                                                              ----------    ----------
        Total revenue earning equipment.....................   5,782,033     4,891,866
                                                              ----------    ----------
Property and equipment, at cost:
  Land, buildings and leasehold improvements................     692,926       583,796
  Service equipment.........................................     662,141       538,723
                                                              ----------    ----------
                                                               1,355,067     1,122,519
    Less accumulated depreciation...........................    (623,259)     (537,753)
                                                              ----------    ----------
        Total property and equipment........................     731,808       584,766
                                                              ----------    ----------
Franchises, concessions, contract costs and leaseholds, net
  of amortization (Note 6)..................................      13,107         8,781
Cost in excess of net assets of purchased businesses, net of
  amortization (Note 6).....................................     708,210       506,671
                                                              ----------    ----------
        Total assets........................................  $8,872,558    $7,435,521
                                                              ==========    ==========
                         LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable (Note 9)...................................  $  510,441    $  482,119
Accrued salaries and other compensation.....................     204,208       166,699
Other accrued liabilities...................................     392,367       361,697
Accrued taxes...............................................     113,217        96,666
Debt (Notes 3 and 15).......................................   5,759,783     4,715,668
Public liability and property damage (Schedule II)..........     307,219       310,475
Deferred taxes on income (Note 10)..........................     191,500       166,000
Commitments and contingencies (Notes 11, 13 and 15).........
Stockholders' equity (Notes 1 and 3):
  Class A Common Stock, $0.01 par value, 440,000,000 shares
    authorized, 40,956,858 shares issued....................         410           410
  Class B Common Stock, $0.01 par value, 140,000,000 shares
    authorized, 67,310,167 shares issued....................         673           673
  Additional capital paid-in................................     982,564       980,581
  Unamortized restricted stock grants.......................      (7,845)      (11,763)
  Retained earnings.........................................     452,110       196,715
  Accumulated other comprehensive income (Note 5)...........     (20,776)      (30,419)
  Treasury stock, at cost, 352,071 shares...................     (13,313)           --
                                                              ----------    ----------
        Total stockholders' equity..........................   1,393,823     1,136,197
                                                              ----------    ----------
        Total liabilities and stockholders' equity..........  $8,872,558    $7,435,521
                                                              ==========    ==========
</TABLE>
 
         The accompanying notes are an integral part of this statement.
 
                                       29
<PAGE>   31
 
                     THE HERTZ CORPORATION AND SUBSIDIARIES
 
                        CONSOLIDATED STATEMENT OF INCOME
 
<TABLE>
<CAPTION>
                                                                     Years ended December 31,
                                                              --------------------------------------
                                                                 1998          1997          1996
                                                              ----------    ----------    ----------
                                                                       Dollars in thousands
<S>                                                           <C>           <C>           <C>
Revenues:
  Car rental................................................  $3,484,770    $3,329,858    $3,161,605
  Industrial and construction equipment rental..............     631,338       444,508       392,322
  Car leasing (Note 6)......................................      37,547        40,905        35,407
  Other (Note 6)............................................      84,678        76,049        79,049
                                                              ----------    ----------    ----------
        Total revenues......................................   4,238,333     3,891,320     3,668,383
                                                              ----------    ----------    ----------
Expenses:
  Direct operating..........................................   1,925,737     1,826,720     1,795,157
  Depreciation of revenue earning equipment (Note 9)........   1,078,009       979,560       892,678
  Selling, general and administrative.......................     462,921       439,558       425,179
  Interest, net of interest income of $11,482, $13,826 and
    $10,449 (Note 3)........................................     306,274       302,212       298,800
                                                              ----------    ----------    ----------
        Total expenses......................................   3,772,941     3,548,050     3,411,814
                                                              ----------    ----------    ----------
Income before income taxes..................................     465,392       343,270       256,569
Provision for taxes on income (Note 10).....................     188,383       141,652        97,950
                                                              ----------    ----------    ----------
Net income (Notes 2 and 8)..................................  $  277,009    $  201,618    $  158,619
                                                              ==========    ==========    ==========
Earnings per share (Notes 2 and 8):
  Basic.....................................................  $     2.56    $     1.86    $     1.47
                                                              ==========    ==========    ==========
  Diluted...................................................  $     2.55    $     1.86    $     1.46
                                                              ==========    ==========    ==========
</TABLE>
 
         The accompanying notes are an integral part of this statement.
 
                                       30
<PAGE>   32
 
                     THE HERTZ CORPORATION AND SUBSIDIARIES
 
                 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
 
<TABLE>
<CAPTION>
                                     Common                  Unamortized               Accumulated
                                       and      Additional   Restricted                   Other                      Total
                                    Preferred    Capital        Stock      Retained   Comprehensive   Treasury   Stockholders'
                                      Stock      Paid-In       Grants      Earnings      Income        Stock        Equity
                                    ---------   ----------   -----------   --------   -------------   --------   -------------
                                                                      Dollars in thousands
<S>                                 <C>         <C>          <C>           <C>        <C>             <C>        <C>
BALANCES AT
DECEMBER 31, 1995.................  $485,901    $  59,008     $     --     $276,733     $ 14,639      $     --    $  836,281
  Comprehensive Income
    Net income....................                                          158,619                                  158,619
    Translation adjustment
      changes.....................                                                        (5,410)                     (5,410)
    Unrealized holding losses
      on securities...............                                                          (125)                       (125)
                                                                                                                  ----------
    Total Comprehensive Income....                                                                                   153,084
                                    --------    ---------     --------     --------     --------      --------    ----------
DECEMBER 31, 1996.................   485,901       59,008           --      435,352        9,104            --       989,365
  Comprehensive Income
    Net income....................                                          201,618                                  201,618
    Translation adjustment
      changes.....................                                                       (39,587)                    (39,587)
    Unrealized holding gains on
      securities..................                                                            64                          64
                                                                                                                  ----------
    Total Comprehensive Income....                                                                                   162,095
                                                                                                                  ----------
  Cash dividend to Ford...........                (30,566)                 (429,434)                                (460,000)
  Issuance of Preferred Stock.....                129,000                                                            129,000
  Redemption of Preferred Stock...               (130,135)                                                          (130,135)
  Reclassify Ford-owned stock.....  (485,025)     485,025                                                                 --
  Sale of Class A Common Stock....       207      469,686      (16,825)                                              453,068
  Cash dividends on Common Stock..                                          (10,821)                                 (10,821)
  Amortization of restricted
    stock grants..................                               3,625                                                 3,625
  Forfeiture of 59,865 shares of
    restricted stock grants.......                 (1,437)       1,437                                                    --
                                    --------    ---------     --------     --------     --------      --------    ----------
DECEMBER 31, 1997.................     1,083      980,581      (11,763)     196,715      (30,419)           --     1,136,197
  Comprehensive Income
    Net income....................                                          277,009                                  277,009
    Translation adjustment
      changes.....................                                                         9,552                       9,552
    Unrealized holding gains on
      securities..................                                                            91                          91
                                                                                                                  ----------
    Total Comprehensive Income....                                                                                   286,652
                                                                                                                  ----------
  Cash dividends on Common Stock..                                          (21,614)                                 (21,614)
  Acquisition of Treasury Stock...                      1                                              (16,511)      (16,510)
  Exercise of stock options.......                    400                                                2,743         3,143
  Tax benefits from stock options
    and restricted stock..........                  1,555                                                              1,555
  Issuance of 30,000 shares of
    restricted stock grants.......                    745       (1,200)                                    455            --
  Amortization of restricted
    stock grants..................                               4,400                                                 4,400
  Forfeiture of 29,930 shares of
    restricted stock grants.......                   (718)         718                                                    --
                                    --------    ---------     --------     --------     --------      --------    ----------
DECEMBER 31, 1998.................  $  1,083    $ 982,564     $ (7,845)    $452,110     $(20,776)     $(13,313)   $1,393,823
                                    ========    =========     ========     ========     ========      ========    ==========
</TABLE>
 
         The accompanying notes are an integral part of this statement.
 
                                       31
<PAGE>   33
 
                     THE HERTZ CORPORATION AND SUBSIDIARIES
 
                      CONSOLIDATED STATEMENT OF CASH FLOWS
 
<TABLE>
<CAPTION>
                                                                      Years ended December 31,
                                                              -----------------------------------------
                                                                 1998           1997           1996
                                                              -----------    -----------    -----------
                                                                        Dollars in thousands
<S>                                                           <C>            <C>            <C>
Cash flows from operating activities:
  Net income................................................  $   277,009    $   201,618    $   158,619
  Non-cash expenses:
    Depreciation of revenue earning equipment...............    1,078,009        979,560        892,678
    Depreciation of property and equipment..................      108,462         88,102         82,457
    Amortization of intangibles.............................       25,775         19,961         18,232
    Amortization of restricted stock grants.................        4,400          3,625             --
    Provision for public liability and property damage......      114,373        122,540        133,417
    Provision for losses for doubtful accounts..............        5,051          9,623          9,912
    Deferred income taxes...................................       25,500         49,200         39,000
    Other...................................................        1,555             --         (3,060)
  Revenue earning equipment expenditures....................   (7,705,138)    (7,556,693)    (8,204,179)
  Proceeds from sales of revenue earning equipment..........    5,914,783      6,597,601      6,445,337
  Changes in assets and liabilities, net of effects from
    sale of operations:
    Receivables.............................................      (69,226)         1,224        (20,482)
    Due from affiliates.....................................       (6,735)        32,591        (48,583)
    Inventories and prepaid expenses and other assets.......        3,495         (5,376)        (1,325)
    Accounts payable........................................       (6,551)        93,410       (117,767)
    Accrued liabilities.....................................       49,201        (21,117)        85,192
    Accrued taxes...........................................       12,265         (7,631)        30,316
  Payments of public liability and property damage claims
    and expenses............................................     (117,098)      (132,807)      (123,928)
                                                              -----------    -----------    -----------
    Net cash flows (used in) provided by operating
      activities............................................  $  (284,870)   $   475,431    $  (624,164)
                                                              -----------    -----------    -----------
</TABLE>
 
         The accompanying notes are an integral part of this statement.
 
