##### Table of Contents



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, 2001, or

|      |  |                                                         
|----- |  | --------------------------------------------------------
|[   ] |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
|     
|     
|     
|     
|      |  | SECURITIES EXCHANGE ACT OF 1934                         

Commission File Number 1-7541

THE HERTZ CORPORATION
(Exact Name of Registrant as Specified in its Charter)

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

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

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

|                                               |  |                        
|---------------------------------------------- |  | -----------------------
|                                               |  | Name of Each Exchange  
|                                              
|                                              
|                                              
|                                              
|Title of Each Class                            |  | On Which Registered    
|                                              
|                                              
|                                              
|                                              
|7% Junior Subordinated Notes due July 15, 2003 |  | New York Stock Exchange

Securities Registered Pursuant to Section 12(g) of the Act:None

The Registrant meets the conditions set forth in General Instruction I(1)(a)
and (b) of Form 10-K and is therefore filing this Form with the reduced
disclosure format as permitted.

Indicate by check mark whether the Registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [   ]

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]

State the aggregate market value of the voting and non-voting common stock held
by non-affiliates of the Registrant: None (As of March 25, 2002, all of the
voting stock of the Registrant is owned by an affiliate, Ford FSG, Inc.).

Indicate the number of shares outstanding of each of the Registrants classes
of common stock, as of March 25, 2002: Common Stock, $0.01 par value per share
 100 shares.

Documents Incorporated By ReferenceNone





---

TABLE OF CONTENTS



|                                      |                                                                                                |  |  |  |  |  |  | 
|------------------------------------- | ---------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|PART I                               
|                                      | ITEM 1. Business.                                                                             
|                                      | ITEM 2. Properties.                                                                           
|                                      | ITEM 3. Legal Proceedings.                                                                    
|                                      | ITEM 4. Submission Of Matters To A Vote Of Security Holders.                                  
|PART II                              
|                                      | ITEM 5. Market For Registrants Common Equity and Related Stockholder Matters.                
|                                      | ITEM 6. Selected Financial Data.                                                              
|                                      | ITEM 7. Managements Discussion and Analysis of Financial Condition and Results of Operations.
|                                      | ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk.                          
|                                      | ITEM 8. Financial Statements and Supplementary Data.                                          
|                                      | ITEM 9. Changes In and Disagreements With Accountants on Accounting and Financial Disclosure. 
|PART III                             
|                                      | ITEM 10. Directors and Executive Officers of the Registrant.                                  
|                                      | ITEM 11. Executive Compensation.                                                              
|                                      | ITEM 12. Security Ownership of Certain Beneficial Owners and Management.                      
|                                      | ITEM 13. Certain Relationships and Related Transactions.                                      
|PART IV                              
|                                      | ITEM 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.                     
|SIGNATURES                           
|EXHIBIT INDEX                        
|COMPUTATION OF CONSOLIDATED RATIO    
|CONSENT OF PRICEWATERHOUSECOOPERS LLP



---



##### Table of Contents






PART I




ITEM 1. Business.

General

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

On March 9, 2001, Ford FSG, Inc. (FSG), an indirect wholly owned subsidiary
of Ford that owned an approximate 81.5% economic interest in the Company,
completed its acquisition of all of the Companys outstanding Class A Common
Stock that FSG did not already own for $35.50 per share, or approximately $735
million. The acquisition was accomplished through a cash tender offer followed
by a merger of a wholly owned subsidiary of FSG with and into the Company, with
the Company surviving the merger (the Merger). After the Merger, all
outstanding shares of Class A Common Stock of the Company were owned by FSG,
and all shares of Class A Common Stock of the Company previously held by Hertz
as treasury stock, along with all shares of Class B Common Stock of the Company
owned by a wholly owned subsidiary of FSG (the Class B Common Stock), were
cancelled. The Merger had no effect on the outstanding obligations (including
debt obligations, leases and guarantees) of Hertz.

As a result of FSGs acquisition, the Companys Class A Common Stock was no
longer traded on the New York Stock Exchange. However, because certain of the
Companys debt securities were sold through public offerings, the Company will
continue to file periodic reports under the Securities Exchange Act of 1934.

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

The Company and its affiliates, associates and independent licensees operate
what the Company believes is the largest worldwide car rental business based
upon revenues and one of the largest industrial and construction equipment
rental businesses in North America based upon revenues. The Companys Hertz
brand name is recognized worldwide as a leader in quality rental and leasing
services and products. The Company, together with its affiliates, associates
and independent licensees, currently rents and leases cars, rents industrial
and construction equipment and operates its other businesses from approximately
7,000 locations throughout the United States and in over 140 foreign countries
and jurisdictions. For the year ended December 31, 2001, the Company generated
revenues, income before income taxes and net income of $4.9 billion, $2.7
million and $23.3 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.

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. Prior to December 1987, when Ford first acquired an
ownership interest in the Company, the Company had been a subsidiary of UAL
Corporation (formerly Allegis Corporation) (UAL), which had acquired the
Companys outstanding capital stock from RCA Corporation (RCA) in 1985. See
Note 1 to the Notes to the Companys consolidated financial statements included
in this Report.

The Companys principal executive offices are located at 225 Brae Boulevard,
Park Ridge, New Jersey 07656. The Companys telephone number is (201) 307-2000
and its web site 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.

Certain statements contained in this Report under Business and Managements
Discussion and Analysis of Financial Condition and Results of Operations
including, without limitation, those concerning (i) the
Companys outlook, (ii) the Companys expansion
plans for its various businesses, (iii) the Companys liquidity and capital
expenditures, (iv) the terms upon which cars will be acquired and (v) 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 continued control of the Company; and seasonality in the Companys
businesses.

1



---



##### Table of Contents



Car Rental
The Company maintains a substantial network of company-owned car rental
locations both in the United States and in Europe, and what it believes to be
the largest number of on-airport car rental locations in the world, enabling
the Company to provide consistent quality, pricing and service worldwide. The
Company derives approximately 79% of its car rental revenues from on-airport
locations.

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

The Companys worldwide car rental operations and certain other related
activities generated $3.9 billion in revenue and $45 million in income before
income taxes during 2001.

Industrial and Construction Equipment Rental
The Company, through its wholly owned subsidiary, Hertz Equipment Rental
Corporation (HERC), maintains a significant market share in the North
American industrial and construction equipment rental market. HERC rents a
broad range of earthmoving equipment, material handling equipment, aerial and
electrical equipment, air compressors, pumps, small tools, compaction equipment
and construction-related trucks.

During the last several years the Company has expanded its equipment rental
operations in Europe principally through acquisitions. The Company currently
operates what it believes to be the largest equipment rental business in Spain
and the third largest in France based upon revenues.

The Companys worldwide industrial and construction equipment rental operations
generated $1.0 billion in revenue and $9 million in losses before income taxes
during 2001.

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

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, 2001. Corporate and other includes general corporate expenses, as well as
other business activities, such as claim management and telecommunications
services. See Note 10 to the Notes to the Companys consolidated financial
statements included in this Report.

|                                                         |  |                              |       |                  |  |                |       |           |  |   |     |   |  |   |       | 
|-------------------------------------------------------- |  | ---------------------------- | ----- | ---------------- |  | -------------- | ----- | --------- |  | - | --- | - |  | - | ----- | 
|                                                         |  | Year Ended December 31, 2001
|                                                         |  |                             
|                                                         |  |                              |       |                  |  | Industrial and |       |           |  |   |     |   |  |  
|                                                         |  |                              |       |                  |  | Construction   |       | Corporate |  |   |     |  
|                                                         |  | Car Rental                   |       | Equipment Rental |  | and Other      |       | Total    
|                                                         |  |                              |       |                  |  |                |       |          
|                                                         |  | Dollars in millions         
|Revenues                                                 |  | $                            | 3,883 |                  |  | $              | 1,004 |           |  | $ | 29  |   |  | $ | 4,916 | 
|                                                        
|                                                        
|                                                        
|                                                        
|Amortization of intangibles                              |  |                              | 3     |                  |  |                | 5     |           |  |   | 23  |   |  |   | 31    | 
|                                                        
|                                                        
|                                                        
|                                                        
|Operating income (loss) (pre-tax income before
interest) |  |                              | 334   |                  |  |                | 95    |           |  |   | (22 | ) |  |   | 407   | 
|                                                        
|                                                        
|                                                        
|                                                        
|Income (loss) before income taxes                        |  |                              | 45    |                  |  |                | (9    | )         |  |   | (33 | ) |  |   | 3     | 
|                                                        
|                                                        
|                                                        
|                                                        
|Revenue earning equipment, net, at end of year           |  |                              | 5,221 |                  |  |                | 1,631 |           |  |   |    |   |  |   | 6,852 | 

2



---



##### Table of Contents



Set forth below is certain information with respect to the Companys U.S. and
foreign operations for the year ended December 31, 2001 (substantially all of
the Companys foreign operations consist of car rental and industrial and
construction equipment rental operations).

|                                                  |  |                              |       |         |  |       |       |  |  |   |       | 
|------------------------------------------------- |  | ---------------------------- | ----- | ------- |  | ----- | ----- |  |  | - | ----- | 
|                                                  |  | Year Ended December 31, 2001
|                                                  |  |                             
|                                                  |  | U.S.                         |       | Foreign |  | Total
|                                                  |  |                              |       |         |  |      
|                                                  |  | Dollars in millions         
|Revenues                                          |  | $                            | 3,765 |         |  | $     | 1,151 |  |  | $ | 4,916 | 
|                                                 
|                                                 
|                                                 
|                                                 
|Amortization of intangibles                       |  |                              | 26    |         |  |       | 5     |  |  |   | 31    | 
|                                                 
|                                                 
|                                                 
|                                                 
|Operating income (pre-tax income before interest) |  |                              | 306   |         |  |       | 101   |  |  |   | 407   | 
|                                                 
|                                                 
|                                                 
|                                                 
|Income (loss) before income taxes                 |  |                              | (47   | )       |  |       | 50    |  |  |   | 3     | 
|                                                 
|                                                 
|                                                 
|                                                 
|Revenue earning equipment, net, at end of year    |  |                              | 5,586 |         |  |       | 1,266 |  |  |   | 6,852 | 

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 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, the Companys Rent It Here -
Leave It There program, supplemental equipment (child seats and ski racks),
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. At December 31, 2001, the Company
owned 95% of all the cars in the combined Company-owned and licensee fleet.

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

Airport Operations.The Company estimates that airport revenues accounted for
approximately 87% of its car rental revenues in the United States in 2001. The
Company has concession agreements at 349 airports in the United States. These
agreements are entered into with airport authorities, through either
negotiation or a bidding process, for a fixed number of car rental counter
positions. The agreements typically provide for concession payments based upon
a specified percentage of revenue generated at the airport, subject to a
minimum annual fee, and sometimes include fixed rent for terminal counters or
other leased properties and facilities.

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

3



---



##### Table of Contents



International Operations
At December 31, 2001, the Company and its affiliates, associates and licensees,
operated in over 140 foreign countries and jurisdictions. In general,
international operations are conducted similarly to those of the Company in the
United States. Although the Company has found it more efficient to conduct a
greater proportion of its international operations through licensees as
compared to the Companys U.S. operations, it continues to conduct its
operations primarily through Company-owned locations in the major European
markets. The international car rental operations of the Company that generated
the highest volumes of business in 2001 were those conducted in France,
Germany, Italy, the United Kingdom, Canada, Australia, Spain, The Netherlands
and Switzerland. In addition, the Company owns operations in Brazil, Puerto
Rico, St. Thomas (USVI), New Zealand, Belgium and Luxembourg. See Note 4 to
the Notes to the Companys consolidated financial statements included in this
Report.

As in the United States, the Company offers Hertz #1 Club Gold 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.

Car Acquisition
The Company believes it is one of the largest private purchasers of new cars in
the world. Consequently, the acquisition and disposition of cars are important
activities for the Company and have a significant impact on profitability. The
Company acquires, subject to availability, a majority of its cars pursuant to
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 2001, non-risk cars as a percentage of
all cars purchased by the Companys U.S. operations and international
operations were approximately 78% and 72%, respectively.

Over the five years ended December 31, 2001, on a weighted-average basis,
approximately 65% of the cars acquired by the Company for its U.S. car rental
fleet, and approximately 25% of the cars acquired by the Company for its
international fleet, were manufactured by Ford. During 2001, approximately 58%
of the cars acquired by the Company domestically were manufactured by Ford and
approximately 24% 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.

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

Licensees
While the Company believes that its extensive worldwide ownership of its
operations provides an important competitive advantage, the Company has found
it more efficient to operate through licensees in certain markets. The
Companys licensees operate in over 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. (Hertz 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 brand name, management and administrative
assistance, training, the availability of the Companys charge cards, The Hertz
#1 Club 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.

4



---



##### Table of Contents



Car Leasing
On August 31, 2000, the Company transferred substantially all of the net assets
of its leasing operations in Australia, New Zealand and the United Kingdom to
Axus International, Inc., (Axus) a wholly owned subsidiary of Ford Motor
Credit Company for $99.2 million. Effective January 1, 2000, Hertz
International entered into a license agreement and management services
agreement with Axus, a car leasing company, whereby Hertz International has
licensed the Hertz name and provides management services to Axus under a
five-year contract covering select international markets. Axus operates
throughout Europe and in New Zealand and Australia with total revenues in 2001
of approximately $770 million. During 2001, fees earned from these agreements
were approximately $8.7 million.

Industrial and Construction Equipment Rental
HERCs principal business is the rental of industrial and construction
equipment. HERC rents a broad range of equipment; major categories include
earthmoving equipment, material handling equipment, aerial and electrical
equipment, air compressors, pumps, compaction equipment and
construction-related trucks. During the last several years HERC has expanded
its operations, principally through acquisitions. See Note 4 to the Notes to
the Companys consolidated financial statements included in this Report.

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

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

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

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

Other Operations of the Company

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

Telecommunications
Through the fourth quarter of 2001, the Company purchased and resold
telecommunications services through its subsidiary, Hertz Technologies, Inc.
(HTI). HTI benefited from the Companys negotiated rates with its
telecommunications carriers to market telecommunication services throughout the
United States. Over the past year, changes in the telecommunications business
environment have led HTI to leave the telecommunications business as the
Company believes it can no longer offer its customers a clear advantage over
other carriers.

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 $725 million ($450 million
prior to 2001) per occurrence. HCM administers this public liability and
property damage program through a network of eight regional offices throughout
the United States.

5



---



##### Table of Contents



For its international operations, the Company purchases insurance to comply
with local legal requirements. Vehicle liability insurance is purchased from a
wholly owned subsidiary, Probus Insurance Company Europe Limited (Probus), a
direct writer domiciled in Dublin, Ireland. Probus underwrites the Companys
Pan European motor vehicle liability program up to $1 million per occurrence.
Probus reinsures this risk through Hertz International RE Limited, a wholly
owned subsidiary of the Company, operating as a reinsurer in Dublin, Ireland.
Excess coverage for claims that exceed $1 million per occurrence is maintained
with unaffiliated carriers. In foreign operations outside Europe, the Company
is self-insured at various amounts up to $250,000 per occurrence and maintains
excess liability insurance coverage up to $725 million ($450 million prior to
2001) 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, 2001, this liability was estimated at $315.8 million for combined domestic
and foreign operations.

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

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

Competition
The markets in which the Company operates are highly competitive. In any given
location, the Company may encounter competition from national, regional and
local companies. In the United States, the Companys principal competitors in
the 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 Dollar Thrifty Automotive Group, Inc., Alamo
Rent-a-Car, LLC (Alamo) and Budget Group, Inc. National and Alamo are
subsidiaries of ANC Rental Corporation (ANC). ANC and certain of its
subsidiaries in the U.S., including National and Alamo, commenced voluntary
cases under Chapter 11 of the U.S. Bankruptcy Code on November 13, 2001. In
Europe, the Companys principal competitors in the car rental market are Avis
Europe plc, Europcar, Sixt and National Car Rental. 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 is expanding its presence in the suburban local use and insurance
replacement markets 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
businesses in North America based on revenues. HERCs competitors range from
other large national companies, such as United Rentals, Inc. and the Rental
Service Division of Atlas Copco Inc., to many small regional businesses. HERCs
competitive success is, in part, due to its systems and procedures for
monitoring, controlling and developing its branch network, its capacity to
maintain a comprehensive rental fleet and its established national accounts
program.

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

Employees
On December 31, 2001, the Company employed approximately 29,800 persons in its
domestic and foreign operations. Labor contracts covering the terms of
employment of approximately 6,200 employees in the United States are presently
in effect under 152 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
2,100 of these employees will expire during 2002. 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.

6



---



##### Table of Contents



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 material disruption of operations resulting
from lack of fuel availability.

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

The use of automobiles and other vehicles is subject to various governmental
requirements designed to limit environmental damage, including those caused by
emissions and noise. Generally, these requirements are met by the manufacturer,
except in the case of occasional equipment failure requiring repair by the
Company. Measures are 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 400 underground tanks and 1,600 aboveground
tanks in the U.S. to store petroleum products, and the Company believes its
tanks are maintained in material compliance with environmental regulations,
including federal and state financial responsibility requirements for
corrective action and third-party claims due to releases. The Company 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 $1.4 million in 2001 to register, upgrade or
replace tanks requiring such action.

The Company is also incurring and providing for expenses for the cleanup of
contamination from the discharge of petroleum substances at its owned and
leased properties, as well as contamination at other locations at which the
Companys wastes have reportedly been identified. With respect to cleanup
expenditures for the discharge of petroleum substances at the Companys owned
or leased properties, the Company has received reimbursement, in whole or in
part, from certain states that maintain underground storage tank petroleum
cleanup reimbursement funds. Such funds have been established to assist tank
owners in the payment of cleanup costs associated with releases from registered
tanks. The Company expects to continue to receive reimbursement for cleanup
costs incurred due to releases from certain of its tanks. With respect to
off-site locations at which the Companys wastes have reportedly been
identified, the Company has been and continues to be required to contribute to
cleanup costs due to strict joint and several cleanup liability imposed by the
federal Comprehensive Environmental Response, Compensation and Liability Act of
1980 and comparable state superfund statutes. The Company has recovered a
substantial amount of such costs incurred through settlements with its
insurance carriers.

Environmental legislation and regulations and related administrative policies
have changed rapidly in recent years. There is a risk that governmental
environmental requirements, or enforcement thereof, may become more stringent
in the future and that the Company may be subject to legal proceedings brought
by government agencies or private parties with respect to environmental
matters. In addition, with respect to cleanup of contamination, additional
locations at which wastes generated by the Company may have been released or
disposed, and of which the Company is currently unaware, may in the future
become the subject of cleanup for which the Company may be liable, in whole or
part. 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 2,773 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 suburban areas. Most of these premises are leased, except for 180
that are owned. The Company has various concession agreements with governmental
authorities and private companies charged with the operation of airports under
arrangements generally providing for payment of rents and a percentage of
revenues with a guaranteed annual minimum fee. See Note 9 to the Notes to the
Companys consolidated financial statements included in this Report.

7



---



##### Table of Contents



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. The Company
also has an owned reservation center and leased financial center near Dublin,
Ireland, for centralized European reservation operations and accounting
functions. In 2000, the Company opened a leased reservation center in Mobile,
Alabama to supplement the capacity of its Oklahoma City reservation center.




ITEM 3. Legal Proceedings.

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

The Company is currently a defendant in two purported class actions 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, Wisconsin and California have been concluded and/or dismissed
with no finding of liability to the Company.

On October 3, 1997, Shannon Leonard, Theresa Moore and Coley Whetstone, Jr. v.
Enterprise Rent A Car, The Hertz Corporation, 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). Leonardpurports 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.
The Company and the other defendant car rental companies filed a series of
motions which sought dismissal of the various causes of action based upon the
judges initial ruling that a private right of action does not exist under
Alabama law for the alleged unlicensed sale of insurance. A final order of
dismissal was entered in January 2000 and the plaintiffs subsequently filed a
Notice of Appeal to the U.S. Court of Appeals for the Eleventh Circuit in
Atlanta, Georgia. On January 18, 2002, the U.S. Court of Appeals concluded
that District Court should have dismissed the case for lack of subject matter
jurisdiction because the amount in controversy does not exceed $75,000 as
statutorily required. For that reason, the U.S. Court of Appeals vacated the
District Courts judgment and directed that the District Court remand the case
to the state court.

On June 2, 1999, Fred Saffer and Jennifer Nicoletta, on behalf of themselves
and all others similarly situated v. The Hertz Corporation, Enterprise
Rent-A-Car, et al.was commenced in Superior Court of New Jersey, Law Division,
Essex County. The initial complaint claimed that the collection by the Company
of New Jersey general sales tax on certain fueling charges imposed on renters
was not required by law and was an unfair trade practice. The complaint was
later amended to include a claim that the Company sold optional insurance
products without appropriate licensure, similar to the claims advanced in the
other actions described above. The Company moved to dismiss the
insurance-related components of the complaint for failure to state a claim on
which relief could be granted, and that motion was granted. The undismissed
portion of the action was stayed pending the resolution of a sales tax refund
claim that the Company brought administratively. The plaintiff appealed the
foregoing rulings to the Appellate Division of the Superior Court. The
Appellate Division denied the plaintiffs appeal in June 2000. In the tax
refund proceeding, the New Jersey Division of Taxation rendered a Final
Determination in a letter dated February 14, 2001, concluding that the
Companys collection of general sales tax on fueling charges was not erroneous,
illegal or unconstitutional. By an Order, dated April 18, 2001, the Superior
Court granted the Companys Summary Judgment Motion and dismissed all of the
plaintiffs claims. Plaintiff subsequently filed an appeal with the Appellate
Division of the Superior Court. The appeal is pending.

The Company is also a defendant in a private attorney general action which
challenges the Companys practices in offering the optional fuel and service
charge. On January 20, 1998, Peter Schnall, on behalf of himself and all
others similarly situated v. The Hertz Corporationwas commenced in the
Superior Court of California, County of San Francisco. The complaint alleged
violations of the California Business and Professions Code by claiming that the
optional fuel and service charge constitutes an unlawful business practice
and that the prices charged constitute unfair liquidated damages under the
rental agreement. The Company responded by challenging the sufficiency of the
initial complaint and a subsequent amended complaint. The trial court then
entered judgment in the Companys favor in June of 1998. Plaintiff appealed
the trial courts decision to the Court of Appeal of California, First
Appellate District in San Francisco. In an opinion issued in March 2000, the
Court of Appeal sustained in part and reversed in part the trial courts
decision and ordered the matter remanded with respect to plaintiffs challenge
of the manner in which the Company discloses and explains the fuel and service
charge. Following further amendments to the complaint and
discovery taken by the Company and the plaintiff, the parties agreed to mediate
the dispute, and after extensive negotiations, reached a settlement. The
settlement  under which the Company admits no liability and agrees to certain
injunctive relief, to discount coupon relief for qualifying class members and
to the payment of attorneys fees  was preliminarily approved by the Court on
March 20, 2002.

8



---



##### Table of Contents



On February 8, 2000, a patent infringement suit naming the Company and 38 other
companies, including Ford, as defendants was filed in the U.S. District Court
for the Eastern District of Texas by an individual, Allan Konrad, the plaintiff, who holds
three patents allegedly covering intranet/internet use. The plaintiff also owns a
fourth patent application allegedly covering e-commerce. The Company procures
all products and services related to this infringement allegation from
suppliers and believes that it is entitled to be indemnified by these suppliers
for any loss that may result from this litigation. The technology covered in
the plaintiffs patents relates to computer system configuration and a method of
using that configuration. More specifically, a local host (personal
workstation), remote host (server), a network connecting the local host to the
remote host, and various computer service functionalities are claimed to be
covered by these patents. Following a Markmanhearing before a Special Master
to hear evidence, argument and expert testimony offered by the parties, the
Special Master filed a report, which the District Court adopted in its
entirety. Thereafter, the parties agreed to a stipulated judgment of
non-infringement. The plaintiff has appealed from the stipulated judgment to the
U. S. Court of Appeals for the Federal Circuit.

On March 1, 2002, Bowdoin Square, L.L.C. v. Winn-Dixie Montgomery, Inc.,
Wal-Mart Stores East, Inc., The Hertz Corporation, et al.was commenced in the
Circuit Court for Madison County, Alabama. The complaint alleges that the
Company, Wal-Mart Stores East, Inc. and other defendants violated certain
private land use restrictions and intentionally interfered with plaintiffs
contractual relationship with its tenant, Winn-Dixie Montgomery, Inc., when the
Company and Wal-Mart Stores East, Inc. entered into a sublease for a
reservation call center in a former Wal-Mart store located in a shopping center
in Saraland (Mobile County), Alabama. The complaint also alleges that the
Company and other defendants negligently and wantonly injured the value of
plaintiffs interest in the shopping center. The Company has not yet filed a
response to the complaint.

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




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

Omitted.

9



---



##### Table of Contents






PART II




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

All shares of the Companys Common Stock at December 31, 2001 were owned by
Ford FSG, Inc., a wholly owned subsidiary of Ford and, as such, there is no
market for the Companys Common Stock.

The Company paid cash dividends in the aggregate of $21.6 million in 2001 and
$21.5 million in 2000.

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, 2001, approximately $1,229 million of
consolidated stockholders equity was free of such limitations.

