HERTZ CORP, 10-K405, 1998-03-23

HERTZ CORP
10-K405, 1998-03-23
AUTO RENTAL & LEASING (NO DRIVERS)

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

------------------------

FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997 or

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

COMMISSION FILE NUMBER 1-7541

THE HERTZ CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

<TABLE>
<S> <C>
DELAWARE 13-1938568
(STATE OF INCORPORATION) (I.R.S. EMPLOYER IDENTIFICATION NO.)

225 BRAE BOULEVARD, PARK RIDGE, NEW JERSEY 07656-0713
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
</TABLE>

REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: 201-307-2000

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

<TABLE>
<CAPTION>
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
------------------- ---------------------
<S> <C>
Class A Common Stock, New York Stock Exchange
Par Value $.01 per share
6 5/8% Junior Subordinated New York Stock Exchange
Notes due July 15, 2000
7% Junior Subordinated New York Stock Exchange
Notes due July 15, 2003
</TABLE>

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
NONE

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

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

The aggregate market value of the voting stock held by non-affiliates of
the Registrant, based on the New York Exchange Composite Transaction closing
price of the Class A Common Stock ($39.625 per share), as of March 1, 1998, was
$559,050,303.13. For purposes of this computation, all officers, directors, and
5% beneficial owners of the Registrant are deemed to be affiliates. Such
determination should not be deemed an admission that such officers, directors,
and beneficial owners are, in fact, affiliates of the Registrant. At March 1,
1998, 40,856,186 shares of the Company's Class A Common Stock, par value $0.01
per share, were outstanding and 67,310,167 shares of the Company's Class B
Common Stock, par value $0.01 per share, were outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

<TABLE>
<CAPTION>
DOCUMENT WHERE INCORPORATED
-------- ------------------
<S> <C>
Proxy Statement for 1998 Part III (Items 10, 11, 12 and 13)
Annual Meeting of Stockholders
</TABLE>

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<PAGE> 2

PART I

ITEM 1. BUSINESS.

GENERAL

The Hertz Corporation (together with its subsidiaries, referred to herein
as "Hertz" or the "Company") is a majority-owned subsidiary of Ford Motor
Company ("Ford"). In April 1997, the Company reclassified all of its outstanding
common stock, par value $1.00 per share, owned by Ford into 67,310,167 shares of
Class B Common Stock, par value $.01 per share, (the "Class B Common Stock"),
and reclassified all of its outstanding 10% Cumulative Series A Preferred Stock
and variable rate Cumulative Series B Preferred Stock beneficially owned by Ford
into 20,245,833 shares of its Class A Common Stock, par value $.01 per share,
(the "Class A Common Stock").

On April 30, 1997, the Company issued and sold 20,010,000 shares of its
Class A Common Stock, in an initial public offering ("Offering"). After the
Offering, Ford beneficially owned and continues to own (i) 49.4% of the
outstanding Class A Common Stock (which has one vote per share) and (ii) 100% of
the outstanding Class B Common Stock of the Company (which has five votes per
share). The common stock beneficially owned by Ford represents in the aggregate
94.5% of the combined voting power of all of the Company's outstanding common
stock. Accordingly, Ford is able to direct the election of all of the members of
the Company's Board of Directors and exercise a controlling influence over the
business and affairs of the Company.

The Company and its affiliates and independent licensees operate what the
Company believes is the largest car rental business in the world based upon
revenues and volume of rental transactions and the largest industrial and
construction equipment rental business in the United States 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 and independent licensees, rents and leases cars, rents industrial
and construction equipment and operates its other businesses from approximately
5,500 locations throughout the United States and in approximately 140 foreign
countries and jurisdictions. For the year ended December 31, 1997, the Company
generated record revenues, income before taxes and net income of $3.9 billion,
$343.3 million and $201.6 million, respectively. The Company and its
predecessors have been profitable in every year since 1952, when one of the
Company's predecessors first became a public company.

Certain statements contained in this Report under "Business" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" including, without limitation, those concerning (i) the Company's
expansion plans for its various businesses, (ii) the Company's liquidity and
capital expenditures, (iii) the percentage of cars expected to be acquired from
Ford in the future, (iv) the terms upon which cars will be acquired, (v) the
development of the Company's strategic information systems and (vi) the effects
on the Company of certain legal proceedings, contain certain forward-looking
statements concerning the Company's operations, economic performance and
financial condition. Because such statements involve risks and uncertainties,
actual results may differ materially from those expressed or implied by such
forward-looking statements. Factors that could cause such differences include,
but are not limited to, economic downturn; competition; the Company's dependence
on air travel; limitations upon the Company's liquidity and capital raising
ability (see "Management's Discussion and Analysis of Financial Condition and
Results of Operations"); increases in the cost of cars and limitations on the
supply of competitively priced cars; Ford's control of the Company; and
seasonality in the Company's businesses.

Car Rental

The Company believes it maintains the largest network of company-owned car
rental locations both in the United States and in Europe, and the largest number
of on-airport car rental locations in the world, enabling the Company to provide
consistent quality, pricing and service worldwide. The Company derives
approximately 80% of its car rental revenues from on-airport locations.
According to information disclosed by the largest 159 U.S. airports, the Company
maintained the leading on-airport car rental market share at such airports
during 1997 of over 30% in terms of revenues and has maintained market share at
approximately this level during each of the last five years.

During 1997, approximately 53% of the Company's worldwide car rental
revenues were generated from business travelers and approximately 47% from
leisure travelers. The Company has a worldwide marketing and sales

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organization focused on both commercial accounts/group sales and the travel
industry, including travel agents, as well as a comprehensive program of retail
and trade advertising, direct mail and other targeted marketing.

The Company's Hertz #1 Club Gold service provides an expedited rental
service to members at approximately 650 locations worldwide. At December 31,
1997, there were approximately two million active Hertz #1 Club Gold members who
accounted for approximately 38% of the Company's U.S. car rental transactions in
1997. 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 activities
generated $3.4 billion in revenue and $271 million in income before taxes during
1997.

Industrial and Construction Equipment Rental

The Company, through its wholly-owned subsidiary, Hertz Equipment Rental
Corporation ("HERC"), believes that it maintains the leading market share in the
U.S. industrial and construction equipment rental market. HERC rents a broad
range of earthmoving equipment, material handling equipment, aerial and
electrical equipment, air compressors, small tools, compaction equipment and
construction-related trucks through a network in the U.S. of 135 branch
locations.

HERC maintains an established national accounts program with approximately
1,700 customers who generated 46% of HERC's revenues in 1997. As of December 31,
1997, HERC maintained a fleet with an original investment cost of approximately
$1,090 million and a weighted average age of 21.5 months. HERC generated $444.5
million in revenue and $72.3 million in income before taxes during 1997.

Other Activities

Other activities of the Company include self-insurance operations for both
its car rental and industrial and construction equipment rental businesses, car
leasing operations in certain international markets, the sales of its used cars
and equipment, third party claim management services and telecommunications
services in the United States.
------------------------

The Company, which was incorporated in Delaware in 1967, is a successor to
corporations that have been engaged in the automobile and truck leasing and
rental business since 1918. As a result of a series of transactions in 1993 and
1994, the Company became a wholly-owned subsidiary of Ford. Prior to that time
and until 1987, when Ford first acquired an ownership interest in the Company,
the Company had been a subsidiary of UAL Corporation (formerly Allegis
Corporation) ("UAL"), which had acquired the Company's outstanding capital stock
from RCA Corporation ("RCA") in 1985. See Notes 1, 5 and 8 of the Notes to the
Company's consolidated financial statements included in this Report.

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

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

BUSINESS SEGMENTS

The Company's business consists of two significant segments, rental and
leasing of cars and light trucks ("car rental"), and the rental of industrial,
construction and material handling equipment ("industrial and construction
equipment rental"). Set forth below is certain information with respect to these
segments, as well as "corporate and other", for the year ended December 31,
1997. Corporate and other includes general corporate expenses, as well as other
business activities, such as claim management and telecommunication services.
See Note 11 of the Notes to the Company's consolidated financial statements
included in this Report.

2
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<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
-----------------------------------------------------
INDUSTRIAL AND
CONSTRUCTION
EQUIPMENT CORPORATE
CAR RENTAL RENTAL AND OTHER
------------ -------------- ------------
AMOUNT % AMOUNT % AMOUNT % TOTAL
------ --- ------- ---- ------ --- ------
DOLLARS IN MILLIONS
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues...................................... $3,419 88% $445 11% $27 1% $3,891
Amortization of intangibles................... 3 15 -- -- 17 85 20
Operating income (loss) (pre-tax income before
interest)................................... 551 85 122 19 (28) (4) 645
Income (loss) before income taxes............. 312 91 72 21 (41) (12) 343
Revenue earning equipment, net, at end of
year........................................ 4,040 83 852 17 -- -- 4,892
</TABLE>

The Company, through its subsidiaries, affiliates and independent
licensees, operates in approximately 5,500 locations throughout the United
States and in approximately 140 foreign countries and jurisdictions. Set forth
below is certain information with respect to the Company's U.S. and foreign
operations for the year ended December 31, 1997 (substantially all of the
Company's foreign operations consist of car rental and leasing operations).

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
----------------------------------------
U.S. FOREIGN
------------- -------------
AMOUNT % AMOUNT % TOTAL
------ --- ------ --- ------
DOLLARS IN MILLIONS
<S> <C> <C> <C> <C> <C>
Revenues............................................. $2,993 77% $898 23% $3,891
Amortization of intangibles.......................... 18 90 2 10 20
Operating income (pre-tax income before interest).... 540 84 105 16 645
Income before income taxes........................... 273 80 70 20 343
Revenue earning equipment, net, at end of year....... 4,015 82 877 18 4,892
</TABLE>

WORLDWIDE CAR RENTAL

U.S. Operations

Car Rental. The Company provides car rental services throughout the United
States in or around all major U.S. cities and operates a nationwide, toll-free
reservations system. Car rental facilities are operated at all major airports
and in the central business districts and key suburban commercial centers in
major U.S. cities. The Company estimates that airport revenues accounted for
approximately 89% of its car rental revenues in the United States in 1997. The
Company also maintains arrangements with selected hotels and railroad terminals
to facilitate car rentals at such locations.

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

For the year ended December 31, 1997, the Company conducted operations
through approximately 700 owned locations. Company-owned locations are those
locations through which the Company rents cars which it owns, as

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<PAGE> 5

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. Domestic licensee locations
numbered approximately 365 at December 31, 1997. Together with its licensees,
the Company operated a peak domestic fleet of more than 246,000 cars in 1997. At
December 31, 1997, the Company owned 93% of all the cars in the combined
Company-owned and licensee fleet.

The Company has concession agreements at over 190 airports in the United
States. These agreements are entered into with airport authorities, either
through negotiation or a bidding process, for a fixed number of car rental
counter positions. The agreements typically provide for concession payments
based upon a specified percentage of revenue generated at the airport, subject
to a minimum annual fee, and sometimes include fixed rent for terminal counters
or other leased properties and facilities.

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

Hertz Local Edition -- Local Use and Insurance Replacement. The Company,
under the Hertz Local Edition brand name, "HLE", formerly H.I.R.E. ("Hertz
Insurance Replacement Entity"), provides local use and replacement car rental
services primarily to local customers in the United States whose automobiles are
out of service, generally due to an accident, theft or mechanical problem. A
high percentage of these rentals are referrals from insurance companies, which
generally pay for all or a significant portion of the cost of such rentals.

At December 31, 1997, HLE operated through 70 locations in six states with
approximately 3,800 cars. The Company intends to capitalize on agreements with
major insurance carriers and its own sales, technology and marketing expertise
to increase its market share.

HLE rents cars on a daily, weekend, weekly or monthly basis and derives
additional revenues from the sale of collision damage waivers and refueling
options. Rates vary at different locations depending on local market conditions
and competitive factors. HLE's operations are subject to seasonal fluctuation,
with greater activity occurring during the summer months because of heavier
driving activity and the winter months because of hazardous driving conditions.
HLE generally will hold its cars for 18 to 24 months, compared with 5 to 12
months for the Company's domestic car rental business, resulting in lower
monthly holding costs. HLE is generally at risk with respect to the residual
values of its cars and disposes of these cars through the Company's retail sales
operations and auctions. See "Used Car Sales".

International Operations

At December 31, 1997 the Company, through its subsidiaries, affiliates and
licensees, operated in approximately 140 foreign countries and jurisdictions.
Outside the United States, and primarily in Europe, the Company operates through
approximately 1,300 company-owned locations and 2,400 licensee locations, and
during 1997, operated a combined peak fleet of approximately 154,000 cars. 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 1997 were those conducted in France, Germany,
the United Kingdom, Italy, Canada, Spain, Australia and Switzerland. In
addition, the Company owns operations in Puerto Rico, St. Thomas, New Zealand,
Brazil, Belgium, Luxembourg, The Netherlands, and Portugal. In June 1997, the
Company franchised its operations in Denmark and Norway, which had been
corporately owned. See Note 5 to the Notes to the Company's consolidated
financial statements included in this Report. The Company believes that, as in
the United States, it maintains the leading airport car rental market share in
Europe with a 1997 market share of approximately 30% in terms of revenues.

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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' global reservations system.

Customers

To focus its marketing, sales and pricing functions, the Company divides
its customers into two groups, business and leisure. Business customers include
large commercial accounts, small business accounts and government authorities.
In 1997, business customers generated approximately 54% of the Company's U.S.
car rental revenue on 61% of the Company's U.S. car rental transactions.

Leisure customers, including wholesale tour customers, represent the
balance of the Company's U.S. car rental revenues and transactions, or
approximately 46% of the Company's U.S. car rental revenue on 39% of the
Company's U.S. car rental transactions. Revenue per transaction is higher for
leisure rentals as compared to business rentals because leisure rentals are
generally for longer periods. The Company's success in the leisure market is the
result of its quality of service and the Company's competitive pricing. A
significant number of leisure customers are the same customers who rent from the
Company on business. Over the last several years, the relative proportion of the
Company's revenues from business and leisure customers has remained relatively
stable.

In 1997, the Company's business customers generated approximately 51% of
the Company's international car rental revenues on 61% of the Company's
international car rental transactions. In 1997, the Company's international
leisure customers generated approximately 49% of the Company's international car
rental revenues on 39% of the Company's international car rental transactions.

The Company believes that quality of service is of critical importance to
customer satisfaction and brand loyalty. Accordingly, the Company places a high
priority on monitoring and evaluating customer satisfaction through, among other
methods, a series of rating systems, car and location inspections, and
management reporting.

Revenue Management

The Company uses a point-of-sale revenue management program through which
counter sales representatives sell car upgrades, supplemental equipment and
optional services. This program of identifying and satisfying additional
customer requirements enhances the Company's revenues and transaction yields.

Marketing, Sales and Advertising

The Company has a worldwide marketing and sales organization focused on
both commercial accounts/group sales and the travel industry, including travel
agents as well as a comprehensive program of retail and trade advertising,
direct mail and other targeted marketing (such as special rental packages for
skiers, golfers, etc.).

The Company's commercial and group sales force supports larger commercial
accounts, smaller corporate affiliations, government and group relationships
(such as the American Automobile Association, the American Association of
Retired Persons, the American Bar Association, the American Medical Association,
etc.). In order to provide targeted sales to the travel industry community, the
Company has sales employees and engages independent contractors throughout the
United States, all of whom are dedicated to serving travel agents, airlines,
tour wholesalers and related sources of rentals.

In the United States, the Company markets to leisure customers
predominantly through television and radio media advertising and through
newspaper and magazine print advertising. Print advertising is primarily
rate-related, highlighting leisure rates for weekly and weekend rentals.

The Company conducts an active national and international advertising
program, the cost of which is supported in part by contributions from the
Company's independent licensees. The Company is also a party to a cooperative
advertising agreement with Ford pursuant to which Ford shares some of the cost
of certain of the Company's advertising programs in the United States and abroad
that feature the Ford name or products. The advertising programs also involve
cooperative advertising arrangements with airlines, hotels and others in the
travel industry.

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<PAGE> 7

During the five-year period ended December 31, 1997, the Company's total
advertising and related expenditures (almost all of which were related to car
rental operations) and the sources contributing thereto were approximately as
follows:

<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
------ -------- -------- -------- --------
DOLLARS IN THOUSANDS
<S> <C> <C> <C> <C> <C>
The Company and Subsidiaries........ $148,912 $148,034 $134,487 $133,600 $101,281
Ford................................ 45,162 45,459 44,112 41,994 40,259
Licensees........................... 8,660 8,454 8,740 8,800 8,154
-------- -------- -------- -------- --------
Total..................... $202,734 $201,947 $187,339 $184,394 $149,694
======== ======== ======== ======== ========
</TABLE>

In addition, licensees spend additional amounts for local advertising and
sales promotions that feature the "Hertz" name.