                                       32
<PAGE>   34
 
                     THE HERTZ CORPORATION AND SUBSIDIARIES
 
                      CONSOLIDATED STATEMENT OF CASH FLOWS
 
<TABLE>
<CAPTION>
                                                                      Years ended December 31,
                                                              -----------------------------------------
                                                                 1998           1997           1996
                                                              -----------    -----------    -----------
                                                                        Dollars in thousands
<S>                                                           <C>            <C>            <C>
Cash flows from investment activities:
  Property and equipment expenditures.......................  $  (246,601)   $  (172,346)   $  (161,815)
  Proceeds from sales of property and equipment.............       17,083         26,765         26,963
  Available-for-sale securities:
    Purchases...............................................       (2,854)        (2,448)        (6,219)
    Sales...................................................        2,603          2,332          6,422
  Proceeds from sale of operations, net of cash.............        4,341          2,079         15,346
  Purchases of various operations, net of cash (see
    supplemental disclosures below).........................     (343,883)        (2,200)        (6,054)
                                                              -----------    -----------    -----------
    Net cash used in investing activities...................     (569,311)      (145,818)      (125,357)
                                                              -----------    -----------    -----------
Cash flows from financing activities:
  Proceeds from issuance of long-term debt..................      454,057        403,228        304,604
  Repayment of long-term debt...............................     (452,595)      (212,176)      (205,276)
  Short-term borrowings:
    Proceeds................................................    2,347,206      1,621,577      1,379,740
    Repayments..............................................   (1,409,263)    (1,660,299)    (1,180,063)
    Ninety-day term or less, net............................      (15,195)      (489,763)       492,526
  Cash dividend paid to Ford................................           --       (460,000)            --
  Issuance of preferred stock to Ford.......................           --        129,000             --
  Redemption of preferred stock from Ford...................           --       (130,135)            --
  Sale of common stock......................................           --        453,068             --
  Cash dividends paid on common stock.......................      (21,614)       (10,821)            --
  Purchase of treasury stock................................      (16,510)            --             --
  Exercise of stock options.................................        3,143             --             --
                                                              -----------    -----------    -----------
    Net cash provided by (used in) financing activities.....      889,229       (356,321)       791,531
                                                              -----------    -----------    -----------
Effect of foreign exchange rate changes on cash.............          798             17             44
                                                              -----------    -----------    -----------
Net increase (decrease) in cash and equivalents during the
  period....................................................       35,846        (26,691)        42,054
Cash and equivalents at beginning of year...................      152,620        179,311        137,257
                                                              -----------    -----------    -----------
Cash and equivalents at end of year.........................  $   188,466    $   152,620    $   179,311
                                                              ===========    ===========    ===========
Supplemental disclosures of cash flow information:
  Cash paid during the period for:
    Interest (net of amounts capitalized)...................  $   315,566    $   297,661    $   300,120
    Income taxes............................................      149,038        103,468         38,899
</TABLE>
 
In connection with acquisitions made during the years 1998, 1997 and 1996,
liabilities assumed were $132 million, $5 million and $36 million, respectively.
 
         The accompanying notes are an integral part of this statement.
 
                                       33
<PAGE>   35
 
                     THE HERTZ CORPORATION AND SUBSIDIARIES
 
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
MERGER AND CHANGE IN OWNERSHIP
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 leasing
and rental business since 1918. UAL Corporation ("UAL") (formerly Allegis
Corporation) purchased all of the Company's outstanding capital stock from RCA
Corporation ("RCA") on August 30, 1985. Park Ridge Corporation ("Park Ridge"),
which was 80%-owned by Ford Motor Company ("Ford"), purchased all of the
Company's outstanding capital stock from UAL on December 30, 1987. By 1989, Ford
reduced its ownership interest in Park Ridge to 49%. On July 19, 1993, Park
Ridge (which had no material assets other than the Company) was merged with and
into the Company, with the prior stockholders of Park Ridge becoming the
stockholders of the Company. The merger was recorded as a "pooling of
interests."
 
In March 1994, Ford acquired the Company's common stock owned by Commerzbank
Aktiengesellschaft. On April 29, 1994, the Company redeemed its preferred and
common stock owned by AB Volvo for $145 million, borrowing the funds from Ford
to pay for the redemption, and Ford purchased all of the common stock of the
Company owned by Park Ridge Limited Partnership ("Partnership"). This resulted
in the Company becoming a wholly-owned subsidiary of Ford. In addition, the $150
million subordinated promissory note of the Company held by Ford Motor Credit
Company ("FMCC"), a wholly-owned subsidiary of Ford, was exchanged for $150
million of the Series B Preferred Stock of the Company, and a promissory note in
the amount of $18.5 million, owed by the Partnership to the Company was assumed
by Ford ("Ford Note"). The Ford Note was repaid in 1996.
 
On February 27, 1997, the Company issued to Ford 1,290 shares of its 5.11%
Cumulative Series C Preferred Stock, par value $.01 per share, (the "Series C
Preferred Stock"), in exchange for U.S. Treasury securities having an aggregate
fair market value at that time of $129 million. On February 27, 1997, the
Company paid a dividend of $460 million on its common stock to Ford in the form
of a 5.475% promissory note, which was fully repaid by March 10, 1997. In
connection with these transactions, cash and equivalents were increased by $129
million, notes payable were increased by $460 million, additional capital
paid-in was increased by $129 million relating to the issuance of the Series C
Preferred Stock and decreased by $30.6 million relating to the payment of the
dividend on the common stock, and retained earnings was decreased by $429.4
million relating to the payment of the dividend on the common stock. On April
30, 1997, the Company redeemed all the issued and outstanding shares of the
Series C Preferred Stock.
 
In April 1997, the Company reclassified all of its outstanding common stock, par
value $1.00 per share, owned by Ford into 67,310,167 shares of Class B Common
Stock, par value $.01 per share, and reclassified all of its outstanding 10%
Cumulative Series A Preferred Stock and variable rate Cumulative Series B
Preferred Stock beneficially owned by Ford into 20,245,833 shares of its Class A
Common Stock, par value $.01 per share. The Company also issued 701,025 shares
of its Class A Common Stock pursuant to an employee benefit plan.
 
On April 30, 1997, the Company issued and sold 20,010,000 shares of its Class A
Common Stock in an initial public offering (the "Offering") and received net
proceeds of $453 million from the sale, and redeemed its 1,290 shares of Series
C Preferred Stock for $130 million. The net proceeds received from the Offering
were used to pay down notes payable. At December 31, 1998, the common stock
beneficially owned by Ford represents in the aggregate 94.6% of the combined
voting power of all of the Company's outstanding common stock and 81.1% of the
economic interest in the Company. Accordingly, Ford is able to direct the
election of all of the members of the Company's Board of Directors and exercise
a controlling influence over the business and affairs of the Company.
 
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.
 
                                       34
<PAGE>   36
                     THE HERTZ CORPORATION AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
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. See Merger and Change in Ownership for noncash investing and
financing activities.
 
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:
 
<TABLE>
<S>                                                           <C>
Revenue Earning Equipment:
  Cars......................................................  3 to 6 years
  Other equipment...........................................  3 to 10 years
Buildings...................................................  20 to 50 years
Leasehold improvements......................................  Term of lease
Service cars and service equipment..........................  3 to 25 years
Franchises, concessions, contract costs and leaseholds......  10 to 40 years
Cost in excess of net assets of purchased businesses........  20 to 40 years
</TABLE>
 
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. Upon disposal of
revenue earning equipment, depreciation expense is adjusted for the difference
between the net proceeds from sale and the remaining book value.
 
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 being taken at certain
locations to reduce the loss of vapor during the fueling process and to maintain
and replace underground fuel storage tanks. Hertz is also incurring and
providing for expenses for the cleanup of fuel 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
wherein its vehicles are registered. The Company also self-insures general
public liability and property damage for all domestic operations. Since July 1,
1987, all claims have been retained and borne by the Company up to a limit of $5
million for each occurrence, and the Company maintains insurance with
unaffiliated carriers in excess of $5 million up to $450 million per occurrence.
 
For its foreign operations, the Company purchases insurance to comply with local
legal requirements. From January 1, 1993 through December 31, 1996, vehicle
liability insurance purchased locally from unaffiliated carriers by Company-
owned operations in Europe was reinsured by Hertz International RE Limited, a
wholly-owned subsidiary of the Company operating as a reinsurer in Dublin,
Ireland. Hertz International RE Limited effectively responded to the first
 
                                       35
<PAGE>   37
                     THE HERTZ CORPORATION AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
$1.5 million of motor vehicle liability for each accident during this period,
with excess liability insurance coverage maintained by the Company with
unaffiliated carriers. Effective January 1, 1997, the Company replaced an
unaffiliated carrier that was the fronted insurer for claims up to $1.5 million
per occurrence by establishing a wholly-owned subsidiary, Probus Insurance
Company Europe Limited ("Probus"), a direct writer domiciled in Dublin, Ireland.
Probus now underwrites the Company's European vehicle liability program (except
in Switzerland) up to $1 million per occurrence. Excess coverage for claims that
exceed $1 million continues to be maintained with unaffiliated carriers. In the
Company's foreign operations other than Europe, the Company is self insured at
various amounts up to $150,000 per occurrence, and maintains excess liability
insurance coverage up to $450 million per occurrence with unaffiliated carriers.
 
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" in the stockholders' equity section of the consolidated balance sheet.
Foreign currency gains and losses resulting from transactions are included in
earnings.
 
INCOME TAXES
Effective April 30, 1994, the Company and its domestic subsidiaries have filed
consolidated Federal income tax returns with Ford. The Company filed its own
consolidated Federal income tax returns with its domestic subsidiaries after
December 31, 1987; prior thereto, from September 1, 1985 to December 31, 1987
they were included in the consolidated Federal income tax return of UAL, and
prior thereto in the consolidated Federal income tax return of RCA. 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. The Company and its subsidiaries account for investment tax
credits under the flow-through method. As of December 31, 1998, U.S. income
taxes have not been provided on $234 million in undistributed earnings of
foreign subsidiaries that have been or are intended to be permanently 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, 1998, 1997 and 1996
were (in millions) $44.3, $45.2 and $45.5, respectively. This program is
expected to continue in the future. The Company incurred advertising expense for
the years ended December 31, 1998, 1997 and 1996 of (in millions) $159.6, $148.9
and $148.0, respectively.
 
The Company and Ford have entered into a Joint Advertising Agreement, which
commenced on September 1, 1997 for a period of ten years. Under the Joint
Advertising Agreement, Ford has agreed to pay to the Company one-half of the
Company's advertising costs, up to a limit of $39 million for the first fiscal
year and, for each fiscal year thereafter, a limit equal to the prior year's
limit adjusted for inflation, subject to a ceiling. In addition, if for any
fiscal year, one-half of the Company's advertising costs exceed such limit and
the Company has purchased from Ford a percentage of its car fleet requirements
for its car rental business conducted in the United States for the corresponding
model year (the "Ford Vehicle Share") equal to 58% or more, then Ford will pay
to the Company additional amounts for such excess advertising costs. To be
eligible for cost reimbursement under the Joint Advertising Agreement, the
advertising must meet certain conditions, including the condition that it
indicates that the Company features Ford vehicles in a manner and with a
prominence that is reasonably satisfactory to Ford. The Joint Advertising
Agreement further provides that if the Ford Vehicle Share for any model year is
less than 55%, Ford will not be obligated to pay the Company any amount for its
advertising costs for that fiscal year, except to the extent that the Company's
failure to achieve a 55% Ford Vehicle Share is attributable to (a) Ford's
failure to supply a sufficient quantity of cars for the Company to achieve a 55%
Ford Vehicle Share or (b) the fact that the terms and conditions of Ford's car
fleet programs offered to the Company
 
                                       36
<PAGE>   38
                     THE HERTZ CORPORATION AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
were not competitive with the terms and conditions for the supply of cars
offered by other automobile manufacturers to the Company and other daily car
rental companies. In no event, however, will Ford be required to pay any amount
for the Company's advertising costs for any year if the Ford Vehicle Share for
the corresponding model year is less than 40%.
 