10



---



##### Table of Contents






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, 2001, and consolidated balance sheet data
as of December 31, 2001 and 2000 presented below (other than the ratio of
earnings to fixed charges) were derived from the audited consolidated financial
statements of the Company and the related notes thereto included in this
Report. The selected consolidated income statement data for each of the years
in the two-year period ended December 31, 1998, and consolidated balance sheet
data as of December 31, 1999, 1998 and 1997 presented below (other than the
ratio of earnings to fixed charges) were derived from audited consolidated
financial statements of the Company and the related notes thereto not included
in this Report. The financial data presented below and the related notes
thereto should be read in conjunction with the consolidated financial
statements of the Company and the related notes thereto included in this
Report.

|                      |                                            |                                                                         |                |          |                             |         |      |          |         |         |      |          |         |         |   |         |         |         |   |         |         |         | 
|--------------------- | ------------------------------------------ | ----------------------------------------------------------------------- | -------------- | -------- | --------------------------- | ------- | ---- | -------- | ------- | ------- | ---- | -------- | ------- | ------- | - | ------- | ------- | ------- | - | ------- | ------- | ------- | 
|                      |                                            |                                                                         |                |          | Years ended at December 31,
|                      |                                            |                                                                         |                |          |                            
|                      |                                            |                                                                         |                |          | 2001                        |         | 2000 |          | 1999    |         | 1998 |          | 1997   
|                      |                                            |                                                                         |                |          |                             |         |      |          |         |         |      |          |        
|                      |                                            |                                                                         |                |          | Dollars in
millions        
|Income Statement Data |                                            |                                                                         |                |          |                             |         |      |          |         |         |      |          |         |         |   |         |         |         |   |        
|                     
|                     
|                     
|                     
|                      | Revenues                                   |                                                                         |                |          |                             |         |      |          |         |         |      |          |         |         |   |         |         |         |   |         |        
|                     
|                     
|                     
|                     
|                      |                                            | Car rental                                                              |                | $        | 3,823.9                     |         |      | $        | 3,980.6 |         |      | $        | 3,728.5 |         |   | $       | 3,484.8 |         |   | $       | 3,329.9 |        
|                     
|                     
|                     
|                     
|                      |                                            | Industrial and construction equipment rental                            |                |          | 1,003.4                     |         |      |          | 969.6   |         |      |          | 842.9   |         |   |         | 631.3   |         |   |         | 444.5   |        
|                     
|                     
|                     
|                     
|                      |                                            | Other(a)                                                                |                |          | 88.5                        |         |      |          | 123.3   |         |      |          | 144.3   |         |   |         | 122.2   |         |   |         | 116.9   |        
|                      |                                            |                                                                         |                |          |                             |         |      |          |         |         |      |          |         |         |   |         |         |         |   |         |         |        
|                      |                                            |                                                                         | Total revenues |          |                             | 4,915.8 |      |          |         | 5,073.5 |      |          |         | 4,715.7 |   |         |         | 4,238.3 |   |         |         | 3,891.3 | 
|                      |                                            |                                                                         |                |          |                             |         |      |          |         |         |      |          |         |         |   |         |         |         |   |         |         |        
|                      | Expenses(b)                                |                                                                         |                |          |                             |         |      |          |         |         |      |          |         |         |   |         |         |         |   |         |        
|                     
|                     
|                     
|                     
|                      |                                            | Direct operating                                                        |                |          | 2,574.1                     |         |      |          | 2,303.3 |         |      |          | 2,133.5 |         |   |         | 1,958.4 |         |   |         | 1,857.5 |        
|                     
|                     
|                     
|                     
|                      |                                            | Depreciation of revenue earning equipment(c)                            |                |          | 1,462.3                     |         |      |          | 1,323.5 |         |      |          | 1,228.0 |         |   |         | 1,068.4 |         |   |         | 971.2   |        
|                     
|                     
|                     
|                     
|                      |                                            | Selling, general and administrative                                     |                |          | 472.0                       |         |      |          | 451.0   |         |      |          | 452.4   |         |   |         | 439.8   |         |   |         | 417.1   |        
|                     
|                     
|                     
|                     
|                      |                                            | Interest, net of interest income of $9.0,
$13.5, $12.2, $11.5 and $13.8 |                |          | 404.7                       |         |      |          | 414.8   |         |      |          | 341.4   |         |   |         | 306.3   |         |   |         | 302.2   |        
|                      |                                            |                                                                         |                |          |                             |         |      |          |         |         |      |          |         |         |   |         |         |         |   |         |         |        
|                      |                                            |                                                                         | Total expenses |          |                             | 4,913.1 |      |          |         | 4,492.6 |      |          |         | 4,155.3 |   |         |         | 3,772.9 |   |         |         | 3,548.0 | 
|                      |                                            |                                                                         |                |          |                             |         |      |          |         |         |      |          |         |         |   |         |         |         |   |         |         |        
|                      | Income before income taxes                 |                                                                         |                | 2.7      |                             |         |      | 580.9    |         |         |      | 560.4    |         |         |   | 465.4   |         |         |   | 343.3   |        
|                     
|                     
|                     
|                     
|                      | Provision (benefit) for taxes on income(d) |                                                                         |                | (20.6    | )                           |         |      | 222.5    |         |         |      | 224.4    |         |         |   | 188.4   |         |         |   | 141.7   |        
|                      |                                            |                                                                         |                |          |                             |         |      |          |         |         |      |          |         |         |   |         |         |         |   |         |         |        
|                      | Net income                                 |                                                                         | $              | 23.3     |                             |         | $    | 358.4    |         |         | $    | 336.0    |         |         | $ | 277.0   |         |         | $ | 201.6   |        
|                      |                                            |                                                                         |                |          |                             |         |      |          |         |         |      |          |         |         |   |         |         |         |   |         |         |        
|                      | Ratio of earnings to fixed charges(e)      |                                                                         |                | 1.0      |                             |         |      | 2.1      |         |         |      | 2.3      |         |         |   | 2.2     |         |         |   | 1.9     |        
|                      |                                            |                                                                         |                |          |                             |         |      |          |         |         |      |          |         |         |   |         |         |         |   |         |         |        
|Balance Sheet Data    |                                            |                                                                         |                |          |                             |         |      |          |         |         |      |          |         |         |   |         |         |         |   |        
|                     
|                     
|                     
|                     
|                      | Revenue earning equipment, net             |                                                                         |                |          |                             |         |      |          |         |         |      |          |         |         |   |         |         |         |   |         |        
|                     
|                     
|                     
|                     
|                      |                                            | Cars                                                                    |                | $        | 5,220.4                     |         |      | $        | 5,186.2 |         |      | $        | 4,762.3 |         |   | $       | 4,472.5 |         |   | $       | 4,039.8 |        
|                     
|                     
|                     
|                     
|                      |                                            | Other equipment                                                         |                |          | 1,631.3                     |         |      |          | 1,736.3 |         |      |          | 1,501.4 |         |   |         | 1,309.5 |         |   |         | 852.0   |        
|                     
|                     
|                     
|                     
|                      | Total assets                               |                                                                         |                | 10,158.4 |                             |         |      | 10,620.0 |         |         |      | 10,136.7 |         |         |   | 8,872.6 |         |         |   | 7,435.5 |        
|                     
|                     
|                     
|                     
|                      | Total debt                                 |                                                                         |                | 6,314.0  |                             |         |      | 6,676.0  |         |         |      | 6,602.2  |         |         |   | 5,759.8 |         |         |   | 4,715.7 |        
|                     
|                     
|                     
|                     
|                      | Stockholders equity                       |                                                                         |                | 1,984.4  |                             |         |      | 1,984.1  |         |         |      | 1,674.0  |         |         |   | 1,393.8 |         |         |   | 1,136.2 |        



---

|(a) |  | Includes fees from licensees (other than expense reimbursement from
licensees) and revenues from car leasing operations, claim management and
telecommunications services. Certain foreign car leasing operations were
transferred to an affiliated company on August 31, 2000.                                                                                                                                                                                                                                                                                                                                                                                                                                      
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|   
|   
|   
|(b) |  | Certain prior year amounts have been reclassified to conform to the
current year presentation.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   
|   
|   
|   
|(c) |  | For 2001, 2000, 1999, 1998 and 1997, depreciation of revenue earning
equipment includes a net loss of $1.6 million, and net gains of $54.5
million, $42.3 million, $24.0 million and $11.6 million, respectively,
from the disposal of revenue earning equipment. Effective January 1, 2000,
certain estimated useful lives being used to compute the provision for
depreciation of revenue earning equipment used in the industrial and
construction equipment rental business were increased to reflect changes
in the estimated residual values to be realized upon disposal of the
equipment. As a result of this change, depreciation of revenue earning
equipment for the year 2000 decreased by $12.9 million.
|   
|   
|   
|   
|(d) |  | Includes benefits of $30.2 million in 2001 and $3.8 million in 2000 from
certain additional foreign tax credits.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   
|   
|   
|   
|(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.                                                                                                                                                                                                                                                                                                                                                                                                         

11



---



##### Table of Contents






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 operations, including
loss or collision damage waivers, liability insurance and other
products);        
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Industrial and construction equipment rental revenues; and                                                                                               
|
| |  |  | Other revenues (fees from the Companys licensees, revenues from the
Companys car leasing operations, 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); and                                                                                                                                                                                                        
|
| |  |  | Interest expense relating primarily to the funding of the acquisition of revenue earning equipment.                                                                                                                                                                              

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

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

Critical Accounting Policies and Estimates

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

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

Revenue Earning Equipment
The Companys principal assets are Revenue Earning Equipment (REE), which
represent 67% of total assets at December 31, 2001. REE consists of vehicles
utilized in car rental operations and industrial and construction equipment
rented by HERC. At December 31, 2001, 68% of the vehicles in the Companys car
rental fleet were subject to repurchase by automobile manufacturers under
contractual guaranteed repurchase programs, subject to certain manufacturers
car condition and mileage requirements, at a specific price during a specified
time period. These programs limit the Companys residual risk with respect to
vehicles purchased under the programs. For all other vehicles, as well as
equipment acquired by HERC, the Company uses historical experience and monitors
market
conditions to set depreciation rates. When REE is acquired, the Company
estimates the period it will hold the asset. Depreciation is recorded on a
straight-line basis over the estimated holding period, with the objective of
minimizing gain or loss on the disposition of the REE. Upon

12



---



##### Table of Contents



disposal of
the REE, depreciation expense is adjusted for the difference between the net proceeds from the sale and the remaining book value.
As market conditions change, the Company adjusts its depreciation rates
prospectively, over the remaining holding period, to reflect these changes in
market conditions. See Note 7 to the Notes to the Companys consolidated
financial statements included in this Report.

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

Pensions
The Companys employee pension costs and obligations are dependent on the
Companys assumptions used by actuaries in calculating such amounts. These
assumptions include discount rates, salary growth, long-term return on plan
assets, retirement rates, mortality rates and other factors. Actual results
that differ from the Companys assumptions are accumulated and amortized over
future periods and, therefore, generally affect the Companys recognized
expense and recorded obligation in such future periods. While the Company
believes that the assumptions used are appropriate, significant differences in
actual experience or significant changes in assumptions would affect the
Companys pension costs and obligations. See Note 5 to the
Notes to the
Companys consolidated financial statements included in this Report.

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:

|                                        |                                              |  |                        |      |      |  |       |      |   |  |       |      |  
|--------------------------------------- | -------------------------------------------- |  | ---------------------- | ---- | ---- |  | ----- | ---- | - |  | ----- | ---- | -
|                                        |                                              |  | Percentage of Revenues
|                                        |                                              |  |                       
|                                        |                                              |  | Years Ended           
|                                        |                                              |  | December 31,          
|                                        |                                              |  |                       
|                                        |                                              |  | 2001                   |      | 2000 |  | 1999 
|                                        |                                              |  |                        |      |      |  |      
|Revenues:                               |                                              |  |                        |      |      |  |       |      |   |  |       |     
|                                       
|                                       
|                                       
|                                       
|                                        | Car rental                                   |  |                        | 77.8 | %    |  |       | 78.5 | % |  |       | 79.1 | %
|                                       
|                                       
|                                       
|                                       
|                                        | Industrial and construction equipment rental |  |                        | 20.4 |      |  |       | 19.1 |   |  |       | 17.9 |  
|                                       
|                                       
|                                       
|                                       
|                                        | Other                                        |  |                        | 1.8  |      |  |       | 2.4  |   |  |       | 3.0  |  
|                                        |                                              |  |                        |      |      |  |       |      |   |  |       |      |  
|                                        |                                              |  | 100.0                  |      |      |  | 100.0 |      |   |  | 100.0 |     
|                                        |                                              |  |                        |      |      |  |       |      |   |  |       |      |  
|Expenses:                               |                                              |  |                        |      |      |  |       |      |   |  |       |     
|                                       
|                                       
|                                       
|                                       
|                                        | Direct operating                             |  |                        | 52.4 |      |  |       | 45.4 |   |  |       | 45.3 |  
|                                       
|                                       
|                                       
|                                       
|                                        | Depreciation of revenue earning equipment    |  |                        | 29.7 |      |  |       | 26.1 |   |  |       | 26.0 |  
|                                       
|                                       
|                                       
|                                       
|                                        | Selling, general and administrative          |  |                        | 9.6  |      |  |       | 8.9  |   |  |       | 9.6  |  
|                                       
|                                       
|                                       
|                                       
|                                        | Interest, net of interest income             |  |                        | 8.2  |      |  |       | 8.2  |   |  |       | 7.2  |  
|                                        |                                              |  |                        |      |      |  |       |      |   |  |       |      |  
|                                        |                                              |  | 99.9                   |      |      |  | 88.6  |      |   |  | 88.1  |     
|                                        |                                              |  |                        |      |      |  |       |      |   |  |       |      |  
|Income before income taxes              |                                              |  | 0.1                    |      |      |  | 11.4  |      |   |  | 11.9  |     
|                                       
|                                       
|                                       
|                                       
|Provision (benefit) for taxes on income |                                              |  | (0.4                   | )    |      |  | 4.3   |      |   |  | 4.8   |     
|                                        |                                              |  |                        |      |      |  |       |      |   |  |       |      |  
|Net income                              |                                              |  | 0.5                    | %    |      |  | 7.1   | %    |   |  | 7.1   | %   
|                                        |                                              |  |                        |      |      |  |       |      |   |  |       |      |  

Year Ended December 31, 2001 Compared with Year Ended December 31, 2000

Revenues
Total revenues of $4,915.8 million in 2001, decreased by 3.1% from $5,073.5
million in 2000.

Revenues from car rental operations of $3,823.9 million in 2001 decreased by
3.9% from $3,980.6 million in 2000. This decrease of $156.7 million was
primarily the result of a 5.1% decrease in transactions and a 4.4% decrease in
pricing in the United States, and a decrease of $39.1 million from the effects
of foreign currency translation. These decreases were partially offset by
longer length rentals primarily in the United States, and an increase in the
number of transactions outside the United States. The decrease in transactions
and pricing in the United States was primarily due to a decrease in demand
resulting from the slowdown in the economy and its adverse impact on business
travel, as
well as the interruption and significant decline in air travel after the
terrorist attacks of September 11, 2001. The
translation impact of exchange rates on net income is not significant because
the majority of the Companys foreign expenses are also incurred in local
currencies.

13



---



##### Table of Contents



Revenues from industrial and construction equipment rental operations of
$1,003.4 million in 2001 increased by 3.5% from $969.6 million in 2000. Of this
$33.8 million increase, approximately $18.6 million was due to an increase in
volume resulting from the inclusion of seven acquired businesses worldwide, and
approximately $15.2 million was due to increased activity from existing and
greenfield locations which grew 1.7%.

Revenues from all other sources of $88.5 million in 2001 decreased by 28.2%
from $123.3 million in 2000, primarily due to a decline in telecommunications
revenues and a decrease in car leasing revenue due to the transfer of certain
foreign operations to an affiliated company on August 31, 2000.

Expenses
Total expenses of $4,913.1 million in 2001 increased by 9.4% from $4,492.6
million in 2000, and total expenses as a percentage of revenues increased to
99.9% in 2001, from 88.6% in 2000, principally due to an increase in the United
States of lower margin leisure business, inflationary cost factors and a
precipitous decline in business as a result of the terrorist attacks of
September 11, 2001.

Direct operating expenses of $2,574.1 million in 2001 increased by 11.8% from
$2,303.3 million in 2000. The increase was primarily due to higher wages,
facility costs, self-insurance costs and vehicle damage costs in car rental
operations and the expansion of suburban car rental operations and the industrial and construction equipment
rental business. These increases were partly offset by foreign currency
translation changes and lower commissions. The increase was also due to the
recognition of a gain of $9 million in 2000 from the condemnation of a car
rental and support facility in California.

Depreciation of revenue earning equipment for the car rental and car leasing
operations of $1,190.9 million in 2001 increased by 9.6% from $1,086.7 million
in 2000, primarily due to an increase in the number of cars operated worldwide,
and a decrease of $54.3 million in the net proceeds received in excess of book
value on the disposal of vehicles. These increases were partly offset by a
decrease due to the transfer of certain foreign car leasing operations to an
affiliated company on August 31, 2000.

Depreciation of revenue earning equipment for the industrial and construction
equipment rental operations of $271.4 million in 2001 increased by 14.6% from
$236.8 million in 2000, primarily due to acquisitions of equipment rental and
sales companies, an increase in the volume of equipment operated and a decrease
in the net proceeds received in excess of book value on the disposal of
equipment.

Selling, general and administrative expenses of $472.0 million in 2001
increased by 4.7% from $451.0 million in 2000, and increased as a percentage of
revenue to 9.6% in 2001 from 8.9% in 2000. The increase in 2001 resulted from
higher administrative expenses and sales promotion, including $9.7 million of
expenses related to the merger of the Company with a wholly owned subsidiary of
Ford. These increases were partly offset by lower advertising costs and
foreign currency translation changes.

Interest expense of $404.7 million in 2001 decreased 2.4% from $414.8 million
in 2000, primarily due a decrease in the weighted-average interest rate in
2001. These decreases were partially offset by lower interest income in 2001.

A tax benefit of $20.6 million was recognized in 2001, as compared to tax
expense of $222.5 million in 2000. The decrease in income taxes was due
primarily to the decrease in income before income taxes and the benefit of
foreign tax credits in 2001. The effective tax rate in 2001 was 31.5% after
adjusting for the effects of foreign tax credits, non-deductible goodwill
amortization and an increase in the valuation allowance. The effective tax
rate in 2000 was 38.3%. The decrease in the effective tax rate as adjusted was
primarily due to restrictions on the carryforward of state tax losses incurred
in 2001 and the mix of pretax income between countries with different tax
rates. See Notes 1 and 8 to the Notes to the Companys consolidated financial
statements included in this Report.

Net Income
The Company had net income of $23.3 million in 2001, representing a decrease of
93.5% from $358.4 million in 2000. This decrease was primarily due to lower car
rental volume in the United States, principally due to the slowdown in the
economy and its adverse impact on business travel and pricing, the terrorist
attacks of September 11, 2001, higher 2001 model year vehicle costs, lower
proceeds received on the disposal of vehicles, and the net effect of the other
contributing factors noted above.

Outlook
The Company believes that business travel and equipment rentals will remain at
diminished levels, reflecting reduced corporate spending in the United States
throughout 2002. The Company anticipates substantial declines in first and
second quarter earnings compared with comparable periods in 2001 due to the
residual effects of the terrorist attacks on the travel industry and reduced
corporate travel spending. The Company anticipates improvement in the third
and fourth quarters of 2002 when compared to the comparable periods in 2001,
which were negatively impacted by the significant declines in travel after the
terrorist attacks of September 11, 2001. While full year 2002 pre-tax income
is expected to exceed 2001 levels as the economy gradually improves, the
Companys 2002 annual earnings performance is expected to be substantially
below recent historical levels.

14



---



##### Table of Contents



Year Ended December 31, 2000 Compared with Year Ended December 31, 1999

Revenues
The Company achieved record revenues of $5,073.5 million in 2000, which
increased by 7.6% from $4,715.7 million in 1999.

Revenues from car rental operations of $3,980.6 million in 2000 increased by
6.8% from $3,728.5 million in 1999. This increase of $252.1 million was
primarily the result of a worldwide increase in transactions of 7.6% that
contributed $282.2 million in increased revenue. In addition, improved revenue
per transaction worldwide, before the effects of foreign currency translation,
contributed $75.7 million which resulted from longer rental lengths, partially
offset by lower revenue per day. These increases were partially offset by a
decrease of $105.8 million from the effects of foreign currency translation.
The translation impact of exchange rates on net income is not significant
because the majority of the Companys foreign expenses are also incurred in
local currencies.

Revenues from industrial and construction equipment rental operations of $969.6
million in 2000 increased by 15.0% from $842.9 million in 1999. Of this $126.7
million increase, approximately $99.4 million was due to an increase in volume
resulting from the inclusion of 20 acquired businesses worldwide, and
approximately $27.3 million was due to increased activity from existing and
greenfield locations which grew 3.4%.

Revenues from all other sources of $123.3 million in 2000 decreased by 14.6%
from $144.3 million in 1999, primarily due to a decrease in telecommunications
revenues and a decrease in car leasing revenue due to the transfer of certain
foreign operations to an affiliated company on August 31, 2000.

Expenses
Total expenses of $4,492.6 million in 2000 increased by 8.1% from $4,155.3
million in 1999, and total expenses as a percentage of revenues increased to
88.6% in 2000 from 88.1% in 1999.

Direct operating expenses of $2,303.3 million in 2000 increased by 8.0% from
$2,133.5 million in 1999. The increase was primarily the result of the
expansion of the industrial and construction equipment rental
business, expansion of suburban car rental operations, and
higher wages, facility costs and vehicle damage costs in car rental operations,
which corresponds with the increase in transaction volume. These increases were
partly offset by foreign currency translation changes, higher recoveries of
concession fees and a gain of $9 million in 2000 from the condemnation of a car
rental and support facility in California.

Depreciation of revenue earning equipment for the car rental and car leasing
operations of $1,086.7 million in 2000 increased by 6.9% from $1,016.5 million
in 1999, primarily due to an increase in the number of cars operated worldwide.
This increase was partly offset by an increase of $21.3 million in the net
proceeds received in excess of book value on the disposal of vehicles.

Depreciation of revenue earning equipment for the industrial and construction
equipment rental operations of $236.8 million in 2000 increased by 12.0% from
$211.5 million in 1999, primarily due to acquisitions of equipment rental and
sales companies, an increase in both the volume and cost of equipment operated
and a decrease of $9.1 million in the net proceeds received in excess of book
value on the disposal of equipment. This increase was partly offset by a
reduction in depreciation of $12.9 million, due to changes made effective
January 1, 2000 to increase certain estimated useful lives being used to
compute the provision for depreciation of revenue earning equipment and to
reflect changes in the estimated residual values of the equipment. Periodic
evaluations of changes in estimated residual values resulted in similar
revisions to certain asset lives in January 1997 and July 1994.

Selling, general and administrative expenses of $451.0 million in 2000
decreased by 0.3% from $452.4 million in 1999, and decreased as a percentage of
revenue to 8.9% in 2000 from 9.6% in 1999. The decrease in 2000 resulted from
lower advertising costs and foreign currency translation changes which were
mostly offset by increases in sales promotion and administrative expenses.

Interest expense of $414.8 million in 2000 increased 21.5% from $341.4 million
in 1999, primarily due to higher average debt levels in 2000 and an increase in
the weighted-average interest rate in 2000. These increases were partially
offset by higher interest income in 2000.

The tax provision of $222.5 million in 2000 decreased 0.9% from $224.4 million
in 1999. The effective tax rate in 2000 was 38.3% as compared to 40.0% in 1999.
The decrease in the effective tax rate was due to changes in the mix of pretax
income between countries that operate under different tax rates and greater
utilization of foreign tax credits in 2000. This decrease was partly offset by
higher income before income taxes in 2000. See Notes 1 and 8 to the Notes to
the Companys consolidated financial statements included in this Report.

Net Income
The Company achieved record net income of $358.4 million in 2000, representing
an increase of 6.7% from $336.0 million in 1999. This increase was primarily
due to strong volume-related performance, partially offset by downward pricing
pressures and the net effect of other contributing factors noted above.

15



---



##### Table of Contents



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,
2001, the Companys expenditures for revenue earning equipment were $9,284.0
million (offset by proceeds from the sale of such equipment of $7,839.4
million). These assets are purchased by the Company in accordance with the
terms of agreements negotiated with automobile and equipment manufacturers.
For the year ended December 31, 2001, the Companys capital expenditures for
property and non-revenue earning equipment were $266.6 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. In 2001, the
Company reduced its reliance on commercial paper and increased its use of
long-term funding sources to improve its liquidity. The total amount of
medium-term and long-term debt outstanding as of December 31, 2001 was $4.9
billion with maturities ranging from 2002 to 2028. At December 31, 2001, the
Company had $1.85 billion available for issuance of debt securities under an
effective registration statement. The Company is currently planning to launch
an asset-backed securitization program during the second quarter of 2002.

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, Ireland and the Netherlands. The Company
guarantees only the borrowings of its subsidiaries in Australia, Canada,
Ireland and the Netherlands, 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,
hedged to minimize foreign exchange exposure. At December 31, 2001, total debt
for the foreign operations was $1,021 million, of which $1,009 million was
short-term (original maturity of less than one year) and $12 million was
long-term. At December 31, 2001, total amounts outstanding (in millions of U.S.
dollars) under the Australian, Canadian, Irish and the Netherlands commercial
paper programs were $13, $283, $231 and $45, respectively.