Car Acquisition

The Company believes it is the largest single private purchaser of new cars
in the world, acquiring over 300,000 cars in the United States and a total of
approximately 470,000 cars worldwide during the 1997 model year. Consequently,
the acquisition and disposition of cars are important activities for the Company
and have a significant impact on profitability. The Company acquires, subject to
availability, a majority of its cars pursuant to various fleet repurchase
programs established by automobile manufacturers. Under these programs,
automobile manufacturers agree to repurchase cars at a specified price during
established repurchase periods, subject to certain car condition and mileage
requirements. Repurchase prices under the repurchase programs are based on
either (i) a predetermined percentage of original car cost and the month in
which the car is returned or (ii) the original capitalization cost less a set
daily depreciation amount. These repurchase programs limit the Company's
residual risk with respect to cars purchased under the programs. For this
reason, cars purchased by car rental companies under repurchase programs are
sometimes referred to by industry participants as "non-risk" cars. Conversely,
those cars not purchased under repurchase programs for which the car rental
company is exposed to residual risk are sometimes referred to as "at risk" cars.
During 1997, non-risk cars as a percentage of all cars purchased by the
Company's U.S. and international operations were approximately 82% and 76%,
respectively. The Company expects the percentage of "non-risk" cars in its
rental fleet to decrease due primarily to anticipated changes in the terms to be
offered by automobile manufacturers under repurchase programs. The Company
believes such terms will encourage the Company to purchase a larger proportion
of "at risk" cars.

The holding period for the Company's rental cars ranges from 5 to 12
months. The Company's flexibility to adjust the holding period for cars,
particularly under repurchase programs with automobile manufacturers, enables
the Company to adjust its fleet size up or down relatively quickly in response
to changing market conditions. At December 31, 1997, the average age of rental
cars in the Company's fleet was seven months.

Over the five years ended December 31, 1997, on a weighted average basis,
approximately 67% of the cars acquired by the Company for its U.S. car rental
fleet, and approximately 31% of the cars acquired by the Company for its
international fleet, were manufactured by Ford. During 1997, approximately 65%
of the cars acquired by the Company domestically were manufactured by Ford, 5%
were manufactured by General Motors Corporation, 6% were manufactured by
Chrysler Corporation and the remainder were manufactured by various Japanese,
Korean and European manufacturers. The percentage of Ford cars acquired by the
Company for its U.S. car rental fleet is expected to remain at these or higher
levels in the future. See Note 8 to the Notes to the Company's consolidated
financial statements included in this Report. In its foreign operations, the
Company utilizes cars manufactured abroad by subsidiaries of Ford and by other
manufacturers. In 1997, approximately 20% of the cars acquired by the Company
for its international fleet were manufactured by Ford, which represented the
largest percentage of any automobile manufacturer in that year. Negotiations
with automobile manufacturers include determination of the initial purchase
price of the car and establishment of the payment terms. New car repurchase
programs or residual value guarantees, approval for using the Company's
facilities for warranty repairs, as well as the establishment of cooperative
advertising and promotion programs also are negotiated with the manufacturers.

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<PAGE> 8

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".

Used Car Sales

The Company disposes of "at risk" cars as well as those "non-risk" cars
that are not returned to the manufacturer through auctions, 43 domestic retail
car sales locations and, in Europe, through wholesale operations. Upon the sale
of a car, the difference between the net proceeds from sale and the remaining
book value is recorded as an adjustment to depreciation in the period when sold.
See Note 8 of the Notes to the Company's consolidated financial statements
included in this Report.

Licensees

While the Company believes that its extensive worldwide ownership of its
operations provides an important competitive advantage, the Company has found it
more efficient to operate through licensees in certain markets. As of December
31, 1997, the Company's licensees operated from approximately 3,200 locations
worldwide. The Company believes that its licensee arrangements are important to
the Company's business because they enable the Company to offer expanded
national and international service and a broader Rent It Here-Leave It There
program. The Company's wholly-owned subsidiaries, Hertz System, Inc. ("System")
and Hertz International, Ltd. ("International"), issue licenses under franchise
arrangements to independent licensees and affiliates who are engaged in the car
renting 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 (except for one foreign
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.

In 1988, the Company sold its 50% interest in Hertz Penske Truck Leasing,
Inc., which has been succeeded by Penske Truck Leasing Co., L.P., ("Penske"),
and entered into a license agreement under which Penske has the right, as a
licensee of the Company, to conduct a one-way truck rental business (including
trailers) using the "Hertz" name for a 10 year period ending in June 1998. With
certain exclusions the license agreement covers the entire United States.

Car Leasing

Hertz owns 100% of its car leasing operations in Australia, New Zealand and
Brazil. Leases are generally closed-end where the Company is subject to risk
with respect to the market value of cars at the time of disposition.

Effective January 1, 1995, the Company sold its European car leasing and
car dealership operations to Hertz Leasing International, Inc., an indirect,
wholly-owned subsidiary of Ford ("HLI"), at an amount equal to its book value of
approximately $61 million. As part of the transaction and for additional
consideration payable over five years, Ford received the worldwide rights
(subject to certain existing license rights and excluding Australia, New Zealand
and Brazil) to use and sublicense others to use the Hertz name in the conduct of
car leasing businesses (i.e., rentals having terms of one year or longer). In
1997, Ford agreed to transfer back to the Company, as of March 1, 1997, subject
to a limited transition period, the right to use the Hertz name in the conduct
of the car leasing business, and continues to make payments in respect of its
obligation. See Note 5 to the Notes to the Company's consolidated financial

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<PAGE> 9

statements included in this Report. The Company has resumed leasing operations
using the Hertz name in the United Kingdom and is considering further expansion.

INDUSTRIAL AND CONSTRUCTION EQUIPMENT RENTAL OPERATIONS

Operations

Industrial and construction equipment rental represents HERC's principal
service offered. HERC rents over 180 types of equipment, major categories of
which include earthmoving equipment, material handling equipment, aerial and
electrical equipment, air compressors, compaction equipment and
construction-related trucks. Earthmoving, material handling and aerial equipment
accounted for 72% of HERC's net fleet investment at December 31, 1997. HERC's
more than 38,000 pieces of rental equipment have a weighted average age of 21.5
months and an original investment cost of approximately $1,090 million at
December 31, 1997.

HERC is one of the largest sellers of used industrial and construction
equipment in the United States. It has developed an extensive used equipment
sales program that disposed of equipment having an original cost of
approximately $150 million in 1997. HERC has a dedicated used equipment sales
force and has also developed an export market through its overseas contacts.
Additionally, HERC has in the past and may, from time to time in the future,
employ a broker network in the United States to dispose of its used equipment.

HERC's comprehensive line of equipment enables HERC to supply equipment to
a wide range of customers from the local contractor to large industrial plants.
Also, larger companies, particularly those with industrial plant operations, are
requiring single source vendors, not only for equipment rental, but also for
management of their total equipment needs. This includes maintenance of their
owned equipment, tools and supplies for their labor force, and management
reports related to the above. HERC responded to this by creating its Industrial
Resources Group (IRG) which serves customers through its dedicated in-plant
operations and regional industrial centers.

Facilities

HERC currently operates 148 equipment rental branches ("branches"), 135 of
which are located in the United States across 34 states, and 13 of which are
located in France and Spain. In 1997 HERC opened 20 of these branches in the
United States, two in Spain and acquired six branches in France through an
acquisition.

HERC's rental locations are generally situated in industrial or commercial
zones. 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. Of the
148 present locations, 112 are leased from third parties and 36 are owned.

Customers

HERC's customers consist predominantly of commercial accounts and represent
a wide variety of industries, such as railroad, automobile manufacturing,
petrochemicals, movie production, ship building and construction. Serving a
number of different industries enables HERC to reduce its dependence on a single
or limited number of customers in the same business. HERC maintains an
established national accounts program with approximately 1,700 customers who
generated 46% of HERC's revenues in 1997. HERC has over 59,000 customers, and in
1997 no single customer of HERC accounted for more than 4% of its revenues. HERC
primarily targets customers in medium to large metropolitan markets.

HERC operations in the United States are organized and managed in eight
geographic regions. During each of the five years ended December 31, 1997, no
single geographic region accounted for more than 20% of HERC's revenues. This
geographic diversification means HERC is better positioned to withstand a
regional recession than its local or regional competitors who, the Company
believes, are highly dependent on the economic condition of a single region.

8
<PAGE> 10

HERC has begun to identify target markets for franchising in the U.S.,
Puerto Rico, Canada and Europe as part of its ongoing expansion strategy.

Sales and Marketing

HERC focuses its major sales and marketing strategy on local,
multi-regional and national users of industrial and construction equipment. The
strategy is led by a national accounts sales organization and is backed by a
field sales force of highly trained sales professionals. Each branch has its own
dedicated sales force.

HERC's national sales force effectively emphasizes HERC's strengths such as
its geographically diverse system of branches and the size, consistency and
quality of HERC's fleet. HERC reaches its smaller accounts through a local sales
force. The Company believes that the combination of HERC's professional sales
force, high quality fleet and the ability to transfer equipment from various
locations to satisfy local demands provides a competitive advantage.

Equipment Acquisition

HERC selectively buys its equipment from vendors with reputations for high
product quality, reliability and significant market share. Some of HERC's
leading suppliers include Case Corporation, JLG Industries, Inc., Lull
Industries, Inc, the Gradall Co., Deere & Company (John Deere equipment),
Ingersoll-Rand Company and Ford.

Centralized purchasing has allowed HERC to standardize its fleet
specifications by model and geographic needs, allowing for economies of scale.
HERC has developed a fully automated fleet planning and purchasing process that
streamlines and expedites fleet orders.

The Company believes that HERC's fleet age is a major competitive advantage
and assures customer satisfaction with equipment as well as lower maintenance
costs. Through aggressive used equipment sales, the Company has been able to
maintain an average fleet age of 21.5 months.

The Company is generally at risk with respect to the residual value of all
the equipment used in its industrial and construction equipment rental
operations.

Fleet Disposal

The Company believes that HERC is the largest distributor of used
industrial and construction equipment in the United States and has established
itself as a highly reliable supplier of used equipment. In 1997, HERC disposed
of equipment having an original cost of approximately $150 million.

Pricing for used HERC equipment is centralized. Relationships with major
equipment brokers and wholesalers allow HERC to trim fleet levels and mix to
improve utilization. HERC publishes The Source magazine two to three times per
year and distributes it nationally to over 46,000 customers and prospects. This
full color publication advertises price, model, year and location of used
equipment for sale. The Company also prints a Spanish version.

This overall used equipment strategy has allowed HERC to maintain what it
believes to be the youngest fleet in the industry by selling off assets that are
between 24 and 60 months old on average. With a younger fleet, HERC has
significantly reduced its maintenance and repair costs which are largely covered
by manufacturer warranties. The Company has been able to exploit its significant
presence in the U.S. market for sales of used industrial and construction
equipment, to actively manage its fleet size and, in particular, to reduce fleet
levels during typical seasonal downturns.

STRATEGIC INFORMATION SYSTEMS

Centralized control, achieved through the use of the Company's strategic
systems technology, of major business processes such as reservations, rate
structures and fleet control provides the disciplined environment in which the
Company can deliver consistent quality service at its car rental and equipment
rental operations. The Company maintains real-time communications with its many
locations by means of what it believes is the largest private data network in
the industry.

9
<PAGE> 11

In 1991, the Company began centralizing its worldwide information
technology resources in Oklahoma City, Oklahoma. This project, which is expected
to be completed by 1999, is expected to allow the Company to gain efficiencies
in support and development and to continue improving productivity and cost
effectiveness.

Global Reservations System

The Company's global reservations system operates through real-time,
on-line centers on five continents. Direct access with other computerized
reservations systems allow real-time processing for travel agents and corporate
travel departments. Company rental locations worldwide depend upon the global
reservations system to provide information critical to fleet and personnel
planning, rate management and the timely computerized delivery of reservations.
Customer information captured and made available in the reservations process
support such premium services as Hertz #1 Club Gold.

The Company's reservations system annually handles approximately 40 million
incoming calls, during which customers inquire about locations, rates and
availability, and place or modify reservations. In addition, millions of
inquiries and reservations come to the Company through travel agents and travel
industry partners. The Company maintains and continually monitors quality
standards for accuracy and consistency in the reservations process. Regardless
of where in the world the customer may be, the Company's reservations system is
designed to ensure that availability of cars, rates and personal profile
information is reliably applied and that correct information is delivered at the
proper time to the customer's rental destination.

The Company expects to complete its transition to a state of the art,
client-server based reservations system at its Oklahoma City reservations center
during 1998. This new system is expected to allow for greater accuracy and speed
in processing reservations, thereby improving customer service. The
client-server architecture minimizes the need for additional computer equipment
as the demands of the business grow. Additionally, the design of the new system
is expected to be more flexible, facilitating rapid response to changing market
demands.

The Company also is in the process of consolidating individual European
reservations centers into a single facility in Ireland. As a result, the Company
expects to realize substantial cost savings, while providing uniformly high
service levels. Currently, the European and domestic reservations systems are
linked, providing for global reservation capabilities.

Yield Management System

Yield management affords the opportunity to achieve greater returns from a
fixed number of assets. The Company's yield management system is designed to
optimize revenue through controlling, simultaneously, the availability of
various rates as well as the availability of cars. The system monitors the flow
of demand over time on a location by location basis, in order to supply a
sufficient number of cars at those times when available rates are high.

Enhancements to the yield management system are produced on an ongoing
basis. The Company is currently developing a car distribution optimization
program, which is expected to be fully integrated with the yield management
system, and anticipates that this program will be made available throughout the
Company's major locations in the United States during 1998. This enhancement is
expected to facilitate the distribution of cars among rental locations within a
regional area to take maximum advantage of demand and price opportunities over a
period of time.

In the Company's European operations, the yield management system is
expected to be introduced with modifications appropriate to those markets.

Competitive Rate Detection

The Company recognizes that it is essential to respond promptly to pricing
changes in the marketplace. The ability to respond rests on the ability to
detect pricing changes when they occur. The Company believes it has the most
sophisticated competitive price detection software in the industry. Developed
internally and using global distribution systems (such as United Airlines'
Apollo system and American Airlines' Sabre system) for its source of
information, competitors' rates are electronically canvassed nightly. "Scouting"
routines are used to identify future rates in the marketplace. If rate changes
are detected, they result in more in-depth canvassing, as appropriate. The
benefit of this
10
<PAGE> 12

system is to provide enhanced awareness of competitive rate changes far more
frequently, and for a greater number of locations and time periods, than would
otherwise be available.

Internationally, canvassing is generally done manually, due to the limited
information available concerning competitors in the global distribution systems.
However, the Company's European operations have in place a reporting system
which, while dependent on manual input, parallels the information available in
the United States.

Cost Allocation Model

The Company's cost allocation model supports the Company's objective that
all segments of its businesses must provide contributions above a strategically
set threshold. Contribution per rental day is determined by location, business
segment and car and equipment category by using data from the financial
management system, the fleet accounting system, the marketing database and the
yield management process. Additional models, based on this core cost allocation
model, allow the sales department to determine the profitability of customer
accounts by rental location.

To support the Company's European operations, a comparable cost allocation
model is used to reflect the individual operating environments of the respective
countries and to manage profitability.

Disaster Recovery

The Company's systems disaster recovery planning is a comprehensive,
ongoing process which is updated as products are developed, tested and modified.
Disaster recovery for reservations, financial and other strategic systems is
provided at alternative locations serviced by third parties or at Company
maintained facilities.

OTHER OPERATIONS OF THE COMPANY

Claim Management

The Company's wholly-owned subsidiary, Hertz Claim Management Corporation,
provides claim administration services to the Company and to numerous customers.
These services include investigating, evaluating, negotiating and disposing of a
wide variety of claims, including third-party, first-party, bodily injury,
property damage, general liability and product liability, but not the
underwriting of risks. Prior to March 1, 1996, the Company, through a
subsidiary, also administered for the Company's operations and others, workers'
compensation and medical, dental and other employee health benefit claims. That
subsidiary was sold at a profit to an investor group during 1996. However, Hertz
Claim Management Corporation continues to administer liability claims for the
Company and for outside clients.

Telecommunications

In 1991, the Company began purchasing and reselling telecommunications
services through its subsidiary, Hertz Technologies, Inc. ("HTI"). HTI takes
advantage of the Company's negotiated rates with its telecommunications carriers
to market custom designed rate packages and services to small and medium size
businesses throughout the United States. Available services include call detail
and management reports, inbound/outbound call packages and travel calling card
services that include voice mail and fax options.

The knowledge of competitive telecommunications services gained from
developing a leading management information system for the Company's car rental
operations has resulted in significant savings to the Company. Due to the nature
of the telecommunications business, there is very little overhead or capital
investment required. Services are sold through independent sales agents and
other groups. HTI provides its services from Oklahoma City, Oklahoma.