PENSION AND INCOME SAVING PLANS
Qualified domestic employees, after completion of specified periods of service,
are eligible to participate in the Retirement Plan for the Employees of The
Hertz Corporation ("Hertz Retirement Plan") and in The Hertz Corporation Income
Savings Plan ("Hertz Income Savings Plan"). Payments are made to pension plans
of others pursuant to various collective bargaining agreements. Under the Hertz
Retirement Plan, the Company pays the entire cost and employees are not required
to contribute. For each plan year beginning January 1, 1996 and thereafter, a
qualified employee's cash balance account is credited with an annual cash
balance credit equal to: (a) 3% of pensionable earnings for that plan year in
the case of a qualified employee who is credited with less than 60 continuous
months of service from most recent date of hire, or (b) 4% of pensionable
earnings for that plan year in the case of a qualified employee who is credited
with 60 or more continuous months of service from most recent date of hire (5%
effective for plan years beginning after January 1, 1998). In the case of a
qualified employee who is first credited with 60 continuous months of service
after January 1 of a plan year, the percentage of pensionable earnings utilized
in determining the annual cash balance credit for that plan year shall be
increased to 4% effective as of the first day of the month coincident with or
next following completion of 60 continuous months of service from most recent
date of hire (5% effective for plan years beginning after January 1, 1998). This
benefit is credited with guaranteed interest rates compounded annually based on
rates issued by the Pension Benefit Guaranty Corporation in effect for the
preceding December. In addition, all qualified employees age 50 or over with 10
or more years of credited service as of July 1, 1987, will have an additional
amount of their pensionable earnings credited to their account. Hertz' funding
policy is to contribute at least the minimum amount required by the Employee
Retirement Income Security Act of 1974.
 
Under the Hertz Income Savings Plan, the Company contributes 50% of the first 6%
of the employee's contribution for a maximum match contribution by the Company
of 3% of the employee's base salary.
 
Most of the Company's foreign subsidiaries have defined benefit retirement plans
or are required to participate in government plans. These plans are all funded,
except in Germany, where an unfunded liability is recorded. In certain
countries, when the subsidiaries make the required funding payments, they have
no further obligations under such plans.
 
IMPAIRMENT OF LONG-LIVED ASSETS AND CERTAIN IDENTIFIABLE INTANGIBLES
The Company evaluates the carrying value of goodwill for potential impairment on
an ongoing basis. Such evaluations compare operating income before amortization
of goodwill to the amortization recorded for the operations to which the
goodwill relates. The Company also considers projected future operating results,
trends and other circumstances in making such estimates and evaluations. In
addition, the Company reviews long-lived assets and certain identifiable
intangibles for impairment whenever events or changes in circumstances indicate
that the carrying value of an asset may not be recoverable.
 
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 to the current year
presentation.
 
                                       37
<PAGE>   39
                     THE HERTZ CORPORATION AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
RECENT PRONOUNCEMENTS
In March 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-1, "Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use" ("SOP 98-1"), dealing with the costs of
internal use software. The treatment accorded such costs in the past has been
very diverse in practice. The SOP will require capitalization of such costs
after certain preliminary development efforts have been made. Costs to be
capitalized are direct costs and interest costs related to development efforts.
The SOP is effective for fiscal years beginning after December 15, 1998. The
Company currently expenses these costs as incurred. The Company will adopt SOP
98-1 beginning January 1, 1999. The adoption of SOP 98-1 is not expected to have
a material effect on the Company's financial position or results of operations
or cash flows.
 
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 establishes a new model for
accounting for derivatives and hedging activities and is effective for fiscal
years beginning after June 15, 1999. The Company will adopt SFAS No. 133
beginning January 1, 2000. The adoption of SFAS No. 133 is not expected to have
a material effect on the Company's financial position or results of operations
or cash flows.
 
NOTE 2 -- EARNINGS PER SHARE
The following table sets forth the computations of basic earnings per share and
diluted earnings per share (in thousands of dollars, except per share amounts):
 
<TABLE>
<CAPTION>
                                                            Year Ended December 31,
                                                  --------------------------------------------
                                                      1998            1997           1996*
                                                  ------------    ------------    ------------
<S>                                               <C>             <C>             <C>
Basic earnings per share:
  Net income....................................  $    277,009    $    201,618    $    158,619
                                                  ------------    ------------    ------------
  Average common shares outstanding.............   108,067,850     108,227,916     108,227,916
                                                  ------------    ------------    ------------
  Basic earnings per share......................  $       2.56    $       1.86    $       1.47
                                                  ============    ============    ============
Diluted earnings per share:
  Net income....................................  $    277,009    $    201,618    $    158,619
                                                  ------------    ------------    ------------
  Average common shares outstanding.............   108,067,850     108,227,916     108,227,916
  Dilutive effect of stock options..............       493,502         402,320         402,320
                                                  ------------    ------------    ------------
  Average diluted common shares outstanding.....   108,561,352     108,630,236     108,630,236
                                                  ------------    ------------    ------------
  Diluted earnings per share....................  $       2.55    $       1.86    $       1.46
                                                  ============    ============    ============
</TABLE>
 
* The basic and diluted earnings per share for 1996 assumes that the
  weighted-average shares outstanding during 1997 were outstanding during 1996.
 
At December 31, 1998, options to purchase 1,017,600 shares of common stock were
outstanding, but were not included in the computation of diluted earnings per
share because the options' exercise price were greater than the average market
price of the common shares.
 
                                       38
<PAGE>   40
                     THE HERTZ CORPORATION AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
NOTE 3 -- DEBT
Debt of the Company and its subsidiaries (in thousands of dollars) consists of
the following:
 
<TABLE>
<CAPTION>
                                                                    December 31,
                                                              ------------------------
                                                                 1998          1997
                                                              ----------    ----------
<S>                                                           <C>           <C>
Notes payable, including commercial paper, average interest
  rate: 1998, 5.4%; 1997, 6.2%..............................  $2,151,792    $1,309,130
Promissory notes, average interest rate: 1998, 7.0%; 1997,
  7.2% (effective average interest rate: 1998, 7.0%; 1997,
  7.3%); net of unamortized discount: 1998, $4,157; 1997,
  $3,030; due 1999 to 2028..................................   2,445,843     2,246,970
Senior subordinated promissory notes, average interest rate
  9% (effective average interest rate, 9.7%), net of
  unamortized discount $43 in 1997..........................          --        99,957
Junior subordinated promissory notes, average interest rate
  6.9%, net of unamortized discount: 1998, $158; 1997, $201;
  due 2000 to 2003..........................................     399,842       399,799
Subsidiaries' debt:
  Short-term borrowings --
    Banks, average interest rate: 1998, 4.6%; 1997, 5.1%; in
      foreign currencies....................................     550,365       477,422
    Commercial paper, average interest rate: 1998, 5.4%;
      1997, 4.9%; in foreign currencies.....................     206,176       110,662
    Others, average interest rate: 1998, 3.5%; 1997, 5.0%;
      in foreign currencies.................................         625        49,584
  Other borrowings, average interest rate: 1998, 9.5%; 1997,
    8.1%; in dollars and foreign currencies.................       5,140        22,144
                                                              ----------    ----------
Total.......................................................  $5,759,783    $4,715,668
                                                              ==========    ==========
</TABLE>
 
The aggregate amounts of maturities of debt, in millions, are as follows: 1999,
$3,358.0 (including $2,879.0 of commercial paper, demand and other short-term
borrowings); 2000, $250.5; 2001, $399.5; 2002, $549.5; 2003, $399.4; after 2003,
$802.9. Included in these maturities at the earliest possible redemption date
are the following promissory notes of the Company which have put options that
can be exercised by the holders of such notes as follows: $25 million at 9% due
in 2000, that can be redeemed at the option of the holders in 1999; $100 million
at 9% due 2009, that can be redeemed at the option of the holders in 1999; and
$150 million at 6.3% due 2006, that can be redeemed at the option of the holders
in 2002.
 
During the year ended December 31, 1998, short-term borrowings, in millions,
were as follows: maximum amounts outstanding $2,512.7 commercial paper and
$720.8 banks; monthly average amounts outstanding $1,881.0 commercial paper
(weighted-average interest rate 5.6%) and $580.9 banks (weighted-average
interest rate 4.9%).
 
The Company and its subsidiaries have entered into arrangements to manage
exposures to fluctuations in interest rates. See Note 15 -- Financial
Instruments.
 
During the year ended December 31, 1997, short-term borrowings, in millions,
were as follows: maximum amounts outstanding $2,369.1 commercial paper, $782.4
banks and $502.3 other; monthly average amounts outstanding $1,792.4 commercial
paper (weighted-average interest rate 5.5%), $621.1 banks (weighted-average
interest rate 4.9%) and $115.9 other (weighted-average interest rate 5.1%).
 
During the year ended December 31, 1996, short-term borrowings, in millions,
were as follows: maximum amounts outstanding $2,129.2 commercial paper, $838.1
banks and $137.2 other; monthly average amounts outstanding $1,615.9 commercial
paper (weighted-average interest rate 5.6%), $754.2 banks (weighted-average
interest rate 5.3%) and $91.1 other (weighted-average interest rate 2.5%).
 
                                       39
<PAGE>   41
                     THE HERTZ CORPORATION AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
The net amortized discount charged to interest expense for the years ended
December 31, 1998, 1997 and 1996 relating to debt and other liabilities, in
millions, was $.9, $1.2 and $.9, respectively.
 
At December 31, 1998, the Company had committed credit facilities totaling $2.7
billion. Of this amount, $2.1 billion is represented by a combination of
multi-year and 364-day global committed credit facilities provided by 31
relationship banks. In addition to direct borrowings by the Company, these
facilities allow any subsidiary of the Company to borrow based on a guarantee by
the Company. Effective July 1, 1998, the multi-year facilities totaling $1,196
million were renegotiated. Currently, $63 million expires on June 30, 2002, and
$1,133 million expires on June 30, 2003. The 364-day facilities, totaling $857
million, expire on June 23, 1999. The multi-year facilities that expire in 2003
have an evergreen feature which provides for the automatic extension of the
expiration date one year forward unless timely notice is provided by the bank. A
facility fee of .07% per annum is payable on the entire commitment amount. The
364-day facilities permit the Company to convert any amount outstanding prior to
expiration into a four-year term loan. A facility fee of .0625% per annum is
payable on the entire commitment amount.
 
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,
2000. This line of credit has an evergreen feature that provides on an annual
basis for automatic one-year extensions of the expiration date, unless timely
notice is provided by Ford at least one year prior to the then scheduled
expiration date. Obligations of the Company under this agreement would rank pari
pasu with the Company's senior debt securities. A commitment fee of .07% per
annum is payable on the unused available credit. In addition, at December 31,
1998, the Company had a $250 million loan outstanding from Ford.
 
The Company had consolidated undrawn committed lines of credit subject to
customary terms and conditions, which include undrawn amounts under the three
facilities indicated above, of approximately $2.6 billion at December 31, 1998.
 
The Company maintains a Sales Agency Agreement with Ford Financial Services,
Inc., an NASD registered brokerdealer and an indirect, wholly-owned subsidiary
of Ford ("FFS"), whereby FFS acts as the exclusive dealer for the Company's
domestic commercial paper program. The Company pays fees to FFS which range from
 .035% to .05% per annum of commercial paper placed depending upon the monthly
average dollar value of the notes outstanding in the portfolio. In 1998, the
Company paid FFS approximately $623,000 of such fees. FFS is under no obligation
to purchase any of the notes for its own account. FFS has acted as the Company's
exclusive commercial paper dealer since October 1994, and the Sales Agency
Agreement may not be amended or terminated without the written consent of both
parties. 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 Motor Company.
 