At December 31, 2001, the Companys contractual cash obligations relating to
existing debt, operating leases and concession agreements, in millions, are as
follows: 2002, $2,228.7; 2003, $872.6; 2004, $1,025.0; 2005, $699.2; 2006,
$315.4; after 2006, $2,196.8.

At December 31, 2001, the Company had committed credit facilities totaling $3.4
billion. Of this amount, $2.6 billion is represented by a combination of
multi-year and 364-day global committed credit facilities provided by 29
relationship banks and $200 million of seasonal committed facilities from two
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, 2001, the multi-year facilities totaling $1,403
million were renegotiated and currently expire as follows: $63 million on June
30, 2002, $137 million on June 30, 2003, $46 million on June 30, 2004, $69
million on June 30, 2005 and $1,088 million on June 30, 2006. Effective June
21, 2001, the 364-day facilities totaling $1,170 million were renegotiated and
currently expire on June 19, 2002. The multi-year facilities that expire in
2006 have an evergreen feature which provides for the automatic extension of
the expiration date one year forward unless timely notice is provided by the
bank. Under the terms of the 364-day facilities, the Company is permitted to
convert any amount
outstanding prior to expiration into a four-year term loan. The $200 million
of seasonal facilities currently expire as follows: $100 million on April 30,
2002 and $100 million on June 19, 2002.

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,
2003. This line of credit has an evergreen feature that provides on an annual
basis for automatic one-year extensions of the expiration date, unless notice
is provided by Ford at least one year prior to the then scheduled expiration
date. Obligations of the Company under this agreement would rank pari passu
with the Companys senior debt securities. A commitment fee of .10% per annum
is payable on the unused available credit.

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

By virtue of its indirect, 100% ownership interest in the Company, Ford has the
right to make any changes that it deems appropriate in the Companys assets,
corporate structure, capitalization, operations, properties and policies
(including dividend policies).

16



---



##### Table of Contents



On September 26, 2001, Fitch Ratings (Fitch) lowered the Companys long-term
debt rating from A+ to A- and short-term debt rating from F1 to F2. On January
11, 2002, Fitch lowered the Companys long-term debt rating from A- to BBB+ and
confirmed the Companys short-term debt rating of F2. Fitch stated that the
ratings outlook is negative. On October 15, 2001, Standard & Poors (S&P)
lowered the Companys long-term debt rating from A- to BBB and short-term debt
rating from A-1 to A-2, and changed the ratings outlook from negative to
stable. On January 11, 2002, S&P changed the ratings outlook to negative. On
October 18, 2001, Moodys Investors Service (Moodys) lowered the Companys
long-term debt rating from A3 to Baa1 and short-term debt rating from Prime-1
to Prime-2, respectively. On January 16, 2002, Moodys lowered the Companys
long-term debt rating from Baa1 to Baa2 and confirmed the short-term debt
rating of Prime-2. Moodys stated that the ratings outlook is negative.

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 2001
and 2000.

|     |                |            |   |                     |         |          |   |                 |         |               |   |           |       |        |   |        |       |  |   |       |       | 
|---- | -------------- | ---------- | - | ------------------- | ------- | -------- | - | --------------- | ------- | ------------- | - | --------- | ----- | ------ | - | ------ | ----- |  | - | ----- | ----- | 
|     |                |            |   |                     |         |          |   |                 |         |               |   | Operating |       |        |   |        |       |  |   |      
|     |                |            |   | Capital             |         |          |   |                 |         | Income (Loss) |   | Income    |       |        |   |       
|     |                |            |   | Expenditures        |         |          |   |                 |         | (Pre-Tax      |   | (Loss)    |       |        |   |       
|     |                |            |   | (Net of Sale        |         |          |   |                 |         | Income (Loss) |   | Before    |       | Net   
|     |                |            |   | Proceeds            |         |          |   |                 |         | Before        |   | Income    |       | Income
|     |                |            |   | Received)           |         | Revenues |   | Interest)(1)(2) |         | Taxes(1)(2)   |   | (Loss)(3)
|     |                |            |   |                     |         |          |   |                 |         |               |   |          
|     |                |            |   | Dollars in millions
|2001 |                |            |   |                     |         |          |   |                 |         |               |   |           |       |        |   |        |       |  |   |      
|    
|    
|    
|    
|     | First Quarter  |            | $ | 1,177.6             |         |          | $ | 1,180.9         |         |               | $ | 96.0      |       |        | $ | (5.8   | )     |  | $ | (3.9  | )    
|    
|    
|    
|    
|     | Second Quarter |            |   | 1,309.4             |         |          |   | 1,285.5         |         |               |   | 188.7     |       |        |   | 85.8   |       |  |   | 59.2  |      
|    
|    
|    
|    
|     | Third Quarter  |            |   | (414.1              | )       |          |   | 1,369.2         |         |               |   | 161.4     |       |        |   | 54.2   |       |  |   | 25.5  |      
|    
|    
|    
|    
|     | Fourth Quarter |            |   | (397.4              | )       |          |   | 1,080.2         |         |               |   | (38.7     | )     |        |   | (131.5 | )     |  |   | (57.5 | )    
|     |                |            |   |                     |         |          |   |                 |         |               |   |           |       |        |   |        |       |  |   |      
|     |                | Total Year |   | $                   | 1,675.5 |          |   | $               | 4,915.8 |               |   | $         | 407.4 |        |   | $      | 2.7   |  |   | $     | 23.3  | 
|     |                |            |   |                     |         |          |   |                 |         |               |   |           |       |        |   |        |       |  |   |      
|2000 |                |            |   |                     |         |          |   |                 |         |               |   |           |       |        |   |        |       |  |   |      
|    
|    
|    
|    
|     | First Quarter  |            | $ | 1,090.7             |         |          | $ | 1,135.2         |         |               | $ | 182.6     |       |        | $ | 93.3   |       |  | $ | 56.3  |      
|    
|    
|    
|    
|     | Second Quarter |            |   | 1,496.4             |         |          |   | 1,289.3         |         |               |   | 268.0     |       |        |   | 169.0  |       |  |   | 103.7 |      
|    
|    
|    
|    
|     | Third Quarter  |            |   | 75.5                |         |          |   | 1,437.8         |         |               |   | 354.6     |       |        |   | 235.6  |       |  |   | 142.8 |      
|    
|    
|    
|    
|     | Fourth Quarter |            |   | (337.6              | )       |          |   | 1,211.2         |         |               |   | 190.5     |       |        |   | 83.0   |       |  |   | 55.6  |      
|     |                |            |   |                     |         |          |   |                 |         |               |   |           |       |        |   |        |       |  |   |      
|     |                | Total Year |   | $                   | 2,325.0 |          |   | $               | 5,073.5 |               |   | $         | 995.7 |        |   | $      | 580.9 |  |   | $     | 358.4 | 
|     |                |            |   |                     |         |          |   |                 |         |               |   |           |       |        |   |        |       |  |   |      



---

|(1) |  | Includes a gain of $9.0 million in the second quarter of 2000 from the
condemnation of a car rental and support facility in California.                                                                              
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|   
|   
|   
|(2) |  | Includes $9.7 million in the first quarter of 2001 for expenses
associated with the Merger.                                                                                                                          
|   
|   
|   
|   
|(3) |  | Includes credits to the Provision (benefit) for taxes on income of
$30.2 million and $3.8 million in the fourth quarter of 2001 and 2000,
respectively, from the benefit of certain additional foreign tax credits.

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 13 to the Notes to the Companys
consolidated financial statements included in this Report.

Interest Rate Risk
From time to time, the Company and its subsidiaries enter into
interest rate swap agreements to manage exposures to fluctuations in
interest rates. 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

17



---



##### Table of Contents



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 $13 million over a 12-month period.

Foreign Currency Risk
The Company and its subsidiaries have purchased foreign exchange options to
manage exposure to fluctuations in foreign exchange rates, principally for
selected marketing programs. The effect of exchange rate changes on these
financial instruments would not materially affect the consolidated financial
position, results of operations or cash flows of the Company. The Companys
risk with respect to currency option contracts is limited to the premium paid
for the right to exercise the option. Premiums paid for options outstanding at
December 31, 2001, were approximately $1.3 million.

Euro Currency Conversion
The single European currency (euro) was introduced on January 1, 1999 with a
complete transition to this new currency on January 1, 2002 for the 11
participating countries. The conversion to the euro has not had a material
effect on pricing, hedging costs, systems modification costs or exposure to
changes in foreign currency exchange rates.

Recent Pronouncements
In June 2001, the Financial Accounting Standards Board (FASB) issued
Statements of Financial Accounting Standards (SFAS) No. 141 Business
Combinations and No. 142 Goodwill and Other Intangible Assets. SFAS No. 141
addresses financial accounting and reporting for business combinations and
requires all business combinations initiated after June 30, 2001 to be
accounted for using one method, the purchase method. SFAS No. 142 addresses
financial accounting for acquired goodwill and other intangible assets and how
such assets should be accounted for in financial statements upon their
acquisition and after they have been initially recognized in the financial
statements. Under SFAS No. 142, goodwill will no longer be amortized, but
instead, will be tested for impairment at least annually. Other intangible
assets will continue to be amortized over their useful lives. The Company
adopted SFAS No. 141 and No. 142 beginning January 1, 2002. Application of the
non-amortization provision of SFAS No. 142 is currently expected to result in
an increase in Income before income taxes of approximately $29 million per
year. Goodwill, net of cumulative amortization at December 31, 2001 was $802
million. During 2002, the Company will perform the transitional impairment
test of its goodwill as of January 1, 2002. The Company is currently
evaluating the effect that the adoption may have on its consolidated financial
position and results of operations.

In August 2001, the FASB issued SFAS No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets. SFAS 144 addresses financial accounting and
reporting for the impairment or disposal of long-lived assets and for segments
of a business to be disposed of. SFAS No. 144 is effective for fiscal years
beginning after December 15, 2001. Management is evaluating the impact, if
any, the standard may have on the Companys financial position and results of
operations.




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 12 to 18 of this Report.

18



---



##### Table of Contents






ITEM 8. Financial Statements and Supplementary Data.

REPORT OF INDEPENDENT ACCOUNTANTS

To The Hertz Corporation:

In our opinion, the consolidated financial statements listed in the index
appearing under Item 14(a)1 on page 45 present fairly, in all material
respects, the financial position of The Hertz Corporation and its subsidiaries
(the Company) at December 31, 2001 and 2000, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 2001, in conformity with accounting principles generally accepted
in the United States of America. In addition, in our opinion, the financial
statement schedule listed in the index appearing under Item 14(a)2 on page 45,
presents fairly, in all material respects, the information set forth therein
when read in conjunction with the related consolidated financial statements.
These financial statements and financial statement schedule are the
responsibility of the Companys management; our responsibility is to express an
opinion on these financial statements and financial statement schedule based on
our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States of America, which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

|                          
|--------------------------
|PRICEWATERHOUSECOOPERS LLP

Florham Park, New Jersey

January 14, 2002

19



---



##### Table of Contents



THE HERTZ CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEET

|                                                                                       |                                                                                                |                               |                                            |                                      |          |                      |           |           |          |            |  | 
|-------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------- | ----------------------------- | ------------------------------------------ | ------------------------------------ | -------- | -------------------- | --------- | --------- | -------- | ---------- |  | 
|                                                                                       |                                                                                                |                               |                                            |                                      |          | December 31,        
|                                                                                       |                                                                                                |                               |                                            |                                      |          |                     
|                                                                                       |                                                                                                |                               |                                            |                                      |          | 2001                 |           | 2000     
|                                                                                       |                                                                                                |                               |                                            |                                      |          |                      |           |          
|                                                                                       |                                                                                                |                               |                                            |                                      |          | Dollars in thousands
|                                                                                       |                                                                                                |                               |                                            | ASSETS                               |          |                      |           |           |          |            |  | 
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|Cash and equivalents (Note 13)                                                         |                                                                                                | $                             | 213,997                                    |                                      |          | $                    | 206,477   |          
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|Receivables, less allowance for doubtful accounts of $38,886 and
$34,788 (Schedule II) |                                                                                                |                               | 919,041                                    |                                      |          |                      | 1,115,509 |          
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|Due from affiliates (Note 7)                                                           |                                                                                                |                               | 143,302                                    |                                      |          |                      | 343,568   |          
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|Inventories, at lower of cost or market                                                |                                                                                                |                               | 65,881                                     |                                      |          |                      | 78,942    |          
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|Prepaid expenses and other assets (Notes 3 and 4)                                      |                                                                                                |                               | 103,727                                    |                                      |          |                      | 129,115   |          
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|Revenue earning equipment, at cost (Note 7):                                           |                                                                                                |                               |                                            |                                      |          |                      |           |          
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                       | Cars                                                                                           |                               |                                            | 5,821,722                            |          |                      |           | 5,757,090 |         
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                       |                                                                                                | Less accumulated depreciation |                                            |                                      | (601,318 | )                    |           |           | (570,855 | )         
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                       | Other equipment                                                                                |                               |                                            | 2,396,295                            |          |                      |           | 2,310,118 |         
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                       |                                                                                                | Less accumulated depreciation |                                            |                                      | (764,975 | )                    |           |           | (573,837 | )         
|                                                                                       |                                                                                                |                               |                                            |                                      |          |                      |           |          
|                                                                                       |                                                                                                |                               | Total revenue earning equipment            |                                      |          | 6,851,724            |           |           |          | 6,922,516  | 
|                                                                                       |                                                                                                |                               |                                            |                                      |          |                      |           |          
|Property and equipment, at cost:                                                       |                                                                                                |                               |                                            |                                      |          |                      |           |          
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                       | Land, buildings and leasehold improvements                                                     |                               |                                            | 1,013,376                            |          |                      |           | 876,123   |         
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                       | Service equipment                                                                              |                               |                                            | 917,118                              |          |                      |           | 863,708   |         
|                                                                                       |                                                                                                |                               |                                            |                                      |          |                      |           |          
|                                                                                       |                                                                                                |                               | 1,930,494                                  |                                      |          |                      | 1,739,831 |          
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                       |                                                                                                | Less accumulated depreciation |                                            |                                      | (874,593 | )                    |           |           | (739,670 | )         
|                                                                                       |                                                                                                |                               |                                            |                                      |          |                      |           |          
|                                                                                       |                                                                                                |                               | Total property and equipment               |                                      |          | 1,055,901            |           |           |          | 1,000,161  | 
|                                                                                       |                                                                                                |                               |                                            |                                      |          |                      |           |          
|Goodwill and other intangible assets, net of
amortization (Note 4)                     |                                                                                                |                               | 804,840                                    |                                      |          |                      | 823,693   |          
|                                                                                       |                                                                                                |                               |                                            |                                      |          |                      |           |          
|                                                                                       |                                                                                                |                               | Total assets                               |                                      | $        | 10,158,413           |           |           | $        | 10,619,981 | 
|                                                                                       |                                                                                                |                               |                                            |                                      |          |                      |           |          
|                                                                                       |                                                                                                |                               |                                            | LIABILITIES AND STOCKHOLDERS EQUITY |          |                      |           |           |          |            |  | 
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|Accounts payable (Note 7)                                                              |                                                                                                | $                             | 457,991                                    |                                      |          | $                    | 546,082   |          
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|Accrued salaries and other compensation                                                |                                                                                                |                               | 247,824                                    |                                      |          |                      | 221,063   |          
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|Other accrued liabilities                                                              |                                                                                                |                               | 407,464                                    |                                      |          |                      | 352,599   |          
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|Accrued taxes                                                                          |                                                                                                |                               | 72,077                                     |                                      |          |                      | 160,901   |          
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|Debt (Notes 2 and 13)                                                                  |                                                                                                |                               | 6,314,032                                  |                                      |          |                      | 6,675,988 |          
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|Public liability and property damage (Schedule II)                                     |                                                                                                |                               | 315,845                                    |                                      |          |                      | 272,779   |          
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|Deferred taxes on income (Note 8)                                                      |                                                                                                |                               | 358,800                                    |                                      |          |                      | 406,500   |          
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|Commitments and contingencies (Notes 9, 11 and 13)                                     |                                                                                                |                               |                                            |                                      |          |                      |           |          
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|Stockholders equity (Notes 1, 2 and 4):                                               |                                                                                                |                               |                                            |                                      |          |                      |           |          
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                       | Common Stock, $0.01 par value, 3,000 shares authorized,
100 shares issued at December 31, 2001 |                               |                                            |                                     |          |                      |           |          |         
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                       | Preferred Stock, $0.01 par value,
none issued at December 31, 2000                             |                               |                                            |                                     |          |                      |           |          |         
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                       | Class A Common Stock, $0.01 par value,
40,956,858 shares issued at December 31, 2000           |                               |                                            |                                     |          |                      |           | 410       |         
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                       | Class B Common Stock, $0.01 par value,
67,310,167 shares issued at December 31, 2000           |                               |                                            |                                     |          |                      |           | 673       |         
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                       | Additional capital paid-in                                                                     |                               |                                            | 983,132                              |          |                      |           | 995,871   |         
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                       | Unamortized restricted stock grants                                                            |                               |                                            |                                     |          |                      |           | (5,518    | )       
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                       | Retained earnings                                                                              |                               |                                            | 1,105,083                            |          |                      |           | 1,103,401 |         
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                       | Accumulated other comprehensive loss (Note 3)                                                  |                               |                                            | (103,835                             | )        |                      |           | (84,270   | )       
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                       | Treasury stock, at cost, 779,534 shares at December 31, 2000                                   |                               |                                            |                                     |          |                      |           | (26,498   | )       
|                                                                                       |                                                                                                |                               |                                            |                                      |          |                      |           |          
|                                                                                       |                                                                                                |                               | Total stockholders equity                 |                                      |          | 1,984,380            |           |           |          | 1,984,069  | 
|                                                                                       |                                                                                                |                               |                                            |                                      |          |                      |           |          
|                                                                                       |                                                                                                |                               | Total liabilities and stockholders equity |                                      | $        | 10,158,413           |           |           | $        | 10,619,981 | 
|                                                                                       |                                                                                                |                               |                                            |                                      |          |                      |           |          

The accompanying notes are an integral part of this statement.

20



---



##### Table of Contents



THE HERTZ CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF INCOME

|                                                 |                                                                          |                |         |                          |           |      |         |           |           |   |         |           |           | 
|------------------------------------------------ | ------------------------------------------------------------------------ | -------------- | ------- | ------------------------ | --------- | ---- | ------- | --------- | --------- | - | ------- | --------- | --------- | 
|                                                 |                                                                          |                |         | Years ended December 31,
|                                                 |                                                                          |                |         |                         
|                                                 |                                                                          |                |         | 2001                     |           | 2000 |         | 1999     
|                                                 |                                                                          |                |         |                          |           |      |         |          
|                                                 |                                                                          |                |         | Dollars in thousands    
|Revenues:                                        |                                                                          |                |         |                          |           |      |         |           |           |   |         |          
|                                                
|                                                
|                                                
|                                                
|                                                 | Car rental                                                               |                | $       | 3,823,946                |           |      | $       | 3,980,627 |           |   | $       | 3,728,429 |          
|                                                
|                                                
|                                                
|                                                
|                                                 | Industrial and construction equipment rental                             |                |         | 1,003,379                |           |      |         | 969,642   |           |   |         | 842,932   |          
|                                                
|                                                
|                                                
|                                                
|                                                 | Other (Note 4)                                                           |                |         | 88,466                   |           |      |         | 123,249   |           |   |         | 144,305   |          
|                                                 |                                                                          |                |         |                          |           |      |         |           |           |   |         |          
|                                                 |                                                                          | Total revenues |         |                          | 4,915,791 |      |         |           | 5,073,518 |   |         |           | 4,715,666 | 
|                                                 |                                                                          |                |         |                          |           |      |         |           |           |   |         |          
|Expenses:                                        |                                                                          |                |         |                          |           |      |         |           |           |   |         |          
|                                                
|                                                
|                                                
|                                                
|                                                 | Direct operating                                                         |                |         | 2,574,063                |           |      |         | 2,303,316 |           |   |         | 2,133,453 |          
|                                                
|                                                
|                                                
|                                                
|                                                 | Depreciation of revenue earning equipment (Note 7)                       |                |         | 1,462,310                |           |      |         | 1,323,501 |           |   |         | 1,228,053 |          
|                                                
|                                                
|                                                
|                                                
|                                                 | Selling, general and administrative                                      |                |         | 472,018                  |           |      |         | 450,970   |           |   |         | 452,408   |          
|                                                
|                                                
|                                                
|                                                
|                                                 | Interest, net of interest income of $9,034, $13,520 and $12,157
(Note 2) |                |         | 404,677                  |           |      |         | 414,867   |           |   |         | 341,359   |          
|                                                 |                                                                          |                |         |                          |           |      |         |           |           |   |         |          
|                                                 |                                                                          | Total expenses |         |                          | 4,913,068 |      |         |           | 4,492,654 |   |         |           | 4,155,273 | 
|                                                 |                                                                          |                |         |                          |           |      |         |           |           |   |         |          
|Income before income taxes                       |                                                                          |                | 2,723   |                          |           |      | 580,864 |           |           |   | 560,393 |          
|                                                
|                                                
|                                                
|                                                
|Provision (benefit) for taxes on income (Note 8) |                                                                          |                | (20,544 | )                        |           |      | 222,456 |           |           |   | 224,392 |          
|                                                 |                                                                          |                |         |                          |           |      |         |           |           |   |         |          
|Net income (Note 6)                              |                                                                          | $              | 23,267  |                          |           | $    | 358,408 |           |           | $ | 336,001 |          
|                                                 |                                                                          |                |         |                          |           |      |         |           |           |   |         |          

The accompanying notes are an integral part of this statement.