INSURANCE

For its domestic operations, the Company is, where permitted by applicable
local law, a qualified self insurer against liability resulting from accidents
under certificates of self insurance for financial responsibility in all states
where its cars 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 has maintained insurance with
unaffiliated carriers in excess of $5 million up to

11
<PAGE> 13

$450 million per occurrence. Hertz Claim Management Corporation administers this
public liability and property damage program through a network of eight regional
offices throughout the United States.

For its international operations, the Company purchases insurance to comply
with local legal requirements. From January 1, 1993 through December 31, 1996,
vehicle liability insurance purchased locally from unaffiliated carriers by
Company-owned operations in Europe was reinsured by Hertz International RE
Limited, a wholly-owned subsidiary of the Company operating as a reinsurer in
Dublin, Ireland. Hertz International RE Limited is responsible for the first
$1.5 million of motor vehicle liability for each accident during this period,
with excess liability insurance coverage maintained by the Company with
unaffiliated carriers. Effective January 1, 1997, the Company replaced the
unaffiliated carrier that was the fronted insurer for claims up to $1.5 million
by establishing a wholly-owned subsidiary, Probus Insurance Company Europe
Limited ("Probus"), a direct writer domiciled in Dublin, Ireland. Probus now
underwrites the Company's Pan-European motor vehicle liability program (except
in Switzerland) up to $1.5 million per occurrence. Excess coverage for claims
that exceed $1.5 million per occurrence continue to be maintained with
unaffiliated carriers. In the Company's international operations other than
Europe, the Company is self-insured at various amounts up to $100,000 per
occurrence, and maintains excess liability insurance coverage up to $450 million
per occurrence with unaffiliated carriers.

Provisions for public liability and property damage on self-insured
domestic and foreign claims are made by charges to expense based upon
evaluations of estimated ultimate liabilities on reported and unreported claims.
At December 31, 1997, this liability was estimated at $310.5 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
workers 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 officer's 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 business car rental market are Avis, Inc. and National Car Rental System,
Inc., and in the leisure market, the Company's principal competitor is Alamo
Rent-A-Car, Inc. In Europe, the Company's principal competitors in the car
rental market are Avis Europe plc, National Car Rental, Europcar and, operating
principally through licensees, Budget Rent a Car Corporation. The Company
competes primarily on the basis of customer service and price. In addition, the
Company believes extensive worldwide ownership of its operations and its access
to the global capital markets provide it with an advantage over its competitors.

The Company, through Hertz Local Edition, intends to expand its presence in
the insurance replacement market in the United States where Enterprise
Rent-A-Car Company is currently the dominant participant.

The Company believes that HERC is the largest equipment rental company in
the United States. HERC's competitors range from large national companies such
as U.S. Rentals, Rental Service Corp., Prime and BET Plant Services to small
regional businesses. HERC's competitive success is, in part, due to its state of
the art systems for monitoring, controlling and developing its branch network,
its capacity to maintain a comprehensive rental fleet and its established
national accounts program.

The Company believes that price is one of the primary competitive factors
in the car and industrial and construction equipment rental markets. Competitors
of the Company, many of which have access to substantial capital, may seek to
compete aggressively on the basis of pricing. To the extent that the Company
matches downward

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<PAGE> 14

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, 1997, the Company employed approximately 21,700 persons in
its domestic and foreign operations. Labor contracts covering the terms of
employment of approximately 5,400 employees in the United States are presently
in effect under 164 active contracts with local unions, affiliated primarily
with the International Brotherhood of Teamsters and the International
Association of Machinists (AFL-CIO). Labor contracts which cover approximately
1,500 of these employees will expire during 1998. 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.

GOVERNMENTAL REGULATION AND ENVIRONMENTAL MATTERS

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

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

Since 1992, in the Company's New York region (which includes parts of New
Jersey and Connecticut), the Company has been assessing higher rental rates for
renters who reside in the New York City boroughs of the Bronx, Brooklyn or
Queens, to offset costs resulting from a higher incidence of accidents involving
renters residing in such boroughs. The City of New York passed an ordinance
prohibiting such pricing practice. The Company filed suit against The City of
New York claiming that such ordinance was in violation of federal anti-trust
laws. The Company's claim was rejected in U.S. District Court, and the Company
appealed to the U.S. Court of Appeals for the Second Circuit. The U.S. Court of
Appeals reversed the U.S. District Court and remanded the proceeding to that
Court for trial on the merits. Pending the outcome of the action in the U.S.
District Court, the Court has stayed the ordinance, permitting the Company to
continue its pricing practice. If the Company is ultimately unsuccessful in
challenging the ordinance, the Company believes it could take actions to
mitigate the higher costs that would be experienced from such rentals.
Accordingly, the Company believes that an adverse outcome would not have a
material adverse effect on the Company's consolidated financial position or
results of operations or cash flows.

On June 20, 1997, the Company entered into a Consent Order with the Texas
Department of Insurance ("TDI") under which the Company, while admitting no
prior wrongdoing, agreed to refund approximately $4.2 million to customers who
enrolled in supplemental liability insurance programs provided by the Company
between July 1, 1992 and August 31, 1997. The TDI alleged that the Company had
violated the Texas Insurance Code by not being licensed to sell insurance and by
not being a properly licensed agent of its insurer.

In July 1996, the Company was sued on similar grounds in a class action in
the District Court of Harris County, Texas. This action was denied class status
based on the Company's settlement with the TDI over the same issues. Plaintiff
has appealed the denial of the class action. Meanwhile, Plaintiff's individual
claim was tried to and rejected by a jury. Plaintiff is expected to appeal this
verdict.

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<PAGE> 15

Plaintiff has also filed suit in Travis County (Austin, TX) seeking to
upset the Consent Order entered into between the Company and the TDI. That suit
was dismissed by a trial court but will likely be appealed. The Company does not
expect the appeal from the Consent Order or the appeal from the denial of the
class action, however decided, to have a material adverse effect on the
Company's consolidated financial position or results of operations or cash
flows.

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

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

The Company operates approximately 465 underground tanks nationwide to
store petroleum products, and the Company believes its tanks are maintained in
material compliance with environmental regulations, including federal and state
financial responsibility requirements for corrective action and third party
claims due to releases. The Company has established a compliance program for its
tanks to ensure that (i) the tanks are properly registered with the state in
which the tanks are located; and (ii) the tanks have been either upgraded or
replaced to meet federal and state leak detection and spill, overfill and
corrosion protection requirements. The Company spent approximately $1.2 million
in 1997 and anticipates spending approximately $2.1 million in 1998 to complete
the registration and upgrade or replacement of such tanks.

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

As of December 31, 1997, the Company's owned operations were carried on at
2,307 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 116 that are owned in fee. The Company has
various concession agreements with governmental authorities charged with the
operation of airports under arrangements generally providing for payment of
rents and a percentage of revenues with a

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<PAGE> 16

guaranteed annual minimum fee. See Note 10 of the Notes to the Company's
consolidated financial statements included in this Report.

The Company owns three major facilities in the vicinity of Oklahoma City,
Oklahoma at which reservations for its worldwide car rental operations are
processed, global strategic information systems are serviced and major domestic
and international accounting functions are performed. The Company maintains its
executive offices in an owned facility in Park Ridge, New Jersey. In April 1997
the Company purchased the remaining 50% equity interest in the joint venture
that owned the facility. The Company has constructed a reservation center near
Dublin, Ireland, which opened in October 1997. The reservation center will
centralize the Company's European reservation operations.

ITEM 3. LEGAL PROCEEDINGS.

Plaintiff has also filed suit in Travis County (Austin, TX) seeking to
upset the Consent Order entered into between the Company and the TDI. That suit
was dismissed by a trial court but will likely be appealed. The Company does not
expect either the appeal from the Consent Order or the appeal from the denial of
the class action, however decided, to have a material adverse effect on the
Company's consolidated financial position or results of operations or cash
flows.

In October 1997, Hertz was served with two nationwide class-action
complaints in Alabama to recover damages for the alleged unlawful sale of
insurance products (liability insurance supplement, personal accident and
personal effects coverages) over the past ten years. Plaintiffs claim the
Company violated insurance laws of all fifty states by having its counter
representatives offer insurance coverages to renters. It is difficult to predict
whether the Company faces significant exposure from these cases given the venue
in Alabama and the potential scope of the class claims. The Company has sound
defenses against these claims. The Company believes it will be difficult to
maintain a class action in view of the different insurance regulatory regimes in
each state. Although the Company will aggressively defend these claims, these
could be long and difficult litigations. Nevertheless, the Company believes that
an adverse outcome would not have a material effect on the Company's
consolidated financial position or results of operations or cash flows.

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.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

None.

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EXECUTIVE OFFICERS OF THE REGISTRANT

The following table sets forth certain information with respect to the
executive officers of the Company, and their ages as of March 1, 1998:

<TABLE>
<CAPTION>
NAME AGE POSITION AND OFFICE
---- --- -------------------
<S> <C> <C>
Frank A. Olson............... 65 Chairman of the Board, Chief Executive Officer and
Director
Craig R. Koch................ 51 President, Chief Operating Officer and Director
Brian J. Kennedy............. 56 Executive Vice President, Marketing and Sales
Joseph R. Nothwang........... 51 Executive Vice President and General Manager, U.S. Car
Rental Division
Gerald A. Plescia............ 42 Executive Vice President and President, Hertz Equipment
Rental Corporation
Paul J. Siracusa............. 52 Executive Vice President and Chief Financial Officer
Robert J. Bailey............. 63 Senior Vice President, Quality Assurance and
Administration
Donald F. Steele............. 59 Senior Vice President, Employee Relations
Paul M. Tschirhart........... 57 Senior Vice President and General Counsel
Charles L. Shafer............ 54 Vice President and President, Hertz Europe Limited
Richard J. Foti.............. 51 Controller
Robert H. Rillings........... 57 Treasurer
</TABLE>

None of the Company's officers has any family relationship with any
director or other officer. "Family relationship" for this purpose means any
relationship by blood, marriage or adoption, not more remote than first cousin.

Set forth below is the principal occupation of each of the executive
officers named above during the past five years.

MR. OLSON has been Chairman of the Board of Directors of the Company since
June 1980, Chief Executive Officer since March 1977, and a director of the
Company since November 1974. From June 1987 to December 1987 he was also
Chairman of the Board, President and Chief Executive Officer of UAL Corporation,
Elk Grove, Illinois (the Company's former parent). He is a director of Becton,
Dickinson and Co., Franklin Lakes, New Jersey; Cooper Industries, Inc., Houston,
Texas; Fund American Holdings, Inc., Lebanon, New Hampshire; and Amerada Hess
Corporation, New York, New York.

MR. KOCH was elected President and Chief Operating Officer of the Company
in September 1993. From February 1988 through August 1993 he served as Executive
Vice President and President of North America Car Rental operations of the
Company. He served as President and Chief Operating Officer of the Company from
May 1987 to February 1988. In October 1983 he became Executive Vice President
and General Manager of the Company's Car Rental Division after having served as
Vice President and General Manager since March 1980. He has been a director of
the Company since June 1994 and previously served as a director of the Company
from May 1987 to July 1993 and from October 1983 to September 1985.

MR. KENNEDY was elected Executive Vice President, Marketing and Sales of
the Company in February 1988. From May 1987 through January 1988, he served as
Executive Vice President and General Manager of the Car Rental Division of the
Company, prior to which, from October 1983, he served as Senior Vice President,
Marketing.

MR. NOTHWANG was elected Executive Vice President of the Company and
General Manager U.S. Car Rental in August 1995. He served as Vice President and
General Manager U.S. Car Rental from September 1993 to August 1995. Previously,
he served as Division Vice President, Region Operations since 1985. He served in
various operating positions since 1976.

MR. PLESCIA was elected Executive Vice President of the Company and
President of Hertz Equipment Rental Corporation in July 1997. He served as
Division Vice President, Field Operations for Hertz Equipment Rental from May
1992 to July 1997. Previously, he has served in various operating positions
since 1979.

MR. SIRACUSA was elected Executive Vice President and Chief Financial
Officer of the Company in July 1997. He served as Vice President, Finance and
Chief Financial Officer, Hertz International, Ltd. from January 1996 to July

16
<PAGE> 18

1997. He served as Staff Vice President and Controller, Worldwide Car Rental
from August 1994 to December 1995. He served as Division Vice President, North
America Car Rental and Controller from March 1988 to July 1994. Previously, he
served in various functions with the Company since 1969.

MR. BAILEY was elected Senior Vice President of the Company in May 1990.
Previously, he served in various functions with the Company since 1956, except
for the years 1966 and 1981.

MR. STEELE was elected Senior Vice President, Employee Relations of the
Company in July 1984. Previously, he served in various functions with the
Company since 1972.

MR. TSCHIRHART was elected Senior Vice President and General Counsel of the
Company in October 1986, and also served as Secretary from February 1988 to
November 1992. Previously, he served as Senior Counsel for United Airlines,
Inc., Elk Grove, Illinois, since 1982.

MR. SHAFER was elected Vice President of the Company in February 1998 and
President of Hertz Europe Limited, in January 1998. He served as U.S. Car Rental
Division Vice President, Region Operations, Western Region from January 1991 to
December 1997. Previously, he served in various functions with the Company since
1966.

MR. FOTI was elected Controller of the Company in July 1997. He served as
Staff Vice President, Internal Audit from February 1990 to July 1997.
Previously, he served in various positions with the Company since 1978.

MR. RILLINGS was elected Treasurer of the Company in November 1986.
Previously, he served in various positions with the Company since 1961.

17
<PAGE> 19

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

The Class A Common Stock of the Company is listed on the New York Stock
Exchange. The high and low sales prices for the Class A Common Stock and the
dividends paid per share on the Class A Common Stock for each quarterly period
from April 25, 1997, the date the Class A Common Stock began trading on the New
York Stock Exchange, were as follows:

<TABLE>
<CAPTION>
1997 CLASS A COMMON STOCK PRICE PER SHARE*
--------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
-------- -------- -------- --------
<S> <C> <C> <C> <C>
High...................................................... N/A 37 3/4 39 3/8 41 3/4
Low....................................................... N/A 27 1/8 31 7/8 34
Dividends per share of Class A Common Stock and Class B
Common Stock............................................ -- -- $.05 $.05
</TABLE>

- - ---------------
*Prices reflect New York Stock Exchange Composite Transactions. The initial
public offering price was $24.00 per share.

As of March 1, 1998, stockholders of record of the Company included 4,550
holders of the Class A Common Stock and one holder of the Class B Common Stock.

Dividends on the Company's common stock are paid when declared by the Board
of Directors. The Company paid cash dividends of $10.8 million on common stock
in 1997. On February 27, 1997, the Company paid a dividend to Ford of $460
million on its common stock in the form of a 5.475% promissory note, which was
fully repaid on March 10, 1997. The Company paid cash dividends to Ford on its
common stock of $25 million in 1995.

On January 27, 1998, the Board of Directors declared a quarterly dividend
of $.05 per share on its Class A and Class B Common Stock payable on March 10,
1998 to shareholders of record as of February 13, 1998.

Certain debt instruments under which the Company has issued debt securities
restrict the Company's ability to pay dividends. Such restrictions generally
provide that the Company may not pay dividends, invest in its own shares or
permit investments by certain subsidiaries of the Company ("Restricted
Subsidiaries") in the Company's shares subsequent to a specified date if,
together with total investments by the Company and its Restricted Subsidiaries
in subsidiaries that are not Restricted Subsidiaries made subsequent to such
specified date, the aggregate of any such dividends or investments exceeds the
sum of (i) a specified dollar amount, (ii) the aggregate net income of the
Company and its Restricted Subsidiaries earned subsequent to such specified date
and (iii) net proceeds received from capital stock issued subsequent to such
specified date. At December 31, 1997, approximately $491 million of consolidated
stockholders' equity was free of such limitations.

On February 27, 1997, the Company issued 1,290 shares of its 5.11%
Cumulative Series C Preferred Stock, par value $.01 per share, to Ford in
exchange for U.S. treasury securities having an aggregate fair market value at
that time of $129 million. The Company believes that this transaction was exempt
from registration under Section 4(2) of the Securities Act of 1933 because the
securities were sold to a single sophisticated investor who was purchasing for
investment without a view to further distribution. On April 30, 1997, the
Company redeemed all the issued and outstanding shares of the Series C Preferred
Stock.

18
<PAGE> 20

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, 1997, and consolidated balance sheet
data as of December 31, 1997 and 1996 presented below were derived from the
audited consolidated financial statements of the Company and the related notes
thereto included in this Report. The selected consolidated income statement data
for each of the years in the two-year period ended December 31, 1994, and
consolidated balance sheet data as of December 31, 1995, 1994 and 1993 presented
below were derived from audited consolidated financial statements of the Company
and the related notes thereto not included in this Report. The financial data
presented below and the related notes thereto should be read in conjunction with
the consolidated financial statements of the Company and the related notes
thereto included in this Report.