Borrowing for the Company's international operations consists mainly of loans
obtained from local and international banks. All borrowings by international
operations either are in the international operation's local currency or, if in
non-local currency, are fully hedged to minimize foreign exchange exposure. The
Company guarantees only the borrowings of its subsidiaries in Australia, Canada
and Ireland, which consist principally of commercial paper and short-term bank
loans. At December 31, 1998, the total debt for the foreign operations was $759
million, of which $757 million was short-term (original maturity of less than
one year) and $2 million was long-term. At December 31, 1998, the total amounts
outstanding (in millions of U.S. dollars) under the Australian and Canadian
commercial paper programs were $88 and $118, respectively. The Irish commercial
paper program had no amounts outstanding at December 31, 1998.
 
Certain debt instruments under which the Company has issued debt securities
restrict the Company's ability to pay dividends. Such restrictions generally
provide 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, 1998, approximately $728 million of consolidated
stockholders' equity was free of such limitations.
 
                                       40
<PAGE>   42
                     THE HERTZ CORPORATION AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
NOTE 4 -- FOREIGN CURRENCY
Foreign currency exchange gains and losses included in net income were net
gains, in millions, of $3.1, $2.9 and $3.4 for the years ended December 31,
1998, 1997 and 1996, respectively.
 
NOTE 5 -- AVAILABLE-FOR-SALE SECURITIES
As of December 31, 1998 and 1997, 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 outside quotation
services. These securities include various governmental and corporate debt
obligations. For the years ended December 31, 1998, 1997 and 1996, proceeds, in
millions, of $2.6, $2.3 and $6.4, respectively, were received from the sale of
available-for-sale securities, and gross realized gains, in whole dollars, of
$74,098, $41,626 and $105,813 and gross realized losses of $0, $2,993 and
$134,474, respectively, were included in earnings. Actual cost was used in
computing the realized gain and loss on the sale.
 
The following is a summary of available-for-sale securities at December 31, 1998
and December 31, 1997 (in thousands):
 
<TABLE>
<CAPTION>
                                                                Gross         Gross       Estimated
                                                              Unrealized    Unrealized      Fair
                                                     Cost       Gains         Losses        Value
                                                    ------    ----------    ----------    ---------
<S>                                                 <C>       <C>           <C>           <C>
DECEMBER 31, 1998
Government debt obligations.......................  $1,621       $ 42          $ (7)       $1,656
Corporate debt obligations........................   4,245        111            --         4,356
                                                    ------       ----          ----        ------
        Total.....................................  $5,866       $153          $ (7)       $6,012
                                                    ======       ====          ====        ======
DECEMBER 31, 1997
Government debt obligations.......................  $  988       $ 20          $ (2)       $1,006
Corporate debt obligations........................   4,564         45           (19)        4,590
                                                    ------       ----          ----        ------
        Total.....................................  $5,552       $ 65          $(21)       $5,596
                                                    ======       ====          ====        ======
</TABLE>
 
The amortized cost and estimated fair value of available-for-sale securities at
December 31, 1998 are as follows (in thousands):
 
<TABLE>
<CAPTION>
                                                                        Estimated
                                                               Cost     Fair Value
                                                              ------    ----------
<S>                                                           <C>       <C>
Due in one year or less.....................................  $   --      $   --
Due after one year through five years.......................   3,103       3,168
Due after five years through ten years......................   2,753       2,815
Due after ten years.........................................      10          29
                                                              ------      ------
        Total...............................................  $5,866      $6,012
                                                              ======      ======
</TABLE>
 
NOTE 6 -- PURCHASES AND SALES OF OPERATIONS
During the year ended December 31, 1998, the Company acquired one European and
12 North American equipment rental and sales companies. The aggregate purchase
price of the acquisitions was $343.9 million, net of cash acquired, plus the
assumption of $94.0 million of debt. The aggregate consideration exceeded the
fair value of the net assets acquired by approximately $224.8 million, which has
been recognized as goodwill and is being amortized over periods from twenty-five
to forty years. The acquisitions were accounted for as purchases, and the
results of operations have been included in the Company's consolidated financial
statements since their respective dates of acquisition. Had the acquisitions
occurred as of the beginning of the year, the effect of including their results
would not be material to the results of operations of the Company. The aggregate
purchase price included $5.4 million paid to shareholders of two
 
                                       41
<PAGE>   43
                     THE HERTZ CORPORATION AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
of the acquired companies in exchange for covenants not to compete, which are
being amortized over the contractual terms of the individual covenants.
 
In May 1998, the Company sold its corporate owned operations in Portugal to a
licensee. The net proceeds from the sale were approximately $4.6 million, which
exceeded book value by approximately $.3 million. In conjunction with the sale,
the Company received an initial license fee of $2.5 million. The total assets of
these operations at May 31, 1998 were $19.6 million, and revenues and net income
for the year ended December 31, 1997 were $14.9 million and $.8 million,
respectively. The Company believes that this transaction will not have a
material effect on its financial position or results of operations.
 
In June 1997, the Company sold its corporate owned operations in Denmark and
Norway to a licensee. The net proceeds from the sale were approximately $1.4
million, which was less than book value by approximately $.9 million. In
conjunction with the sale, the Company received an initial license fee of $3
million. The total assets of these operations at June 30, 1997 were $97 million,
and revenues and net loss for the year ended December 31, 1996 were $15.7
million and $1.2 million, respectively.
 
In June 1996, the Company acquired all of the capital stock of a foreign
licensee car rental and leasing operation and the assets of a domestic car
rental operation. In February 1996, the Company acquired the assets of a
domestic construction equipment rental operation. The costs related to these
acquisitions exceeded the net assets acquired by $6.1 million.
 
In May 1996, the Company sold certain of its claim administration service
operations effective February 29, 1996, which included the administration of
workers' compensation claims and other related services, and health related
benefit claims. The net proceeds from the sale approximated $15.3 million, which
exceeded its book value by approximately $3 million. The total assets of these
operations at February 29, 1996 were $15.5 million and revenues for the year
ended December 31, 1995 were $31.0 million, with negligible net income.
 
In connection with the acquisition of the Company by Park Ridge in December 1987
and UAL in August 1985, the excess of the purchase price over the consolidated
equity of the Company at the time of these purchases was $658.3 million. These
costs are being amortized by the Company over 40 years. The unamortized amount
of such costs at December 31, 1998 was $468.4 million.
 
NOTE 7 -- PENSION AND INCOME SAVINGS PLAN AND POSTRETIREMENT BENEFIT PLANS
The following tables set forth the funded status and the net periodic pension
cost of the Hertz Retirement Plan and other postretirement benefit plans
covering its domestic ("U.S.") employees and the retirement plans for foreign
operations ("Non-U.S.") and amounts included in the consolidated balance sheet
and statement of income (in millions of dollars):
 
                                       42
<PAGE>   44
                     THE HERTZ CORPORATION AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
<TABLE>
<CAPTION>
                                                                  U.S. Plans                 Non-U.S. Plans
                                                      -----------------------------------   ----------------
                                                      Pension Benefits    Other Benefits    Pension Benefits
                                                      -----------------   ---------------   ----------------
                                                       1998      1997      1998     1997     1998      1997
                                                      -------   -------   ------   ------   -------   ------
<S>                                                   <C>       <C>       <C>      <C>      <C>       <C>
Change in Benefit Obligation
  Benefit obligation at January 1...................  $125.2    $111.4    $ 8.1     $8.1    $ 44.5    $49.3
  Service cost......................................    11.5       8.0       .3       .3       2.9      2.1
  Interest cost.....................................     8.6       7.6       .5       .5       3.1      3.1
  Employee contributions............................      --        --       .1       .1        .9      1.1
  Benefits paid.....................................   (5.0)     (3.0)     (.2)      (.2)     (1.9)     (.8)
  Foreign exchange translation......................      --        --       --       --      (1.0)      --
  Actuarial gain (loss).............................    15.0       1.2       .3      (.7)     (1.0)   (10.3)
                                                                                            ------    -----
                                                      ------    ------    -----     ----
  Benefit obligation at December 31.................  $155.3    $125.2    $ 9.1     $8.1    $ 47.5    $44.5
                                                                                            ======    =====
                                                      ======    ======    =====     ====
Change in Plan Assets
  Fair value of plan assets at January 1............  $120.4    $101.1    $  --     $ --    $ 33.0    $32.5
  Actual return on plan assets......................    16.3      22.0       --       --       7.0      2.4
  Company contributions.............................      .5        --       .1       .1       2.2      2.4
  Employee contributions............................      --        --       .1       .1        .9      1.1
  Benefits paid.....................................   (5.0)     (3.0)     (.2)      (.2)     (1.9)     (.8)
  Foreign exchange translation......................      --        --       --       --        .3       --
  Other.............................................      --        .3       --       --       (.5)    (4.6)
                                                                                            ------    -----
                                                      ------    ------    -----     ----
  Fair value of plan assets at December 31..........  $132.2    $120.4    $  --     $ --    $ 41.0    $33.0
                                                                                            ======    =====
                                                      ======    ======    =====     ====
Funded Status of the Plan
  Plan assets less than benefit obligation..........  $ 23.1    $  4.8    $ 9.1     $8.1    $  6.5    $11.5
  Unamortized transition obligation.................    (.5)      (.8)       --       --        --       --
  Unamortized prior service cost....................      .1        .1       --       --        --       --
  Unamortized net gains (losses)....................    25.8      32.5      1.2      1.6        .9     (4.8)
  Other.............................................      --        .6       --       --        --       --
                                                                                            ------    -----
                                                      ------    ------    -----     ----
  Net accrued liabilities...........................  $ 48.5    $ 37.2    $10.3     $9.7    $  7.4    $ 6.7
                                                                                            ======    =====
                                                      ======    ======    =====     ====
Weighted-average Assumptions as of December 31
  Discount rate.....................................    6.25%     6.75%    6.50%   7.00%     5.5%-    6.5%-
                                                                                              7.5%     7.5%
  Expected return on assets.........................     9.0%      9.0%     N/A      N/A    6.25%-    6.5%-
                                                                                              8.5%     8.5%
  Average rate of increase in compensation..........     5.5%      5.5%     N/A      N/A     3.0%-    3.0%-
                                                                                              6.5%     6.5%
</TABLE>
 
Assumptions used for the non-U.S. plans vary by country and are made in
accordance with local conditions, but do not vary materially from those used in
the U.S. plan. Plan assets consist principally of investments in stocks,
government bonds and other fixed income securities.
 