21



---



##### Table of Contents



THE HERTZ CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY

|                  |                                                       |                                                                               |                            |        |                      |   |         |        |            |   |            |        |               |   |           |         |               |   |             |   |         |   |         |         |   |   |           |         |         |         | 
|----------------- | ----------------------------------------------------- | ----------------------------------------------------------------------------- | -------------------------- | ------ | -------------------- | - | ------- | ------ | ---------- | - | ---------- | ------ | ------------- | - | --------- | ------- | ------------- | - | ----------- | - | ------- | - | ------- | ------- | - | - | --------- | ------- | ------- | ------- | 
|                  |                                                       |                                                                               |                            |        |                      |   |         |        |            |   |            |        | Unamortized   |   |           |         |               |   | Accumulated |   |         |   |         |         |   |   |          
|                  |                                                       |                                                                               |                            |        |                      |   |         |        | Additional |   | Restricted |        |               |   |           |         | Other         |   |             |   |         |   | Total  
|                  |                                                       |                                                                               |                            |        | Common               |   | Capital |        | Stock      |   | Retained   |        | Comprehensive |   | Treasury  |         | Stockholder's
|                  |                                                       |                                                                               |                            |        | Stock                |   | Paid-In |        | Grants     |   | Earnings   |        | Loss          |   | Stock     |         | Equity       
|                  |                                                       |                                                                               |                            |        |                      |   |         |        |            |   |            |        |               |   |           |         |              
|                  |                                                       |                                                                               |                            |        | Dollars in thousands
|Balances at       |                                                       |                                                                               |                            |        |                      |   |         |        |            |   |            |        |               |   |           |         |               |   |             |   |         |   |         |         |   |   |           |        
|                 
|                 
|                 
|                 
|DECEMBER 31, 1998 |                                                       | $                                                                             | 1,083                      |        |                      | $ | 982,564 |        |            | $ | (7,845     | )      |               | $ | 452,110   |         |               | $ | (20,776     | ) |         | $ | (13,313 | )       |   | $ | 1,393,823 |        
|                 
|                 
|                 
|                 
|                  | Comprehensive Income                                  |                                                                               |                            |        |                      |   |         |        |            |   |            |        |               |   |           |         |               |   |             |   |         |   |         |         |   |   |           |         |        
|                 
|                 
|                 
|                 
|                  | Net income                                            |                                                                               |                            |        |                      |   |         |        |            |   |            |        |               |   |           | 336,001 |               |   |             |   |         |   |         |         |   |   |           | 336,001 |        
|                 
|                 
|                 
|                 
|                  |                                                       | Translation adjustment changes                                                |                            |        |                      |   |         |        |            |   |            |        |               |   |           |         |               |   |             |   | (29,972 | ) |         |         |   |   |           |         | (29,972 | )      
|                 
|                 
|                 
|                 
|                  |                                                       | Unrealized holding losses on
securities                                       |                            |        |                      |   |         |        |            |   |            |        |               |   |           |         |               |   |             |   | (283    | ) |         |         |   |   |           |         | (283    | )      
|                 
|                 
|                 
|                 
|                  |                                                       | Minimum pension liability
adjustment, net of tax of $0                        |                            |        |                      |   |         |        |            |   |            |        |               |   |           |         |               |   |             |   | (1,468  | ) |         |         |   |   |           |         | (1,468  | )      
|                  |                                                       |                                                                               |                            |        |                      |   |         |        |            |   |            |        |               |   |           |         |               |   |             |   |         |   |         |         |   |   |           |        
|                  |                                                       |                                                                               | Total Comprehensive Income |        |                      |   |         |        |            |   |            |        |               |   |           |         |               |   |             |   |         |   |         |         |   |   |           |         |         | 304,278 | 
|                  |                                                       |                                                                               |                            |        |                      |   |         |        |            |   |            |        |               |   |           |         |               |   |             |   |         |   |         |         |   |   |           |        
|                  | Cash dividends on Common Stock                        |                                                                               |                            |        |                      |   |         |        |            |   |            |        |               |   |           | (21,598 | )             |   |             |   |         |   |         |         |   |   |           | (21,598 | )      
|                 
|                 
|                 
|                 
|                  | Acquisition of Treasury Stock                         |                                                                               |                            |        |                      |   |         |        |            |   |            |        |               |   |           |         |               |   |             |   |         |   |         | (29,903 | ) |   |           | (29,903 | )      
|                 
|                 
|                 
|                 
|                  | Exercise of stock options                             |                                                                               |                            |        |                      |   |         | (6,417 | )          |   |            |        |               |   |           |         |               |   |             |   |         |   |         | 23,264  |   |   |           | 16,847  |        
|                 
|                 
|                 
|                 
|                  | Tax benefits from stock options
and restricted stock  |                                                                               |                            |        |                      |   |         | 6,151  |            |   |            |        |               |   |           |         |               |   |             |   |         |   |         |         |   |   |           | 6,151   |        
|                 
|                 
|                 
|                 
|                  | Amortization of restricted
stock grants               |                                                                               |                            |        |                      |   |         |        |            |   |            | 4,393  |               |   |           |         |               |   |             |   |         |   |         |         |   |   |           | 4,393   |        
|                  |                                                       |                                                                               |                            |        |                      |   |         |        |            |   |            |        |               |   |           |         |               |   |             |   |         |   |         |         |   |   |          
|DECEMBER 31, 1999 |                                                       |                                                                               | 1,083                      |        |                      |   | 982,298 |        |            |   | (3,452     | )      |               |   | 766,513   |         |               |   | (52,499     | ) |         |   | (19,952 | )       |   |   | 1,673,991 |        
|                 
|                 
|                 
|                 
|                  | Comprehensive Income
Net income                       |                                                                               |                            |        |                      |   |         |        |            |   |            |        |               |   |           | 358,408 |               |   |             |   |         |   |         |         |   |   |           | 358,408 |        
|                 
|                 
|                 
|                 
|                  |                                                       | Translation adjustment changes                                                |                            |        |                      |   |         |        |            |   |            |        |               |   |           |         |               |   |             |   | (32,179 | ) |         |         |   |   |           |         | (32,179 | )      
|                 
|                 
|                 
|                 
|                  |                                                       | Unrealized holding gains on
securities                                        |                            |        |                      |   |         |        |            |   |            |        |               |   |           |         |               |   |             |   | 307     |   |         |         |   |   |           |         | 307     |        
|                 
|                 
|                 
|                 
|                  |                                                       | Minimum pension liability
adjustment, net of tax of $527                      |                            |        |                      |   |         |        |            |   |            |        |               |   |           |         |               |   |             |   | 101     |   |         |         |   |   |           |         | 101     |        
|                  |                                                       |                                                                               |                            |        |                      |   |         |        |            |   |            |        |               |   |           |         |               |   |             |   |         |   |         |         |   |   |           |        
|                  |                                                       |                                                                               | Total Comprehensive Income |        |                      |   |         |        |            |   |            |        |               |   |           |         |               |   |             |   |         |   |         |         |   |   |           |         |         | 326,637 | 
|                  |                                                       |                                                                               |                            |        |                      |   |         |        |            |   |            |        |               |   |           |         |               |   |             |   |         |   |         |         |   |   |           |        
|                  |                                                       | Adjustment
for transfer of leasing operations to company under common control |                            |        |                      |   | 16,444  |        |            |   |            |        |               |   |           |         |               |   |             |   |         |   |         |         |   |   | 16,444    |        
|                 
|                 
|                 
|                 
|                  | Cash dividends on Common Stock                        |                                                                               |                            |        |                      |   |         |        |            |   |            |        |               |   |           | (21,520 | )             |   |             |   |         |   |         |         |   |   |           | (21,520 | )      
|                 
|                 
|                 
|                 
|                  | Acquisition of Treasury Stock                         |                                                                               |                            |        |                      |   |         |        |            |   |            |        |               |   |           |         |               |   |             |   |         |   |         | (25,124 | ) |   |           | (25,124 | )      
|                 
|                 
|                 
|                 
|                  | Exercise of stock options                             |                                                                               |                            |        |                      |   |         | (5,559 | )          |   |            |        |               |   |           |         |               |   |             |   |         |   |         | 13,010  |   |   |           | 7,451   |        
|                 
|                 
|                 
|                 
|                  | Tax benefits from stock options
and restricted stock  |                                                                               |                            |        |                      |   |         | 3,480  |            |   |            |        |               |   |           |         |               |   |             |   |         |   |         |         |   |   |           | 3,480   |        
|                 
|                 
|                 
|                 
|                  | Issuance of 100,000 shares of
restricted stock grants |                                                                               |                            |        |                      |   |         | (556   | )          |   |            | (5,012 | )             |   |           |         |               |   |             |   |         |   |         | 5,568   |   |   |           |        |        
|                 
|                 
|                 
|                 
|                  | Amortization of restricted
stock grants               |                                                                               |                            |        |                      |   |         |        |            |   |            | 2,710  |               |   |           |         |               |   |             |   |         |   |         |         |   |   |           | 2,710   |        
|                 
|                 
|                 
|                 
|                  | Forfeiture of 9,862 shares of
restricted stock grants |                                                                               |                            |        |                      |   |         | (236   | )          |   |            | 236    |               |   |           |         |               |   |             |   |         |   |         |         |   |   |           |        |        
|                  |                                                       |                                                                               |                            |        |                      |   |         |        |            |   |            |        |               |   |           |         |               |   |             |   |         |   |         |         |   |   |           |        
|DECEMBER 31, 2000 |                                                       |                                                                               | 1,083                      |        |                      |   | 995,871 |        |            |   | (5,518     | )      |               |   | 1,103,401 |         |               |   | (84,270     | ) |         |   | (26,498 | )       |   |   | 1,984,069 |        
|                 
|                 
|                 
|                 
|                  | Comprehensive Income                                  |                                                                               |                            |        |                      |   |         |        |            |   |            |        |               |   |           |         |               |   |             |   |         |   |         |         |   |   |           |         |        
|                  | Net income                                            |                                                                               |                            |        |                      |   |         |        |            |   |            |        |               |   |           | 23,267  |               |   |             |   |         |   |         |         |   |   |           | 23,267  |        
|                 
|                 
|                 
|                 
|                  |                                                       | Translation adjustment changes                                                |                            |        |                      |   |         |        |            |   |            |        |               |   |           |         |               |   |             |   | (19,919 | ) |         |         |   |   |           |         | (19,919 | )      
|                 
|                 
|                 
|                 
|                  |                                                       | Unrealized holding losses on
securities                                       |                            |        |                      |   |         |        |            |   |            |        |               |   |           |         |               |   |             |   | (5      | ) |         |         |   |   |           |         | (5      | )      
|                 
|                 
|                 
|                 
|                  |                                                       | Minimum pension liability
adjustment, net of tax of $16                       |                            |        |                      |   |         |        |            |   |            |        |               |   |           |         |               |   |             |   | 359     |   |         |         |   |   |           |         | 359     |        
|                  |                                                       |                                                                               |                            |        |                      |   |         |        |            |   |            |        |               |   |           |         |               |   |             |   |         |   |         |         |   |   |           |        
|                  |                                                       |                                                                               | Total Comprehensive Income |        |                      |   |         |        |            |   |            |        |               |   |           |         |               |   |             |   |         |   |         |         |   |   |           |         |         | 3,702   | 
|                  |                                                       |                                                                               |                            |        |                      |   |         |        |            |   |            |        |               |   |           |         |               |   |             |   |         |   |         |         |   |   |           |        
|                  | Cash dividends on Common Stock                        |                                                                               |                            |        |                      |   |         |        |            |   |            |        |               |   |           | (21,585 | )             |   |             |   |         |   |         |         |   |   |           | (21,585 | )      
|                 
|                 
|                 
|                 
|                  | Exercise of stock options                             |                                                                               |                            |        |                      |   |         | (5,609 | )          |   |            |        |               |   |           |         |               |   |             |   |         |   |         | 15,602  |   |   |           | 9,993   |        
|                 
|                 
|                 
|                 
|                  | Tax benefits from stock options
and restricted stock  |                                                                               |                            |        |                      |   |         | 2,683  |            |   |            |        |               |   |           |         |               |   |             |   |         |   |         |         |   |   |           | 2,683   |        
|                 
|                 
|                 
|                 
|                  | Amortization of restricted
stock grants               |                                                                               |                            |        |                      |   |         |        |            |   |            | 5,518  |               |   |           |         |               |   |             |   |         |   |         |         |   |   |           | 5,518   |        
|                 
|                 
|                 
|                 
|                  | Ford acquisition of
minority interest                 |                                                                               |                            | (1,083 | )                    |   |         | (9,813 | )          |   |            |        |               |   |           |         |               |   |             |   |         |   |         | 10,896  |   |   |           |        |        
|                  |                                                       |                                                                               |                            |        |                      |   |         |        |            |   |            |        |               |   |           |         |               |   |             |   |         |   |         |         |   |   |           |        
|DECEMBER 31, 2001 |                                                       | $                                                                             |                           |        |                      | $ | 983,132 |        |            | $ |           |        |               | $ | 1,105,083 |         |               | $ | (103,835    | ) |         | $ |        |         |   | $ | 1,984,380 |        
|                  |                                                       |                                                                               |                            |        |                      |   |         |        |            |   |            |        |               |   |           |         |               |   |             |   |         |   |         |         |   |   |           |        

The accompanying notes are an integral part of this statement.

22



---



##### Table of Contents



THE HERTZ CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CASH FLOWS

|                                      |                                                                                       |                                                           |                                                    |            |                          |           |      |            |         |           |   |            |          |           |  
|------------------------------------- | ------------------------------------------------------------------------------------- | --------------------------------------------------------- | -------------------------------------------------- | ---------- | ------------------------ | --------- | ---- | ---------- | ------- | --------- | - | ---------- | -------- | --------- | -
|                                      |                                                                                       |                                                           |                                                    |            | Years ended December 31,
|                                      |                                                                                       |                                                           |                                                    |            |                         
|                                      |                                                                                       |                                                           |                                                    |            | 2001                     |           | 2000 |            | 1999   
|                                      |                                                                                       |                                                           |                                                    |            |                          |           |      |            |        
|                                      |                                                                                       |                                                           |                                                    |            | Dollars in thousands    
|Cash flows from operating activities: |                                                                                       |                                                           |                                                    |            |                          |           |      |            |         |           |   |           
|                                     
|                                     
|                                     
|                                     
|                                      | Net income                                                                            |                                                           | $                                                  | 23,267     |                          |           | $    | 358,408    |         |           | $ | 336,001    |         
|                                     
|                                     
|                                     
|                                     
|                                      | Non-cash expenses:                                                                    |                                                           |                                                    |            |                          |           |      |            |         |           |   |            |         
|                                     
|                                     
|                                     
|                                     
|                                      |                                                                                       |                                                           | Depreciation of revenue earning equipment          |            |                          | 1,462,310 |      |            |         | 1,323,501 |   |            |          | 1,228,053 |  
|                                     
|                                     
|                                     
|                                     
|                                      |                                                                                       |                                                           | Depreciation of property and equipment             |            |                          | 166,526   |      |            |         | 137,882   |   |            |          | 112,296   |  
|                                     
|                                     
|                                     
|                                     
|                                      |                                                                                       |                                                           | Amortization of intangibles                        |            |                          | 30,697    |      |            |         | 29,842    |   |            |          | 27,623    |  
|                                     
|                                     
|                                     
|                                     
|                                      |                                                                                       |                                                           | Amortization of restricted stock grants            |            |                          | 5,518     |      |            |         | 2,710     |   |            |          | 4,393     |  
|                                     
|                                     
|                                     
|                                     
|                                      |                                                                                       |                                                           | Provision for public liability and property damage |            |                          | 136,772   |      |            |         | 108,681   |   |            |          | 123,950   |  
|                                     
|                                     
|                                     
|                                     
|                                      |                                                                                       |                                                           | Provision for losses for doubtful accounts         |            |                          | 44,316    |      |            |         | 31,893    |   |            |          | 19,824    |  
|                                     
|                                     
|                                     
|                                     
|                                      |                                                                                       |                                                           | Tax benefit from exercise of stock options         |            |                          | 2,683     |      |            |         | 3,480     |   |            |          | 6,151     |  
|                                     
|                                     
|                                     
|                                     
|                                      |                                                                                       |                                                           | Deferred income taxes                              |            |                          | (47,700   | )    |            |         | 135,400   |   |            |          | 79,600    |  
|                                     
|                                     
|                                     
|                                     
|                                      | Revenue earning equipment expenditures                                                |                                                           |                                                    | (9,284,021 | )                        |           |      | (9,066,826 | )       |           |   | (8,504,986 | )       
|                                     
|                                     
|                                     
|                                     
|                                      | Proceeds from sales of revenue earning equipment                                      |                                                           |                                                    | 7,839,440  |                          |           |      | 6,972,992  |         |           |   | 6,779,021  |         
|                                     
|                                     
|                                     
|                                     
|                                      | Changes in assets and liabilities, net of effects of purchase and
sale of operations: |                                                           |                                                    |            |                          |           |      |            |         |           |   |            |         
|                                     
|                                     
|                                     
|                                     
|                                      |                                                                                       |                                                           | Receivables                                        |            |                          | 128,837   |      |            |         | (123,632  | ) |            |          | (273,373  | )
|                                     
|                                     
|                                     
|                                     
|                                      |                                                                                       |                                                           | Due from affiliates                                |            |                          | 200,266   |      |            |         | 355,044   |   |            |          | (268,443  | )
|                                     
|                                     
|                                     
|                                     
|                                      |                                                                                       |                                                           | Inventories and prepaid expenses and other assets  |            |                          | 35,869    |      |            |         | (29,164   | ) |            |          | (33,058   | )
|                                     
|                                     
|                                     
|                                     
|                                      |                                                                                       |                                                           | Accounts payable                                   |            |                          | (77,781   | )    |            |         | 17,326    |   |            |          | 45,215    |  
|                                     
|                                     
|                                     
|                                     
|                                      |                                                                                       |                                                           | Accrued liabilities                                |            |                          | 80,563    |      |            |         | (13,577   | ) |            |          | 23,083    |  
|                                     
|                                     
|                                     
|                                     
|                                      |                                                                                       |                                                           | Accrued taxes                                      |            |                          | (82,786   | )    |            |         | 9,585     |   |            |          | 35,786    |  
|                                     
|                                     
|                                     
|                                     
|                                      | Payments of public liability and property damage claims and
expenses                  |                                                           |                                                    | (90,996    | )                        |           |      | (125,272   | )       |           |   | (139,008   | )       
|                                      |                                                                                       |                                                           |                                                    |            |                          |           |      |            |         |           |   |           
|                                      |                                                                                       | Net cash flows provided by (used in) operating activities |                                                    | $          | 573,780                  |           |      | $          | 128,273 |           |   | $          | (397,872 | )        
|                                      |                                                                                       |                                                           |                                                    |            |                          |           |      |            |         |           |   |           

The accompanying notes are an integral part of this statement.

23



---



##### Table of Contents



THE HERTZ CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CASH FLOWS

|                                                                |                                                                                   |                                       |                                       |                                                     |            |                          |          |          |          |          |         |           |            |          |         | 
|--------------------------------------------------------------- | --------------------------------------------------------------------------------- | ------------------------------------- | ------------------------------------- | --------------------------------------------------- | ---------- | ------------------------ | -------- | -------- | -------- | -------- | ------- | --------- | ---------- | -------- | ------- | 
|                                                                |                                                                                   |                                       |                                       |                                                     |            | Years ended December 31,
|                                                                |                                                                                   |                                       |                                       |                                                     |            |                         
|                                                                |                                                                                   |                                       |                                       |                                                     |            | 2001                     |          | 2000     |          | 1999    
|                                                                |                                                                                   |                                       |                                       |                                                     |            |                          |          |          |          |         
|                                                                |                                                                                   |                                       |                                       |                                                     |            | Dollars in thousands    
|Cash flows from investing activities:                           |                                                                                   |                                       |                                       |                                                     |            |                          |          |          |          |          |         |          
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Property and equipment expenditures                                               |                                       | $                                     | (266,625                                            | )          |                          | $        | (255,906 | )        |          | $       | (323,208  | )         
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Proceeds from sales of property and equipment                                     |                                       |                                       | 35,744                                              |            |                          |          | 24,735   |          |          |         | 24,032    |           
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Available-for-sale securities:                                                    |                                       |                                       |                                                     |            |                          |          |          |          |          |         |           |           
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                |                                                                                   | Purchases                             |                                       |                                                     | (7,755     | )                        |          |          | (6,584   | )        |         |           | (3,876     | )       
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                |                                                                                   | Sales                                 |                                       |                                                     | 6,332      |                          |          |          | 6,278    |          |         |           | 3,689      |         
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Transfer of leasing operations to affiliated company, net of cash                 |                                       |                                       |                                                    |            |                          |          | 99,167   |          |          |         |          |           
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Changes in investment in joint venture                                            |                                       |                                       | 2,160                                               |            |                          |          | (1,233   | )        |          |         | (14,800   | )         
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Purchases of various operations, net of cash (see
supplemental disclosures below) |                                       |                                       | (3,026                                              | )          |                          |          | (111,888 | )        |          |         | (143,643  | )         
|                                                                |                                                                                   |                                       |                                       |                                                     |            |                          |          |          |          |          |         |          
|                                                                |                                                                                   |                                       | Net cash used in investing activities |                                                     |            | (233,170                 | )        |          |          | (245,431 | )       |           |            | (457,806 | )      
|                                                                |                                                                                   |                                       |                                       |                                                     |            |                          |          |          |          |          |         |          
|Cash flows from financing activities:                           |                                                                                   |                                       |                                       |                                                     |            |                          |          |          |          |          |         |          
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Proceeds from issuance of long-term debt                                          |                                       |                                       | 1,466,614                                           |            |                          |          | 514,734  |          |          |         | 1,046,743 |           
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Repayment of long-term debt                                                       |                                       |                                       | (430,890                                            | )          |                          |          | (303,295 | )        |          |         | (368,715  | )         
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Short-term borrowings:                                                            |                                       |                                       |                                                     |            |                          |          |          |          |          |         |           |           
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                |                                                                                   | Proceeds                              |                                       |                                                     | 871,272    |                          |          |          | 726,683  |          |         |           | 1,855,218  |         
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                |                                                                                   | Repayments                            |                                       |                                                     | (865,037   | )                        |          |          | (833,524 | )        |         |           | (2,117,979 | )       
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                |                                                                                   | Ninety-day term or less, net          |                                       |                                                     | (1,361,041 | )                        |          |          | 53,695   |          |         |           | 498,031    |         
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Cash dividends paid on common stock                                               |                                       |                                       | (21,585                                             | )          |                          |          | (21,520  | )        |          |         | (21,598   | )         
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Purchase of treasury stock                                                        |                                       |                                       |                                                    |            |                          |          | (25,124  | )        |          |         | (29,903   | )         
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Exercise of stock options                                                         |                                       |                                       | 9,993                                               |            |                          |          | 7,451    |          |          |         | 16,847    |           
|                                                                |                                                                                   |                                       |                                       |                                                     |            |                          |          |          |          |          |         |          
|                                                                |                                                                                   |                                       |                                       | Net cash (used in) provided by financing activities |            |                          | (330,674 | )        |          |          | 119,100 |           |            |          | 878,644 | 
|                                                                |                                                                                   |                                       |                                       |                                                     |            |                          |          |          |          |          |         |          
|Effect of foreign exchange rate changes on cash                 |                                                                                   |                                       | (2,416                                | )                                                   |            |                          | (4,117   | )        |          |          | (2,780  | )        
|                                                                |                                                                                   |                                       |                                       |                                                     |            |                          |          |          |          |          |         |          
|Net increase (decrease) in cash and equivalents during the
year |                                                                                   |                                       | 7,520                                 |                                                     |            |                          | (2,175   | )        |          |          | 20,186  |          
|                                                               
|                                                               
|                                                               
|                                                               
|Cash and equivalents at beginning of year                       |                                                                                   |                                       | 206,477                               |                                                     |            |                          | 208,652  |          |          |          | 188,466 |          
|                                                                |                                                                                   |                                       |                                       |                                                     |            |                          |          |          |          |          |         |          
|Cash and equivalents at end of year                             |                                                                                   | $                                     | 213,997                               |                                                     |            | $                        | 206,477  |          |          | $        | 208,652 |          
|                                                                |                                                                                   |                                       |                                       |                                                     |            |                          |          |          |          |          |         |          
|Supplemental disclosures of cash flow information:              |                                                                                   |                                       |                                       |                                                     |            |                          |          |          |          |          |         |          
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Cash paid during the year for:                                                    |                                       |                                       |                                                     |            |                          |          |          |          |          |         |           |           
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                |                                                                                   | Interest (net of amounts capitalized) |                                       | $                                                   | 420,026    |                          |          | $        | 436,598  |          |         | $         | 354,991    |         
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                |                                                                                   | Income taxes                          |                                       |                                                     | 121,828    |                          |          |          | 69,270   |          |         |           | 122,703    |         

In connection with acquisitions made during the years 2001, 2000 and 1999,
liabilities assumed were $13 million, $66 million and $67 million,
respectively.

The accompanying notes are an integral part of this statement.

24



---



##### Table of Contents

\

THE HERTZ CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1  Summary of Significant Accounting PoliciesChange 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 rental
and leasing business since 1918. UAL Corporation (UAL) purchased the Company
from RCA Corporation (RCA) in August 1985. Park Ridge Corporation (Park
Ridge), which was 80%-owned by Ford Motor Company (Ford), purchased the
Company from UAL in December 1987. On April 29, 1994, Ford purchased all of
the common stock of the Company owned by Park Ridge Limited Partnership which
resulted in the Company becoming a wholly owned subsidiary of Ford.

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

On March 9, 2001, Ford FSG, Inc., (FSG), an indirect wholly owned subsidiary
of Ford that owned an approximate 81.5% economic interest in the Company,
completed its acquisition of all of the Companys outstanding Class A Common
Stock that FSG did not already own for $35.50 per share, or approximately $735
million. The acquisition was accomplished through a cash tender offer followed
by a merger of a wholly owned subsidiary of FSG with and into the Company, with
the Company surviving the merger (the Merger). The Company recognized $9.7
million of expenses associated with the Merger in 2001. FSGs cost of
acquiring the Companys minority interest is not reflected in the accompanying
consolidated financial statements. After the Merger, all outstanding shares of
Class A Common Stock of the Company were owned by FSG, and all shares of Class
A Common Stock of the Company previously held by the Company as treasury stock,
along with all shares of Class B Common Stock of the Company owned by a wholly
owned subsidiary of FSG, were canceled. The Merger had no effect on the
outstanding obligations (including debt obligations, leases and guarantees) of
the Company.

As a result of the Merger, the Company became an indirect wholly owned
subsidiary of Ford and the Companys Class A Common Stock was no longer traded
on the New York Stock Exchange. However, because certain of the Companys debt
securities were sold through public offerings, the Company continues to file
periodic reports under Securities Exchange Act of 1934.

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.

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.

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

|                                     |                 |                |               |  | 
|------------------------------------ | --------------- | -------------- | ------------- |  | 
|Revenue Earning Equipment:           |                 |                |               | 
|                                    
|                                    
|                                    
|                                    
|                                     | Cars            |                | 3 to 6 years 
|                                    
|                                    
|                                    
|                                    
|                                     | Other equipment |                | 3 to 10 years
|                                    
|                                    
|                                    
|                                    
|Buildings                            |                 | 20 to 50 years
|                                    
|                                    
|                                    
|                                    
|Leasehold improvements               |                 | Term of lease 
|                                    
|                                    
|                                    
|                                    
|Capitalized internal use software    |                 | 1 to 10 years 
|                                    
|                                    
|                                    
|                                    
|Service cars and service equipment   |                 | 3 to 25 years 
|                                    
|                                    
|                                    
|                                    
|Goodwill and other intangible assets |                 | 10 to 40 years

Hertz follows the practice of charging maintenance and repairs, including the
cost of minor replacements, to maintenance expense accounts. Costs of major
replacements of units of property are charged to property and equipment
accounts and depreciated on the basis indicated above. Gains and losses on
dispositions of property and
equipment are included in income as realized. Upon disposal of revenue earning
equipment, depreciation expense is adjusted for the difference between the net
proceeds from sale and the remaining book value.

25



---



##### Table of Contents



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

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

Public Liability and Property Damage
Provisions for public liability and property damage on self-insured domestic
and foreign claims are made by charges to expense based upon evaluations of
estimated ultimate liabilities on reported and unreported claims. For its
domestic operations, the Company is, where permitted by applicable local law, a
qualified self-insurer against liability resulting from accidents under
certificates of self-insurance for financial responsibility in all states
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 $725 million per
occurrence.