<TABLE>
<CAPTION>
YEARS ENDED OR AT DECEMBER 31
----------------------------------------------------
1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
DOLLARS IN MILLIONS
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
Revenues
Car rental................................... $3,329.9 $3,161.6 $2,911.7 $2,581.2 $2,177.5
Industrial and construction equipment
rental.................................... 444.5 392.3 332.3 263.1 215.8
Car leasing.................................. 40.9 35.4 35.6 231.4 209.3
Other(a)..................................... 76.0 79.0 121.0 218.7 252.2
-------- -------- -------- -------- --------
Total revenues....................... 3,891.3 3,668.3 3,400.6 3,294.4 2,854.8
-------- -------- -------- -------- --------
Expenses
Direct operating............................. 1,826.7 1,795.1 1,724.8 1,766.2 1,647.1
Depreciation of revenue earning
equipment(b).............................. 979.6 892.7 803.9 702.7 523.9
Selling, general and administrative.......... 439.5 425.2 392.5 385.5 336.0
Interest, net of interest income of $13.8,
$10.4, $16.8, $7.2 and $11.3.............. 302.2 298.8 307.1 277.2 245.4
-------- -------- -------- -------- --------
Total expenses....................... 3,548.0 3,411.8 3,228.3 3,131.6 2,752.4
-------- -------- -------- -------- --------
Income before income taxes................... 343.3 256.5 172.3 162.8 102.4
Provision for taxes on income(c)............. 141.7 97.9 67.1 71.7 49.0
-------- -------- -------- -------- --------
Net income................................... $ 201.6 $ 158.6 $ 105.2 $ 91.1 $ 53.4
======== ======== ======== ======== ========
Earnings Per Share(d)
Basic..................................... 1.86 1.47 .97 .84 .49
======== ======== ======== ======== ========
Diluted................................... 1.86 1.46 .97 .84 .49
======== ======== ======== ======== ========
Ratio of earnings to fixed charges(e)........ 1.9 1.7 1.4 1.4 1.3
======== ======== ======== ======== ========
BALANCE SHEET DATA
Revenue earning equipment
Cars...................................... $4,039.8 $4,318.3 $3,627.2 $3,854.4 $2,417.0
Other equipment........................... 852.0 717.4 543.0 406.0 285.5
Total assets................................. 7,435.5 7,649.2 6,656.6 6,520.8 4,688.5
Total debt................................... 4,715.7 5,091.8 4,297.5 4,413.9 2,940.5
Stockholders' equity......................... 1,136.2 989.4 836.3 735.9 616.7
</TABLE>

19
<PAGE> 21

<TABLE>
<CAPTION>
YEARS ENDED OR AT DECEMBER 31
----------------------------------------------------
1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
DOLLARS IN MILLIONS
<S> <C> <C> <C> <C> <C>
SELECTED OPERATING DATA
Car rental and other operations:
Number of owned and licensee locations.... 5,404 5,435 5,480 5,498 5,594
Number of owned locations................. 2,159 2,208 2,171 2,254 2,369
Peak number of owned and licensee cars
operated during period.................. 400,600 389,000 376,800 378,700 332,500
Average number of owned cars operated
during period........................... 289,900 283,900 263,600 276,100 236,500
Number of transactions of owned car rental
operations during period (in
thousands).............................. 21,075 20,110 18,799 17,811 15,623
Average revenue per transaction of owned
car rental operations during period (in
whole dollars).......................... $ 158 $ 157 $ 155 $ 145 $ 139
Equipment rental operations:
Number of locations....................... 148 120 104 95 85
Average cost of rental equipment operated
during period (in millions)............. $1,015.5 $ 822.9 $ 650.4 $ 504.1 $ 428.3
</TABLE>

- - ---------------
(a) Includes fees from licensees (other than expense reimbursement from
licensees), revenue from claim management and telecommunications services
and, prior to 1995, revenues from a car dealership operation in Europe.

(b) For 1997, 1996, 1995, 1994 and 1993 includes net credits of $3.3 million,
$23.2 million, $6.4 million, $23.0 million, and $28.1 million, respectively,
primarily from net proceeds received in excess of book value on the disposal
of revenue earning equipment. Effective January 1, 1997 and July 1, 1994,
certain estimated useful lives being used to compute the provision for
depreciation of revenue earning equipment used in the industrial and
construction equipment rental business were increased to reflect changes in
the estimated residual values to be realized upon disposal of the equipment.
As a result of this change, depreciation of revenue earning equipment for
the years 1997, 1995 and 1994 decreased by $10.4 million, $12.0 million and
$9.6 million, respectively.

(c) Includes credits of $13.9 million and $2.0 million for the years 1996 and
1993, respectively, resulting from adjustments made to tax accruals in
connection with tax audit evaluations and the effects of prior years' tax-
sharing arrangements between the Company and its former parent companies,
UAL and RCA. For the year 1995, includes $6.5 million of credits relating
to foreign taxes which were offset against U.S. income tax liabilities. For
the year 1993, includes a $1.1 million charge relating to the increase in
net deferred tax liabilities as of January 1, 1993 due to changes in the
tax laws enacted in August 1993.

(d) Basic and diluted net earnings per share were computed based on 108,227,916
and 108,630,236 weighted average shares of Class A and Class B Common Stock
outstanding during the year, respectively. The basic and diluted earnings
per share for the years ended December 31, 1996, 1995, 1994 and 1993 assumes
that the weighted average shares outstanding during 1997 were outstanding
for the corresponding periods in 1996, 1995, 1994 and 1993.

(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.

20
<PAGE> 22

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. Revenues 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

- Car leasing revenues

- Other revenues (fees from the Company's licensees, revenues from the
Company's claim management and telecommunications services)

The Company's expenses consist of:

- Direct operating expenses (primarily wages and related benefits;
concessions and commissions paid to airport authorities, travel agents
and others; and other costs relating to the operation and rental of the
revenue earning equipment, such as maintenance and reservations)

- Depreciation expense relating to revenue earning equipment (including net
gains or losses on the disposal of such equipment). Revenue earning
equipment includes cars and industrial and construction equipment.

- Selling, general and administrative expenses (including advertising)

- Interest expense relating primarily to the funding of the acquisition of
revenue earning equipment.

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

At December 31, 1997, 69% of the cars in the Company's car rental fleet
were subject to repurchase by automobile manufacturers under guaranteed
repurchase programs pursuant to which automobile manufacturers agree to
repurchase cars, subject to certain car conditions and mileage requirements, at
a specified price after a minimum period of service. See "Business -- Worldwide
Car Rental -- Car Acquisition". The Company's industrial and construction
equipment rental fleet is not subject to such guaranteed repurchase programs.

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

21
<PAGE> 23

RESULTS OF OPERATIONS

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

<TABLE>
<CAPTION>
PERCENTAGE OF REVENUES
YEARS ENDED DECEMBER 31
-----------------------
1997 1996 1995
----- ----- -----
<S> <C> <C> <C>
Revenues:
Car rental................................................ 85.5% 86.2% 85.6%
Industrial and construction equipment rental.............. 11.4 10.7 9.8
Car leasing............................................... 1.1 .9 1.0
Other..................................................... 2.0 2.2 3.6
----- ----- -----
100.0 100.0 100.0
----- ----- -----
Expenses:
Direct operating.......................................... 46.9 48.9 50.7
Depreciation of revenue earning equipment................. 25.2 24.3 23.6
Selling, general and administrative....................... 11.3 11.6 11.6
Interest, net of interest income.......................... 7.8 8.2 9.0
----- ----- -----
91.2 93.0 94.9
----- ----- -----
Income before income taxes.................................. 8.8 7.0 5.1
Provision for taxes on income............................... 3.6 2.7 2.0
----- ----- -----
Net income.................................................. 5.2% 4.3% 3.1%
===== ===== =====
</TABLE>

YEAR ENDED DECEMBER 31, 1997 COMPARED WITH YEAR ENDED DECEMBER 31, 1996

Revenues

The Company achieved record revenues of $3,891.3 million in 1997, which
increased by 6.1% from $3,668.3 million in 1996.

Revenues from car rental operations of $3,329.9 million in 1997 increased
by 5.3% from $3,161.6 million in 1996. This increase of $168.3 million was the
result of a worldwide increase in transactions of 4.8% and an increase in
pricing in the United States of approximately 7.5% that contributed $254.0
million in increased revenue. These increases were partially offset by a
decrease in average transaction length in the United States, decreases of $85.7
million from the effect of the strong U.S. dollar on foreign currency
translation and a decrease in pricing in foreign operations. The translation
impact of exchange rates on net income is not significant because the majority
of the Company's foreign expenses are also incurred in local currencies.

Revenues from industrial and construction equipment rental of $444.5
million in 1997 increased by 13.3% from $392.3 million in 1996. Of this $52.2
million increase, approximately $12.0 million was due to an increase in volume
resulting from the opening of 20 new domestic locations within the last 12
months and approximately $40.2 million was due to increased activity from
existing locations.

Revenues from all other sources of $116.9 million in 1997 increased by 2.2%
from $114.4 million in 1996, primarily due to increased revenues from car
leasing operations, as a result of an acquisition made in June 1996 of a foreign
licensee operation, and the recognition of the initial fee from the franchising
of Denmark and Norway car rental operations, which had been corporately owned.
This increase was partly offset by lower revenues in claim administration
service operations, a large part of which was sold as of February 29, 1996.

Expenses

Total expenses of $3,548.0 million in 1997 increased by 4.0% from $3,411.8
million in 1996, although total expenses as a percentage of revenues decreased
to 91.2% in 1997 from 93.0% in 1996.

22
<PAGE> 24

Direct operating expenses of $1,826.7 million in 1997 increased by 1.8%
from $1,795.1 million in 1996, but were lower in 1997 as a percentage of
revenues due to more efficient fixed cost coverage. The increase was primarily
due to increased costs in car rental operations, which corresponds with the
increase in transaction volume, and in industrial and construction equipment
rental operations which opened 20 new domestic locations in 1997. The overall
increase was moderated by foreign currency translation changes and decreases in
vehicle damage and other vehicle operating costs in car rental operations.
Concessions, commissions and reservation costs decreased as a percentage of
revenues.

Depreciation of revenue earning equipment for the car rental and car
leasing operations of $881.1 million in 1997 increased by 8.1% from $814.8
million in 1996, primarily due to an increase in the number of cars operated and
an increase in the cost of cars acquired in the United States. These increases
also include a decrease in the net proceeds received in 1997 in excess of book
value on the disposal of the cars (which resulted in a loss of $9.8 million in
1997 as compared to a gain of $2.5 million in 1996).

Depreciation of revenue earning equipment for the industrial and
construction equipment rental operations of $98.5 million in 1997 increased by
26.4% from $77.9 million in 1996, primarily due to an increase in both the
volume and cost of equipment operated and decreases in the net proceeds received
in excess of book value on the disposal of the equipment resulting in a $13.0
million gain in 1997 versus a $20.7 million gain in 1996. These increases were
partly offset by a reduction in depreciation of $10.4 million, due to changes
made effective January 1, 1997 to increase certain estimated useful lives and
changes in estimated residual values of the equipment.

Selling, general and administrative expenses of $439.5 million in 1997
increased by 3.4% from $425.2 million in 1996, but decreased as a percentage of
revenue to 11.3% in 1997 from 11.6% in 1996. The increase in 1997 primarily
resulted from increases in general and administrative costs and sales expenses.

Interest expense of $302.2 million in 1997 increased 1.1% from $298.8
million in 1996, primarily due to higher average debt levels (which were
required to finance growth and increases in the cost of cars and industrial and
construction equipment) and interest expense of $4.3 million incurred relating
to funding the $460 million dividend paid by the Company on its common stock to
Ford in 1997. This increase was partially offset by a lower weighted average
interest rate in 1997 as compared to 1996 and higher interest income received.

The tax provision of $141.7 million in 1997 increased 44.7% from $97.9
million in 1996. The effective tax rate in 1997 was 41.3% as compared to 38.2%
in 1996. This change was primarily due to higher income before income taxes in
1997, and a credit adjustment of $13.9 million included in 1996, which resulted
from changes made to tax accruals in connection with tax audit evaluations and
the effects of prior years' tax sharing arrangements between the Company and its
former parent companies. The tax provisions for 1997 and 1996 also include a
required tax provision of $5.8 million resulting from the amortization of
intangible assets that is not deductible for tax purposes. See Notes 1, 9 and 13
of the Notes to the Company's consolidated financial statements included in this
Report.

Net Income

The Company achieved record net income of $201.6 million in 1997, or $1.86
per share, on a diluted basis, representing an increase of 27.1% from $158.6
million, or $1.46 per share on a diluted basis, in 1996. This increase was
primarily due to higher revenues in the U.S. car rental operations and a $6.3
million ($.06 per share) decrease in depreciation expense, net of taxes, for the
industrial and construction equipment rental business for changes made effective
January 1, 1997 to the estimated useful lives being used to compute depreciation
of revenue earning equipment. This increase in net income was partly offset by:
(i) increased costs in the industrial and construction equipment rental business
relating to the additional depreciation for equipment purchased and other
expenses incurred to service new industrial customers and (ii) losses incurred
in a foreign car rental and leasing operation which was acquired from a licensee
in June 1996.

YEAR ENDED DECEMBER 31, 1996 COMPARED WITH YEAR ENDED DECEMBER 31, 1995

Revenues

The Company achieved record revenues of $3,668.3 million in 1996, which
increased by 7.9% from $3,400.6 million in 1995.

23
<PAGE> 25

Revenues from car rental operations of $3,161.6 million in 1996 increased
by 8.6% from $2,911.7 million in 1995. This increase resulted primarily from an
increase in the number of transactions both in the United States and
international operations and an increase in prices primarily in the United
States, while prices remained substantially unchanged for the Company's
international operations. These increases were partly offset by a decrease in
revenues due to changes in foreign exchange rates.

Revenues from industrial and construction equipment rental of $392.3
million in 1996 increased by 18.1% from $332.3 million in 1995, primarily due to
an increase in volume resulting from the opening of new locations and an
acquisition in 1996 and increased activity in industrial related markets, both
from new and existing customers.

Revenues from all other sources of $114.4 million in 1996 decreased by
26.9% from $156.6 million in 1995, primarily due to lower revenues in the
Company's claim administration service operations, a large part of which was
sold as of February 29, 1996.

Expenses

Total expenses of $3,411.8 million in 1996 increased by 5.7% from $3,228.3
million in 1995, although total expenses as a percentage of revenues decreased
to 93.0% in 1996 from 94.9% in 1995.

Direct operating expenses of $1,795.1 million in 1996 increased by 4.1%
from $1,724.8 million in 1995, but were lower in 1996 as a percentage of
revenues due to more efficient fixed cost coverage. Wages and related benefits
and concessions and commissions decreased as a percentage of revenues, partly
offset by increased expenses related to the development of the Company's global
reservations and strategic information systems.

Depreciation of revenue earning equipment for the car rental and car
leasing operations of $814.8 million in 1996 increased by 9.2% from $745.9
million in 1995, primarily due to an increase in the number of cars operated and
an increase in the cost of cars acquired in both the United States and
international operations. These increases were partly offset by an improvement
in the net proceeds received in 1996 in excess of book value on the disposal of
the cars (which resulted in a gain of $2.5 million in 1996 as compared to a loss
of $7.5 million in 1995) due to improved market conditions for the sale of used
vehicles.

Depreciation of revenue earning equipment for the industrial and
construction equipment rental operations of $77.9 million in 1996 increased by
34.3% from $58.0 million in 1995, primarily due to an increase in both the
volume and cost of equipment operated. This increase was partly offset by an
improvement in the net proceeds received in 1996 in excess of book value on the
disposal of the equipment to $20.7 million in 1996 from $13.8 million in 1995
due to an increase in the volume of equipment sold and improved market
conditions for the sale of used equipment.

In view of the favorable market environment in 1996 and 1995 for the sale
of used equipment in the industrial and construction equipment rental business,
effective January 1, 1997, certain estimated useful lives being used to compute
the provision for depreciation were increased to reflect the anticipated changes
in the estimated residual values to be realized when the equipment is sold. This
should result in lower annual depreciation charges and lower gains on the
disposal of the used equipment than has been the case in 1996 and 1995.

Selling, general and administrative expenses of $425.2 million in 1996
increased by 8.3% from $392.5 million in 1995, but remained at 11.6% of revenue.
The increase in 1996 resulted from increases in advertising costs, sales
expenses and general and administrative costs.

Interest expense of $298.8 million in 1996 decreased 2.7% from $307.1
million in 1995, primarily due to lower interest rates in 1996, partially offset
by higher debt levels (which were required to finance growth and, increases in
the cost of cars and industrial and construction equipment), and lower interest
income received in 1996 as compared to 1995. See Note 2 to the Notes to the
Company's consolidated financial statements included in this Report.