                                       43
<PAGE>   45
                     THE HERTZ CORPORATION AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
<TABLE>
<CAPTION>
                                                                Years ended December 31,
                                     ------------------------------------------------------------------------------
                                                        Pension Benefits                      Other Benefits (U.S.)
                                     ------------------------------------------------------   ---------------------
                                           1998               1997               1996         1998    1997    1996
                                     ----------------   ----------------   ----------------   -----   -----   -----
                                     U.S.    Non-U.S.   U.S.    Non-U.S.   U.S.    Non-U.S.
                                     -----   --------   -----   --------   -----   --------
<S>                                  <C>     <C>        <C>     <C>        <C>     <C>        <C>     <C>     <C>
Components of net periodic benefit
  cost:
  Service cost.....................  $11.5    $ 2.9     $ 8.0    $ 2.1     $ 8.0    $ 4.0     $ .3     $.3    $ .3
  Interest cost....................    8.6      3.1       7.6      3.1       7.0      2.3       .5      .5      .5
  Expected return on plan assets...   (8.2)    (2.8)     (7.2)    (2.4)     (6.6)    (1.9)      --      --      --
  Amortization of transition.......     .3       --        .3       --        .5       --       --      --      --
  Amortization of amendments.......     --       --        --       --        .1       --       --      --      --
  Amortization of gains/(losses)
    and
    other..........................     .3      (.1)       .2       --        .2       --      (.1)    (.1)     --
                                     -----    -----     -----    -----     -----    -----     ----     ---    ----
    Net pension/postretirement       $12.5    $ 3.1     $ 8.9    $ 2.8     $ 9.2    $ 4.4     $ .7     $.7    $ .8
      expense......................
                                     =====    =====     =====    =====     =====    =====     ====     ===    ====
Discount rate for expense..........   6.75%   6.5%-      7.25%   7.0%-       7.0%   7.0%-      7.0%    7.5%   7.25%
                                               7.5%               7.5%               8.5%
Assumed long-term rate of return on    9.0%   6.5%-       9.0%   7.0%-       9.0%   7.0%-       --      --      --
  assets...........................            8.5%               8.5%               8.5%
Initial health care cost trend          --       --        --       --        --       --      7.0%    7.2%    7.5%
  rate.............................
Ultimate health care cost trend         --       --        --       --        --       --      6.4%    6.6%    6.7%
  rate.............................
Number of years to ultimate             --       --        --       --        --       --        4       5       6
  trend rate.......................
</TABLE>
 
Changing the assumed health care cost trend rates by one percentage point is
estimated to have the following effects in whole dollars:
 
<TABLE>
<CAPTION>
                                                         One Percentage    One Percentage
                                                         Point Increase    Point Decrease
                                                         --------------    --------------
<S>                                                      <C>               <C>
Effect on total of service and interest cost
  components...........................................     $ 65,000          $ 57,800
Effect on postretirement benefit obligation............     $553,700          $498,800
</TABLE>
 
The estimated cost for postretirement health care and life insurance benefits is
accrued on an actuarially determined basis.
 
The provisions charged to income for the years ended December 31, 1998, 1997 and
1996 for all other pension plans were approximately (in millions) $8.1, $7.7 and
$6.7, respectively.
 
The provisions charged to income for the years ended December 31, 1998, 1997 and
1996 for the Hertz Income Savings Plan were approximately (in millions) $5.1,
$4.2 and $3.8, respectively.
 
NOTE 8 -- STOCK-BASED COMPENSATION
The Company sponsors a stock-based incentive plan (the "Plan") covering certain
officers and other executives of the Company. The Plan is administered by the
Compensation Committee (the "Committee") appointed by the Board of Directors.
The Company adopted the Plan effective as of April 25, 1997. Awards granted
under the plan are based on shares of Class A Common Stock. The Plan provides
for the grant of incentive and nonqualified stock options, stock appreciation
rights, restricted stock, performance shares and performance units ("Awards").
 
                                       44
<PAGE>   46
                     THE HERTZ CORPORATION AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
Officers and certain key salaried employees of the Company with potential to
contribute to the future success of the Company or its subsidiaries are eligible
to receive Awards under the Plan. Each option granted shall expire at such time
the Committee shall determine at the time of grant; provided, that no option
shall be exercisable later than the tenth anniversary date of its grant.
 
The total number of shares of Class A Common Stock that may be subject to Awards
under the Plan is 8,120,026 shares. The Awards granted vest over various
anniversaries of the date of grant with all Awards vesting by the fifth
anniversary of the date of grant. At December 31, 1998, 5,299,810 shares were
available for award under the Plan.
 
In 1998 and 1997, as part of the Offering, the Company granted awards of 30,000
shares and 701,025 shares of restricted stock, respectively. As of December 31,
1998 and 1997, 89,795 shares and 59,865 shares of restricted stock had been
forfeited. Upon issuance of the restricted shares, the unamortized value of
restricted stock is charged to stockholders' equity and is amortized as
compensation expense ratably over the restriction periods. Total compensation
cost charged against income related to restricted stock awards was $4.4 million
and $3.6 million in 1998 and 1997, respectively.
 
The Company has elected to follow Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees " ("APB 25"). Under APB 25, no
compensation expense is recognized for the Company's employee stock options
because the exercise price of the options equals the market price of the
underlying stock on the date of grant.
 
The following pro forma information regarding net income and net income per
share is required when APB 25 accounting is elected, and was determined as if
the Company had accounted for its employee stock options under the fair value
method of SFAS No. 123, "Accounting for Stock-Based Compensation." 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 1998 and 1997: risk-free interest rate of 5.56% and 6.75%,
respectively; volatility factors of 30% and 22%, respectively; dividend yields
of .41% and .83%, respectively, and an average expected life of the options of
four years for 1998 and 1997. For purposes of pro forma disclosures, the
estimated fair values of the options are amortized to expense over the option's
vesting periods.
 
Had the compensation cost of the Company's stock-based compensation plans been
determined based on the fair value methods of SFAS No. 123, the Company's net
income and earnings per share would have been reduced to the pro forma amounts
indicated below:
 
<TABLE>
<CAPTION>
                                                       1998                       1997
                                             ------------------------   ------------------------
                                             As Reported   Pro Forma*   As Reported   Pro Forma*
                                             -----------   ----------   -----------   ----------
<S>                                          <C>           <C>          <C>           <C>
Net income (in millions)..................     $277.0        $273.3       $201.6        $200.5
Earnings per share
  Basic...................................     $ 2.56        $ 2.53       $ 1.86        $ 1.85
  Diluted.................................     $ 2.55        $ 2.52       $ 1.86        $ 1.85
</TABLE>
 
* The pro forma effect on net income and earnings per share for 1998 and 1997 is
not representative of the pro forma effect in future years since compensation
cost is allocated on a straight-line basis over the vesting periods of the
grants, which extend beyond the reported years. Additional awards in future
years are anticipated.
 
                                       45
<PAGE>   47
                     THE HERTZ CORPORATION AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
A summary of option transactions is presented below:
 
<TABLE>
<CAPTION>
                                                            1998                          1997
                                                 ---------------------------   --------------------------
                                                                Weighted                      Weighted
                                                                 Average                      Average
                                                  Shares     Exercise Price     Shares     Exercise Price
                                                 ---------   ---------------   ---------   --------------
<S>                                              <C>         <C>               <C>         <C>
Outstanding at January 1......................   1,267,610       $24.00               --       --
Granted.......................................   1,058,400   $33.88 - $50.00   1,423,470     $24.00
Expired or canceled...........................    (128,550)  $24.00 - $48.68    (155,860)    $24.00
Exercised.....................................    (130,959)      $24.00               --       --
                                                 ---------                     ---------
Outstanding at December 31....................   2,066,501   $24.00 - $50.00   1,267,610     $24.00
                                                 =========                     =========
Options exercisable at year-end...............     322,842       $24.00               --       --
Weighted-average fair value of options granted
  during year.................................                   $15.16                      $6.47
</TABLE>
 
The following table summarizes information about stock options outstanding at
December 31, 1998:
 
<TABLE>
<CAPTION>
                                         Options Outstanding at                   Options Exercisable at
                                            December 31, 1998                        December 31, 1998
                              ---------------------------------------------      -------------------------
                                                 Weighted          Weighted                       Weighted
                                                 Average           Average        Number of       Average
                              Number of         Remaining          Exercise        Shares         Exercise
Range of Exercise Prices       Shares        Contractual Life       Price        Exercisable       Price
------------------------      ---------      ----------------      --------      -----------      --------
<S>                           <C>            <C>                   <C>           <C>              <C>
$24.00......................  1,048,901            8.3              $24.00         322,842         $24.00
$33.88 - $50.00.............  1,017,600            9.3              $48.32              --          --
</TABLE>
 
NOTE 9 -- REVENUE EARNING EQUIPMENT
Revenue earning equipment is used in the rental of cars and industrial and
construction equipment and the leasing of cars under closed-end leases where the
disposition of the cars upon termination of the lease is for the account of
Hertz. Revenue is recorded as earned under the terms of the rental or leasing
contract. Revenue on open contracts is accrued to the balance sheet date based
on the terms in the contracts. Expenses are recorded as incurred. Over the three
years ended December 31, 1998, on a weighted-average basis, approximately 64% of
the cars acquired by the Company for its U.S. rental car fleet, and
approximately 23% of the cars acquired by the Company for its international
fleet, were manufactured by Ford. During 1998, approximately 63% of the cars
acquired by the Company domestically were manufactured by Ford. The percentage
of Ford cars acquired by the Company for its U.S. rental car fleet is expected
to remain at these or higher levels in the future. In 1998, approximately 26% of
the cars acquired by the Company for its international fleet were manufactured
by Ford, which represented the largest percentage of any automobile manufacturer
in that year.
 
Under operating leases, aggregate minimum future rentals for cars leased at
December 31, 1998 are receivable approximately as follows (in millions): $28 in
1999, $15 in 2000, $6 in 2001 and $1 in 2002. Cars under lease at December 31,
1998, which are owned by Hertz, amounted to $90.6 million, net of accumulated
depreciation of $27.2 million.
 
The average holding periods of cars and other revenue earning equipment are as
follows: cars used in the car rental business, five to 12 months; cars used in
the car leasing business, 35 months; and equipment used in the industrial and
construction rental business, 24 to 60 months. At December 31, 1998, the average
ages of owned cars and other revenue earning equipment are as follows: cars used
in the car rental business, six months; cars used in the car leasing business,
19 months; and equipment used in the industrial and construction rental
business, 22 months. At December 31, 1998, the Company was subject to residual
risk with respect to 25% of all cars in its worldwide car rental and leasing
operations and 100% of the equipment in the industrial and construction rental
business.
 
                                       46
<PAGE>   48
                     THE HERTZ CORPORATION AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
Depreciation of revenue earning equipment includes the following (in thousands
of dollars):
 
<TABLE>
<CAPTION>
                                                                 Years ended December 31,
                                                            ----------------------------------
                                                               1998         1997        1996
                                                            ----------    --------    --------
<S>                                                         <C>           <C>         <C>
Depreciation of revenue earning equipment.................  $1,081,369    $968,923    $904,504
Adjustment of depreciation upon disposal of the
  equipment...............................................     (17,856)     (3,251)    (23,221)
Rents paid for vehicles leased............................      14,496      13,888      11,395
                                                            ----------    --------    --------
        Total.............................................  $1,078,009    $979,560    $892,678
                                                            ==========    ========    ========
</TABLE>
 
Effective January 1, 1997, certain lives being used to compute the provision for
depreciation of revenue earning equipment used in the Company's industrial and
construction equipment rental business were increased to reflect changes in the
estimated residual values to be realized when the equipment is sold. As a result
of this change, depreciation of revenue earning equipment for the year 1997
decreased $10.4 million.
 