For its international operations, the Company purchases insurance to comply
with local legal requirements. Vehicle liability insurance is purchased from a
wholly owned subsidiary, Probus Insurance Company Europe Limited (Probus), a
direct writer domiciled in Dublin, Ireland. Probus underwrites the Companys
Pan European motor vehicle liability program (except Switzerland) up to $1
million per occurrence. Probus reinsures this risk through Hertz International
RE Limited, a wholly owned subsidiary of the Company, operating as a reinsurer
in Dublin, Ireland. Excess coverage for claims that exceed $1 million per
occurrence is maintained with unaffiliated carriers. In foreign operations
outside Europe, the Company is self-insured at various amounts up to $250,000
per occurrence and maintains excess liability insurance coverage up to $725
million ($450 million prior to 2001) 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 loss in the stockholders equity section of the consolidated
balance sheet. At December 31, 2001 and 2000, the accumulated foreign currency
translation losses were (in millions) $103.0 and $83.1, respectively. 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. As of December 31, 2001, U.S. income taxes have not been
provided on $335 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, 2001, 2000 and
1999 were (in millions) $43.2, $43.2 and $47.5, respectively. This program is
expected to continue in the future. The Company incurred net advertising
expense for the years ended December 31, 2001, 2000 and 1999 of (in millions)
$138.1, $140.3 and $153.4, respectively.

26



---



##### Table of Contents



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

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 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 Hertz Corporation Account Balance Defined
Benefit Pension Plan (Hertz Retirement Plan) and in The Hertz Corporation
Income Savings Plan (Hertz Income Savings Plan). Payments are made to various
other pension and savings plans of others pursuant to 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, 1998
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 60 or less
continuous months of service from most recent date of hire, or (b) 5% of
pensionable earnings for that plan year in the case of a qualified employee who
is credited with more than 60 continuous months of service from most recent
date of hire (6.5% of pensionable earnings for that plan year in the case of a
qualified employee who is credited with more than 120 continuous months of
service from the most recent date of hire, effective January 1, 2000). 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, have an additional
amount of their pensionable earnings credited to their account. The Companys
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 eligible compensation.

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 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. When appropriate, the Company also periodically
evaluates the carrying value of long-lived assets and long-lived assets to be
disposed of for potential impairment. The Company considers projected future
operating results, cash flows, trends, and other circumstances in making such
estimates and evaluations.

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.

27



---



##### Table of Contents



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

Recent Pronouncements
In June 2001, the Financial Accounting Standards Board (FASB) issued
Statements of Financial Accounting Standards (SFAS) No. 141 Business
Combinations and No. 142 Goodwill and Other Intangible Assets. SFAS No. 141
addresses financial accounting and reporting for business combinations and
requires all business combinations initiated after June 30, 2001 to be
accounted for using one method, the purchase method. SFAS No. 142 addresses
financial accounting for acquired goodwill and other intangible assets and how
such assets should be accounted for in financial statements upon their
acquisition and after they have been initially recognized in the financial
statements. Under SFAS No. 142, goodwill will no longer be amortized, but
instead, will be tested for impairment at least annually. Other intangible
assets will continue to be amortized over their useful lives. The Company
adopted SFAS No. 141 and No. 142 beginning January 1, 2002. Application of the
non-amortization provision of SFAS No. 142 is currently expected to result in
an increase in Income before income taxes of approximately $29 million per
year. Goodwill, net of cumulative amortization at December 31, 2001 was $802
million. During 2002, the Company will perform the transitional impairment
test of its goodwill as of January 1, 2002. The Company is currently
evaluating the effect that the adoption may have on its consolidated financial
position and results of operations.

In August 2001, the FASB issued SFAS No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets. SFAS 144 addresses financial accounting and
reporting for the impairment or disposal of long-lived assets and for segments
of a business to be disposed of. SFAS No. 144 is effective for fiscal years
beginning after December 15, 2001. Management is evaluating the impact, if
any, the standard may have on the Companys financial position and results of
operations.

In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities. SFAS No. 133 established a new model for
accounting for derivatives and hedging activities. The Company adopted SFAS
No. 133, as amended, beginning January 1, 2001. The initial adoption of SFAS
No. 133 did not have a material effect on the Companys consolidated financial
position, results of operations or cash flows.

Note 2  Debt
Debt of the Company and its subsidiaries (in thousands of dollars) consists of
the following:

|                                                                                                                                                                                                     |                                                                                                    |                                                                                        |           |              |         |      |           |        |         | 
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------------- | --------- | ------------ | ------- | ---- | --------- | ------ | ------- | 
|                                                                                                                                                                                                     |                                                                                                    |                                                                                        |           | December 31,
|                                                                                                                                                                                                     |                                                                                                    |                                                                                        |           |             
|                                                                                                                                                                                                     |                                                                                                    |                                                                                        |           | 2001         |         | 2000
|                                                                                                                                                                                                     |                                                                                                    |                                                                                        |           |              |         |     
|Notes payable, including commercial paper, average interest
rate: 2001, 2.9%; 2000, 6.6%                                                                                                             |                                                                                                    | $                                                                                      | 452,497   |              |         | $    | 1,580,391 |       
|                                                                                                                                                                                                    
|                                                                                                                                                                                                    
|                                                                                                                                                                                                    
|                                                                                                                                                                                                    
|Promissory notes, average interest rate: 2001, 6.2%; 2000, 7.1%
(effective average interest rate: 2001, 6.3%; 2000, 7.2%);
net of unamortized discount: 2001, $9,868; 2000, $9,448;
due 2002 to 2028 |                                                                                                    |                                                                                        | 4,590,130 |              |         |      | 3,540,550 |       
|                                                                                                                                                                                                    
|                                                                                                                                                                                                    
|                                                                                                                                                                                                    
|                                                                                                                                                                                                    
|Junior subordinated promissory notes, average interest rate 7.0%;
net of unamortized discount: 2001, $47; 2000, $78; due 2003                                                                        |                                                                                                    |                                                                                        | 249,953   |              |         |      | 249,922   |       
|                                                                                                                                                                                                    
|                                                                                                                                                                                                    
|                                                                                                                                                                                                    
|                                                                                                                                                                                                    
|Subsidiaries debt:                                                                                                                                                                                  |                                                                                                    |                                                                                        |           |              |         |      |           |       
|                                                                                                                                                                                                    
|                                                                                                                                                                                                    
|                                                                                                                                                                                                    
|                                                                                                                                                                                                    
|                                                                                                                                                                                                     | Short-term borrowings:                                                                             |                                                                                        |           |              |         |      |           |        |        
|                                                                                                                                                                                                    
|                                                                                                                                                                                                    
|                                                                                                                                                                                                    
|                                                                                                                                                                                                    
|                                                                                                                                                                                                     |                                                                                                    | Banks, average interest rate: 2001, 4.1%; 2000, 4.9%;
in foreign currencies            |           |              | 437,520 |      |           |        | 516,688 | 
|                                                                                                                                                                                                    
|                                                                                                                                                                                                    
|                                                                                                                                                                                                    
|                                                                                                                                                                                                    
|                                                                                                                                                                                                     |                                                                                                    | Commercial paper, average interest rate: 2001, 3.2%;
2000, 5.5%; in foreign currencies |           |              | 571,586 |      |           |        | 765,467 | 
|                                                                                                                                                                                                    
|                                                                                                                                                                                                    
|                                                                                                                                                                                                    
|                                                                                                                                                                                                    
|                                                                                                                                                                                                     | Other borrowings, average interest rate: 2001, 9.1%; 2000, 7.7%;
in dollars and foreign currencies |                                                                                        |           | 12,346       |         |      |           | 22,970 |        
|                                                                                                                                                                                                     |                                                                                                    |                                                                                        |           |              |         |      |           |       
|Total                                                                                                                                                                                                |                                                                                                    | $                                                                                      | 6,314,032 |              |         | $    | 6,675,988 |       
|                                                                                                                                                                                                     |                                                                                                    |                                                                                        |           |              |         |      |           |       

The aggregate amounts of maturities of debt, in millions, are as follows: 2002,
$2,009.6 (including $1,456.6 of commercial paper, demand and other short-term
borrowings); 2003, $701.4; 2004, $900.2; 2005, $609.5; 2006, $250.3; after
2006, $1,843.0. Included in these maturities at the earliest possible
redemption date are $150 million of promissory notes of the Company at 6.3%,
due 2006, which have a put option that can be exercised by the holders of such
notes in 2002.

At December 31, 2001, Notes payable included a $300 million floating rate loan
outstanding with Ford Motor Credit Company, a wholly owned subsidiary of Ford.
Interest incurred on this loan during 2001 was $5.9 million.

28



---



##### Table of Contents



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

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

The Company and its subsidiaries have entered into arrangements to manage
exposures to fluctuations in interest rates. See Note 13  Financial
Instruments.

During the year ended December 31, 2000, short-term borrowings, in millions,
were as follows: maximum amounts outstanding $3,219.2 commercial paper and
$718.2 banks; monthly average amounts outstanding $2,721.4 commercial paper
(weighted-average interest rate 6.1%) and $565.1 banks (weighted-average
interest rate 4.3%).

During the year ended December 31, 1999, short-term borrowings, in millions,
were as follows: maximum amounts outstanding $2,903.1 commercial paper and
$672.6 banks; monthly average amounts outstanding $2,448.1 commercial paper
(weighted-average interest rate 5.1%) and $559.0 banks (weighted-average
interest rate 3.8%).

The net amortized discount charged to interest expense for the years ended
December 31, 2001, 2000 and 1999 relating to debt and other liabilities, in
millions, was $1.9, $1.8 and $1.3, respectively.

At December 31, 2001, the Company had committed credit facilities totaling $3.4
billion. Of this amount, $2.6 billion is represented by a combination of
multi-year and 364-day global committed credit facilities provided by 29
relationship banks and $200 million of seasonal committed facilities from two
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, 2001, the multi-year facilities totaling $1,403
million were renegotiated and currently expire as follows: $63 million on June
30, 2002, $137 million on June 30, 2003, $46 million on June 30, 2004, $69
million on June 30, 2005 and $1,088 million on June 30, 2006. Effective June
21, 2001, the 364-day facilities totaling $1,170 million were renegotiated and
currently expire on June 19, 2002. The multi-year facilities that expire in
2006 have an evergreen feature which provides for the automatic extension of
the expiration date one year forward unless timely notice is provided by the
bank. Under the terms of the 364-day facilities, the Company is permitted to
convert any amount outstanding prior to expiration into a four-year term loan.
The $200 million of seasonal facilities currently expire as follows: $100
million on April 30, 2002 and $100 million on June 19, 2002.

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,
2003. This line of credit has an evergreen feature that provides on an annual
basis for automatic one-year extensions of the expiration date, unless notice
is provided by Ford at least one year prior to the then scheduled expiration
date. Obligations of the Company under this agreement would rank pari passu
with the Companys senior debt securities. A commitment fee of .10% per annum
is payable on the unused available credit.

The Company maintains a Sales Agency Agreement with Ford Financial Services,
Inc. (FFS), a NASD registered broker/dealer and an indirect wholly owned
subsidiary of Ford, whereby FFS acts as 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
2001, the Company paid FFS approximately $598,000 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.

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, Ireland and the Netherlands. The Company
guarantees only the borrowings of its subsidiaries in Australia, Canada,
Ireland and the Netherlands, 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,
hedged to minimize foreign exchange exposure. At December 31, 2001, total debt
for the foreign operations was $1,021 million, of which $1,009 million was
short-term (original maturity of less than one year) and $12 million was
long-term. At December 31, 2001, total amounts outstanding (in millions of U.S.
dollars) under the Australian, Canadian, Irish and the Netherlands commercial
paper programs were $13, $283, $231 and $45, respectively.

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

29



---



##### Table of Contents



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

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, 2001,
approximately $1,229 million of consolidated stockholders equity was free of
such limitations.

Note 3  Available-for-Sale Securities
As of December 31, 2001 and 2000, 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, 2001, 2000 and 1999, proceeds, in
millions, of $6.3, $6.3 and $3.7, respectively, were received from the sale of
available-for-sale securities, and gross realized gains, in whole dollars, of
$218,538, $61,192 and $23,681 and gross realized losses of $62,162, $36,953 and
$14,398, respectively, were included in earnings. Actual cost was used in
computing the realized gain and loss on the sale. Unrealized gains and losses
are included in Accumulated other comprehensive loss in the consolidated
balance sheet.

The following is a summary of available-for-sale securities at December 31,
2001 and December 31, 2000 (in thousands):

|                            |       |   |       |       |       |   |            |     |            |   |           |     |   |   |       |       | 
|--------------------------- | ----- | - | ----- | ----- | ----- | - | ---------- | --- | ---------- | - | --------- | --- | - | - | ----- | ----- | 
|                            |       |   |       |       |       |   | Gross      |     | Gross      |   | Estimated
|                            |       |   |       |       |       |   | Unrealized |     | Unrealized |   | Fair     
|                            |       |   | Cost  |       | Gains |   | Losses     |     | Value     
|                            |       |   |       |       |       |   |            |     |           
|December 31, 2001           |       |   |       |       |       |   |            |     |            |   |           |     |   |   |       |      
|                           
|                           
|                           
|                           
|Government debt obligations |       | $ | 3,122 |       |       | $ | 18         |     |            | $ | (30       | )   |   | $ | 3,110 |      
|                           
|                           
|                           
|                           
|Corporate debt obligations  |       |   | 4,498 |       |       |   | 177        |     |            |   |          |     |   |   | 4,675 |      
|                            |       |   |       |       |       |   |            |     |            |   |           |     |   |   |       |      
|                            | Total |   | $     | 7,620 |       |   | $          | 195 |            |   | $         | (30 | ) |   | $     | 7,785 | 
|                            |       |   |       |       |       |   |            |     |            |   |           |     |   |   |       |      
|December 31, 2000           |       |   |       |       |       |   |            |     |            |   |           |     |   |   |       |      
|                           
|                           
|                           
|                           
|Government debt obligations |       | $ | 1,731 |       |       | $ | 49         |     |            | $ | (18       | )   |   | $ | 1,762 |      
|                           
|                           
|                           
|                           
|Corporate debt obligations  |       |   | 4,681 |       |       |   | 151        |     |            |   | (11       | )   |   |   | 4,821 |      
|                            |       |   |       |       |       |   |            |     |            |   |           |     |   |   |       |      
|                            | Total |   | $     | 6,412 |       |   | $          | 200 |            |   | $         | (29 | ) |   | $     | 6,583 | 
|                            |       |   |       |       |       |   |            |     |            |   |           |     |   |   |       |      

The amortized cost and estimated fair value of available-for-sale securities at
December 31, 2001 are as follows (in thousands):

|                                       |       |   |       |       |            |   |           |       | 
|-------------------------------------- | ----- | - | ----- | ----- | ---------- | - | --------- | ----- | 
|                                       |       |   |       |       |            |   | Estimated
|                                       |       |   | Cost  |       | Fair Value
|                                       |       |   |       |       |           
|Due in one year or less                |       | $ | 60    |       |            | $ | 60        |      
|                                      
|                                      
|                                      
|                                      
|Due after one year through five years  |       |   | 4,981 |       |            |   | 5,099     |      
|                                      
|                                      
|                                      
|                                      
|Due after five years through ten years |       |   | 1,160 |       |            |   | 1,186     |      
|                                      
|                                      
|                                      
|                                      
|Due after ten years                    |       |   | 1,419 |       |            |   | 1,440     |      
|                                       |       |   |       |       |            |   |           |      
|                                       | Total |   | $     | 7,620 |            |   | $         | 7,785 | 
|                                       |       |   |       |       |            |   |           |      

Note 4  Purchases and Sales of Operations
During the year ended December 31, 2001, the Company acquired one European
equipment rental and sales company, one North American car rental company and
one Australian car rental company. The aggregate purchase price of the
acquisitions was $3.0 million, net of cash acquired, plus the assumption of
$9.0 million of debt. The aggregate consideration exceeded the fair value of
the net assets acquired by approximately $4.7 million, which has been
recognized as goodwill. The goodwill relating to acquisitions made prior to
July 1, 2001 has been amortized over periods from 25 to 40 years through
December 31, 2001. 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.

30



---



##### Table of Contents



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

During the year ended December 31, 2000, the Company acquired four North
American and three European equipment rental and sales companies. The Company
also acquired one North American, one Australian and two European car rental
companies. The aggregate purchase price of the acquisitions was $111.9
million, net of cash acquired, plus the assumption of $33.5 million of debt.
The aggregate consideration exceeded the fair value of the net assets acquired
by approximately $56.7 million, which has been recognized as goodwill and has
been amortized over periods from 20 to 40 years through December 31, 2001. 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 of acquisition, the effect of including their results
would not be material to the results of operations of the Company.

On August 31, 2000, the Company transferred substantially all of the net assets
of its leasing operations in Australia, New Zealand and the United Kingdom to
Axus International, Inc., a wholly owned subsidiary of Ford Motor Credit
Company for $99.2 million net of cash. The transfer was considered a transfer
of net assets between companies under common control, and as such, the excess
proceeds received over the net book value of $16.4 million were recorded as an
adjustment to Additional capital paid-in in the consolidated balance sheet.

During the year ended December 31, 1999, the Company acquired 11 North American
and two European equipment rental and sales companies. The Company also
acquired five European car and truck rental companies. The aggregate purchase
price of the acquisitions was $143.6 million, net of cash acquired, plus the
assumption of $26.1 million of debt. The aggregate consideration exceeded the
fair value of the net assets acquired by approximately $92.1 million, which has
been recognized as goodwill and has been amortized over periods from 15 to 40
years through December 31, 2001. 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 of acquisition
the effect of including their results would not be material to the results of
operations of the Company.

In June 1999, the Company entered into a limited liability company agreement
with a subsidiary of Orbital Sciences Corporation (Orbital), whereby a
limited liability company was formed to purchase NeverLost vehicle navigation
systems from another subsidiary of Orbital for installation in selected
vehicles in the Companys worldwide fleet. During 2001, 2000 and 1999, the
Company received distributions of $2.2 million, invested $1.2 million and $14.8
million, respectively, under this agreement, which represents a 40% ownership
interest. The investment (included in Prepaid expense and other assets in
the consolidated balance sheet) is accounted for using the equity method of
accounting. In July 2001, Orbitals subsidiary sold its interest in the
limited liability company to a subsidiary of Thales North America, Inc., which
also acquired the Orbital subsidiary from whom the NeverLost vehicle navigation
systems are purchased.

31



---



##### Table of Contents



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

Note 5  Employee Retirement Benefits and Income Savings Plans
The following tables set forth the funded status and the net periodic pension
cost of the Hertz Retirement Plan,other postretirement benefit plans for
health care and life insurance covering domestic (U.S.) employees and the
retirement plans for foreign operations (Non-U.S.), together with amounts
included in the consolidated balance sheet and statement of income (in millions
of dollars):

|                                                                                         |                                              |                       |                       |       |                  |       |                |       |                       |       |      |       |      |     |      |       |       |      |   |       |       |      |   |       |       |      |  
|---------------------------------------------------------------------------------------- | -------------------------------------------- | --------------------- | --------------------- | ----- | ---------------- | ----- | -------------- | ----- | --------------------- | ----- | ---- | ----- | ---- | --- | ---- | ----- | ----- | ---- | - | ----- | ----- | ---- | - | ----- | ----- | ---- | -
|                                                                                         |                                              |                       |                       |       | Pension Benefits |       |                |       |                       |       |      |       |     
|                                                                                         |                                              |                       |                       |       |                  |       | Health Care & 
|                                                                                         |                                              |                       |                       |       | U.S. Plans       |       | Non-U.S. Plans |       | Life Insurance (U.S.)
|                                                                                         |                                              |                       |                       |       |                  |       |                |       |                      
|                                                                                         |                                              |                       |                       |       | 2001             |       | 2000           |       | 2001                  |       | 2000 |       | 2001 |     | 2000
|                                                                                         |                                              |                       |                       |       |                  |       |                |       |                       |       |      |       |      |     |     
|Change in Benefit Obligation                                                             |                                              |                       |                       |       |                  |       |                |       |                       |       |      |       |      |     |      |       |       |      |   |       |       |      |   |      
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                         | Benefit obligation at January 1              |                       | $                     | 170.5 |                  |       | $              | 141.1 |                       |       | $    | 44.8  |      |     | $    | 51.4  |       |      | $ | 6.8   |       |      | $ | 8.0   |      
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                         | Service cost                                 |                       |                       | 15.8  |                  |       |                | 13.7  |                       |       |      | 2.3   |      |     |      | 2.8   |       |      |   | .2    |       |      |   | .1    |      
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                         | Interest cost                                |                       |                       | 12.5  |                  |       |                | 11.0  |                       |       |      | 3.1   |      |     |      | 3.4   |       |      |   | .6    |       |      |   | .5    |      
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                         | Amendments                                   |                       |                       |      |                  |       |                | .3    |                       |       |      | .2    |      |     |      |      |       |      |   |      |       |      |   |      |      
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                         | Employee contributions                       |                       |                       |      |                  |       |                |      |                       |       |      | .9    |      |     |      | .8    |       |      |   | .1    |       |      |   | .1    |      
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                         | Benefits paid                                |                       |                       | (5.6  | )                |       |                | (5.0  | )                     |       |      | (1.4  | )    |     |      | (1.4  | )     |      |   | (.4   | )     |      |   | (.3   | )    
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                         | Foreign exchange translation                 |                       |                       |      |                  |       |                |      |                       |       |      | (1.1  | )    |     |      | (3.8  | )     |      |   |      |       |      |   |      |      
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                         | Actuarial loss (gain)                        |                       |                       | 4.4   |                  |       |                | 9.4   |                       |       |      | 7.5   |      |     |      | (8.4  | )     |      |   | 1.0   |       |      |   | (1.6  | )    
|                                                                                         |                                              |                       |                       |       |                  |       |                |       |                       |       |      |       |      |     |      |       |       |      |   |       |       |      |   |      
|                                                                                         | Benefit obligation at December 31            |                       | $                     | 197.6 |                  |       | $              | 170.5 |                       |       | $    | 56.3  |      |     | $    | 44.8  |       |      | $ | 8.3   |       |      | $ | 6.8   |      
|                                                                                         |                                              |                       |                       |       |                  |       |                |       |                       |       |      |       |      |     |      |       |       |      |   |       |       |      |   |      
|Change in Plan Assets                                                                    |                                              |                       |                       |       |                  |       |                |       |                       |       |      |       |      |     |      |       |       |      |   |       |       |      |   |      
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                         | Fair value of plan assets at January 1       |                       | $                     | 139.1 |                  |       | $              | 146.0 |                       |       | $    | 41.4  |      |     | $    | 42.8  |       |      | $ |      |       |      | $ |      |      
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                         | Actual return on plan assets                 |                       |                       | (5.9  | )                |       |                | (3.2  | )                     |       |      | (5.3  | )    |     |      | (1.6  | )     |      |   |      |       |      |   |      |      
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                         | Company contributions                        |                       |                       | 1.5   |                  |       |                | 1.3   |                       |       |      | 2.8   |      |     |      | 1.9   |       |      |   | .3    |       |      |   | .2    |      
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                         | Employee contributions                       |                       |                       |      |                  |       |                |      |                       |       |      | 1.0   |      |     |      | .8    |       |      |   | .1    |       |      |   | .1    |      
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                         | Benefits paid                                |                       |                       | (5.6  | )                |       |                | (5.0  | )                     |       |      | (1.3  | )    |     |      | (1.3  | )     |      |   | (.4   | )     |      |   | (.3   | )    
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                         | Foreign exchange translation                 |                       |                       |      |                  |       |                |      |                       |       |      | (1.1  | )    |     |      | (3.2  | )     |      |   |      |       |      |   |      |      
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                         | Other                                        |                       |                       | (.4   | )                |       |                |      |                       |       |      | 1.0   |      |     |      | 2.0   |       |      |   |      |       |      |   |      |      
|                                                                                         |                                              |                       |                       |       |                  |       |                |       |                       |       |      |       |      |     |      |       |       |      |   |       |       |      |   |      
|                                                                                         | Fair value of plan assets at December 31     |                       | $                     | 128.7 |                  |       | $              | 139.1 |                       |       | $    | 38.5  |      |     | $    | 41.4  |       |      | $ |      |       |      | $ |      |      
|                                                                                         |                                              |                       |                       |       |                  |       |                |       |                       |       |      |       |      |     |      |       |       |      |   |       |       |      |   |      
|Funded Status of the Plan                                                                |                                              |                       |                       |       |                  |       |                |       |                       |       |      |       |      |     |      |       |       |      |   |       |       |      |   |      
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                         | Plan assets less than benefit obligation     |                       | $                     | (68.9 | )                |       | $              | (31.4 | )                     |       | $    | (17.8 | )    |     | $    | (3.4  | )     |      | $ | (8.3  | )     |      | $ | (6.8  | )    
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                         | Unamortized:                                 |                       |                       |       |                  |       |                |       |                       |       |      |       |      |     |      |       |       |      |   |       |       |      |   |       |      
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                         |                                              |                       | Transition obligation |       |                  |      |                |       |                       |      |      |       |      | .1  |      |       |       | .1   |   |       |       |     |   |       |       |     |  
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                         |                                              |                       | Prior service cost    |       |                  | 4.2   |                |       |                       | 4.1   |      |       |      | .1  |      |       |       |     |   |       |       |     |   |       |       |     |  
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                         |                                              |                       | Net (gains) losses    |       |                  | (22.7 | )              |       |                       | (44.1 | )    |       |      | 8.4 |      |       |       | (7.1 | ) |       |       | (2.2 | ) |       |       | (3.5 | )
|                                                                                         |                                              |                       |                       |       |                  |       |                |       |                       |       |      |       |      |     |      |       |       |      |   |       |       |      |   |      
|                                                                                         | Net amount recognized                        |                       | $                     | (87.4 | )                |       | $              | (71.4 | )                     |       | $    | (9.2  | )    |     | $    | (10.4 | )     |      | $ | (10.5 | )     |      | $ | (10.3 | )    
|                                                                                         |                                              |                       |                       |       |                  |       |                |       |                       |       |      |       |      |     |      |       |       |      |   |       |       |      |   |      
|Amounts Recognized in the Balance Sheet                                                  |                                              |                       |                       |       |                  |       |                |       |                       |       |      |       |      |     |      |       |       |      |   |       |       |      |   |      
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                         | Assets/(Liabilities)                         |                       |                       |       |                  |       |                |       |                       |       |      |       |      |     |      |       |       |      |   |       |       |      |   |       |      
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                         | Intangible assets (including prepaid assets) |                       | $                     | 1.8   |                  |       | $              | 1.9   |                       |       | $    | .3    |      |     | $    |      |       |      | $ |      |       |      | $ |      |      
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                         | Accrued liabilities                          |                       |                       | (90.6 | )                |       |                | (74.6 | )                     |       |      | (9.8  | )    |     |      | (11.0 | )     |      |   | (10.5 | )     |      |   | (10.3 | )    
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                         | Deferred Income Tax                          |                       |                       | .5    |                  |       |                | .5    |                       |       |      | .1    |      |     |      | .1    |       |      |   |      |       |      |   |      |      
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                         | Accumulated other comprehensive income       |                       |                       | .9    |                  |       |                | .8    |                       |       |      | .2    |      |     |      | .5    |       |      |   |      |       |      |   |      |      
|                                                                                         |                                              |                       |                       |       |                  |       |                |       |                       |       |      |       |      |     |      |       |       |      |   |       |       |      |   |      
|                                                                                         |                                              | Net amount recognized |                       | $     | (87.4            | )     |                | $     | (71.4                 | )     |      | $     | (9.2 | )   |      | $     | (10.4 | )    |   | $     | (10.5 | )    |   | $     | (10.3 | )   
|                                                                                         |                                              |                       |                       |       |                  |       |                |       |                       |       |      |       |      |     |      |       |       |      |   |       |       |      |   |      
|Pension Plans in Which Accumulated Benefit
Obligation Exceeds Plan Assets at December 31 |                                              |                       |                       |       |                  |       |                |       |                       |       |      |       |      |     |      |       |       |      |   |       |       |      |   |      
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                         | Projected benefit obligation                 |                       | $                     | 197.6 |                  |       | $              | 27.3  |                       |       | $    | 11.6  |      |     | $    | 11.3  |       |      |   |       |       |      |   |       |      
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                         | Accumulated benefit obligation               |                       |                       | 157.2 |                  |       |                | 21.9  |                       |       |      | 10.2  |      |     |      | 10.1  |       |      |   |       |       |      |   |       |      
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                         | Fair value of plan assets                    |                       |                       | 128.7 |                  |       |                |      |                       |       |      | 1.5   |      |     |      | 1.2   |       |      |   |       |       |      |   |       |      
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|Assumptions as of December 31                                                            |                                              |                       |                       |       |                  |       |                |       |                       |       |      |       |      |     |      |       |       |      |   |       |       |      |   |      
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                         | Discount rate                                |                       |                       | 7.25  | %                |       |                | 7.5   | %                     |       |      | 5.5   | %-   |     |      | 5.5   | %-    |      |   | 7.25  | %     |      |   | 7.5   | %    
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                         |                                              |                       |                       |       |                  |       |                |       |                       |       | 7.25 | %     |      |     | 7.5  | %    
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                         | Expected return on assets                    |                       |                       | 9.5   | %                |       |                | 9.5   | %                     |       |      | 5.5   | %-   |     |      | 7.0   | %-    |      |   | N/A   |       |      |   | N/A   |      
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                         |                                              |                       |                       |       |                  |       |                |       |                       |       | 7.5  | %     |      |     | 8.0  | %    
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                         | Average rate of increase in compensation     |                       |                       | 5.5   | %                |       |                | 5.5   | %                     |       |      | 2.5   | %-   |     |      | 3.0   | %-    |      |   | N/A   |       |      |   | N/A   |      
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                         |                                              |                       |                       |       |                  |       |                |       |                       |       | 4.5  | %     |      |     | 5.0  | %    
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                         | Initial health care cost trend rate          |                       |                       |      |                  |       |                |      |                       |       |      |      |      |     |      |      |       |      |   | 8.5   | %     |      |   | 7.0   | %    
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                         | Ultimate health care cost trend rate         |                       |                       |      |                  |       |                |      |                       |       |      |      |      |     |      |      |       |      |   | 5.0   | %     |      |   | 5.0   | %    
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                         | Number of years to ultimate trend rate       |                       |                       |      |                  |       |                |      |                       |       |      |      |      |     |      |      |       |      |   | 5     |       |      |   | 8     |      