The tax provision of $97.9 million in 1996 increased 45.9% from $67.1
million in 1995. The effective tax rate in 1996 was 38.2% as compared to 38.9%
in 1995. This change was primarily due to the higher income before income taxes
in 1996, partly offset by a one-time credit of $13.9 million included in 1996.
This credit resulted from adjustments made to tax accruals in connection with
tax audit evaluations and the effects of prior years' tax sharing arrangements
between the Company and its former parent companies. The tax provision in 1995
included $6.5 million of credits relating to foreign taxes paid which were
offset against U.S. income tax liabilities. Reported tax provisions for
24
<PAGE> 26

each of the years 1996 and 1995 also include a required tax provision of $5.8
million resulting from the amortization of intangible assets that is not
deductible for tax purposes. See Notes 1, 9 and 13 of the Notes to the Company's
consolidated financial statements included in this Report.

Net Income

The Company achieved record net income of $158.6 million in 1996
representing an increase of 50.8% from $105.2 million in 1995. This increase was
primarily due to higher revenues in the U.S. car and industrial and construction
equipment rental operations, the tax credit of $13.9 million included in 1996
referred to above, decreased expenditures in 1996 as a percentage of revenues
particularly in the U.S. car rental operations, partly offset by increased
expenditures in 1996 as a percentage of revenues in the international car rental
operations.

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. On October 8, 1997, Standard and Poor's Corporation ("S&P") lowered the
credit ratings of Ford Motor Company and certain subsidiaries including the
Company. The Company's short-term credit rating was reduced from A-1 to A-2 and
its long-term credit rating was reduced from A- to BBB+. S&P reported that its
reduction of the Company's credit rating reflected the October 1997 announcement
by Ford that it plans to distribute to shareholders its ownership stake in
Associates First Capital Corporation. The Company does not believe that the
reduced ratings will have a material adverse effect on its liquidity or
consolidated financial position. The Company's long-term and short-term debt is
rated A3/P1, respectively, by Moody's Investors Service. Its short-term debt is
rated D1 by Duff & Phelps Credit Rating Co. and F1 by Fitch IBCA, Inc.
Commercial Paper issued by Hertz Canada Ltd., which is guaranteed by the
Company, is rated R-1 (low) by Dominion Bond Rating Service Limited. The
Company's investment grade credit ratings provide it with access to global
capital markets to meet its borrowing needs. The Company's primary use of funds
is for the acquisition of revenue earning equipment which consists of cars and
industrial and construction equipment. For the year ended December 31, 1997, the
Company's expenditures for revenue earning equipment were $7,556.7 million
(partially offset by proceeds from the sale of such equipment of $6,597.6
million). These assets are purchased by the Company in accordance with the terms
of programs negotiated with automobile and equipment manufacturers. For the year
ended December 31, 1997, the Company's capital investments for property and
non-revenue earning equipment, were $192.2 million, which includes the purchase
of the 50% equity interest not previously owned by the Company in the joint
venture that owned the Company's executive offices in Park Ridge, New Jersey.
The Company's customer receivables are also liquid with approximately 30 days of
total annual sales outstanding.

To finance its domestic requirements, the Company maintains an active
commercial paper program. The Company is also active in the U.S. domestic
medium-term and long-term debt markets. From time to time, the Company files
with the Securities and Exchange Commission shelf registration statements
relating to debt securities to allow for the issuance of unsecured senior,
senior subordinated and junior subordinated debt securities on terms to be
determined at the time the securities are offered for sale. At December 31,
1997, the Company had available $1.0 billion for issuance under an effective
registration statement. The total amount of medium-term and long-term debt
outstanding as of December 31, 1997 was $2.8 billion with maturities ranging
from 1998 to 2009. This included a $250 million term loan from Ford, which
matures on November 15, 1999. Borrowing for the Company's international
operations consists mainly of loans obtained from local and international banks
and commercial paper programs established in Australia, Canada and Ireland. The
Company guarantees only the borrowings of its subsidiaries in Australia, Canada
and Ireland, which consist principally of commercial paper and short-term bank
loans. All borrowings by international operations either are in the
international operation's local currency or, if in non-local currency, are fully
hedged to minimize foreign exchange exposure. At December 31, 1997, total debt
for the foreign operations was $660 million, of which $638 million was
short-term (original maturity of less than one year) and $22 million was
long-term. At December 31, 1997 outstanding (in millions of U.S. dollars) under
the Australian and Canadian commercial paper programs were $93 and $17,
respectively. The Irish commercial paper program had no amounts outstanding at
December 31, 1997.

25
<PAGE> 27

In an initial public offering on April 30, 1997, the Company issued and
sold 20,010,000 shares of its Class A Common Stock and received net proceeds of
$453 million from the sale, which were used to pay down notes payable.

At December 31, 1997, the Company had committed bank credit facilities
totaling $2.2 billion. Of this amount, $2.1 billion are represented by a
combination of five-year and 364-day global committed credit facilities provided
by 31 relationship banks. In addition to direct borrowings by the Company, these
agreements allow any subsidiary of the Company to borrow under the facilities on
the basis of a guarantee by the Company. The five-year agreements, totaling
$1,185 million, currently expire on June 30, 2002 and the 364-day agreements,
totaling $895 million, expire on June 25, 1998. The five-year agreements have an
evergreen feature which provides for the automatic extension of the expiration
date one year forward unless timely notice is provided by the bank. The 364-day
agreements permit the Company to convert any amount outstanding prior to
expiration into a four-year term loan.

In addition to these bank credit facilities, in February 1997, Ford
extended to the Company a line of credit of $500 million, expiring June 30,
1999, and the revolving loan agreement between the Company and Ford dated June
8, 1994 was terminated. This line of credit has an evergreen feature that
provides on an annual basis for automatic one year extensions of the expiration
date, unless timely notice is provided by Ford at least one year prior to the
then scheduled expiration date.

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

On August 1, 1997, the Company announced a program to repurchase from time
to time up to 1.15 million shares of its Class A Common Stock for requirements
under its incentive stock plan. No significant repurchases will be made under
this program before April 1998.

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.

26
<PAGE> 28

The table below shows capital expenditures (net of proceeds received from
the sale of revenue earning equipment) and financial results by quarter for 1997
and 1996.

<TABLE>
<CAPTION>
CAPITAL OPERATING
EXPENDITURES INCOME INCOME EARNINGS
(NET OF SALE (PRE-TAX BEFORE PER SHARE
PROCEEDS INCOME BEFORE INCOME NET ---------------
RECEIVED) REVENUES INTEREST) TAXES INCOME BASIC DILUTED
------------ -------- ------------- ------ ------ ----- -------
DOLLARS IN MILLIONS
<S> <C> <C> <C> <C> <C> <C> <C>
1997
First Quarter................. $ 591.4 $ 878.4 $107.2 $ 33.9 $ 19.7 $ .18 $ .18
Second Quarter................ 832.4 976.3 171.4 93.1 53.9 .50 .50
Third Quarter................. (75.5) 1,102.1 242.5 161.7 93.4 .86 .86
Fourth Quarter................ (243.6) 934.5 124.4 54.6 34.6 .32 .32
-------- -------- ------ ------ ------ ----- -----
Total Year............ $1,104.7 $3,891.3 $645.5 $343.3 $201.6 $1.86 $1.86
======== ======== ====== ====== ====== ===== =====

1996
First Quarter................. $1,028.1 $ 803.1 $ 82.5 $ 15.2 $ 8.8 $ .08 $ .08
Second Quarter................ 1,000.1 911.4 144.2 69.3 39.5 .37 .37
Third Quarter................. 67.1 1,060.0 219.9 138.2 74.2 .69 .68
Fourth Quarter................ (201.6) 893.8 108.7 33.8 36.1 .33 .33
-------- -------- ------ ------ ------ ----- -----
Total Year............ $1,893.7 $3,668.3 $555.3 $256.5 $158.6 $1.47 $1.46
======== ======== ====== ====== ====== ===== =====
</TABLE>

MARKET RISKS

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

Interest Rate Risk

The Company and its subsidiaries have entered into arrangements to manage
exposures to fluctuations in interest rates. These arrangements consist of
interest rate swap agreements. The effect of these agreements is to make the
Company less susceptible to changes in interest rates by effectively converting
certain variable rate debt to fixed rate debt. The Company has assessed its
exposure to changes in interest rates by analyzing the sensitivity to its
earnings assuming various changes in market interest rates. Assuming an
instantaneous increase of one percentage point in interest rates on the existing
debt portfolio, the Company's net income would decline by approximately $13
million over a 12-month period.

Foreign Currency Risk

The Company and its subsidiaries have entered into arrangements to manage
exposure to fluctuations in foreign exchange rates for certain foreign currency
loans and selected marketing programs. These arrangements consist of foreign
exchange forward contracts and the purchase of foreign exchange options. The
effect of exchange rate changes on these financial instruments would not
materially affect the consolidated financial position, results of operations or
cash flows of the Company.

27
<PAGE> 29

YEAR 2000

In early 1997, the Company commenced, for all of its systems, a year 2000
date conversion project to address all necessary code changes, testing and
implementation. Project completion is planned for the middle of 1999 at an
estimated total cost of approximately $15 million to $20 million of which $2.1
million has been expended through December 31, 1997. The Company expects its
year 2000 date conversion project to be completed on a timely basis. The Company
has initiated communications with all of its significant technology vendors and
service providers to determine the extent to which the Company is vulnerable to
those third parties' failure to remediate their own Year 2000 issue. There can
be no assurance that the systems of other companies on which the Company's
systems rely also will be timely converted or that any such failure to convert
by another company would not have an adverse effect on the Company's systems.

RECENT PRONOUNCEMENTS

In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statements of Financial Accounting Standards ("SFAS") No. 130, "Reporting
Comprehensive Income" ("SFAS 130"). SFAS 130 establishes standards for reporting
and display of comprehensive income and its components and is effective for
financial statements for fiscal years beginning after December 15, 1997. This
standard addresses disclosure issues and therefore will not affect the Company's
financial position or results of operations.

In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information" ("SFAS 131"). SFAS 131 requires that
companies disclose segment data based on how management makes decisions about
allocating resources to segments and measuring their performance. SFAS 131 will
be effective for fiscal years beginning after December 15, 1997. Management is
evaluating the impact, if any, the standard may have on the Company's present
segment reporting.

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 page 21 to 28 of this Report.

28
<PAGE> 30

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

REPORT OF INDEPENDENT ACCOUNTANTS

To The Hertz Corporation:

We have audited the accompanying consolidated balance sheet of The Hertz
Corporation (a majority-owned subsidiary of Ford Motor Company) and subsidiaries
as of December 31, 1997 and 1996, and the related consolidated statements of
income, stockholders' equity and cash flows and the financial statement schedule
listed in Item 14(a)2 for each of the three years ended December 31, 1997. These
consolidated financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements and schedule based on our
audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards 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. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of The Hertz
Corporation and subsidiaries as of December 31, 1997 and 1996, and the
consolidated results of their operations and their cash flows for each of the
three years ended December 31, 1997, in conformity with generally accepted
accounting principles. In addition, in our opinion, the financial statement
schedule referred to above, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects, the
information required to be included therein.

COOPERS & LYBRAND L.L.P.

Parsippany, New Jersey
January 22, 1998

29
<PAGE> 31

THE HERTZ CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEET

<TABLE>
<CAPTION>
DECEMBER 31
-----------------------
1997 1996
---------- ----------
DOLLARS IN THOUSANDS
<S> <C> <C>
ASSETS
Cash and equivalents (Note 14).............................. $ 152,620 $ 179,311
Receivables, less allowance for doubtful accounts of $13,927
(1996 -- $12,268) (Schedule II)........................... 763,145 798,686
Due from affiliates (Notes 5 and 8)......................... 423,434 456,025
Inventories, at lower of cost or market..................... 17,941 20,220
Prepaid expenses and other assets (Note 4).................. 86,297 80,530
Revenue earning equipment, at cost (Note 8):
Cars...................................................... 4,435,546 4,698,656
Less accumulated depreciation.......................... (395,728) (380,391)
Other equipment........................................... 1,089,888 908,106
Less accumulated depreciation.......................... (237,840) (190,677)
---------- ----------
Total revenue earning equipment................... 4,891,866 5,035,694
---------- ----------
Property and equipment, at cost:
Land, buildings and leasehold improvements................ 583,796 515,063
Service equipment......................................... 538,723 554,134
---------- ----------
1,122,519 1,069,197
Less accumulated depreciation.......................... (537,753) (526,466)
---------- ----------
Total property and equipment...................... 584,766 542,731
---------- ----------
Franchises, concessions, contract costs and leaseholds, net
of amortization........................................... 8,781 10,117
Cost in excess of net assets of purchased businesses, net of
amortization (Note 5)..................................... 506,671 525,853
---------- ----------
Total assets...................................... $7,435,521 $7,649,167
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable (Note 8)................................... $ 482,119 $ 468,817
Accrued salaries and other compensation..................... 166,699 171,508
Other accrued liabilities................................... 361,697 384,191
Accrued taxes............................................... 96,666 105,524
Debt (Notes 2 and 14)....................................... 4,715,668 5,091,844
Public liability and property damage (Schedule II).......... 310,475 321,118
Deferred taxes on income (Note 9)........................... 166,000 116,800
Commitments and contingencies (Notes 10, 12 and 14)
Stockholders' equity (Notes 1 and 2):
Class A Common Stock, $0.01 par value, 440,000,000 shares
authorized, 40,956,858 shares issued................... 410 --
Class B Common Stock, $0.01 par value, 140,000,000 shares
authorized, 67,310,167 shares issued................... 673 --
Common Stock, par value $1.00 per share, shares
issued -- 200 Class A, 51 Class B and 490 Class C...... -- 1
Preferred Stock........................................... -- 485,900
Additional capital paid-in................................ 980,581 59,008
Unamortized restricted stock grants....................... (11,763) --
Retained earnings......................................... 196,715 435,352
Translation adjustment.................................... (30,458) 9,129
Unrealized holding gains (losses) on available-for-sale
\securities (Note 4)................................... 39 (25)
---------- ----------
Total stockholders' equity........................ 1,136,197 989,365
---------- ----------
Total liabilities and stockholders' equity........ $7,435,521 $7,649,167
========== ==========
</TABLE>

The accompanying notes are an integral part of this statement.
30
<PAGE> 32

THE HERTZ CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF INCOME

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
--------------------------------------
1997 1996 1995
---------- ---------- ----------
DOLLARS IN THOUSANDS
<S> <C> <C> <C>
Revenues:
Car rental........................................... $3,329,858 $3,161,605 $2,911,703
Industrial and construction equipment rental......... 444,508 392,322 332,328
Car leasing (Note 5)................................. 40,905 35,407 35,548
Other (Note 5)....................................... 76,049 79,049 121,009
---------- ---------- ----------
Total revenues............................... 3,891,320 3,668,383 3,400,588
---------- ---------- ----------
Expenses:
Direct operating..................................... 1,826,720 1,795,157 1,724,791
Depreciation of revenue earning equipment (Note 8)... 979,560 892,678 803,862
Selling, general and administrative.................. 439,558 425,179 392,518
Interest, net of interest income of $13,826, $10,449,
and $16,798 (Note 2).............................. 302,212 298,800 307,073
---------- ---------- ----------
Total expenses............................... 3,548,050 3,411,814 3,228,244
---------- ---------- ----------
Income before income taxes............................. 343,270 256,569 172,344
Provision for taxes on income (Note 9)................. 141,652 97,950 67,138
---------- ---------- ----------
Net income (Note 7).................................... $ 201,618 $ 158,619 $ 105,206
========== ========== ==========
Earnings per share (Notes 1 and 7):
Basic................................................ $ 1.86 $ 1.47 $ .97
========== ========== ==========
Diluted.............................................. $ 1.86 $ 1.46 $ .97
========== ========== ==========
</TABLE>