The adjustment of depreciation upon disposal of revenue earning equipment for
the years ended December 31, 1998, 1997 and 1996 included (in millions) net
gains of $18.3, $13.8 and $20.7, respectively, on the sale of industrial and
construction equipment, and net losses of $.5, $10.5 and net gains of $2.5,
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. Ford has agreed to supply to the Company and
the Company has agreed to purchase from Ford, for each car model year during the
term of the agreement (i.e., the 1998 model year through the 2007 model year),
(a) the lesser of 150,000 cars or 55% of the Company's fleet requirements for
its car rental business conducted in the United States, (b) 35% of the Company's
fleet requirements for its car rental business conducted in Europe; and (c) 55%
of the Company's fleet requirements for its car rental business conducted other
than in the United States and Europe. For each model year, at least 50% of the
cars supplied by Ford are required to be non-risk cars. The Car Supply Agreement
also provides that, for each model year, Ford must strive to offer car fleet
programs to the Company on terms and conditions that are competitive with terms
and conditions for the supply of cars then being offered by other automobile
manufacturers to the Company and other daily car rental companies. In addition,
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, excluding franchised Ford vehicle dealers who rent cars.
 
As of December 31, 1998 and 1997, Ford owed the Company and its subsidiaries
$430.2 million and $423.4 million, respectively, in connection with various car
repurchase and warranty programs. As of December 31, 1998 and 1997, the Company
and its subsidiaries owed Ford $9.7 million and $14.2 million, respectively
(which amounts are included in Accounts Payable in the consolidated balance
sheet) in connection with cars purchased. These transactions were made and are
being paid in the ordinary course of business.
 
During the year ended December 31, 1998, the Company purchased Ford cars at a
cost of approximately $3.6 billion, and sold cars to Ford or its affiliates
under various repurchase programs for approximately $2.1 billion.
 
                                       47
<PAGE>   49
                     THE HERTZ CORPORATION AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
NOTE 10 -- TAXES ON INCOME
The provision for taxes on income consists of the following (in thousands of
dollars):
 
<TABLE>
<CAPTION>
                                                                 Years ended December 31,
                                                             --------------------------------
                                                               1998        1997        1996
                                                             --------    --------    --------
<S>                                                          <C>         <C>         <C>
Current:
  Federal..................................................  $113,027    $ 56,629    $ 31,360
  Foreign..................................................    28,389      22,203      18,832
  State and local..........................................    21,467      13,620       8,758
                                                             --------    --------    --------
    Total current..........................................   162,883      92,452      58,950
                                                             --------    --------    --------
Deferred:
  Federal..................................................    22,300      42,130      23,772
  Foreign..................................................    (2,000)      1,970       6,228
  State and local..........................................     5,200       5,100       9,000
                                                             --------    --------    --------
    Total deferred.........................................    25,500      49,200      39,000
                                                             --------    --------    --------
        Total provision....................................  $188,383    $141,652    $ 97,950
                                                             ========    ========    ========
</TABLE>
 
The principal items in the deferred tax provision (benefit) are as follows (in
thousands of dollars):
 
<TABLE>
<S>                                                          <C>         <C>         <C>
Difference between tax and book depreciation...............  $ 57,777    $ 17,704    $ 64,176
Accrued and prepaid expense deducted for tax purposes when
  paid or incurred.........................................   (28,801)     (2,683)    (39,427)
Tax operating loss (carryforwards) utilized................    (2,599)      2,763      (7,217)
Federal alternative minimum tax credit (carryforwards)
  utilized.................................................      (877)     31,416      10,217
Foreign tax credit utilized................................        --          --      11,251
                                                             --------    --------    --------
        Total deferred provision...........................  $ 25,500    $ 49,200    $ 39,000
                                                             ========    ========    ========
</TABLE>
 
The principal items in the deferred tax liability at December 31, 1998 and 1997
are as follows (in thousands of dollars):
 
<TABLE>
<CAPTION>
                                                                1998         1997
                                                              ---------    ---------
<S>                                                           <C>          <C>
Difference between tax and book depreciation................  $ 384,849    $ 327,072
Accrued and prepaid expense deducted for tax purposes when
  paid or incurred..........................................   (180,010)    (151,209)
Tax operating loss carryforwards............................    (12,462)      (9,863)
Federal alternative minimum tax credit carryforwards........       (877)          --
                                                              ---------    ---------
        Total...............................................  $ 191,500    $ 166,000
                                                              =========    =========
</TABLE>
 
The tax operating loss carryforwards at December 31, 1998 of $12.5 million
relate to certain foreign operations and have the following expiration dates (in
millions): $2.2 in 2005 and $10.3 with no expiration date. It is anticipated
that such operations will become profitable in the future and the carryforwards
will be fully utilized.
 
                                       48
<PAGE>   50
                     THE HERTZ CORPORATION AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
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):
 
<TABLE>
<CAPTION>
                                                                 Years ended December 31,
                                                              -------------------------------
                                                                1998        1997       1996
                                                              --------    --------    -------
<S>                                                           <C>         <C>         <C>
Computed tax at statutory rate..............................  $162,887    $120,145    $89,799
State and local income taxes, net of Federal income tax
  benefit...................................................    17,334      12,168     11,543
Tax effect on the amortization of the cost in excess of the
  Company's net assets......................................     6,384       5,770      5,492
Adjustments made to tax accruals in connection with tax
  audit evaluations and the effects of prior years' tax
  sharing arrangements between companies, UAL and RCA.......        --          --    (13,945)
Income 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...................     2,254       3,118      6,390
All other items, net, none of which exceeded 5% of computed
  tax.......................................................      (476)        451     (1,329)
                                                              --------    --------    -------
        Total provision.....................................  $188,383    $141,652    $97,950
                                                              ========    ========    =======
</TABLE>
 
NOTE 11 -- 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):
 
<TABLE>
<CAPTION>
                                                                 Years ended December 31,
                                                             --------------------------------
                                                               1998        1997        1996
                                                             --------    --------    --------
<S>                                                          <C>         <C>         <C>
Rents......................................................  $ 46,974    $ 45,553    $ 47,328
Concession fees:
  Minimum fixed obligations................................   152,302     125,714     123,014
  Additional amounts, based on revenues....................   155,940     140,790     131,904
                                                             --------    --------    --------
        Total..............................................  $355,216    $312,057    $302,246
                                                             ========    ========    ========
</TABLE>
 
As of December 31, 1998, minimum obligations under existing agreements referred
to above are approximately as follows (in thousands of dollars):
 
<TABLE>
<CAPTION>
                                                               Rents     Concessions
                                                              -------    -----------
<S>                                                           <C>        <C>
Years ended December 31,
1999........................................................  $43,550      $88,002
2000........................................................   36,555       61,481
2001........................................................   31,663       52,569
2002........................................................   26,866       41,910
2003........................................................   22,281       14,271
Years after 2003............................................   81,045       39,591
</TABLE>
 
                                       49
<PAGE>   51
                     THE HERTZ CORPORATION AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
In addition to the above, Hertz has various leases on cars and office and
computer equipment under which the following amounts were expensed (in thousands
of dollars):
 
<TABLE>
<CAPTION>
                                                                Years ended December 31,
                                                              -----------------------------
                                                               1998       1997       1996
                                                              -------    -------    -------
<S>                                                           <C>        <C>        <C>
Cars........................................................  $14,496    $13,888    $11,395
Office and computer equipment...............................   17,948     18,618     21,772
                                                              -------    -------    -------
        Total...............................................  $32,444    $32,506    $33,167
                                                              =======    =======    =======
</TABLE>
 
As of December 31, 1998, minimum obligations under existing agreements referred
to above that have a maturity of more than one year are as follows (in
thousands): office and computer equipment 1999, $5,204; 2000, $2,750; 2001,
$936; 2002, $143; 2003, $6; after 2003, $6.
 
NOTE 12 -- SEGMENT INFORMATION
The Company has adopted SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information," effective with the year ended December 31,
1998. 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 and leasing 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, 1998 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 telecommunication services (in millions
of dollars).
 
<TABLE>
<CAPTION>
                                                                Years ended December 31,
                                                              -----------------------------
                                                               1998       1997       1996
                                                              -------    -------    -------
<S>                                                           <C>        <C>        <C>
Revenues
  Car rental................................................  $ 3,573    $ 3,419    $ 3,239
  Industrial and construction equipment rental..............      631        445        392
  Corporate and other.......................................       34         27         37
                                                              -------    -------    -------
    Total...................................................  $ 4,238    $ 3,891    $ 3,668
                                                              =======    =======    =======
Income (loss) before income taxes
  Car rental................................................  $   425    $   312    $   189
  Industrial and construction equipment rental..............       77         72         91
  Corporate and other.......................................      (37)       (41)       (23)
                                                              -------    -------    -------
    Total...................................................  $   465    $   343    $   257
                                                              =======    =======    =======
Depreciation of revenue earning equipment
  Car rental................................................  $   924    $   881    $   815
  Industrial and construction equipment rental..............      154         99         78
  Corporate and other.......................................       --         --         --
                                                              -------    -------    -------
    Total...................................................  $ 1,078    $   980    $   893
                                                              =======    =======    =======
</TABLE>
 
                                       50
<PAGE>   52
                     THE HERTZ CORPORATION AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
<TABLE>
<CAPTION>
                                                                Years ended December 31,
                                                              -----------------------------
                                                               1998       1997       1996
                                                              -------    -------    -------
<S>                                                           <C>        <C>        <C>
Depreciation of property and equipment
  Car rental................................................  $    80    $    73    $    70
  Industrial and construction equipment rental..............       26         13         11
  Corporate and other.......................................        2          2          1
                                                              -------    -------    -------
    Total...................................................  $   108    $    88    $    82
                                                              =======    =======    =======
Amortization of intangibles
  Car rental................................................  $     5    $     3    $     2
  Industrial and construction equipment rental..............        4         --         --
  Corporate and other.......................................       17         17         16
                                                              -------    -------    -------
    Total...................................................  $    26    $    20    $    18
                                                              =======    =======    =======
Operating income (loss) (pre-tax income before interest)
  Car rental................................................  $   656    $   550    $   435
  Industrial and construction equipment rental..............      143        122        134
  Corporate and other.......................................      (27)       (27)       (14)
                                                              -------    -------    -------
    Total...................................................  $   772    $   645    $   555
                                                              =======    =======    =======
Total assets at end of year
  Car rental................................................  $ 6,691    $ 5,888    $ 6,257
  Industrial and construction equipment rental..............    1,883      1,034        870
  Corporate and other.......................................      299        514        522
                                                              -------    -------    -------
    Total...................................................  $ 8,873    $ 7,436    $ 7,649
                                                              =======    =======    =======
Revenue earning equipment, net, at end of year
  Car rental................................................  $ 4,473    $ 4,040    $ 4,318
  Industrial and construction equipment rental..............    1,309        852        718
  Corporate and other.......................................       --         --         --
                                                              -------    -------    -------
    Total...................................................  $ 5,782    $ 4,892    $ 5,036
                                                              =======    =======    =======
Revenue earning equipment and property and equipment
  Car rental
    Expenditures............................................  $ 7,326    $ 7,345    $ 7,995
    Proceeds from sale......................................   (5,809)    (6,539)    (6,371)
                                                              -------    -------    -------
      Net expenditures......................................  $ 1,517    $   806    $ 1,624
                                                              =======    =======    =======
  Industrial and construction equipment rental
    Expenditures............................................  $   625    $   365    $   378
    Proceeds from sale......................................     (123)      (105)      (104)
                                                              -------    -------    -------
      Net expenditures......................................  $   502    $   260    $   274
                                                              =======    =======    =======
</TABLE>
 