32




---



##### Table of Contents



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

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. Pension expense for the U.S. Domestic plan reflects a change in
the marketrelated value of asset methodology made as of January 1, 2000, the
effect of which was not considered material. Plan assets consist principally
of investments in stocks, government bonds and other fixed income securities.

|                                           |                                             |                          |     |                          |      |                  |      |      |    |          |      |       |      |          |      |      |   |  |      |      |     |  |      |      |    |  |     |                    |     |   |      |     |      |   |     |    |   | 
|------------------------------------------ | ------------------------------------------- | ------------------------ | --- | ------------------------ | ---- | ---------------- | ---- | ---- | -- | -------- | ---- | ----- | ---- | -------- | ---- | ---- | - |  | ---- | ---- | --- |  | ---- | ---- | -- |  | --- | ------------------ | --- | - | ---- | --- | ---- | - | --- | -- | - | 
|                                           |                                             |                          |     | Years ended December 31,
|                                           |                                             |                          |     |                         
|                                           |                                             |                          |     |                          |      |                  |      |      |    |          |      |       |      |          |      |      |   |  |      |      |     |  |      |      |    |  |     | Health Care & Life
|                                           |                                             |                          |     | Pension Benefits         |      | Insurance (U.S.)
|                                           |                                             |                          |     |                          |      |                 
|                                           |                                             |                          |     | 2001                     |      | 2000             |      | 1999 |    | 2001     |      | 2000  |      | 1999    
|                                           |                                             |                          |     |                          |      |                  |      |      |    |          |      |       |      |         
|                                           |                                             |                          |     | U.S.                     |      | Non-U.S.         |      | U.S. |    | Non-U.S. |      | U.S.  |      | Non-U.S. |      |      |   |  |      |      |     |  |      |      |    | 
|                                           |                                             |                          |     |                          |      |                  |      |      |    |          |      |       |      |          |      |      |   |  |      |      |     |  |      |      |    | 
|Components of net periodic benefit
cost:   |                                             |                          |     |                          |      |                  |      |      |    |          |      |       |      |          |      |      |   |  |      |      |     |  |      |      |    |  |     |                    |     |   |      |     |      |   |     |   
|                                          
|                                          
|                                          
|                                          
|                                           | Service cost                                |                          | $   | 15.8                     |      |                  | $    | 2.3  |    |          | $    | 13.7  |      |          | $    | 2.8  |   |  | $    | 13.0 |     |  | $    | 2.9  |    |  | $   | .2                 |     |   | $    | .1  |      |   | $   | .3 |  
|                                          
|                                          
|                                          
|                                          
|                                           | Interest cost                               |                          |     | 12.5                     |      |                  |      | 3.0  |    |          |      | 11.0  |      |          |      | 3.3  |   |  |      | 9.9  |     |  |      | 3.2  |    |  |     | .6                 |     |   |      | .5  |      |   |     | .5 |  
|                                          
|                                          
|                                          
|                                          
|                                           | Expected return on plan assets              |                          |     | (12.7                    | )    |                  |      | (3.3 | )  |          |      | (11.0 | )    |          |      | (3.5 | ) |  |      | (9.1 | )   |  |      | (3.5 | )  |  |     |                   |     |   |      |    |      |   |     |   |  
|                                          
|                                          
|                                          
|                                          
|                                           | Amortization:                               |                          |     |                          |      |                  |      |      |    |          |      |       |      |          |      |      |   |  |      |      |     |  |      |      |    |  |     |                    |     |   |      |     |      |   |     |    |  
|                                          
|                                          
|                                          
|                                          
|                                           |                                             | Transition               |     |                          |     |                  |      |      |   |          |      |       | .2   |          |      |      |  |  |      |      | .3  |  |      |      |   |  |     |                    |    |   |      |     |     |   |     |    |  | 
|                                          
|                                          
|                                          
|                                          
|                                           |                                             | Amendments               |     |                          | .3   |                  |      |      | .1 |          |      |       | .3   |          |      |      |  |  |      |      | .3  |  |      |      |   |  |     |                    |    |   |      |     |     |   |     |    |  | 
|                                          
|                                          
|                                          
|                                          
|                                           |                                             | (Gains) losses and other |     |                          | (1.0 | )                |      |      | .2 |          |      |       | (3.3 | )        |      |      |  |  |      |      | 1.1 |  |      |      | .6 |  |     |                    | (.2 | ) |      |     | (1.0 | ) |     |    |  | 
|                                           |                                             |                          |     |                          |      |                  |      |      |    |          |      |       |      |          |      |      |   |  |      |      |     |  |      |      |    |  |     |                    |     |   |      |     |      |   |     |   
|                                           | Net pension/post-retirement
expense(income) |                          | $   | 14.9                     |      |                  | $    | 2.3  |    |          | $    | 10.9  |      |          | $    | 2.6  |   |  | $    | 15.5 |     |  | $    | 3.2  |    |  | $   | .6                 |     |   | $    | (.4 | )    |   | $   | .8 |  
|                                           |                                             |                          |     |                          |      |                  |      |      |    |          |      |       |      |          |      |      |   |  |      |      |     |  |      |      |    |  |     |                    |     |   |      |     |      |   |     |   
|Discount rate for expense                  |                                             |                          | 7.5 | %                        |      |                  | 5.5  | %-   |    |          | 7.75 | %     |      |          | 5.5  | %-   |   |  | 6.25 | %    |     |  | 5.5  | %-   |    |  | 7.5 | %                  |     |   | 7.75 | %   |      |   | 6.5 | % 
|                                          
|                                          
|                                          
|                                          
|                                           |                                             |                          |     |                          |      |                  | 7.75 | %    |    |          |      |       |      |          | 7.75 | %    |   |  |      |      |     |  | 7.5  | %    |    |  |     |                    |     |   |      |     |      |   |     |   
|                                          
|                                          
|                                          
|                                          
|Assumed long-term rate of return on
assets |                                             |                          | 9.5 | %                        |      |                  | 7.0  | %-   |    |          | 9.0  | %     |      |          | 7.0  | %-   |   |  | 9.0  | %    |     |  | 6.25 | %-   |    |  |     |                    |     |   |      |     |      |   |     |   
|                                          
|                                          
|                                          
|                                          
|                                           |                                             |                          |     |                          |      |                  | 8.0  | %    |    |          |      |       |      |          | 8.0  | %    |   |  |      |      |     |  | 8.5  | %    |    |  |     |                    |     |   |      |     |      |   |     |   
|                                          
|                                          
|                                          
|                                          
|Initial health care cost trend rate        |                                             |                          |    |                          |      |                  |     |      |    |          |     |       |      |          |     |      |   |  |     |      |     |  |     |      |    |  | 7.0 | %                  |     |   | 7.25 | %   |      |   | 7.5 | % 
|                                          
|                                          
|                                          
|                                          
|Ultimate health care cost trend rate       |                                             |                          |    |                          |      |                  |     |      |    |          |     |       |      |          |     |      |   |  |     |      |     |  |     |      |    |  | 5.0 | %                  |     |   | 5.0  | %   |      |   | 5.0 | % 
|                                          
|                                          
|                                          
|                                          
|Number of years to ultimate trend rate     |                                             |                          |    |                          |      |                  |     |      |    |          |     |       |      |          |     |      |   |  |     |      |     |  |     |      |    |  | 8   |                    |     |   | 9    |     |      |   | 10  |   

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

|                                                        |  |                |         |                |  |   |         | 
|------------------------------------------------------- |  | -------------- | ------- | -------------- |  | - | ------- | 
|                                                        |  | One Percentage |         | One Percentage
|                                                        |  | Point Increase |         | Point Decrease
|                                                        |  |                |         |               
|Effect on total of service and interest cost components |  | $              | 44,700  |                |  | $ | 40,300  | 
|                                                       
|                                                       
|                                                       
|                                                       
|Effect on postretirement benefit obligation             |  |                | 382,100 |                |  |   | 348,000 | 

The estimated cost for postretirement health care and life insurance benefits
is accrued on an actuarially determined basis. The participation assumption
was changed in 2000 to reflect historical experience, the effect of which was
not considered material.

The provisions charged to income for the years ended December 31, 2001, 2000
and 1999 for all other pension plans were approximately (in millions) $10.3,
$10.1 and $9.7, respectively.

The provisions charged to income for the years ended December 31, 2001, 2000
and 1999 for the Hertz Income Savings Plan were approximately (in millions)
$6.9, $6.6 and $6.1, respectively.

Note 6  Stock-Based Compensation
Certain employees of the Company participate in the stock option plan of Ford
under Fords 1998 Long-Term Incentive Plan (the Plan). Grants may be made
under the Plan through April 2008. Options granted under the Plan become
exercisable 33% after one year from the date of grant, 66% after two years and
in full after three years. Options under the Plan expire after 10 years from
the date of grant.

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

33



---



##### Table of Contents



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

In 2000, the Company granted awards of 100,000 shares of restricted stock.
During the year ended December 31, 2000, 9,862 shares of restricted stock were
forfeited. Upon issuance of the restricted shares, the unamortized value of
restricted stock was charged to stockholders equity and amortized as
compensation expense ratably over the restriction periods. Total compensation
cost charged against income related to restricted stock awards was $5.5
million, $2.7 million and $4.4 million in 2001, 2000 and 1999, 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 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 2001, 2000 and 1999:
risk-free interest rate of 5.16%, 6.77% and 4.86%, respectively; volatility
factors of 44%, 42% and 33%, respectively; dividend yields of 3.97%, .48% and
..48%, respectively; and an average expected life of the options of five years
for 2001 and four years for 2000 and 1999. For purposes of pro forma
disclosures, the estimated fair values of the options are amortized to expense
over the options 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 would have been $14.5 million, $348.2 million and $328.9 million in
2001, 2000 and 1999, respectively.

A summary of option transactions is presented below:

|                                                           |  |           |           |          |  |           |       |          |  |           |           |          |  |   |       |  |  |          |           |   |  |   |       | 
|---------------------------------------------------------- |  | --------- | --------- | -------- |  | --------- | ----- | -------- |  | --------- | --------- | -------- |  | - | ----- |  |  | -------- | --------- | - |  | - | ----- | 
|                                                           |  | 2001      |           | 2000     |  | 1999     
|                                                           |  |           |           |          |  |          
|                                                           |  |           |           |          |  | Weighted  |       |          |  |           |           | Weighted |  |   |       |  |  | Weighted
|                                                           |  |           |           |          |  | Average   |       |          |  |           |           | Average  |  |   |       |  |  | Average 
|                                                           |  | Number of |           | Exercise |  | Number of |       | Exercise |  | Number of |           | Exercise
|                                                           |  | Shares    |           | Price    |  | Shares    |       | Price    |  | Shares    |           | Price   
|                                                           |  |           |           |          |  |           |       |          |  |           |           |         
|Outstanding at January 1                                   |  |           | 3,446,621 |          |  | $         | 40.39 |          |  |           | 2,683,527 |          |  | $ | 39.17 |  |  |          | 2,066,501 |   |  | $ | 35.98 | 
|                                                          
|                                                          
|                                                          
|                                                          
|Granted                                                    |  |           | 5,000     |          |  | $         | 34.00 |          |  |           | 1,107,400 |          |  | $ | 41.75 |  |  |          | 1,166,700 |   |  | $ | 41.53 | 
|                                                          
|                                                          
|                                                          
|                                                          
|Expired or canceled                                        |  |           | (384,227  | )        |  | $         | 41.05 |          |  |           | (221,352  | )        |  | $ | 41.42 |  |  |          | (72,731   | ) |  | $ | 41.54 | 
|                                                          
|                                                          
|                                                          
|                                                          
|Exercised                                                  |  |           | (416,404  | )        |  | $         | 24.00 |          |  |           | (122,954  | )        |  | $ | 24.18 |  |  |          | (476,943  | ) |  | $ | 30.74 | 
|                                                          
|                                                          
|                                                          
|                                                          
|Ford adjustment (a)                                        |  |           | 576,245   |          |  |           |       |          |  |           |           |          |  |   |       |  |  |          |           |   |  |   |       | 
|                                                          
|                                                          
|                                                          
|                                                          
|Ford stock options granted                                 |  |           | 1,581,525 |          |  | $         | 27.42 |          |  |           |          |          |  |   |       |  |  |          |          |   |  |   |       | 
|                                                          
|                                                          
|                                                          
|                                                          
|Ford stock options cancelled                               |  |           | (161,633  | )        |  | $         | 32.70 |          |  |           |          |          |  |   |       |  |  |          |          |   |  |   |       | 
|                                                           |  |           |           |          |  |           |       |          |  |           |           |          |  |   |       |  |  |          |           |   |  |   |       | 
|Outstanding at December 31                                 |  |           | 4,647,127 |          |  | $         | 33.46 |          |  |           | 3,446,621 |          |  | $ | 40.39 |  |  |          | 2,683,527 |   |  | $ | 39.17 | 
|                                                           |  |           |           |          |  |           |       |          |  |           |           |          |  |   |       |  |  |          |           |   |  |   |       | 
|Options exercisable at year-end                            |  |           | 1,783,032 |          |  | $         | 37.77 |          |  |           | 1,542,747 |          |  | $ | 37.78 |  |  |          | 511,733   |   |  | $ | 33.61 | 
|                                                          
|                                                          
|                                                          
|                                                          
|Weighted-average fair value of
options granted during year |  |           |           |          |  | $         | 8.64  |          |  |           |           |          |  | $ | 18.89 |  |  |          |           |   |  | $ | 13.29 | 



|(a) |  | Outstanding Hertz stock option grants were converted to Ford stock option
grants as a result of the Merger.
|--- |  | -----------------------------------------------------------------------------------------------------------

The following table summarizes information about stock options outstanding at
December 31, 2001:

|                         |  |                        |           |                        |  |          |     |             |  |           |       |         |  |          |         |  |  |   |       | 
|------------------------ |  | ---------------------- | --------- | ---------------------- |  | -------- | --- | ----------- |  | --------- | ----- | ------- |  | -------- | ------- |  |  | - | ----- | 
|                         |  | Options Outstanding at |           | Options Exercisable at
|                         |  | December 31, 2001      |           | December 31, 2001     
|                         |  |                        |           |                       
|                         |  |                        |           |                        |  | Weighted |     | Weighted    |  |           |       |         |  | Weighted
|                         |  |                        |           |                        |  | Average  |     | Average     |  | Number of |       | Average
|                         |  | Number of              |           | Remaining              |  | Exercise |     | Shares      |  | Exercise 
|Range of Exercise Prices |  | Shares                 |           | Contractual Life       |  | Price    |     | Exercisable |  | Price    
|                         |  |                        |           |                        |  |          |     |             |  |          
|$30.19  $42.52          |  |                        | 708,399   |                        |  |          | 6.3 |             |  | $         | 41.42 |         |  |          | 708,399 |  |  | $ | 41.42 | 
|                        
|                        
|                        
|                        
|$35.19                   |  |                        | 1,027,398 |                        |  |          | 7.1 |             |  | $         | 35.19 |         |  |          | 686,490 |  |  | $ | 35.19 | 
|                        
|                        
|                        
|                        
|$30.19  $35.77          |  |                        | 1,155,117 |                        |  |          | 8.1 |             |  | $         | 35.67 |         |  |          | 388,143 |  |  | $ | 35.67 | 
|                        
|                        
|                        
|                        
|$27.42  $30.19          |  |                        | 1,756,213 |                        |  |          | 9.2 |             |  | $         | 27.79 |         |  |          |        |  |  |   |      | 

34



---



##### Table of Contents



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

Note 7  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, 2001, on a weighted-average basis, approximately
63% of the cars acquired by the Company for its U.S. car rental fleet, and
approximately 26% of the cars acquired by the Company for its international
fleet, were manufactured by Ford. During 2001, approximately 58% of the cars acquired by
the Company domestically were manufactured by Ford and approximately 24%
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.

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

|                                                          |       |   |                          |           |      |   |           |           |  |   |           |           | 
|--------------------------------------------------------- | ----- | - | ------------------------ | --------- | ---- | - | --------- | --------- |  | - | --------- | --------- | 
|                                                          |       |   | Years ended December 31,
|                                                          |       |   |                         
|                                                          |       |   | 2001                     |           | 2000 |   | 1999     
|                                                          |       |   |                          |           |      |   |          
|Depreciation of revenue earning equipment                 |       | $ | 1,443,893                |           |      | $ | 1,364,935 |           |  | $ | 1,251,891 |          
|                                                         
|                                                         
|                                                         
|                                                         
|Adjustment of depreciation upon disposal of the equipment |       |   | 1,610                    |           |      |   | (54,546   | )         |  |   | (42,301   | )        
|                                                         
|                                                         
|                                                         
|                                                         
|Rents paid for vehicles leased                            |       |   | 16,807                   |           |      |   | 13,112    |           |  |   | 18,463    |          
|                                                          |       |   |                          |           |      |   |           |           |  |   |           |          
|                                                          | Total |   | $                        | 1,462,310 |      |   | $         | 1,323,501 |  |   | $         | 1,228,053 | 
|                                                          |       |   |                          |           |      |   |           |           |  |   |           |          

The adjustment of depreciation upon disposal of revenue earning equipment for
the years ended December 31, 2001, 2000 and 1999 included (in millions) net
gains of $13.0, $14.8 and $23.9, respectively, on the sale of industrial and
construction equipment, and a net loss of $14.6, net gains of $39.7 and $18.4,
respectively, on the sale of cars used in the car rental and car leasing
operations.

Effective January 1, 2000, certain lives being used to compute the provision
for depreciation of revenue earning equipment used in the Companys domestic
industrial and construction equipment rental operations were increased to
reflect changes in the estimated residual values to be realized when the
equipment is sold. As a result of this change, depreciation of revenue earning
equipment for the year ended December 31, 2000 decreased $12.9 million.
Periodic evaluations of changes in estimated residual values resulted in
similar revisions to certain asset lives in January 1997 and July 1994.

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, 2001 and 2000, Ford owed the Company and its subsidiaries
$143.3 million and $343.6 million, respectively, in connection with various car
repurchase and warranty programs. As of December 31, 2001 and 2000,
the Company and its subsidiaries owed Ford $55.4 million and $75.6 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 years ended December 31, 2001, 2000 and 1999, the Company purchased
Ford cars at a cost of approximately (in billions) $4.4, $4.6 and $4.3,
respectively and sold cars to Ford or its affiliates under various repurchase
programs for approximately $3.3, $3.2 and $3.2, respectively.