The accompanying notes are an integral part of this statement.
31
<PAGE> 33

THE HERTZ CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
UNREALIZED
HOLDING
GAINS
(LOSSES)
COMMON UNAMORTIZED ON
AND ADDITIONAL RESTRICTED AVAILABLE- TOTAL
PREFERRED CAPITAL STOCK RETAINED TRANSLATION FOR-SALE STOCKHOLDERS'
STOCK PAID-IN GRANTS EARNINGS ADJUSTMENT SECURITIES EQUITY
--------- ---------- ----------- --------- ----------- ---------- -------------
DOLLARS IN THOUSANDS
<S> <C> <C> <C> <C> <C> <C> <C>
Balances at
DECEMBER 31, 1994............. $ 485,901 $ 59,008 $ -- $ 196,527 $ (5,271) $(222) $ 735,943
Net income.................. 105,206 105,206
Cash dividends to Ford...... (25,000) (25,000)
Translation adjustment
changes.................. 19,810 19,810
Unrealized holding gains on
available-for-sale
securities............... 322 322
--------- --------- -------- --------- -------- ----- ----------
DECEMBER 31, 1995............. 485,901 59,008 -- 276,733 14,539 100 836,281
Net income.................. 158,619 158,619
Translation adjustment
changes.................. (5,410) (5,410)
Unrealized holding losses on
available-for-sale
securities............... (125) (125)
--------- --------- -------- --------- -------- ----- ----------
DECEMBER 31, 1996............. 485,901 59,008 -- 435,352 9,129 (25) 989,365
Net income.................. 201,618 201,618
Cash dividend to Ford....... (30,566) (429,434) (460,000)
Issuance of Preferred
Stock.................... 129,000 129,000
Redemption of Preferred
Stock.................... (130,135) (130,135)
Reclassify Ford-owned
Stock.................... (485,025) 485,025 --
Sale of Class A Common
Stock.................... 207 469,686 (16,825) 453,068
Cash dividends on Common
Stock.................... (10,821) (10,821)
Amortization of restricted
stock grants............. 3,625 3,625
Forfeiture of 59,865 shares
of restricted stock
grants................... (1,437) 1,437 --
Translation adjustment
changes.................. (39,587) (39,587)
Unrealized holding gains on
available-for-sale
securities............... 64 64
--------- --------- -------- --------- -------- ----- ----------
DECEMBER 31, 1997............. $ 1,083 $ 980,581 $(11,763) $ 196,715 $(30,458) $ 39 $1,136,197
========= ========= ======== ========= ======== ===== ==========
</TABLE>

The accompanying notes are an integral part of this statement.
32
<PAGE> 34

THE HERTZ CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CASH FLOWS

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
-----------------------------------------
1997 1996 1995
----------- ----------- -----------
DOLLARS IN THOUSANDS
<S> <C> <C> <C>
Cash flows from operating activities:
Net income........................................ $ 201,618 $ 158,619 $ 105,206
Non-cash expenses:
Depreciation of revenue earning equipment...... 979,560 892,678 803,862
Depreciation of property and equipment......... 88,102 82,457 79,696
Amortization of intangibles.................... 19,961 18,232 19,978
Amortization of restricted stock grants........ 3,625 -- --
Provision for public liability and property
damage....................................... 122,540 133,417 134,926
Provision for losses for doubtful accounts..... 9,623 9,912 4,926
Deferred income taxes.......................... 49,200 39,000 28,500
Other.......................................... -- (3,060) --
Revenue earning equipment expenditures............ (7,556,693) (8,204,179) (7,255,250)
Proceeds from sales of revenue earning
equipment...................................... 6,597,601 6,445,337 6,163,455
Changes in assets and liabilities, net of effects
from sale of operations --
Receivables.................................... 1,224 (20,482) (180,613)
Due from affiliates............................ 32,591 (48,583) (35,843)
Inventories and prepaid expenses and other
assets....................................... (5,376) (1,325) (1,422)
Accounts payable............................... 93,410 (117,767) 311,498
Accrued liabilities............................ (21,117) 85,192 9,785
Accrued taxes.................................. (7,631) 30,316 6,067
Payments of public liability and property damage
claims and expenses............................ (132,807) (123,928) (127,814)
----------- ----------- -----------
Net cash flows provided by (used in) operating
activities................................... $ 475,431 $ (624,164) $ 66,957
----------- ----------- -----------
</TABLE>

The accompanying notes are an integral part of this statement.
33
<PAGE> 35

THE HERTZ CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CASH FLOWS

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
---------------------------------------
1997 1996 1995
----------- ----------- ---------
DOLLARS IN THOUSANDS
<S> <C> <C> <C>
Cash flows from investment activities:
Property and equipment expenditures................ $ (192,227) $ (179,802) $(178,279)
Proceeds from sales of property and equipment...... 46,646 44,950 34,148
Available-for-sale securities --
Purchases....................................... (2,448) (6,219) (6,375)
Sales........................................... 2,332 6,422 6,625
Proceeds from sale of operations net of cash....... 2,079 15,346 56,560
Purchases of various operations net of cash (see
supplemental disclosures below)................. (2,200) (6,054) --
----------- ----------- ---------
Net cash used in investing activities........... (145,818) (125,357) (87,321)
----------- ----------- ---------
Cash flows from financing activities:
Proceeds from issuance of long-term debt........... 403,228 304,604 329,157
Repayment of long-term debt........................ (212,176) (205,276) (340,442)
Short-term borrowings:
Proceeds........................................ 1,621,577 1,379,740 984,870
Repayments...................................... (1,660,299) (1,180,063) (945,283)
Ninety day term or less, net.................... (489,763) 492,526 54,487
Cash dividend paid to Ford......................... (460,000) -- (25,000)
Issuance of preferred stock to Ford................ 129,000 -- --
Redemption of preferred stock from Ford............ (130,135) -- --
Sale of common stock............................... 453,068 -- --
Cash dividends paid on common stock................ (10,821) -- --
----------- ----------- ---------
Net cash (used in) provided by financing
activities.................................... (356,321) 791,531 57,789
----------- ----------- ---------
Effect of foreign exchange rate changes on cash...... 17 44 83
----------- ----------- ---------
Net (decrease) increase in cash and equivalents
during the period.................................. (26,691) 42,054 37,508
Cash and equivalents at beginning of year............ 179,311 137,257 99,749
----------- ----------- ---------
Cash and equivalents at end of year.................. $ 152,620 $ 179,311 $ 137,257
=========== =========== =========
Supplemental disclosures of cash flow information:
Cash paid during the period for --
Interest (net of amounts capitalized)........... $ 297,661 $ 300,120 $ 313,139
Income taxes.................................... 103,468 38,899 33,775
</TABLE>

In connection with acquisitions made during the years 1997 and 1996,
liabilities assumed were $5 million and $36 million, respectively.

The accompanying notes are an integral part of this statement.
34
<PAGE> 36

THE HERTZ CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Merger and Change in Ownership

The Hertz Corporation (together with its subsidiaries, referred to herein
as "Hertz" or the "Company"), which was incorporated in Delaware in 1967, is a
successor to corporations which were engaged in the automobile and truck leasing
and rental business since 1918. UAL Corporation ("UAL") (formerly Allegis
Corporation) purchased all of the Company's outstanding capital stock from RCA
Corporation ("RCA") on August 30, 1985. Park Ridge Corporation ("Park Ridge"),
which was 80%-owned by Ford Motor Company ("Ford"), purchased all of the
Company's outstanding capital stock from UAL on December 30, 1987. By 1989, Ford
reduced its ownership interest in Park Ridge to 49%. On July 19, 1993, Park
Ridge (which had no material assets other than the Company) was merged with and
into the Company, with the prior stockholders of Park Ridge becoming the
stockholders of the Company. The merger was recorded as a "pooling of
interests".

In March 1994, Ford acquired the Company's common stock owned by
Commerzbank Aktiengesellschaft. On April 29, 1994, the Company redeemed its
preferred and common stock owned by AB Volvo for $145 million, borrowing the
funds from Ford to pay for the redemption, and Ford purchased all of the common
stock of the Company owned by Park Ridge Limited Partnership ("Partnership").
This resulted in the Company becoming a wholly-owned subsidiary of Ford. In
addition, the $150 million subordinated promissory note of the Company held by
Ford Motor Credit Company ("FMCC"), a wholly-owned subsidiary of Ford, was
exchanged for $150 million of the Series B Preferred Stock of the Company, and a
promissory note in the amount of $18.5 million, owed by the Partnership to the
Company was assumed by Ford ("Ford Note"). The Ford Note was repaid in 1996.

On February 27, 1997, the Company issued to Ford 1,290 shares of its 5.11%
Cumulative Series C Preferred Stock, par value $.01 per share, (the "Series C
Preferred Stock"), in exchange for U.S. Treasury securities having an aggregate
fair market value at that time of $129 million. On February 27, 1997, the
Company paid a dividend of $460 million on its common stock to Ford in the form
of a 5.475% promissory note, which was fully repaid by March 10, 1997. In
connection with these transactions, cash and equivalents were increased by $129
million, notes payable were increased by $460 million, additional capital
paid-in was increased by $129 million relating to the issuance of the Series C
Preferred Stock and decreased by $30.6 million relating to the payment of the
dividend on the common stock, and retained earnings was decreased by $429.4
million relating to the payment of the dividend on the common stock. On April
30, 1997, the Company redeemed all the issued and outstanding shares of the
Series C Preferred Stock.

In April 1997, the Company reclassified all of its outstanding common
stock, par value $1.00 per share, owned by Ford into 67,310,167 shares of Class
B Common Stock, par value $.01 per share, and reclassified all of its
outstanding 10% Cumulative Series A Preferred Stock and variable rate Cumulative
Series B Preferred Stock beneficially owned by Ford into 20,245,833 shares of
its Class A Common Stock, par value $.01 per share. The Company also issued
701,025 shares of its Class A Common Stock pursuant to an employee benefit plan.

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

Basic and diluted earnings per share were computed based on 108,227,916 and
108,630,236 weighted average shares of Class A and Class B Common Stock
outstanding during the year, respectively. The basic and diluted earnings per
share for the years ended December 31, 1996 and 1995 assumes that the weighted
average shares outstanding during 1997 were outstanding for the corresponding
periods in 1996 and 1995.

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.

35
<PAGE> 37
THE HERTZ CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Consolidated Statement of Cash Flows

For purposes of this statement, the Company considers all highly liquid
debt instruments purchased with an original maturity of three months or less to
be cash equivalents. See Merger and Change in Ownership for noncash investing
and financing activities.

Depreciable Assets

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

<TABLE>
<S> <C>
Revenue Earning Equipment:
Cars...................................................... 3 to 6 years
Other equipment........................................... 3 to 11 years
Buildings................................................... 20 to 50 years
Leasehold improvements...................................... Term of lease
Service cars and service equipment.......................... 3 to 25 years
Franchises, concessions, contract costs and leaseholds...... 10 to 40 years
Cost in excess of net assets of purchased businesses........ 10 to 40 years
</TABLE>

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

Environmental Conservation

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

Public Liability and Property Damage

Provisions for public liability and property damage on self-insured
domestic and foreign claims are made by charges to expense based upon
evaluations of estimated ultimate liabilities on reported and unreported claims.
For its domestic operations, the Company is, where permitted by applicable local
law, a qualified self-insurer against liability resulting from accidents under
certificates of self-insurance for financial responsibility in all states
wherein its vehicles are registered. The Company also self-insures general
public liability and property damage for all domestic operations. Since July 1,
1987, all claims have been retained and borne by the Company up to a limit of $5
million for each occurrence, and the Company has maintained insurance with
unaffiliated carriers in excess of $5 million up to $450 million per occurrence.

For its foreign operations, the Company purchases insurance to comply with
local legal requirements. From January 1, 1993 through December 31, 1996,
vehicle liability insurance purchased locally from unaffiliated carriers by

36
<PAGE> 38
THE HERTZ CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Company owned operations in Europe was reinsured by Hertz International RE
Limited, a wholly-owned subsidiary of the Company operating as a reinsurer in
Dublin, Ireland. Hertz International RE Limited effectively responded to the
first $1.5 million of motor vehicle liability for each accident during this
period, with excess liability insurance coverage maintained by the Company with
unaffiliated carriers. Effective January 1, 1997, the Company replaced an
unaffiliated carrier that was the fronted insurer for claims up to $1.5 million
per occurrence by establishing a wholly-owned subsidiary, Probus Insurance
Company Europe Limited ("Probus"), a direct writer domiciled in Dublin, Ireland.
Probus now underwrites the Company's European vehicle liability program (except
in Switzerland) up to $1.5 million per occurrence. Excess coverage for claims
that exceed $1.5 million continues to be maintained with unaffiliated carriers.
In the Company's foreign operations other than Europe, the Company is self
insured at various amounts up to $100,000 per occurrence, and maintains excess
liability insurance coverage up to $450 million per occurrence with unaffiliated
carriers.

Foreign Currency Translation

Assets and liabilities of foreign subsidiaries are translated at the rate
of exchange in effect on the balance sheet date; income and expenses are
translated at the average rate of exchange prevailing during the year. The
related translation adjustments are reflected in the stockholders' equity
section of the consolidated balance sheet. Foreign currency gains and losses
resulting from transactions are included in earnings.

Income Taxes

Effective April 30, 1994, the Company and its domestic subsidiaries are
filing consolidated Federal income tax returns with Ford. The Company filed its
own consolidated Federal income tax returns with its domestic subsidiaries after
December 31, 1987; prior thereto, from September 1, 1985 to December 31, 1987
they were included in the consolidated Federal income tax return of UAL, and
prior thereto in the consolidated Federal income tax return of RCA. The Company
provides for current and deferred taxes as if it filed a separate consolidated
tax return with its domestic subsidiaries, except that under a tax sharing
arrangement with Ford, the Company's right to reimbursement for foreign tax
credits is determined based on the usage of such foreign tax credits by the
consolidated group. The Company and its subsidiaries account for investment tax
credits under the flow-through method. As of December 31, 1997, U.S. income
taxes have not been provided on $227 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, 1997, 1996 and 1995
were (in millions) $45.2, $45.5 and $44.1, respectively. This program is
expected to continue in the future. The Company incurred advertising expense for
the years ended December 31, 1997, 1996 and 1995 of (in millions) $148.9, $148.0
and $134.5, respectively.

The Company and Ford have entered into a Joint Advertising Agreement which
commenced on September 1, 1997 for a period of ten years. Under the Joint
Advertising Agreement, Ford has agreed to pay to the Company one-half of the
Company's advertising costs, up to a limit of $39 million for the first fiscal
year and, for each fiscal year thereafter, a limit equal to the prior year's
limit adjusted for inflation, subject to a ceiling. In addition, if for any
fiscal year, one-half of the Company's advertising costs exceed such limit and
the Company has purchased from Ford a percentage of its car fleet requirements
for its car rental business conducted in the United States for the corresponding
model year (the "Ford Vehicle Share") equal to 58% or more, then Ford will pay
to the Company additional amounts for such excess advertising costs. To be
eligible for cost reimbursement under the Joint Advertising Agreement, the
advertising must meet certain conditions, including the condition that it
indicates that the Company features Ford

37
<PAGE> 39
THE HERTZ CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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 Retirement Plan for the Employees of
The Hertz Corporation ("Hertz Retirement Plan") and in The Hertz Corporation
Income Savings Plan ("Hertz Income Savings Plan"). Payments are made to pension
plans of others pursuant to various collective bargaining agreements. Under the
Hertz Retirement Plan, the Company pays the entire cost and employees are not
required to contribute. For each plan year beginning January 1, 1996 and
thereafter, a qualified employee's cash balance account is credited with an
annual cash balance credit equal to: (a) 3% of pensionable earnings for that
plan year in the case of a qualified employee who is credited with less than 60
continuous months of service from most recent date of hire, or (b) 4% of
pensionable earnings for that plan year in the case of a qualified employee who
is credited with 60 or more continuous months of service from most recent date
of hire (5% effective for plan years beginning after January 1, 1998). In the
case of a qualified employee who is first credited with 60 continuous months of
service after January 1 of a plan year, the percentage of pensionable earnings
utilized in determining the annual cash balance credit for that plan year shall
be increased to 4% effective as of the first day of the month coincident with or
next following completion of 60 continuous months of service from most recent
date of hire (5% effective for plan years beginning after January 1, 1998). This
benefit is credited with guaranteed interest rates compounded annually based on
rates issued by the Pension Benefit Guaranty Corporation in effect for the
preceding December. In addition, all qualified employees age 50 or over with 10
or more years of credited service as of July 1, 1987, will have an additional
amount of their pensionable earnings credited to their account. Hertz' funding
policy is to contribute at least the minimum amount required by the Employee
Retirement Income Security Act of 1974.

Under the Hertz Income Savings Plan, the Company contributes 50% of the
first 6% of the employee's contribution for a maximum match contribution by the
Company of 3% of the employee's base salary.

Most of the Company's foreign subsidiaries have defined benefit retirement
plans or are required to participate in government plans. These plans are all
funded, except in Germany, where an unfunded liability is recorded. In certain
countries, when the subsidiaries make the required funding payments, they have
no further obligations under such plans.

Long-Term Equity Compensation Plan

The Company sponsors a stock-based incentive plan (the "Plan") covering
certain officers and other executives of the Company. The Plan is administered
by the Compensation Committee ("the Committee") appointed by the Board of
Directors. The Company adopted the Plan effective as of April 25, 1997, subject
to stockholder approval. Awards granted under the plan are based on shares of
Class A Common Stock. The Plan provides for the grant of incentive and
nonqualified stock options, stock appreciation rights, restricted stock,
performance shares and performance units ("Awards").