                                       51
<PAGE>   53
                     THE HERTZ CORPORATION AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
<TABLE>
<CAPTION>
                                                                Years ended December 31,
                                                              -----------------------------
                                                               1998       1997       1996
                                                              -------    -------    -------
<S>                                                           <C>        <C>        <C>
  Corporate and other
    Expenditures............................................  $     1    $    39    $    11
    Proceeds from sale......................................       --         --        (15)
                                                              -------    -------    -------
      Net expenditures......................................  $     1    $    39    $    (4)
                                                              =======    =======    =======
</TABLE>
 
The Company operates in the United States and in foreign countries. The
operations within major geographic areas are summarized as follows (in millions
of dollars):
 
<TABLE>
<CAPTION>
                                                                Years ended December 31,
                                                              -----------------------------
                                                               1998       1997       1996
                                                              -------    -------    -------
<S>                                                           <C>        <C>        <C>
Revenues
  United States.............................................  $ 3,283    $ 2,993    $ 2,723
  Foreign operations (substantially Europe).................      955        898        945
                                                              -------    -------    -------
    Total...................................................  $ 4,238    $ 3,891    $ 3,668
                                                              =======    =======    =======
Income before income taxes
  United States.............................................  $   377    $   273    $   196
  Foreign operations (substantially Europe).................       88         70         61
                                                              -------    -------    -------
    Total...................................................  $   465    $   343    $   257
                                                              =======    =======    =======
Depreciation of revenue earning equipment
  United States.............................................  $   931    $   857    $   789
  Foreign operations (substantially Europe).................      147        123        104
                                                              -------    -------    -------
    Total...................................................  $ 1,078    $   980    $   893
                                                              =======    =======    =======
Depreciation of property and equipment
  United States.............................................  $    85    $    69    $    63
  Foreign operations (substantially Europe).................       23         19         19
                                                              -------    -------    -------
    Total...................................................  $   108    $    88    $    82
                                                              =======    =======    =======
Amortization of intangibles
  United States.............................................  $    21    $    18    $    17
  Foreign operations (substantially Europe).................        5          2          1
                                                              -------    -------    -------
    Total...................................................  $    26    $    20    $    18
                                                              =======    =======    =======
Operating income (pre-tax income before interest)
  United States.............................................  $   648    $   540    $   451
  Foreign operations (substantially Europe).................      124        105        104
                                                              -------    -------    -------
    Total...................................................  $   772    $   645    $   555
                                                              =======    =======    =======
Total assets at end of year
  United States.............................................  $ 6,916    $ 5,893    $ 5,805
  Foreign operations (substantially Europe).................    1,957      1,543      1,844
                                                              -------    -------    -------
    Total...................................................  $ 8,873    $ 7,436    $ 7,649
                                                              =======    =======    =======
</TABLE>
 
                                       52
<PAGE>   54
                     THE HERTZ CORPORATION AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
<TABLE>
<CAPTION>
                                                                Years ended December 31,
                                                              -----------------------------
                                                               1998       1997       1996
                                                              -------    -------    -------
<S>                                                           <C>        <C>        <C>
Revenue earning equipment, net, at end of year
  United States.............................................  $ 4,749    $ 4,015    $ 3,997
  Foreign operations (substantially Europe).................    1,033        877      1,039
                                                              -------    -------    -------
    Total...................................................  $ 5,782    $ 4,892    $ 5,036
                                                              =======    =======    =======
Revenue earning equipment and property and equipment
  United States
    Expenditures............................................  $ 5,904    $ 5,723    $ 6,011
    Proceeds from sale......................................   (4,192)    (4,640)    (4,360)
                                                              -------    -------    -------
      Net expenditures......................................  $ 1,712    $ 1,083    $ 1,651
                                                              =======    =======    =======
  Foreign operations (substantially Europe)
    Expenditures............................................  $ 2,048    $ 2,026    $ 2,373
    Proceeds from sale......................................   (1,740)    (2,004)    (2,130)
                                                              -------    -------    -------
      Net expenditures......................................  $   308    $    22    $   243
                                                              =======    =======    =======
</TABLE>
 
NOTE 13 -- LITIGATION
The Company is currently a defendant in two purported class actions, as well as
one similar action, that have been brought in two states, in which the
plaintiffs seek unspecified damages and injunctive relief arising out of the
Company's allegedly improper sale of one or more optional insurance products
(liability insurance supplement and personal accident insurance/personal effects
coverage) in connection with vehicle rentals. A common feature of the actions is
a claim that applicable insurance laws were violated in the sale of optional
insurance products because the Company's counter sales representatives were not
licensed insurance salespersons. Details of those actions appear below. Other
similar actions in Texas, Alabama and Wisconsin have been concluded and/or
dismissed with no finding of liability to the Company.
 
On September 2, 1997, Ben C. Martin, Archie Powell, William Johnson,
individually and on behalf of all others similarly situated v. The Hertz
Corporation et al. was commenced in Circuit Court of Mobile County, Alabama. The
defendant Company and other car rental companies removed the action to the
United States District Court for the Southern District of Alabama (Mobile); the
plaintiffs have moved to remand. The action has been stayed pending a ruling by
the United States Court of Appeals for the Eleventh Circuit in an unrelated
action that may provide a precedent bearing on the District Court's jurisdiction
over Martin. Martin purports to be a class action on behalf of all individuals
in the United States who rented from the defendants and paid for optional
insurance products.
 
On October 2, 1997, Shannon Leonard, Theresa Moore and Coley Whetstone, Jr. v.
Enterprise Rent A Car, Hertz et al. was commenced in Circuit Court of Coosa
County, Alabama. The Company and the other defendant car rental companies
removed the action to the United States District Court for the Middle District
of Alabama, Northern Division (Montgomery). As with Martin, Leonard purports to
be a class action on behalf of all persons in the United States who rented from
the defendants and, as part of that rental, purchased optional insurance
products. One cause of action has been dismissed based upon the judge's ruling
that a private right of action does not exist under Alabama law for the alleged
unlicensed sale of insurance. In view of that ruling, the Company intends to
seek dismissal of all remaining causes of action.
 
On June 11, 1998, David Holt, on Behalf of Himself, and the General Public v.
The Hertz Corporation, et al. was commenced in Superior Court of the State of
California, Contra Costa County. At the outset, the Company filed a motion for a
temporary stay, pending action of the California Department of Insurance. In
August 1998, the court granted the motion, and the action was stayed, pending a
report being prepared by the Insurance Producer Licensing
 
                                       53
<PAGE>   55
                     THE HERTZ CORPORATION AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
Working Group of the California Department of Insurance covering, among other
things, car rental company insurance programs. The final report was issued in
February 1999 and is favorable to the Company's position. Accordingly, the stay
has been lifted with the expectation that the Company will file a motion for
summary judgement following limited discovery. Technically not a class action,
Holt is a private attorney general action on behalf of those who have rented
cars from the Company in the State of California.
 
The Company believes it has meritorious defenses in the foregoing actions 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.
 
NOTE 14 -- QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
A summary of the quarterly operating results during 1998 and 1997 were as
follows (in thousands):
 
<TABLE>
<CAPTION>
                                                                                           Earnings
                                          Operating Income      Income                     Per Share
                                          (Pre-tax Income    Before Income     Net      ---------------
                              Revenues    Before Interest)       Taxes        Income    Basic   Diluted
                             ----------   ----------------   -------------   --------   -----   -------
<S>                          <C>          <C>                <C>             <C>        <C>     <C>
1998
  First quarter............  $  898,796       $129,358         $ 60,726      $ 35,407   $ .33   $   .33
  Second quarter...........   1,048,357        200,675          127,291        75,057     .69       .69
  Third quarter............   1,225,145        286,212          200,318       118,678    1.10      1.09
  Fourth quarter...........   1,066,035        155,421           77,057        47,867     .44       .44
                             ----------       --------         --------      --------   -----   -------
    Total Year.............  $4,238,333       $771,666         $465,392      $277,009   $2.56   $  2.55
                             ==========       ========         ========      ========   =====   =======
1997
  First quarter............  $  878,352       $107,222         $ 33,911      $ 19,719   $ .18   $   .18
  Second quarter...........     976,316        171,389           93,105        53,901     .50       .50
  Third quarter............   1,102,142        242,525          161,696        93,434     .86       .86
  Fourth quarter...........     934,510        124,346           54,558        34,564     .32       .32
                             ----------       --------         --------      --------   -----   -------
    Total Year.............  $3,891,320       $645,482         $343,270      $201,618   $1.86   $  1.86
                             ==========       ========         ========      ========   =====   =======
</TABLE>
 
NOTE 15 -- FINANCIAL INSTRUMENTS
Financial instruments, which potentially subject the Company to concentrations
of credit risk, consist principally of cash equivalents and trade receivables.
The Company places its cash equivalents with financial institutions and limits
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. All borrowings by foreign
operations are either in the foreign operation's local currency or, if in
non-local currency, on a fully hedged basis to minimize foreign exchange
exposure. As of December 31, 1998, the Company had no significant concentration
of credit risk.
 
CASH AND EQUIVALENTS
Fair value approximates cost indicated on the balance sheet at December 31,
1998, because of the short-term maturity of these instruments.
 
                                       54
<PAGE>   56
                     THE HERTZ CORPORATION AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
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. Carrying value was used as fair value for borrowings with an initial
maturity of 93 days or less. The fair value of all debt at December 31, 1998
approximated $5.89 billion compared to carrying value of $5.76 billion.
 
PUBLIC LIABILITY AND PROPERTY DAMAGE
Provisions for public liability and property damage on self-insured domestic
claims and foreign claims are made by charges to expense based upon evaluations
of estimated ultimate liabilities on reported and unreported claims. These
liabilities are anticipated to be paid between one and five years in the future.
The fair value of these liabilities at December 31, 1998 approximates $280.6
million compared to carrying value of $307.2 million. The fair value was
estimated using a 6.1% interest rate, which represents the long-term borrowing
rate available to the Company at December 31, 1998.
 
FINANCIAL INSTRUMENTS
The Company and its subsidiaries have entered into arrangements to manage
exposure to fluctuations in interest rates. These arrangements consist of
interest-rate swap agreements ("swaps"). The differential paid or received on
these agreements is recognized as an adjustment to interest expense. These
agreements are not entered into for trading purposes. The effect of these
agreements is to make the Company less susceptible to changes in interest rates
by effectively converting certain variable rate debt to fixed rate debt. Because
of the relationship of current market rates to historical fixed rates, the
effect at December 31, 1998 of the swap agreements is to give the Company an
overall effective weighted-average rate on debt of 6.14%, with 48% of debt
effectively subject to variable interest rates, compared to a weighted-average
interest rate on debt of 6.10%, with 50% of debt subject to variable interest
rates when not considering the swap agreements. At December 31, 1998, these
agreements expressed in notional amounts aggregated $85.9 million swaps.
Notional amounts are not reflective of the Company's obligations under these
agreements because the Company is only obligated to pay the net amount of
interest rate differential between the fixed and variable rates specified in the
contracts. The Company's exposure to any credit loss in the event of non-
performance by the counterparties is further mitigated by the fact that all of
these financial instruments are with significant financial institutions that are
rated "A" or better by the major credit rating agencies. At December 31, 1998,
the fair value of all outstanding contracts, which is representative of the
Company's obligations under these contracts, assuming the contracts were
terminated at that date, was approximately a net payable of $1.3 million.
 