35



---



##### Table of Contents



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

Note 8  Taxes on Income
The provision (benefit) for taxes on income consists of the following (in
thousands of dollars):

|          |                 |                |                           |         |                          |         |      |         |         |         |   |        |         |         | 
|--------- | --------------- | -------------- | ------------------------- | ------- | ------------------------ | ------- | ---- | ------- | ------- | ------- | - | ------ | ------- | ------- | 
|          |                 |                |                           |         | Years ended December 31,
|          |                 |                |                           |         |                         
|          |                 |                |                           |         | 2001                     |         | 2000 |         | 1999   
|          |                 |                |                           |         |                          |         |      |         |        
|Current:  |                 |                |                           |         |                          |         |      |         |         |         |   |       
|         
|         
|         
|         
|          | Federal         |                | $                         | 12,084  |                          |         | $    | 55,642  |         |         | $ | 95,726 |        
|         
|         
|         
|         
|          | Foreign         |                |                           | 13,372  |                          |         |      | 18,475  |         |         |   | 31,799 |        
|         
|         
|         
|         
|          | State and local |                |                           | 1,700   |                          |         |      | 12,939  |         |         |   | 17,267 |        
|          |                 |                |                           |         |                          |         |      |         |         |         |   |       
|          |                 | Total current  |                           |         | 27,156                   |         |      |         | 87,056  |         |   |        | 144,792 |        
|          |                 |                |                           |         |                          |         |      |         |         |         |   |       
|Deferred: |                 |                |                           |         |                          |         |      |         |         |         |   |       
|         
|         
|         
|         
|          | Federal         |                |                           | (46,900 | )                        |         |      | 100,100 |         |         |   | 57,900 |        
|         
|         
|         
|         
|          | Foreign         |                |                           | 900     |                          |         |      | 18,500  |         |         |   | 7,700  |        
|         
|         
|         
|         
|          | State and local |                |                           | (1,700  | )                        |         |      | 16,800  |         |         |   | 14,000 |        
|          |                 |                |                           |         |                          |         |      |         |         |         |   |       
|          |                 | Total deferred |                           |         | (47,700                  | )       |      |         | 135,400 |         |   |        | 79,600  |        
|          |                 |                |                           |         |                          |         |      |         |         |         |   |       
|          |                 |                | Total provision (benefit) |         | $                        | (20,544 | )    |         | $       | 222,456 |   |        | $       | 224,392 | 
|          |                 |                |                           |         |                          |         |      |         |         |         |   |       

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

|                                                                            |                                    |   |                          |         |      |   |         |         |  |   |         |        | 
|--------------------------------------------------------------------------- | ---------------------------------- | - | ------------------------ | ------- | ---- | - | ------- | ------- |  | - | ------- | ------ | 
|                                                                            |                                    |   | Years ended December 31,
|                                                                            |                                    |   |                         
|                                                                            |                                    |   | 2001                     |         | 2000 |   | 1999   
|                                                                            |                                    |   |                          |         |      |   |        
|Difference between tax and book depreciation                                |                                    | $ | (10,284                  | )       |      | $ | 111,190 |         |  | $ | 95,206  |       
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|Accrued and prepaid expense deducted for tax purposes
when paid or incurred |                                    |   | (12,267                  | )       |      |   | 30,392  |         |  |   | (18,236 | )     
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|Tax operating loss utilized (carryforwards)                                 |                                    |   | 7,029                    |         |      |   | (1,616  | )       |  |   | 1,753   |       
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|Foreign tax credit carryforwards                                            |                                    |   | (30,026                  | )       |      |   | (4,566  | )       |  |   |        |       
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|Federal alternative minimum tax credit (carryforwards) utilized             |                                    |   | (2,152                   | )       |      |   |        |         |  |   | 877     |       
|                                                                            |                                    |   |                          |         |      |   |         |         |  |   |         |       
|                                                                            | Total deferred provision (benefit) |   | $                        | (47,700 | )    |   | $       | 135,400 |  |   | $       | 79,600 | 
|                                                                            |                                    |   |                          |         |      |   |         |         |  |   |         |       

The principal items in the deferred tax liability at December 31, 2001 and 2000
are as follows (in thousands of dollars):

|                                                                            |       |   |          |         |      |   |          |         | 
|--------------------------------------------------------------------------- | ----- | - | -------- | ------- | ---- | - | -------- | ------- | 
|                                                                            |       |   | 2001     |         | 2000
|                                                                            |       |   |          |         |     
|Difference between tax and book depreciation                                |       | $ | 580,961  |         |      | $ | 591,245  |        
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|Accrued and prepaid expense deducted for tax purposes when
paid or incurred |       |   | (180,121 | )       |      |   | (167,854 | )      
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|Tax operating loss carryforwards                                            |       |   | (5,296   | )       |      |   | (12,325  | )      
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|Foreign tax credit carryforwards                                            |       |   | (34,592  | )       |      |   | (4,566   | )      
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|Federal alternative minimum tax credit carryforwards                        |       |   | (2,152   | )       |      |   |         |        
|                                                                            |       |   |          |         |      |   |          |        
|                                                                            | Total |   | $        | 358,800 |      |   | $        | 406,500 | 
|                                                                            |       |   |          |         |      |   |          |        

The tax operating loss carryforwards at December 31, 2001 of $5.3 million
relate to certain foreign operations and have the following expiration dates
(in millions): $2.3 in 2005, $1.1 in 2006, $.2 in 2007, $.8 in 2008 and $.9
with no expiration date. It is anticipated that such operations will become
profitable in the future and the carryforwards will be fully utilized. The
foreign tax credit carryforwards at December 31, 2001 of $34.6 million expire
as follows (in millions): $4.6 in 2004, $4.7 in 2005 and $25.3 in 2006. The
alternative minimum tax credit carryforward at December 31, 2001 of $2.2
million has no expiration date.

36



---



##### Table of Contents



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):

|                                                                                                                                                                                                                                                               |                           |   |                          |         |      |   |         |         |  |   |         |         | 
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------- | - | ------------------------ | ------- | ---- | - | ------- | ------- |  | - | ------- | ------- | 
|                                                                                                                                                                                                                                                               |                           |   | Years ended December 31,
|                                                                                                                                                                                                                                                               |                           |   |                         
|                                                                                                                                                                                                                                                               |                           |   | 2001                     |         | 2000 |   | 1999   
|                                                                                                                                                                                                                                                               |                           |   |                          |         |      |   |        
|Computed tax at statutory rate                                                                                                                                                                                                                                 |                           | $ | 953                      |         |      | $ | 203,302 |         |  | $ | 196,138 |        
|                                                                                                                                                                                                                                                              
|                                                                                                                                                                                                                                                              
|                                                                                                                                                                                                                                                              
|                                                                                                                                                                                                                                                              
|State and local income taxes, net of Federal income tax benefit                                                                                                                                                                                                |                           |   |                         |         |      |   | 19,330  |         |  |   | 20,324  |        
|                                                                                                                                                                                                                                                              
|                                                                                                                                                                                                                                                              
|                                                                                                                                                                                                                                                              
|                                                                                                                                                                                                                                                              
|Foreign tax credits                                                                                                                                                                                                                                            |                           |   | (30,175                  | )       |      |   | (3,800  | )       |  |   |        |        
|                                                                                                                                                                                                                                                              
|                                                                                                                                                                                                                                                              
|                                                                                                                                                                                                                                                              
|                                                                                                                                                                                                                                                              
|Tax effect on the amortization of goodwill                                                                                                                                                                                                                     |                           |   | 7,482                    |         |      |   | 6,881   |         |  |   | 7,176   |        
|                                                                                                                                                                                                                                                              
|                                                                                                                                                                                                                                                              
|                                                                                                                                                                                                                                                              
|                                                                                                                                                                                                                                                              
|Increase in valuation allowance                                                                                                                                                                                                                                |                           |   | 6,934                    |         |      |   |        |         |  |   |        |        
|                                                                                                                                                                                                                                                              
|                                                                                                                                                                                                                                                              
|                                                                                                                                                                                                                                                              
|                                                                                                                                                                                                                                                              
|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 |                           |   | (3,272                   | )       |      |   | (2,148  | )       |  |   | 3,790   |        
|                                                                                                                                                                                                                                                              
|                                                                                                                                                                                                                                                              
|                                                                                                                                                                                                                                                              
|                                                                                                                                                                                                                                                              
|All other items, net                                                                                                                                                                                                                                           |                           |   | (2,466                   | )       |      |   | (1,109  | )       |  |   | (3,036  | )      
|                                                                                                                                                                                                                                                               |                           |   |                          |         |      |   |         |         |  |   |         |        
|                                                                                                                                                                                                                                                               | Total provision (benefit) |   | $                        | (20,544 | )    |   | $       | 222,456 |  |   | $       | 224,392 | 
|                                                                                                                                                                                                                                                               |                           |   |                          |         |      |   |         |         |  |   |         |        

Note 9  Lease and Concession Agreements
Hertz has various concession agreements, which provide for payment of rents and
a percentage of revenue with a guaranteed minimum, and real estate leases under
which the following amounts were expensed (in thousands of dollars):

|                 |                                       |       |        |                          |         |      |        |         |         |   |        |         |         | 
|---------------- | ------------------------------------- | ----- | ------ | ------------------------ | ------- | ---- | ------ | ------- | ------- | - | ------ | ------- | ------- | 
|                 |                                       |       |        | Years ended December 31,
|                 |                                       |       |        |                         
|                 |                                       |       |        | 2001                     |         | 2000 |        | 1999   
|                 |                                       |       |        |                          |         |      |        |        
|Rents            |                                       | $     | 86,102 |                          |         | $    | 76,495 |         |         | $ | 57,362 |        
|                
|                
|                
|                
|Concession fees: |                                       |       |        |                          |         |      |        |         |         |   |        |        
|                
|                
|                
|                
|                 | Minimum fixed obligations             |       |        | 221,367                  |         |      |        | 202,685 |         |   |        | 170,724 |        
|                
|                
|                
|                
|                 | Additional amounts, based on revenues |       |        | 116,546                  |         |      |        | 131,630 |         |   |        | 147,723 |        
|                 |                                       |       |        |                          |         |      |        |         |         |   |        |        
|                 |                                       | Total |        | $                        | 424,015 |      |        | $       | 410,810 |   |        | $       | 375,809 | 
|                 |                                       |       |        |                          |         |      |        |         |         |   |        |        

As of December 31, 2001, minimum obligations under existing agreements referred
to above are approximately as follows (in thousands of dollars):

|                         |  |       |        |             |  |   |         | 
|------------------------ |  | ----- | ------ | ----------- |  | - | ------- | 
|                         |  | Rents |        | Concessions
|                         |  |       |        |            
|Years ended December 31, |  |       |        |             |  |   |         | 
|                        
|                        
|                        
|                        
|2002                     |  | $     | 60,898 |             |  | $ | 158,189 | 
|                        
|                        
|                        
|                        
|2003                     |  |       | 52,841 |             |  |   | 118,409 | 
|                        
|                        
|                        
|                        
|2004                     |  |       | 45,427 |             |  |   | 79,409  | 
|                        
|                        
|                        
|                        
|2005                     |  |       | 34,684 |             |  |   | 55,001  | 
|                        
|                        
|                        
|                        
|2006                     |  |       | 26,231 |             |  |   | 38,888  | 
|                        
|                        
|                        
|                        
|Years after 2006         |  |       | 91,367 |             |  |   | 262,373 | 

In addition to the above, Hertz has various leases on revenue earning equipment
and office and computer equipment under which the following amounts were
expensed (in thousands of dollars):

|                              |       |   |                          |        |      |   |        |        |  |   |        |        | 
|----------------------------- | ----- | - | ------------------------ | ------ | ---- | - | ------ | ------ |  | - | ------ | ------ | 
|                              |       |   | Years ended December 31,
|                              |       |   |                         
|                              |       |   | 2001                     |        | 2000 |   | 1999  
|                              |       |   |                          |        |      |   |       
|Revenue earning equipment     |       | $ | 16,807                   |        |      | $ | 13,112 |        |  | $ | 18,463 |       
|                             
|                             
|                             
|                             
|Office and computer equipment |       |   | 18,583                   |        |      |   | 18,006 |        |  |   | 19,108 |       
|                              |       |   |                          |        |      |   |        |        |  |   |        |       
|                              | Total |   | $                        | 35,390 |      |   | $      | 31,118 |  |   | $      | 37,571 | 
|                              |       |   |                          |        |      |   |        |        |  |   |        |       

As of December 31, 2001, minimum obligations under existing agreements referred
to above that have a maturity of more than one year are as follows (in
thousands): 2002, $20,283; 2003, $9,352; 2004, $2,582; 2005, $546; 2006, $93.

37




---



##### Table of Contents



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

Note 10  Segment Information
The Company follows SFAS No. 131, Disclosures about Segments of an Enterprise
and Related Information. The statement requires companies to disclose segment
data based on how management makes decisions about allocating resources to
segments and measuring their performance.

The Company has identified two significant segments: rental and leasing of
cars (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, 2001 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).

|                                                         |                                              |       |   |                          |        |      |   |       |        |  |   |       |        | 
|-------------------------------------------------------- | -------------------------------------------- | ----- | - | ------------------------ | ------ | ---- | - | ----- | ------ |  | - | ----- | ------ | 
|                                                         |                                              |       |   | Years ended December 31,
|                                                         |                                              |       |   |                         
|                                                         |                                              |       |   | 2001                     |        | 2000 |   | 1999 
|                                                         |                                              |       |   |                          |        |      |   |      
|Revenues                                                 |                                              |       |   |                          |        |      |   |       |        |  |   |      
|                                                        
|                                                        
|                                                        
|                                                        
|                                                         | Car rental                                   |       | $ | 3,883                    |        |      | $ | 4,062 |        |  | $ | 3,822 |       
|                                                        
|                                                        
|                                                        
|                                                        
|                                                         | Industrial and construction equipment rental |       |   | 1,004                    |        |      |   | 970   |        |  |   | 843   |       
|                                                        
|                                                        
|                                                        
|                                                        
|                                                         | Corporate and other                          |       |   | 29                       |        |      |   | 42    |        |  |   | 51    |       
|                                                         |                                              |       |   |                          |        |      |   |       |        |  |   |      
|                                                         |                                              | Total |   | $                        | 4,916  |      |   | $     | 5,074  |  |   | $     | 4,716  | 
|                                                         |                                              |       |   |                          |        |      |   |       |        |  |   |      
|Income (loss) before income taxes                        |                                              |       |   |                          |        |      |   |       |        |  |   |      
|                                                        
|                                                        
|                                                        
|                                                        
|                                                         | Car rental                                   |       | $ | 45                       |        |      | $ | 554   |        |  | $ | 513   |       
|                                                        
|                                                        
|                                                        
|                                                        
|                                                         | Industrial and construction equipment rental |       |   | (9                       | )      |      |   | 47    |        |  |   | 84    |       
|                                                        
|                                                        
|                                                        
|                                                        
|                                                         | Corporate and other                          |       |   | (33                      | )      |      |   | (20   | )      |  |   | (37   | )     
|                                                         |                                              |       |   |                          |        |      |   |       |        |  |   |      
|                                                         |                                              | Total |   | $                        | 3      |      |   | $     | 581    |  |   | $     | 560    | 
|                                                         |                                              |       |   |                          |        |      |   |       |        |  |   |      
|Depreciation of revenue earning equipment                |                                              |       |   |                          |        |      |   |       |        |  |   |      
|                                                        
|                                                        
|                                                        
|                                                        
|                                                         | Car rental                                   |       | $ | 1,191                    |        |      | $ | 1,087 |        |  | $ | 1,017 |       
|                                                        
|                                                        
|                                                        
|                                                        
|                                                         | Industrial and construction equipment rental |       |   | 271                      |        |      |   | 237   |        |  |   | 211   |       
|                                                        
|                                                        
|                                                        
|                                                        
|                                                         | Corporate and other                          |       |   |                         |        |      |   |      |        |  |   |      |       
|                                                         |                                              |       |   |                          |        |      |   |       |        |  |   |      
|                                                         |                                              | Total |   | $                        | 1,462  |      |   | $     | 1,324  |  |   | $     | 1,228  | 
|                                                         |                                              |       |   |                          |        |      |   |       |        |  |   |      
|Depreciation of property and equipment                   |                                              |       |   |                          |        |      |   |       |        |  |   |      
|                                                        
|                                                        
|                                                        
|                                                        
|                                                         | Car rental                                   |       | $ | 124                      |        |      | $ | 99    |        |  | $ | 85    |       
|                                                        
|                                                        
|                                                        
|                                                        
|                                                         | Industrial and construction equipment rental |       |   | 39                       |        |      |   | 35    |        |  |   | 25    |       
|                                                        
|                                                        
|                                                        
|                                                        
|                                                         | Corporate and other                          |       |   | 4                        |        |      |   | 4     |        |  |   | 2     |       
|                                                         |                                              |       |   |                          |        |      |   |       |        |  |   |      
|                                                         |                                              | Total |   | $                        | 167    |      |   | $     | 138    |  |   | $     | 112    | 
|                                                         |                                              |       |   |                          |        |      |   |       |        |  |   |      
|Amortization of intangibles                              |                                              |       |   |                          |        |      |   |       |        |  |   |      
|                                                        
|                                                        
|                                                        
|                                                        
|                                                         | Car rental                                   |       | $ | 3                        |        |      | $ | 3     |        |  | $ | 2     |       
|                                                        
|                                                        
|                                                        
|                                                        
|                                                         | Industrial and construction equipment rental |       |   | 5                        |        |      |   | 11    |        |  |   | 9     |       
|                                                        
|                                                        
|                                                        
|                                                        
|                                                         | Corporate and other                          |       |   | 23                       |        |      |   | 16    |        |  |   | 17    |       
|                                                         |                                              |       |   |                          |        |      |   |       |        |  |   |      
|                                                         |                                              | Total |   | $                        | 31     |      |   | $     | 30     |  |   | $     | 28     | 
|                                                         |                                              |       |   |                          |        |      |   |       |        |  |   |      
|Operating income (loss) (pre-tax income before interest) |                                              |       |   |                          |        |      |   |       |        |  |   |      
|                                                        
|                                                        
|                                                        
|                                                        
|                                                         | Car rental                                   |       | $ | 334                      |        |      | $ | 841   |        |  | $ | 752   |       
|                                                        
|                                                        
|                                                        
|                                                        
|                                                         | Industrial and construction equipment rental |       |   | 95                       |        |      |   | 164   |        |  |   | 176   |       
|                                                        
|                                                        
|                                                        
|                                                        
|                                                         | Corporate and other                          |       |   | (22                      | )      |      |   | (9    | )      |  |   | (26   | )     
|                                                         |                                              |       |   |                          |        |      |   |       |        |  |   |      
|                                                         |                                              | Total |   | $                        | 407    |      |   | $     | 996    |  |   | $     | 902    | 
|                                                         |                                              |       |   |                          |        |      |   |       |        |  |   |      
|Total assets at end of year                              |                                              |       |   |                          |        |      |   |       |        |  |   |      
|                                                        
|                                                        
|                                                        
|                                                        
|                                                         | Car rental                                   |       | $ | 7,146                    |        |      | $ | 7,425 |        |  | $ | 7,331 |       
|                                                        
|                                                        
|                                                        
|                                                        
|                                                         | Industrial and construction equipment rental |       |   | 2,480                    |        |      |   | 2,651 |        |  |   | 2,268 |       
|                                                        
|                                                        
|                                                        
|                                                        
|                                                         | Corporate and other                          |       |   | 532                      |        |      |   | 544   |        |  |   | 538   |       
|                                                         |                                              |       |   |                          |        |      |   |       |        |  |   |      
|                                                         |                                              | Total |   | $                        | 10,158 |      |   | $     | 10,620 |  |   | $     | 10,137 | 
|                                                         |                                              |       |   |                          |        |      |   |       |        |  |   |      
|Revenue earning equipment, net, at end of year           |                                              |       |   |                          |        |      |   |       |        |  |   |      
|                                                        
|                                                        
|                                                        
|                                                        
|                                                         | Car rental                                   |       | $ | 5,221                    |        |      | $ | 5,187 |        |  | $ | 4,762 |       
|                                                        
|                                                        
|                                                        
|                                                        
|                                                         | Industrial and construction equipment rental |       |   | 1,631                    |        |      |   | 1,736 |        |  |   | 1,502 |       
|                                                        
|                                                        
|                                                        
|                                                        
|                                                         | Corporate and other                          |       |   |                         |        |      |   |      |        |  |   |      |       
|                                                         |                                              |       |   |                          |        |      |   |       |        |  |   |      
|                                                         |                                              | Total |   | $                        | 6,852  |      |   | $     | 6,923  |  |   | $     | 6,264  | 
|                                                         |                                              |       |   |                          |        |      |   |       |        |  |   |      

38




---



##### Table of Contents



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

|                                                     |                                              |                    |                  |   |                          |       |      |   |        |       |  |   |        |       | 
|---------------------------------------------------- | -------------------------------------------- | ------------------ | ---------------- | - | ------------------------ | ----- | ---- | - | ------ | ----- |  | - | ------ | ----- | 
|                                                     |                                              |                    |                  |   | Years ended December 31,
|                                                     |                                              |                    |                  |   |                         
|                                                     |                                              |                    |                  |   | 2001                     |       | 2000 |   | 1999  
|                                                     |                                              |                    |                  |   |                          |       |      |   |       
|Revenue earning equipment and property and equipment |                                              |                    |                  |   |                          |       |      |   |        |       |  |  
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Car rental                                   |                    |                  |   |                          |       |      |   |        |       |  |   |       
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                              | Expenditures       |                  | $ | 9,141                    |       |      | $ | 8,643  |       |  | $ | 8,237  |      
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                              | Proceeds from sale |                  |   | (7,700                   | )     |      |   | (6,807 | )     |  |   | (6,618 | )    
|                                                     |                                              |                    |                  |   |                          |       |      |   |        |       |  |  
|                                                     |                                              |                    | Net expenditures |   | $                        | 1,441 |      |   | $      | 1,836 |  |   | $      | 1,619 | 
|                                                     |                                              |                    |                  |   |                          |       |      |   |        |       |  |  
|                                                     | Industrial and construction equipment rental |                    |                  |   |                          |       |      |   |        |       |  |   |       
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                              | Expenditures       |                  | $ | 404                      |       |      | $ | 675    |       |  | $ | 575    |      
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                              | Proceeds from sale |                  |   | (175                     | )     |      |   | (191   | )     |  |   | (185   | )    
|                                                     |                                              |                    |                  |   |                          |       |      |   |        |       |  |  
|                                                     |                                              |                    | Net expenditures |   | $                        | 229   |      |   | $      | 484   |  |   | $      | 390   | 
|                                                     |                                              |                    |                  |   |                          |       |      |   |        |       |  |  
|                                                     | Corporate and other                          |                    |                  |   |                          |       |      |   |        |       |  |   |       
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                              | Expenditures       |                  | $ | 6                        |       |      | $ | 5      |       |  | $ | 16     |      
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                              | Proceeds from sale |                  |   |                         |       |      |   |       |       |  |   |       |      
|                                                     |                                              |                    |                  |   |                          |       |      |   |        |       |  |  
|                                                     |                                              |                    | Net expenditures |   | $                        | 6     |      |   | $      | 5     |  |   | $      | 16    | 
|                                                     |                                              |                    |                  |   |                          |       |      |   |        |       |  |  

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):

|                                                  |                                           |       |   |                          |        |      |   |       |        |  |   |       |        | 
|------------------------------------------------- | ----------------------------------------- | ----- | - | ------------------------ | ------ | ---- | - | ----- | ------ |  | - | ----- | ------ | 
|                                                  |                                           |       |   | Years ended December 31,
|                                                  |                                           |       |   |                         
|                                                  |                                           |       |   | 2001                     |        | 2000 |   | 1999 
|                                                  |                                           |       |   |                          |        |      |   |      
|Revenues                                          |                                           |       |   |                          |        |      |   |       |        |  |   |      
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  | United States                             |       | $ | 3,765                    |        |      | $ | 3,922 |        |  | $ | 3,639 |       
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  | Foreign operations (substantially Europe) |       |   | 1,151                    |        |      |   | 1,152 |        |  |   | 1,077 |       
|                                                  |                                           |       |   |                          |        |      |   |       |        |  |   |      
|                                                  |                                           | Total |   | $                        | 4,916  |      |   | $     | 5,074  |  |   | $     | 4,716  | 
|                                                  |                                           |       |   |                          |        |      |   |       |        |  |   |      
|Income (loss) before income taxes                 |                                           |       |   |                          |        |      |   |       |        |  |   |      
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  | United States                             |       | $ | (47                      | )      |      | $ | 462   |        |  | $ | 459   |       
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  | Foreign operations (substantially Europe) |       |   | 50                       |        |      |   | 119   |        |  |   | 101   |       
|                                                  |                                           |       |   |                          |        |      |   |       |        |  |   |      
|                                                  |                                           | Total |   | $                        | 3      |      |   | $     | 581    |  |   | $     | 560    | 
|                                                  |                                           |       |   |                          |        |      |   |       |        |  |   |      
|Depreciation of revenue earning equipment         |                                           |       |   |                          |        |      |   |       |        |  |   |      
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  | United States                             |       | $ | 1,246                    |        |      | $ | 1,117 |        |  | $ | 1,031 |       
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  | Foreign operations (substantially Europe) |       |   | 216                      |        |      |   | 207   |        |  |   | 197   |       
|                                                  |                                           |       |   |                          |        |      |   |       |        |  |   |      
|                                                  |                                           | Total |   | $                        | 1,462  |      |   | $     | 1,324  |  |   | $     | 1,228  | 
|                                                  |                                           |       |   |                          |        |      |   |       |        |  |   |      
|Depreciation of property and equipment            |                                           |       |   |                          |        |      |   |       |        |  |   |      
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  | United States                             |       | $ | 138                      |        |      | $ | 114   |        |  | $ | 89    |       
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  | Foreign operations (substantially Europe) |       |   | 29                       |        |      |   | 24    |        |  |   | 23    |       
|                                                  |                                           |       |   |                          |        |      |   |       |        |  |   |      
|                                                  |                                           | Total |   | $                        | 167    |      |   | $     | 138    |  |   | $     | 112    | 
|                                                  |                                           |       |   |                          |        |      |   |       |        |  |   |      
|Amortization of intangibles                       |                                           |       |   |                          |        |      |   |       |        |  |   |      
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  | United States                             |       | $ | 26                       |        |      | $ | 25    |        |  | $ | 24    |       
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  | Foreign operations (substantially Europe) |       |   | 5                        |        |      |   | 5     |        |  |   | 4     |       
|                                                  |                                           |       |   |                          |        |      |   |       |        |  |   |      
|                                                  |                                           | Total |   | $                        | 31     |      |   | $     | 30     |  |   | $     | 28     | 
|                                                  |                                           |       |   |                          |        |      |   |       |        |  |   |      
|Operating income (pre-tax income before interest) |                                           |       |   |                          |        |      |   |       |        |  |   |      
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  | United States                             |       | $ | 306                      |        |      | $ | 821   |        |  | $ | 763   |       
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  | Foreign operations (substantially Europe) |       |   | 101                      |        |      |   | 175   |        |  |   | 139   |       
|                                                  |                                           |       |   |                          |        |      |   |       |        |  |   |      
|                                                  |                                           | Total |   | $                        | 407    |      |   | $     | 996    |  |   | $     | 902    | 
|                                                  |                                           |       |   |                          |        |      |   |       |        |  |   |      
|Total assets at end of year                       |                                           |       |   |                          |        |      |   |       |        |  |   |      
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  | United States                             |       | $ | 7,878                    |        |      | $ | 8,257 |        |  | $ | 8,044 |       
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  | Foreign operations (substantially Europe) |       |   | 2,280                    |        |      |   | 2,363 |        |  |   | 2,093 |       
|                                                  |                                           |       |   |                          |        |      |   |       |        |  |   |      
|                                                  |                                           | Total |   | $                        | 10,158 |      |   | $     | 10,620 |  |   | $     | 10,137 | 
|                                                  |                                           |       |   |                          |        |      |   |       |        |  |   |      
|Revenue earning equipment, net, at end of year    |                                           |       |   |                          |        |      |   |       |        |  |   |      
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  | United States                             |       | $ | 5,586                    |        |      | $ | 5,648 |        |  | $ | 5,088 |       
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  | Foreign operations (substantially Europe) |       |   | 1,266                    |        |      |   | 1,275 |        |  |   | 1,176 |       
|                                                  |                                           |       |   |                          |        |      |   |       |        |  |   |      
|                                                  |                                           | Total |   | $                        | 6,852  |      |   | $     | 6,923  |  |   | $     | 6,264  | 
|                                                  |                                           |       |   |                          |        |      |   |       |        |  |   |      

39



---



##### Table of Contents



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

|                                                     |                                           |                    |                  |   |                          |       |      |   |        |       |  |   |        |       | 
|---------------------------------------------------- | ----------------------------------------- | ------------------ | ---------------- | - | ------------------------ | ----- | ---- | - | ------ | ----- |  | - | ------ | ----- | 
|                                                     |                                           |                    |                  |   | Years ended December 31,
|                                                     |                                           |                    |                  |   |                         
|                                                     |                                           |                    |                  |   | 2001                     |       | 2000 |   | 1999  
|                                                     |                                           |                    |                  |   |                          |       |      |   |       
|Revenue earning equipment and property and equipment |                                           |                    |                  |   |                          |       |      |   |        |       |  |  
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | United States                             |                    |                  |   |                          |       |      |   |        |       |  |   |       
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                           | Expenditures       |                  | $ | 7,291                    |       |      | $ | 7,093  |       |  | $ | 6,596  |      
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                           | Proceeds from sale |                  |   | (5,916                   | )     |      |   | (5,261 | )     |  |   | (5,005 | )    
|                                                     |                                           |                    |                  |   |                          |       |      |   |        |       |  |  
|                                                     |                                           |                    | Net expenditures |   | $                        | 1,375 |      |   | $      | 1,832 |  |   | $      | 1,591 | 
|                                                     |                                           |                    |                  |   |                          |       |      |   |        |       |  |  
|                                                     | Foreign operations (substantially Europe) |                    |                  |   |                          |       |      |   |        |       |  |   |       
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                           | Expenditures       |                  | $ | 2,260                    |       |      | $ | 2,230  |       |  | $ | 2,232  |      
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                           | Proceeds from sale |                  |   | (1,959                   | )     |      |   | (1,737 | )     |  |   | (1,798 | )    
|                                                     |                                           |                    |                  |   |                          |       |      |   |        |       |  |  
|                                                     |                                           |                    | Net expenditures |   | $                        | 301   |      |   | $      | 493   |  |   | $      | 434   | 
|                                                     |                                           |                    |                  |   |                          |       |      |   |        |       |  |  

Note 11  Litigation
The Company is currently a defendant in two purported class actions 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, Wisconsin and California have been concluded and/or dismissed
with no finding of liability to the Company.