Officers and certain key salaried employees of the Company with potential
to contribute to the future success of the Company or its subsidiaries are
eligible to receive Awards under the Plan. Each option granted expires at such
time the Committee determines at the time of the grant; provided, that no option
is exercisable later than the tenth anniversary date of its grant.
38
<PAGE> 40
THE HERTZ CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The total number of shares of Class A Common Stock that may be subject to
Awards under the Plan is 8,120,026 shares. As part of the Offering, the Company
granted awards of 701,025 shares of restricted stock and 1,423,470 nonqualified
stock options. The options were granted at the Offering price of $24.00 per
share. At December 31, 1997, 155,860 stock options and 59,865 shares of
restricted stock had been forfeited. The Awards granted vest over various
anniversaries of the date of grant with all awards vesting by the fifth
anniversary of the date of grant.

Upon issuance of the restricted shares, the unamortized value of restricted
stock is charged to stockholders' equity and is amortized as compensation
expense ratably over vesting periods.

Impairment of Long-Lived Assets and Certain Identifiable Intangibles

The Company evaluates the carrying value of goodwill for potential
impairment on an ongoing basis. Such evaluations compare operating income before
amortization of goodwill to the amortization recorded for the operations to
which the goodwill relates. The Company also considers projected future
operating results, trends and other circumstances in making such estimates and
evaluations. In addition, the Company reviews long-lived assets and certain
identifiable intangibles for impairment whenever events or changes in
circumstances indicate that the carrying value of an asset may not be
recoverable.

Use of Estimates and Assumptions

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

Recent Pronouncements

39
<PAGE> 41
THE HERTZ CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 2 -- DEBT

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

<TABLE>
<CAPTION>
DECEMBER 31
------------------------
1997 1996
---------- ----------
<S> <C> <C>
Notes payable, including commercial paper, average interest
rate: 1997, 6.1%; 1996, 5.6%.............................. $1,277,294 $1,498,002
Promissory notes, average interest rate: 1997, 7.2%; 1996,
7.3% (effective average interest rate: 1997, 7.3%; 1996,
7.4%); net of unamortized discount: 1997, $3,030; 1996,
$3,602; due 1998 to 2005.................................. 2,246,970 1,941,398
Property and equipment lease obligations, average interest
rate: 1997, 7.0%; 1996, 7.5%; due 1998.................... 1,836 2,554
Medium-term notes, average interest rate: 1997, 9.1%; 1996,
9.3%; due 1998............................................ 30,000 75,300
Senior subordinated promissory notes, average interest rate:
1997, 9.5%; 1996, 9.7% (effective average interest rate:
1997, 9.7%; 1996, 9.8%); net of unamortized discount:
1997, $43; 1996, $172; due 1998........................... 99,957 149,828
Junior subordinated promissory notes, average interest rate
6.9%; net of unamortized discount: 1997, $201; 1996, $244;
due 2000 to 2003.......................................... 399,799 399,756
Subsidiaries' debt:
Short-term borrowings --
Banks, average interest rate: 1997, 5.1%; 1996, 5.1%,
in foreign currencies................................. 477,422 782,765
Commercial paper, average interest rate: 1997, 4.9%;
1996, 6.2%, in foreign currencies..................... 110,662 141,805
Others, average interest rate: 1997, 5.0%; 1996, 2.7%,
in foreign currencies................................. 49,584 56,518
Other borrowings, average interest rate: 1997, 8.1%; 1996,
7.4%, in foreign currencies............................ 22,144 43,918
---------- ----------
Total............................................. $4,715,668 $5,091,844
========== ==========
</TABLE>

The aggregate amounts of maturities of debt, in millions, are as follows:
1998, $2,318.3 (including $1,915.0 of commercial paper, demand and other
short-term borrowings); 1999, $449.9; 2000, $249.8; 2001, $399.2; 2002, $399.2;
after 2002, $899.3. Included in these maturities at the earliest possible
redemption date are the following promissory notes of the Company which have put
options that can be exercised by the holders of such notes as follows: $25
million at 9% due in 2000, that can be redeemed at the option of the holders in
1998 or 1999; $100 million at 9% due 2009, that can be redeemed at the option of
the holders in 1999; and $150 million at 6.3% due 2006, that can be redeemed at
the option of the holders in 2002.

During the year ended December 31, 1997, short-term borrowings, in
millions, were as follows: maximum amounts outstanding $2,369.1 commercial
paper, $782.4 banks and $502.3 other; monthly average amounts outstanding
$1,792.4 commercial paper (weighted average interest rate 5.5%), $621.1 banks
(weighted average interest rate 4.9%) and $115.9 other (weighted average
interest rate 5.1%).

The Company and its subsidiaries have entered into arrangements to manage
exposures to fluctuations in interest rates. See Note 14 -- Financial
Instruments.

During the year ended December 31, 1996, short-term borrowings, in
millions, were as follows: maximum amounts outstanding $2,129.2 commercial
paper, $838.1 banks and $137.2 other; monthly average amounts outstanding
$1,615.9 commercial paper (weighted average interest rate 5.6%), $754.2 banks
(weighted average interest rate 5.3%) and $91.1 other (weighted average interest
rate 2.5%).

During the year ended December 31, 1995, short-term borrowings, in
millions, were as follows: maximum amounts outstanding $1,853.8 commercial
paper, $1,083.5 banks and $193.5 other; monthly average amounts

40
<PAGE> 42
THE HERTZ CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

outstanding $1,292.6 commercial paper (weighted average interest rate 6.1%),
$828.2 banks (weighted average interest rate 6.4%) and $108.6 other (weighted
average interest rate 4.3%).

The net amortized discount charged to interest expense for the years ended
December 31, 1997, 1996, and 1995 relating to debt and other liabilities, in
millions, was $1.2, $.9 and $.9, respectively. In addition, interest expense for
the year 1995 was reduced by $1.3 million of interest income, relating to
refunds of prior years' income taxes.

In 1997, the Company renewed the following two committed bank facilities
with a group of thirty-one commercial banks, which will be utilized to support
commercial paper and other short-term borrowings in the aggregate amount of
$2.08 billion: (i) five year credit agreement for $1.185 billion is committed
until June 30, 2002. The termination date is automatically extended for an
additional one-year period each June 30, unless the bank gives notice to the
contrary. A facility fee of .07% per annum is payable on the entire commitment
amount; and (ii) 364-day credit agreement for $895 million, renewed in June
1997, is committed through June 25, 1998. A facility fee of .0625% per annum is
payable on the entire commitment amount.

In February 1997, Ford extended to the Company a line of credit of $500
million, expiring June 30, 1999. This line of credit has an evergreen feature
that provides on an annual basis for automatic one-year extensions of the
expiration date, unless timely notice is provided by Ford at least one year
prior to the then scheduled expiration date. Obligations of the Company under
this agreement would rank pari passu with the Company's senior debt securities.
A commitment fee of .07% per annum is payable on the unused available credit. In
addition, at December 31, 1997, the Company had a $250 million loan outstanding
from Ford.

The Company had consolidated unused committed lines of credit subject to
customary terms and conditions, which include unused amounts under the three
facilities indicated above, of approximately $2.7 billion at December 31, 1997.

The Company maintains a Sales Agency Agreement with Ford Financial
Services, Inc., an NASD registered brokerdealer and an indirect, wholly-owned
subsidiary of Ford ("FFS"), whereby FFS acts as the exclusive dealer for the
Company's domestic commercial paper program. The Company pays fees to FFS which
range from .035% to .05% per annum of commercial paper placed depending upon the
monthly average dollar value of the notes outstanding in the portfolio. In 1997,
the Company paid FFS approximately $600,000 of such fees. FFS is under no
obligation to purchase any of the notes for its own account. FFS has acted as
the Company's exclusive commercial paper dealer since October 1994, and the
Sales Agency Agreement may not be amended or terminated without the written
consent of both parties. The Company, through its subsidiary Hertz Australia
Pty. Limited, has a similar agreement with Ford Credit Australia Limited, also
an indirect, wholly-owned subsidiary of Ford Motor Company.

Borrowing for the Company's international operations consists mainly of
loans obtained from local and international banks. All borrowings by
international operations either are in the international operation's local
currency or, if in non-local currency, are fully hedged to minimize foreign
exchange exposure. The Company guarantees only the borrowings of its
subsidiaries in Australia, Canada and Ireland, which consist principally of
commercial paper. At December 31, 1997, the total debt for the foreign
operations was $660 million, of which $638 million was short-term (original
maturity of less than one year) and $22 million was long-term. At December 31,
1997, the total amounts outstanding (in millions of U.S. dollars) under the
Australian and Canadian commercial paper programs were $93 and $17,
respectively. The Irish commercial paper program had no amounts outstanding at
December 31, 1997.

41
<PAGE> 43
THE HERTZ CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

capital stock issued subsequent to such specified date. At December 31, 1997,
approximately $491 million of consolidated stockholders' equity was free of such
limitations.

NOTE 3 -- FOREIGN CURRENCY

Foreign currency exchange gains and losses included in net income were net
gains, in millions, of $2.9, $3.4 and $2.0 for the years ended December 31,
1997, 1996 and 1995, respectively.

NOTE 4 -- AVAILABLE-FOR-SALE SECURITIES

As of December 31, 1997 and 1996, 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, 1997, 1996 and 1995, proceeds, in
millions, of $2.3, $6.4 and $6.6, respectively, were received from the sale of
available-for-sale securities, and gross realized gains of $41,626, $105,813 and
$161,555 and gross realized losses of $2,993, $134,474 and $56,647,
respectively, were included in earnings. Actual cost was used in computing the
realized gain and loss on the sale.

The following is a summary of available-for-sale securities at December 31,
1997 and December 31, 1996 (in thousands):

<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
------ ---------- ---------- ---------
<S> <C> <C> <C> <C>
December 31, 1997
Government debt obligations......................... $ 988 $20 $ (2) $1,006
Corporate debt obligations.......................... 4,564 45 (19) 4,590
------ --- ---- ------
Total..................................... $5,552 $65 $(21) $5,596
====== === ==== ======
December 31, 1996
Government debt obligations......................... $1,114 $17 $ (5) $1,126
Corporate debt obligations.......................... 4,318 24 (63) 4,279
------ --- ---- ------
Total..................................... $5,432 $41 $(68) $5,405
====== === ==== ======
</TABLE>

The amortized cost and estimated fair value of available for sale
securities by contractual maturity at December 31, 1997 are as follows (in
thousands):

<TABLE>
<CAPTION>
ESTIMATED
COST FAIR VALUE
------ ----------
<S> <C> <C>
Due in one year or less..................................... $ -- $ --
Due after one year through five years....................... 4,035 4,052
Due after five years through ten years...................... 1,508 1,523
Due after ten years......................................... 9 21
------ ------
Total............................................. $5,552 $5,596
====== ======
</TABLE>

NOTE 5 -- PURCHASES AND SALES OF OPERATIONS

In June 1997, the Company sold its corporate owned operations in Denmark
and Norway to a licensee. The net proceeds from the sale were approximately $1.4
million, which was less than book value by approximately $.9 million. In
conjunction with the sale, the Company received an initial license fee of $3
million. The total assets of these operations at June 30, 1997 were $97 million,
and revenues and net loss for the year ended December 31, 1996 were

42
<PAGE> 44
THE HERTZ CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

$15.7 and $1.2, respectively. The Company believes that this transaction will
not have a material effect on its financial position or results of operations.

In June 1996, the Company acquired all of the capital stock of a foreign
licensee car rental and leasing operation and the assets of a domestic car
rental operation. In February 1996, the Company acquired the assets of a
domestic construction equipment rental operation. The costs related to these
acquisitions exceeded the net assets acquired by $6.1 million.

In May 1996, the Company sold certain of its claim administration service
operations effective February 29, 1996, which included the administration of
workers' compensation claims and other related services, and health related
benefit claims. The net proceeds from the sale approximated $15.3 million, which
exceeded its book value by approximately $3 million. The total assets of these
operations at February 29, 1996 were $15.5 million and revenues for the year
ended December 31, 1995 were $31.0 million, with negligible net income.
Therefore, the Company believes that this transaction will not have a material
effect on its financial position or results of operations.

Effective January 1, 1995, the Company sold all of its European Car Leasing
operations to Hertz Leasing International, Inc. ("HLI"), at an amount equal to
its book value of approximately $61 million. HLI is an indirect, wholly-owned
subsidiary of Ford. For additional consideration payable over five years, except
for Australia, New Zealand and Brazil, Ford has received the worldwide rights
(subject to certain existing license rights) to use and sublicense others to use
the "Hertz" name in the conduct of car leasing businesses -- $9.3 million was
received in each of the years 1997, 1996 and 1995. This transaction did not have
a material effect on the Company's financial position or results of operations.
In 1997, Ford agreed to transfer back to the Company, as of March 1, 1997,
subject to a limited transition period, the right to use the Hertz name in the
conduct of the car leasing business, and continues to make payments in respect
of its obligation. The Company has resumed leasing operations in the United
Kingdom and is considering further expansion.

At December 31, 1996, a foreign subsidiary of the Company had $10.9 million
of loans receivable, including related interest from foreign subsidiaries of
HLI, which was paid off in 1997.

In connection with the acquisition of the Company by Park Ridge in December
1987 and UAL in August 1985, the excess of the purchase price over the
consolidated equity of the Company at the time of these purchases was $658.3
million. These costs are being amortized by the Company over 40 years. The
unamortized amount of such costs at December 31, 1997 was $484.8 million.

43
<PAGE> 45
THE HERTZ CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 6 -- PENSION AND INCOME SAVINGS PLAN AND POSTRETIREMENT BENEFIT PLANS

The following tables set forth the funded status and the net periodic
pension cost of the Hertz Retirement Plan covering its domestic ("U.S.")
employees and the retirement plans for foreign operations ("Non-U.S.") and
amounts included in the consolidated balance sheet and statement of income (in
millions of dollars):

<TABLE>
<CAPTION>
DECEMBER 31, 1997 DECEMBER 31, 1996
------------------- -------------------
U.S. NON-U.S. U.S. NON-U.S.
------- -------- ------- --------
<S> <C> <C> <C> <C>
Actuarial present value of accumulated benefit
obligation
Vested............................................. $ (85.0) $(32.2) $ (73.7) $(34.1)
Nonvested.......................................... (10.4) (4.8) (8.9) (4.8)
------- ------ ------- ------
Total...................................... $ (95.4) $(37.0) $ (82.6) $(38.9)
======= ====== ======= ======
Actuarial present value of projected benefit
obligation......................................... $(125.2) $(44.5) $(111.4) $(49.3)
Plan assets at fair value............................ 120.4 33.0 101.1 32.5
------- ------ ------- ------
Projected benefit obligation in excess of plan
assets............................................. (4.8) (11.5) (10.3) (16.8)
Unrecognized net (gain) loss......................... (32.5) 4.8 (20.0) 9.9
Prior service benefit not yet recognized in net
periodic pension cost.............................. (.1) -- -- --
Remaining unrecognized net obligation................ .2 -- 1.0 --
------- ------ ------- ------
Pension liability included in the balance sheet...... $ (37.2) $ (6.7) $ (29.3) $ (6.9)
======= ====== ======= ======
</TABLE>

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
---------------------------------------------------------
1997 1996 1995
----------------- ----------------- -----------------
U.S. NON-U.S. U.S. NON-U.S. U.S. NON-U.S.
------ -------- ------ -------- ------ --------
<S> <C> <C> <C> <C> <C> <C>
Service cost -- benefits earned during the
period..................................... $ 8.0 $ 2.1 $ 8.0 $ 4.0 $ 5.3 $ 2.2
Interest cost on projected benefit
obligation................................. 7.6 3.1 7.0 2.3 6.1 2.1
Return on assets:
Actual gain................................ (22.0) (2.4) (14.1) (1.9) (21.3) (1.5)
Deferred gain.............................. 14.8 -- 7.5 -- 15.4 --
Net amortization and deferral................ .5 -- .8 -- .2 .1
------ ----- ------ ----- ------ -----
Net periodic pension cost included in the
income statement........................... $ 8.9 $ 2.8 $ 9.2 $ 4.4 $ 5.7 $ 2.9
====== ===== ====== ===== ====== =====
</TABLE>

Significant assumptions used for the U.S. plan were as follows: weighted
average discount rate of 6.75% at December 31, 1997, 7.25% during 1997 (7.0%
during 1996 and 8.25% during 1995); 5.5% rate of increase in future compensation
levels (5.5% for 1996 and 5.1% for 1995); and expected long-term rate of return
on assets of 9%. Assumptions used for the Non-U.S. plans vary by country and are
made in accordance with local conditions, but do not vary materially from those
used in the U.S. plan. Plan assets consist principally of investments in stocks,
government bonds and other fixed income securities.

The provisions charged to income for the years ended December 31, 1997,
1996 and 1995 for all other pension plans were approximately (in millions) $7.7,
$6.7 and $6.1, respectively.

The provisions charged to income for the years ended December 31, 1997,
1996 and 1995 for the Hertz Income Savings Plan were approximately (in millions)
$4.2, $3.8 and $3.4, respectively.