The Company and its subsidiaries have entered into arrangements to manage
exposure to fluctuations in foreign exchange rates for certain foreign currency
loans and selected marketing programs. These arrangements consist of foreign
exchange forward contracts and the purchase of foreign exchange options. At
December 31, 1998, the total notional amount of these instruments was $82.5
million and the fair value of all outstanding contracts, which is representative
of the Company's obligations under these contracts, assuming the contracts were
terminated at that date, was not material.
 
                                       55
<PAGE>   57
                     THE HERTZ CORPORATION AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
The fair value of the interest rate and foreign currency instruments were
estimated using market prices provided by financial institutions. The following
is the estimated fair value and notional amount of the outstanding instruments
at December 31, 1998 and their maturity dates (in millions):
 
<TABLE>
<CAPTION>
                                                                           Fair     Notional
                                                              Maturity   Value(a)   Amount(b)
                                                              --------   --------   ---------
<S>                                                           <C>        <C>        <C>
Interest Rate Instruments
                                                                  1999                $48.5
-  Assets...................................................              $  --
-  Liabilities..............................................                 .6
                                                                  2000                 24.5
-  Assets...................................................                 --
-  Liabilities..............................................                 .6
                                                                  2001                 11.1
-  Assets...................................................                 --
-  Liabilities..............................................                 .1
                                                                  2002                  1.7
-  Assets...................................................                 --
-  Liabilities..............................................                 --
                                                                  2003                   .1
-  Assets...................................................                 --
-  Liabilities..............................................                 --
                                                                          -----       -----
    Total...................................................              $(1.3)      $85.9
                                                                          =====       =====
Foreign Currency Instruments(c)
                                                                  1999                $76.3
-  Assets...................................................                 --
-  Liabilities..............................................                 --
                                                                  2000                  6.2
-  Assets...................................................                 --
-  Liabilities..............................................                 --
                                                                          -----       -----
    Total...................................................              $  --       $82.5
                                                                          =====       =====
</TABLE>
 
(a) Fair value is representative of the Company's obligation under the
    contracts, assuming the contracts were terminated at December 31, 1998.
 
(b) The notional amount represents the contract amount and does not represent
    the amount at risk.
 
(c) As of December 31, 1998, no one currency represented the majority of the
    outstanding foreign currency instruments, except for forward contracts to
    sell French Francs, Dutch Guilders and German Marks and buy United States
    Dollars in the amounts (in millions) of $26.9, $20.8 and $18.0,
    respectively, and options to sell British Pounds in the notional amount of
    $10.2 million.
 
                                       56
<PAGE>   58
 
                                  SCHEDULE II
 
                     THE HERTZ CORPORATION AND SUBSIDIARIES
 
                       VALUATION AND QUALIFYING ACCOUNTS
              FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
 
<TABLE>
<CAPTION>
                                                 Additions           Deductions
                                  Balance at     ----------    -----------------------
                                 Beginning of    Charged to    Translation                Balance at
                                     Year          Income      Adjustments     Other      End of Year
                                 ------------    ----------    -----------    --------    -----------
                                                         Dollars in thousands
<S>                              <C>             <C>           <C>            <C>         <C>
1998
  Allowance for doubtful
    accounts...................    $ 13,927       $  5,051        $(373)      $  3,311(a)  $ 16,040
                                   ========       ========        =====       ========     ========
  Public liability and property
    damage.....................    $310,475       $114,373        $ 531       $117,098(b)  $307,219
                                   ========       ========        =====       ========     ========
1997
  Allowance for doubtful
    account....................    $ 12,268       $  9,623        $ 978       $  6,986(a)  $ 13,927
                                   ========       ========        =====       ========     ========
  Public liability and property
    damage.....................    $321,118       $122,540        $ 376       $132,807(b)  $310,475
                                   ========       ========        =====       ========     ========
1996
  Allowance for doubtful
    accounts...................    $  7,985       $  9,912        $  59       $  5,570(a)  $ 12,268
                                   ========       ========        =====       ========     ========
  Public liability and property
    damage.....................    $311,669       $133,417        $  40       $123,928(b)  $321,118
                                   ========       ========        =====       ========     ========
</TABLE>
 
---------------
(a) Amounts written off, net of recoveries.
 
(b) Payments of claims and expenses.
 
                                       57
<PAGE>   59
 
ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
         FINANCIAL DISCLOSURE.
None.
 
                                    PART III
 
ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information called for by Item 10 is incorporated by reference from the
information under the caption "Election of Directors" and "Executive Officers
and Compensation" in the Company's Proxy Statement for its 1999 annual meeting
of stockholders.
 
For information concerning the Executive Officers of the Company, see "Executive
Officers of the Registrant" under Part I of this report.
 
ITEM 11.  EXECUTIVE COMPENSATION.
The information called for by Item 11 is incorporated by reference from the
information under the caption "Executive Officers and Compensation" in the
Company's Proxy Statement for its 1999 annual meeting of stockholders.
 
ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information called for by Item 12 is incorporated by reference from the
information under the caption "Security Ownership" in the Company's Proxy
Statement for its 1999 annual meeting of stockholders.
 
ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information called for by Item 13 is incorporated by reference from the
information under the caption "Certain Relationships and Related Transactions"
in the Company's Proxy Statement for its 1999 annual meeting of stockholders.
 
                                    PART IV
 
ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
 
                                                                            Page
                                                                            ----
(a) 1.  Financial Statements:
     The Hertz Corporation and Subsidiaries --
       Report of Independent Public Accountants.........................      28
       Consolidated Balance Sheet at December 31, 1998 and 1997.........      29
       Consolidated Statement of Income for the years ended 
         December 31, 1998, 1997 and 1996...............................      30
       Consolidated Statement of Stockholders' Equity for the years ended
         December 31, 1998, 1997 and 1996...............................      31
       Consolidated Statement of Cash Flows for the years ended
         December 31, 1998, 1997 and 1996................................  32-33
       Notes to Consolidated Financial Statements........................  34-56
 
    2.  Financial Statement Schedules:
        The Hertz Corporation and Subsidiaries --
        Schedule II -- Valuation and qualifying accounts for the years
         ended December 31, 1998, 1997 and 1996.........................      57
 
    3. Exhibits:
       (3) Articles of Incorporation and By-Laws
           (a) Restated Certificate of Incorporation of the Company.*
           (b) By-Laws of the Company adopted by its Board of Directors on April
               22, 1997.*
       (4) Instruments defining the rights of security holders, including
            indentures
 
                                       58
<PAGE>   60
 
            (a) At December 31, 1998, 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.*
            (d) The Hertz Corporation Benefit Equalization Plan.*
            (e) The Hertz Corporation Supplemental Retirement and Savings Plan,
                as amended.*
            (f)  The Hertz Corporation Executive Incentive Compensation Plan.*
            (g) The Hertz Corporation Long-Term Incentive Plan.*
            (h) Form of The Hertz Corporation Special Supplemental Executive
                Pension Benefit for Frank A. Olson and William Sider.*
            (i) Employment Agreement between the Company and Frank A. Olson.*
            (j) Employment Agreement between the Company and Craig R. Koch.*
            (k) Employment Agreement between the Company and Brian J. Kennedy.*
            (l) Employment Agreement between the Company and Joseph R. Nothwang
                (filed as Exhibit (10)(n) to the Company's Annual Report on 
                Form 10-K for the year ended December 31, 1997).
            (m) Employment Agreement between the Company and Gerald A. Plescia
                (filed as Exhibit (10)(o) to the Company's Annual Report on 
                Form 10-K for the year ended December 31, 1997).
            (n) Employment Agreement between the Company and Paul J. Siracusa
                (filed as Exhibit (10)(p) to the Company's Annual Report on
                Form 10-K for the year ended December 31, 1997).
            (o) The Hertz Corporation Supplemental Executive Retirement Plan.
       (12) Computation of Consolidated Ratio of Earnings to Fixed Charges for
            each of the five years in the period ended December 31, 1998
       (21) Subsidiaries of the Company as of December 31, 1998
       (23) Consent of PricewaterhouseCoopers LLP
       (27) Consolidated Financial Data Schedule for the year ended December 31,
            1998
---------------
* Incorporated herein by reference from the Company's Registration Statement No.
  333-22517 on Form S-1.
 
(b) Reports on Form 8-K.
 
The Company filed a Form 8-K dated October 14, 1998, reporting the issuance of a
press release with respect to its third quarter 1998 earnings.
 
The Company filed a Form 8-K dated October 29, 1998, reporting the issuance of a
press release with respect to its declaration of a quarterly dividend.
 
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.
 
                                       59
<PAGE>   61
 
                                   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. SIRACUSA
                                              ----------------------------------
                                              Paul J. Siracusa
                                              Executive Vice President and
                                              Chief Financial Officer
 
March 19, 1999
 
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.
 
<TABLE>
<C>                                                    <S>
 
                 /s/ FRANK A. OLSON                    Chairman of the Board, Chief Executive Officer
-----------------------------------------------------    and Director (Principal Executive Officer)
                   Frank A. Olson
 
                  /s/ CRAIG R. KOCH                    President, Chief Operating Officer and Director
-----------------------------------------------------
                    Craig R. Koch
 
                /s/ LOUIS C. BURNETT                   Director
-----------------------------------------------------
                  Louis C. Burnett
 
                 /s/ JOHN M. DEVINE                    Director
-----------------------------------------------------
                   John M. Devine
 
               /s/ MICHAEL T. MONAHAN                  Director
-----------------------------------------------------
                 Michael T. Monahan
 
                /s/ PETER J. PESTILLO                  Director
-----------------------------------------------------
                  Peter J. Pestillo
 
                /s/ JOHN M. RINTAMAKI                  Director
-----------------------------------------------------
                  John M. Rintamaki
 
                /s/ JOHN M. THOMPSON                   Director
-----------------------------------------------------
                  John M. Thompson
 
                /s/ JOSEPH A. WALKER                   Director
-----------------------------------------------------
                  Joseph A. Walker
 
                /s/ PAUL J. SIRACUSA                   Executive Vice President and Chief Financial
-----------------------------------------------------    Officer
                  Paul J. Siracusa                       (Principal Financial Officer)
 
                 /s/ RICHARD J. FOTI                   Staff Vice President and Controller
-----------------------------------------------------    (Principal Accounting Officer)
                   Richard J. Foti
</TABLE>
 
                                       60
<PAGE>   62
 
                                 EXHIBIT INDEX
 
<TABLE>
<S>   <C>                                                           <C>
(10)  Material Contracts
     (o) The Hertz Corporation Supplemental Executive Retirement
         Plan.
(12)  Computation of Consolidated Ratio of Earnings to Fixed
      Charges for each of the five years in the period ended
      December 31, 1998.
(21)  Subsidiaries of the Company as of December 31, 1998.
(23)  Consent of PricewaterhouseCoopers LLP.
(27)  Consolidated Financial Data Schedule for the year ended
      December 31, 1998.
</TABLE>