On October 3, 1997, Shannon Leonard, Theresa Moore and Coley Whetstone, Jr. v.
Enterprise Rent A Car, The Hertz Corporation, 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). Leonardpurports 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.
The Company and the other defendant car rental companies filed a series of
motions which sought dismissal of the various causes of action based upon the
judges initial ruling that a private right of action does not exist under
Alabama law for the alleged unlicensed sale of insurance. A final order of
dismissal was entered in January 2000 and the plaintiffs subsequently filed a
Notice
of Appeal to the U.S. Court of Appeals for the Eleventh Circuit in Atlanta,
Georgia. On January 18, 2002, the U.S. Court of Appeals concluded that
District Court should have dismissed the case for lack of subject matter
jurisdiction because the amount in controversy does not exceed $75,000 as
statutorily required. For that reason, the U.S. Court of Appeals vacated the
District Courts judgment and directed that the District Court remand the case
to the state court.

On June 2, 1999, Fred Saffer and Jennifer Nicoletta, on behalf of themselves
and all others similarly situated v. The Hertz Corporation, Enterprise
Rent-A-Car, et al.was commenced in Superior Court of New Jersey, Law Division,
Essex County. The initial complaint claimed that the collection by the Company
of New Jersey general sales tax on certain fueling charges imposed on renters
was not required by law and was an unfair trade practice. The complaint was
later amended to include a claim that the Company sold optional insurance
products without appropriate licensure, similar to the claims advanced in the
other actions described above. The Company moved to dismiss the
insurance-related components of the complaint for failure to state a claim on
which relief could be granted, and that motion was granted. The undismissed
portion of the action was stayed pending the resolution of a sales tax refund
claim that the Company brought administratively. The plaintiff appealed the
foregoing rulings to the Appellate Division of the Superior Court. The
Appellate Division denied the plaintiffs appeal in June 2000. In the tax
refund proceeding, the New Jersey Division of Taxation rendered a Final
Determination in a letter dated February 14, 2001, concluding that the
Companys collection of general sales tax on fueling charges was not erroneous,
illegal or unconstitutional. By an Order, dated April 18, 2001, the Superior
Court granted the Companys Summary Judgment Motion and dismissed all of the
plaintiffs claims. Plaintiff subsequently filed an appeal with the Appellate
Division of the Superior Court. The appeal is pending.

The Company is also a defendant in a private attorney general action which
challenges the Companys practices in offering the optional fuel and service
charge. On January 20, 1998, Peter Schnall, on behalf of himself and all
others similarly situated v. The Hertz Corporationwas commenced in the
Superior Court of California, County of San Francisco. The complaint alleged
violations of the California Business and Professions Code by claiming that the
optional fuel and service charge constitutes an unlawful business practice
and that the prices charged constitute unfair liquidated damages under the
rental agreement. The Company responded by challenging the sufficiency of the
initial complaint and a subsequent amended complaint. The trial court then
entered judgment in the Companys favor in June of 1998. Plaintiff appealed
the trial courts decision to the Court of Appeal of California, First
Appellate District in San Francisco. In an opinion issued in March 2000, the
Court of Appeal sustained in part and reversed in part the trial courts
decision and ordered the matter remanded with respect to plaintiffs challenge
of the manner in which the Company discloses and

40



---



##### Table of Contents



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

explains the fuel and service
charge. Following further amendments to the complaint and discovery taken by the
Company and the plaintiff, the parties agreed to mediate the dispute, and after
extensive negotiations, reached a settlement. The settlement  under which the
Company admits no liability and agrees to certain injunctive relief, to
discount coupon relief for qualifying class members and to the payment of
attorneys fees  was preliminarily approved by the Court on March 20, 2002.

On February 8, 2000, a patent infringement suit naming the Company and 38 other
companies, including Ford, as defendants was filed in the U.S. District Court
for the Eastern District of Texas by an individual, Allan
Konrad, the plaintiff, who holds
three patents allegedly covering intranet/internet use. The plaintiff also owns a
fourth patent application allegedly covering e-commerce. The Company procures
all products and services related to this infringement allegation from
suppliers and believes that it is entitled to be indemnified by these suppliers
for any loss that may result from this litigation. The technology covered in
the plaintiff's patents relates to computer system configuration and a method of
using that configuration. More specifically, a local host (personal
workstation), remote host (server), a network connecting the local host to the
remote host, and various computer service functionalities are claimed to be
covered by these patents. Following a Markmanhearing before a Special Master
to hear evidence, argument and expert testimony offered by the parties, the
Special Master filed a report, which the District Court adopted in its
entirety. Thereafter, the parties agreed to a stipulated judgment of
non-infringement. The plaintiff has appealed from the stipulated judgment to the
U. S. Court of Appeals for the Federal Circuit.

On March 1, 2002, Bowdoin Square, L.L.C. v. Winn-Dixie Montgomery, Inc.,
Wal-Mart Stores East, Inc., The Hertz Corporation, et al.was commenced in the
Circuit Court for Madison County, Alabama. The complaint alleges that the
Company, Wal-Mart Stores East, Inc. and other defendants violated certain
private land use restrictions and intentionally interfered with plaintiffs
contractual relationship with its tenant, Winn-Dixie Montgomery, Inc., when the
Company and Wal-Mart Stores East, Inc. entered into a sublease for a
reservation call center in a former Wal-Mart store located in a shopping center
in Saraland (Mobile County), Alabama. The complaint also alleges that the
Company and other defendants negligently and wantonly injured the value of
plaintiffs interest in the shopping center. The Company has not yet filed a
response to the complaint.

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.

41



---



##### Table of Contents



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

Note 12  Quarterly Financial Information (Unaudited)
A summary of the quarterly operating results during 2001 and 2000 were as
follows (in thousands):

|     |                |            |   |           |           |                        |   |                         |         |               |   |          |         |  |   |         |         | 
|---- | -------------- | ---------- | - | --------- | --------- | ---------------------- | - | ----------------------- | ------- | ------------- | - | -------- | ------- |  | - | ------- | ------- | 
|     |                |            |   |           |           |                        |   | Operating Income (Loss) |         | Income (Loss) |   | Net     
|     |                |            |   |           |           |                        |   | (Pre-tax Income         |         | Before Income |   | Income  
|     |                |            |   | Revenues  |           | Before Interest)(1)(2) |   | Taxes(1)(2)             |         | (Loss)(3)    
|     |                |            |   |           |           |                        |   |                         |         |              
|2001 |                |            |   |           |           |                        |   |                         |         |               |   |          |         |  |   |        
|    
|    
|    
|    
|     | First quarter  |            | $ | 1,180,871 |           |                        | $ | 96,032                  |         |               | $ | (5,805   | )       |  | $ | (3,937  | )      
|    
|    
|    
|    
|     | Second quarter |            |   | 1,285,496 |           |                        |   | 188,674                 |         |               |   | 85,806   |         |  |   | 59,204  |        
|    
|    
|    
|    
|     | Third quarter  |            |   | 1,369,226 |           |                        |   | 161,357                 |         |               |   | 54,186   |         |  |   | 25,519  |        
|    
|    
|    
|    
|     | Fourth quarter |            |   | 1,080,198 |           |                        |   | (38,663                 | )       |               |   | (131,464 | )       |  |   | (57,519 | )      
|     |                |            |   |           |           |                        |   |                         |         |               |   |          |         |  |   |        
|     |                | Total Year |   | $         | 4,915,791 |                        |   | $                       | 407,400 |               |   | $        | 2,723   |  |   | $       | 23,267  | 
|     |                |            |   |           |           |                        |   |                         |         |               |   |          |         |  |   |        
|2000 |                |            |   |           |           |                        |   |                         |         |               |   |          |         |  |   |        
|    
|    
|    
|    
|     | First quarter  |            | $ | 1,135,205 |           |                        | $ | 182,561                 |         |               | $ | 93,286   |         |  | $ | 56,300  |        
|    
|    
|    
|    
|     | Second quarter |            |   | 1,289,327 |           |                        |   | 268,034                 |         |               |   | 169,020  |         |  |   | 103,731 |        
|    
|    
|    
|    
|     | Third quarter  |            |   | 1,437,756 |           |                        |   | 354,638                 |         |               |   | 235,592  |         |  |   | 142,763 |        
|    
|    
|    
|    
|     | Fourth quarter |            |   | 1,211,230 |           |                        |   | 190,498                 |         |               |   | 82,966   |         |  |   | 55,614  |        
|     |                |            |   |           |           |                        |   |                         |         |               |   |          |         |  |   |        
|     |                | Total Year |   | $         | 5,073,518 |                        |   | $                       | 995,731 |               |   | $        | 580,864 |  |   | $       | 358,408 | 
|     |                |            |   |           |           |                        |   |                         |         |               |   |          |         |  |   |        



|(1) |  | Includes a gain of $9.0 million in the second quarter of 2000 from the
condemnation of a car rental and support facility in California.                                                                                 
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|   
|   
|   
|(2) |  | Includes $9.7 million in the first quarter of 2001 for expenses
associated with the Merger.                                                                                                                             
|   
|   
|   
|   
|(3) |  | Includes credits to in the Provision (benefit) for taxes on income of
$30.2 million and $3.8 million in the fourth quarter of 2001 and 2000,
respectively, from the benefit of certain additional foreign tax credits.

Note 13  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. As of December
31, 2001, the Company had no significant concentration of credit risk.

Cash and Equivalents
Fair value approximates cost indicated on the balance sheet at December 31,
2001, because of the short-term maturity of these instruments.

Debt
For borrowings with an initial maturity of 93 days or less, fair value
approximates carrying value because of the short-term nature of these
instruments. For all other debt, fair value is estimated based on quoted
market rates as well as borrowing rates currently available to the Company for
loans with similar terms and average maturities. The fair value of all debt at
December 31, 2001 approximated $6.27 billion compared to carrying value of
$6.31 billion.

Derivative Financial Instruments
From time to time, the Company and its subsidiaries enter into arrangements to
manage exposure to fluctuations in interest rates. These arrangements consist
of interest-rate swap agreements (swaps). The differential paid or received
on these agreements is recognized as an adjustment to interest expense. These
agreements are not entered into for trading purposes. 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. At
December 31, 2001, the Company had no interest rate swaps outstanding.

42



---



##### Table of Contents



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

The Company and its subsidiaries have entered into arrangements to manage
exposure to fluctuations in foreign exchange rates, principally for selected
marketing programs. These arrangements consist of the purchase of foreign
exchange options. At December 31, 2001, the total notional amount of these
instruments was $30.6 million, maturing at various dates in 2002, 2003 and
2004, and the fair value of all outstanding contracts, was approximately $1.1
million. The fair value of the foreign currency instruments was estimated
using market prices provided by financial institutions. The total notional
amount included options to sell British Pounds, Euros, Yen and Canadian
dollars in the notional amounts of $17.3 million, $10.1 million, $1.8 million
and $1.4 million, respectively. All borrowings by foreign operations are either
in the foreign operations local currency or, if in non-local currency, are
hedged to minimize foreign exchange exposure.

43



---



##### Table of Contents



SCHEDULE II

THE HERTZ CORPORATION AND SUBSIDIARIES

VALUATION AND QUALIFYING ACCOUNTS
For the Years Ended December 31, 2001, 2000 and 1999

|     |                                      |  |                      |         |            |  |             |         |            |  |             |       |            |  |   |         |     |  |   |         | 
|---- | ------------------------------------ |  | -------------------- | ------- | ---------- |  | ----------- | ------- | ---------- |  | ----------- | ----- | ---------- |  | - | ------- | --- |  | - | ------- | 
|     |                                      |  |                      |         |            |  | Additions   |         | Deductions |  |             |       |           
|     |                                      |  | Balance at           |         |            |  |             |         |            |  |            
|     |                                      |  | Beginning of         |         | Charged to |  | Translation |         |            |  |             |       | Balance at
|     |                                      |  | Year                 |         | Income     |  | Adjustments |         | Other      |  | End of Year
|     |                                      |  |                      |         |            |  |             |         |            |  |            
|     |                                      |  | Dollars in thousands
|2001 |                                      |  |                      |         |            |  |             |         |            |  |             |       |            |  |   |         |     |  |   |        
|    
|    
|    
|    
|     | Allowance for doubtful accounts      |  | $                    | 34,788  |            |  | $           | 44,316  |            |  | $           | 985   |            |  | $ | 39,233  | (a) |  | $ | 38,886  | 
|     |                                      |  |                      |         |            |  |             |         |            |  |             |       |            |  |   |         |     |  |   |        
|     | Public liability and property damage |  | $                    | 272,779 |            |  | $           | 136,772 |            |  | $           | 2,710 |            |  | $ | 90,996  | (b) |  | $ | 315,845 | 
|     |                                      |  |                      |         |            |  |             |         |            |  |             |       |            |  |   |         |     |  |   |        
|2000 |                                      |  |                      |         |            |  |             |         |            |  |             |       |            |  |   |         |     |  |   |        
|    
|    
|    
|    
|     | Allowance for doubtful accounts      |  | $                    | 24,299  |            |  | $           | 31,893  |            |  | $           | 935   |            |  | $ | 20,469  | (a) |  | $ | 34,788  | 
|     |                                      |  |                      |         |            |  |             |         |            |  |             |       |            |  |   |         |     |  |   |        
|     | Public liability and property damage |  | $                    | 292,573 |            |  | $           | 108,681 |            |  | $           | 3,203 |            |  | $ | 125,272 | (b) |  | $ | 272,779 | 
|     |                                      |  |                      |         |            |  |             |         |            |  |             |       |            |  |   |         |     |  |   |        
|1999 |                                      |  |                      |         |            |  |             |         |            |  |             |       |            |  |   |         |     |  |   |        
|    
|    
|    
|    
|     | Allowance for doubtful accounts      |  | $                    | 16,040  |            |  | $           | 19,824  |            |  | $           | 1,297 |            |  | $ | 10,268  | (a) |  | $ | 24,299  | 
|     |                                      |  |                      |         |            |  |             |         |            |  |             |       |            |  |   |         |     |  |   |        
|     | Public liability and property damage |  | $                    | 307,219 |            |  | $           | 123,950 |            |  | $           | (412  | )          |  | $ | 139,008 | (b) |  | $ | 292,573 | 
|     |                                      |  |                      |         |            |  |             |         |            |  |             |       |            |  |   |         |     |  |   |        



---

|(a) |  | Amounts written off, net of recoveries.
|--- |  | ---------------------------------------
|   
|   
|   
|   
|(b) |  | Payments of claims and expenses.       

44



---



##### Table of Contents






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.

Omitted.




ITEM 11.  Executive Compensation.

Omitted.




ITEM 12.  Security Ownership of Certain Beneficial Owners and Management.

Omitted.




ITEM 13.  Certain Relationships and Related Transactions.

Omitted.




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 Accountants                                                                    |                                                                                                     |                                                                                                                                                                                                                                                                                                                                                         | 19 |      
|                            
|                            
|                            
|                            
|                             |                                   |                                                                                                      | Consolidated Balance Sheet at December 31, 2001 and 2000                                            |                                                                                                                                                                                                                                                                                                                                                         |    | 20    | 
|                            
|                            
|                            
|                            
|                             |                                   |                                                                                                      | Consolidated Statement of Income for the years ended December 31, 2001, 2000 and 1999               |                                                                                                                                                                                                                                                                                                                                                         |    | 21    | 
|                            
|                            
|                            
|                            
|                             |                                   |                                                                                                      | Consolidated Statement of Stockholders Equity for the years ended December 31, 2001, 2000 and 1999 |                                                                                                                                                                                                                                                                                                                                                         |    | 22    | 
|                            
|                            
|                            
|                            
|                             |                                   |                                                                                                      | Consolidated Statement of Cash Flows for the years ended December 31, 2001, 2000 and 1999           |                                                                                                                                                                                                                                                                                                                                                         |    | 23-24 | 
|                            
|                            
|                            
|                            
|                             |                                   |                                                                                                      | Notes to Consolidated Financial Statements                                                          |                                                                                                                                                                                                                                                                                                                                                         |    | 25-43 | 
|                            
|                            
|                            
|                            
|                             | 2. Financial Statement Schedules: |                                                                                                      |                                                                                                     |                                                                                                                                                                                                                                                                                                                                                         |   
|                            
|                            
|                            
|                            
|                             |                                   | The Hertz Corporation and Subsidiaries                                                              |                                                                                                     |                                                                                                                                                                                                                                                                                                                                                         |    |      
|                            
|                            
|                            
|                            
|                             |                                   | Schedule II  Valuation and Qualifying Accounts for the years ended December 31, 2001, 2000 and 1999 |                                                                                                     |                                                                                                                                                                                                                                                                                                                                                         | 44 |      
|                            
|                            
|                            
|                            
|                             | 3. Exhibits:                      |                                                                                                      |                                                                                                     |                                                                                                                                                                                                                                                                                                                                                         |   
|                            
|                            
|                            
|                            
|                             |                                   |                                                                                                      | (3) Articles of Incorporation and By-Laws                                                           |                                                                                                                                                                                                                                                                                                                                                         |    |       | 
|                            
|                            
|                            
|                            
|                             |                                   |                                                                                                      |                                                                                                     | (a) Restated Certificate of Incorporation of the Company (filed as Exhibit (3)(i) to the
Companys Quarterly Report on Form 10-Q for the quarter
ended June 30, 2001).                                                                                                                                                                                  |    |       |  | 
|                            
|                            
|                            
|                            
|                             |                                   |                                                                                                      |                                                                                                     | (b) By-Laws of the Company, effective January 1, 2000
(filed as Exhibit (3) (b) to the Companys Annual Report on Form 10-K for the year ended
December 31, 1999).                                                                                                                                                                                      |    |       |  | 
|                            
|                            
|                            
|                            
|                             |                                   |                                                                                                      | (4) Instruments defining the rights of security holders, including indentures                       |                                                                                                                                                                                                                                                                                                                                                         |    |       | 
|                            
|                            
|                            
|                            
|                             |                                   |                                                                                                      |                                                                                                     | (a) At December 31, 2001, 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.*                                                                                                                                                                                                                                                                                       |    |       |  | 

45



---



##### Table of Contents



| |  |  |                                                                                                                                       |                                                                                                                                                                                                                                               |  |  |  | 
| |  |  | ------------------------------------------------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  |  |  | 
| |  |  |                                                                                                                                       | (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 Craig R. Koch.*                                                                                                                                                                              |  |  |  | 
|
|
|
|
| |  |  |                                                                                                                                       | (j) The Hertz Corporation Supplemental Executive Retirement Plan (filed as Exhibit (10)(o) to the
Companys Annual Report on Form 10-K for the year ended
December 31, 1998).                                                                 |  |  |  | 
|
|
|
|
| |  |  |                                                                                                                                       | (k) The Hertz Corporation Long-Term Equity Compensation Plan (incorporated herein by
reference from the Companys Registration Statement No. 333-32543 on Form S-8, as
amended on August 28, 1997).                                           |  |  |  | 
|
|
|
|
| |  |  |                                                                                                                                       | (l) Amendments to The Hertz Corporation Long-Term Equity Compensation Plan adopted by
the Board of Directors on February 9, 2001 (filed as Exhibit (10)(q) to the Companys
Annual Report on Form 10-K for the year ended December 31,
2000). |  |  |  | 
|
|
|
|
| |  |  | (12) Computation of Consolidated Ratio of Earnings to Fixed Charges for
each of the five years in the period ended December 31, 2001. |                                                                                                                                                                                                                                               |  |  | 
|
|
|
|
| |  |  | (23) Consent of Independent Accountants.                                                                                              |                                                                                                                                                                                                                                               |  |  | 



---

|* |  | Incorporated herein by reference from the Companys Registration
Statement No. 333-22517 on Form S-1.
|- |  | -----------------------------------------------------------------------------------------------------



|(b) |  | Reports on Form 8-K.
|--- |  | --------------------

None

Schedules and exhibits not included above have been omitted because the
information required has been included in the financial statements or notes
thereto or are not applicable or not required.

46



---



##### Table of Contents






SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.

|               |  |                                    |  |                                                                     
|-------------- |  | ---------------------------------- |  | --------------------------------------------------------------------
|               |  | THE HERTZ CORPORATION
(Registrant)
|              
|              
|              
|              
|               |  |                                    |  |                                                                     
|              
|              
|              
|              
|               |  | By:                                |  | /s/ PAUL J. SIRACUSA                                                
|               |  |                                    |  |                                                                     
|               |  |                                    |  | Paul J. SiracusaExecutive Vice President and
Chief Financial Officer
|              
|              
|              
|              
|March 27, 2002 |  |                                    |  |                                                                     

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the date indicated.

|                                       |  |                                                                                   
|-------------------------------------- |  | ----------------------------------------------------------------------------------
|/s/ CRAIG R. KOCHCraig R. Koch         |  | Director, President and Chief Executive Officer
(Principal Executive Officer)     
|                                      
|/s/ FRANK A. OLSONFrank A. Olson       |  | Director and Chairman of the Board                                                
|                                      
|/s/ JOHN M. RINTAMAKIJohn M. Rintamaki |  | Director                                                                          
|                                      
|/s/ PAUL J. SIRACUSAPaul J. Siracusa   |  | Executive Vice President and Chief Financial Officer
(Principal Financial Officer)
|                                      
|/s/ RICHARD J. FOTIRichard J. Foti     |  | Staff Vice President and Controller
(Principal Accounting Officer)                

47



---



##### Table of Contents






EXHIBIT INDEX



|(12) |  | Computation of Consolidated Ratio of Earnings to Fixed Charges for each of the five years in the period
ended December 31, 2001.
|---- |  | --------------------------------------------------------------------------------------------------------------------------------
|    
|(23) |  | Consent of Independent Accountants.                                                                                             

48