44
<PAGE> 46
THE HERTZ CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The estimated cost for postretirement health care and life insurance
benefits is accrued on an actuarially determined basis. The following sets forth
the plans' status, reconciled with the amounts included in the consolidated
balance sheet and statement of income (in millions):

<TABLE>
<CAPTION>
DECEMBER 31
------------
1997 1996
---- ----
<S> <C> <C>
Actuarial present value of accumulated benefit obligation --
Retirees.................................................. $2.8 $1.8
Active employees eligible to retire....................... 1.3 2.0
Other active employees.................................... 4.0 4.3
---- ----
Total accumulated benefit obligation.............. 8.1 8.1
Unrecognized net gain....................................... 1.6 1.0
---- ----
Accrued liability included in the balance sheet............. $9.7 $9.1
==== ====
</TABLE>

<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31
--------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Benefits attributed to employees' service................... $ .3 $.3 $.2
Interest on accumulated benefit obligation.................. .5 .5 .5
Amortization of net gain.................................... (.1) -- (.1)
---- --- ---
Net periodic postretirement benefit cost............... $ .7 $.8 $.6
==== === ===
</TABLE>

The significant assumptions used for the postretirement benefit plans were
as follows: weighted average discount rate of 7.0% at December 31, 1997, 7.5%
during 1997 (7.25% in 1996 and 8.75% in 1995), 5.5% rate of increase in future
compensation levels (5.5% in 1996 and 5.3% in 1995), 7.2% weighted average
health care cost trend rate through 2001 (7.5% in 1996 and 8.3% in 1995), and
6.6% weighted average trend rate in ten years (6.7% in 1996 and 7.5% in 1995).
Changing the assumed health care cost trend rates by one percentage point in
each year would change the accumulated postretirement benefit obligation as of
December 31, 1997 by approximately $450,000, and the aggregate service and
interest cost components of net periodic postretirement benefit cost for 1997 by
approximately $65,000.

NOTE 7 -- STOCK OPTIONS

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. Total compensation cost charged against
income related to restricted stock awards was $3.6 million in 1997.

The following proforma information regarding net income and net income per
share is required when APB 25 accounting is elected, and was determined as if
the Company had accounted for its employee stock options under the fair value
method of Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" ("SFAS 123") The fair values for these options were
estimated at the date of grant using a Black-Scholes option pricing model with
the following assumptions: risk-free interest rate of 6.75%; volatility factor
of 22%; dividend yields of .83%; and an average expected life of the options of
four years. For purposes of pro forma disclosures, the estimated fair values of
the options are amortized to expense over the option's vesting periods. Had the
compensation cost of the Company's stock-based compensation plans been
determined based on the fair value method of SFAS 123, the Company's net income
and basic and diluted earnings per share for 1997 would have been $200.5 million
and $1.85, respectively.

45
<PAGE> 47
THE HERTZ CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 8 -- 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, 1997, on a weighted average basis, approximately 65% of
the cars acquired by the Company for its U.S. rental car fleet, and
approximately 28% of the cars acquired by the Company for its international
fleet, were manufactured by Ford. During 1997, approximately 65% of the cars
acquired by the Company domestically were manufactured by Ford. The percentage
of Ford cars acquired by the Company for its U.S. rental car fleet is expected
to remain at these or higher levels in the future. In 1997, approximately 20% of
the cars acquired by the Company for its international fleet were manufactured
by Ford, which represented the largest percentage of any automobile manufacturer
in that year.

Under operating leases, aggregate minimum future rentals for cars leased at
December 31, 1997 are receivable approximately as follows (in millions): $28 in
1998, $14 in 1999, $5 in 2000, and $1 in 2001. Cars under lease at December 31,
1997 which are owned by Hertz amounted to $89 million, net of accumulated
depreciation of $25 million.

The average holding periods of cars and other revenue earning equipment are
as follows: cars used in the car rental business, 5 to 12 months; cars used in
the car leasing business, 36 months; and equipment used in the industrial and
construction rental business, 24 to 60 months. At December 31, 1997, the average
ages of owned cars and other revenue earning equipment are as follows: cars used
in the car rental business, 4 months; cars used in the car leasing business, 18
months; and equipment used in the industrial and construction rental business,
21.5 months. At December 31, 1997, the Company was subject to residual risk with
respect to 31% of all cars in its worldwide car rental and leasing operations
and 100% of the equipment in the industrial and construction rental business.

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

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
--------------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Depreciation of revenue earning equipment.................. $968,923 $904,504 $753,999
Adjustment of depreciation upon disposal of the
equipment................................................ (3,251) (23,221) (6,356)
Rents paid for vehicles leased............................. 13,888 11,395 56,219
-------- -------- --------
Total............................................ $979,560 $892,678 $803,862
======== ======== ========
</TABLE>

Effective January 1, 1997, certain lives being used to compute the
provision for depreciation of revenue earning equipment used in the Company's
industrial and construction equipment rental business were increased to reflect
changes in the estimated residual values to be realized when the equipment is
sold. As a result of this change, depreciation of revenue earning equipment for
the year 1997 decreased $10.4 million.

The adjustment of depreciation upon disposal of revenue earning equipment
for the years ended December 31, 1997, 1996, and 1995 included (in millions) net
gains of $13.0, $20.7 and $13.8, respectively, on the sale of industrial and
construction equipment, and net losses of $9.8, net gains of $2.5, and net
losses of $7.5, respectively, on the sale of cars used in the car rental and car
leasing operations.

The Company and Ford have entered into a Car Supply Agreement which
commenced on September 1, 1997 for a period of ten years. Under the Car Supply
Agreement, Ford and the Company have agreed to negotiate in good faith on an
annual basis with respect to the supply of cars. Ford has agreed to supply to
the Company and the Company has agreed to purchase from Ford, for each car model
year during the term of the agreement (i.e., the 1998 model year through the
2007 model year), (a) the lesser of 150,000 cars or 55% of the Company's fleet
requirements for its car

46
<PAGE> 48
THE HERTZ CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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, 1997 and 1996, Ford owed the Company and its
subsidiaries $423.4 and $445.1 million, respectively, in connection with various
car repurchase and warranty programs. As of December 31, 1997 and 1996, the
Company and its subsidiaries owed Ford $14.2 million and $26.6 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 year ended December 31, 1997, the Company purchased Ford cars at
a cost of approximately $4.0 billion, and sold these cars to Ford or its
affiliates under various repurchase programs for approximately $3.3 billion.

NOTE 9 -- TAXES ON INCOME

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

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
-------------------------------
1997 1996 1995
-------- ------- --------
<S> <C> <C> <C>
Current:
Federal................................................... $ 56,629 $31,360 $ 10,381
Foreign................................................... 22,203 18,832 29,422
State and local........................................... 13,620 8,758 (1,165)
-------- ------- --------
Total current.......................................... 92,452 58,950 38,638
-------- ------- --------
Deferred:
Federal................................................... 42,130 23,772 35,577
Foreign................................................... 1,970 6,228 (11,577)
State and local........................................... 5,100 9,000 4,500
-------- ------- --------
Total deferred......................................... 49,200 39,000 28,500
-------- ------- --------
Total provision................................... $141,652 $97,950 $ 67,138
======== ======= ========
</TABLE>

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

<TABLE>
<S> <C> <C> <C>
Difference between tax and book depreciation................ $17,704 $ 64,176 $ 34,790
Accrued and prepaid expense deducted for tax purposes when
paid or incurred.......................................... (2,683) (39,427) 13,671
Tax operating loss utilized (carryforwards)................. 2,763 (7,217) 1,507
Federal alternative minimum tax credit utilized
(carryforwards)........................................... 31,416 10,217 (10,217)
Foreign tax credit utilized (carryforwards)................. -- 11,251 (11,251)
------- -------- --------
Total deferred provision.......................... $49,200 $ 39,000 $ 28,500
======= ======== ========
</TABLE>

47
<PAGE> 49
THE HERTZ CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The principal items in the deferred tax liability at December 31, 1997 and
1996 are as follows (in thousands of dollars):

<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Difference between tax and book depreciation................ $ 327,072 $ 309,368
Accrued and prepaid expense deducted for tax purposes when
paid or incurred.......................................... (151,209) (148,526)
Tax operating loss carryforwards............................ (9,863) (12,626)
Federal alternative minimum tax credit carryforwards........ -- (31,416)
--------- ---------
Total............................................. $ 166,000 $ 116,800
========= =========
</TABLE>

The tax operating loss carryforwards at December 31, 1997 of $9.9 million
relate to certain foreign operations and have the following expiration dates (in
millions): $.1 in 1998, $.1 in 2000, $.2 in 2002, and $9.5 with no expiration
date. It is anticipated that such operations will become profitable in the
future and the carryforwards will be fully utilized.

The principal items accounting for the difference in taxes on income
computed at the U.S. statutory rate of 35% and as recorded are as follows (in
thousands of dollars):

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
-------------------------------
1997 1996 1995
-------- -------- -------
<S> <C> <C> <C>
Computed tax at statutory rate.............................. $120,145 $ 89,799 $60,320
State and local income taxes, net of Federal income tax
benefit................................................... 12,168 11,543 2,168
Tax effect on the amortization of the cost in excess of the
Company's net assets acquired by Park Ridge and UAL....... 5,765 5,762 5,764
Adjustments made to tax accruals in connection with tax
audit evaluations and the effects of prior years' tax
sharing arrangements between companies, UAL and RCA....... -- (13,945) --
Income taxes on foreign earnings at effective rates
different from the U.S. statutory rate, including the
anticipated realization of certain foreign tax benefits
and the effect of subsidiaries' gains and losses and
exchange adjustments with no tax effect................... 2,758 5,937 (3,890)
All other items, net, none of which exceeded 5% of computed
tax....................................................... 816 (1,146) 2,776
-------- -------- -------
Total provision................................... $141,652 $ 97,950 $67,138
======== ======== =======
</TABLE>

NOTE 10 -- LEASE AND CONCESSION AGREEMENTS

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

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
--------------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Rents...................................................... $ 45,553 $ 47,328 $ 49,903
Concession fees:
Minimum fixed obligations................................ 125,714 123,014 121,632
Additional amounts, based on revenues.................... 140,790 131,904 121,461
-------- -------- --------
Total............................................ $312,057 $302,246 $292,996
======== ======== ========
</TABLE>

48
<PAGE> 50
THE HERTZ CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

As of December 31, 1997, minimum obligations under existing agreements
referred to above are approximately as follows (in thousands of dollars):

<TABLE>
<CAPTION>
RENTS CONCESSIONS
------ -----------
<S> <C> <C>
Years ended December 31,
1998........................................................ 36,821 101,098
1999........................................................ 30,730 72,516
2000........................................................ 25,452 56,804
2001........................................................ 21,168 39,910
2002........................................................ 17,026 24,197
Years after 2002............................................ 78,397 47,890
</TABLE>

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

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
-----------------------------
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Cars........................................................ $13,888 $11,395 $56,219
Office and computer equipment............................... 25,705 21,772 23,965
------- ------- -------
Total............................................. $39,593 $33,167 $80,184
======= ======= =======
</TABLE>

As of December 31, 1997, minimum obligations under existing agreements
referred to above that have a maturity of more than one year are as follows (in
thousands): office and computer equipment 1998, $6,283; 1999, $2,613; 2000,
$575; 2001, $40; 2002, $15, after 2001, $10.

NOTE 11 -- SEGMENT INFORMATION

The Company's business principally consists of two significant segments:
rental and leasing of cars and light trucks ("car rental"); and rental of
industrial, construction and materials handling equipment ("industrial and
construction equipment rental"). The contribution of these segments, as well as
"corporate and other", for each of the three years ended December 31, 1997 are
summarized below (in millions of dollars). Corporate and other includes general
corporate expenses, principally amortization of intangibles and certain interest
expense incurred in connection with the acquisition of the Company by Park Ridge
Corporation in December 1987 and UAL, Inc. in August 1985, as well as other
business activities, such as claim management and telecommunication services (in
millions of dollars).

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
--------------------------
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Revenues
Car rental................................................ $3,419 $3,239 $2,991
Industrial and construction equipment rental.............. 445 392 333
Corporate and other....................................... 27 37 77
------ ------ ------
Total............................................. $3,891 $3,668 $3,401
====== ====== ======
Income (loss) before income taxes
Car rental................................................ $ 312 $ 189 $ 116
Industrial and construction equipment rental.............. 72 91 85
Corporate and other....................................... (41) (23) (29)
------ ------ ------
Total............................................. $ 343 $ 257 $ 172
====== ====== ======
</TABLE>

49
<PAGE> 51
THE HERTZ CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
--------------------------
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Depreciation of revenue earning equipment
Car rental................................................ $ 881 $ 815 $ 746
Industrial and construction equipment rental.............. 99 78 58
Corporate and other....................................... -- -- --
------ ------ ------
Total............................................. $ 980 $ 893 $ 804
====== ====== ======
Depreciation of property and equipment
Car rental................................................ $ 73 $ 70 $ 65
Industrial and construction equipment rental.............. 13 11 9
Corporate and other....................................... 2 1 6
------ ------ ------
Total............................................. $ 88 $ 82 $ 80
====== ====== ======
Amortization of intangibles
Car rental................................................ $ 3 $ 2 $ 2
Industrial and construction equipment rental.............. -- -- --
Corporate and other....................................... 17 16 18
------ ------ ------
Total............................................. $ 20 $ 18 $ 20
====== ====== ======
Operating income (loss) (pre-tax income before interest)
Car rental................................................ $ 551 $ 435 $ 375
Industrial and construction equipment rental.............. 122 134 123
Corporate and other....................................... (28) (14) (19)
------ ------ ------
Total............................................. $ 645 $ 555 $ 479
====== ====== ======
Total assets at end of year
Car rental................................................ $5,888 $6,257 $5,401
Industrial and construction equipment rental.............. 1,034 870 664
Corporate and other....................................... 514 522 592
------ ------ ------
Total............................................. $7,436 $7,649 $6,657
====== ====== ======
Revenue earning equipment, net, at end of year
Car rental................................................ $4,040 $4,318 $3,627
Industrial and construction equipment rental.............. 852 718 543
Corporate and other....................................... -- -- --
------ ------ ------
Total............................................. $4,892 $5,036 $4,170
====== ====== ======
Revenue earning equipment and property and equipment
Car rental
Expenditures........................................... $7,345 $7,995 $7,133
Proceeds from sale..................................... (6,539) (6,371) (6,121)
------ ------ ------
Net expenditures.................................. $ 806 $1,624 $1,012
====== ====== ======
</TABLE>

50
<PAGE> 52
THE HERTZ CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
--------------------------
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Industrial and construction equipment rental
Expenditures........................................... $ 365 $ 378 $ 290
Proceeds from sale..................................... (105) (104) (76)
------ ------ ------
Net expenditures.................................. $ 260 $ 274 $ 214
====== ====== ======
Corporate and other
Expenditures........................................... $ 39 $ 11 $ 11
Proceeds from sale..................................... -- (15) (1)
------ ------ ------
Net expenditures.................................. $ 39 $ (4) $ 10
====== ====== ======
</TABLE>

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

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
--------------------------
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Revenues
United States............................................. $2,993 $2,723 $2,510
Foreign operations (substantially Europe)................. 898 945 891
------ ------ ------
Total............................................. $3,891 $3,668 $3,401
====== ====== ======
Depreciation of revenue earning equipment
United States............................................. $ 857 $ 789 $ 717
Foreign operations (substantially Europe)................. 123 104 87
------ ------ ------
Total............................................. $ 980 $ 893 $ 804
====== ====== ======
Depreciation of property and equipment
United States............................................. $ 69 $ 63 $ 60
Foreign operations (substantially Europe)................. 19 19 20
------ ------ ------
Total............................................. $ 88 $ 82 $ 80
====== ====== ======
Amortization of intangibles
United States............................................. $ 18 $ 17 $ 19
Foreign operations (substantially Europe)................. 2 1 1
------ ------ ------
Total............................................. $ 20 $ 18 $ 20
====== ====== ======
Operating income (pre-tax income before interest)
United States............................................. $ 540 $ 451 $ 357
Foreign operations (substantially Europe)................. 105 104 122
------ ------ ------
Total............................................. $ 645 $ 555 $ 479
====== ====== ======
Income before income taxes
United States............................................. $ 273 $ 196 $ 98
Foreign operations (substantially Europe)................. 70 61 74
------ ------ ------
Total............................................. $ 343 $ 257 $ 172
====== ====== ======
</TABLE>

51
<PAGE> 53
THE HERTZ CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
--------------------------
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Total assets at end of year
United States............................................. $5,893 $5,805 $4,971
Foreign operations (substantially Europe)................. 1,543 1,844 1,686
------ ------ ------
Total............................................. $7,436 $7,649 $6,657
====== ====== ======
Revenue earning equipment, net, at end of year
United States............................................. $4,015 $3,997 $3,240
Foreign operations (substantially Europe)................. 877 1,039 930
------ ------ ------
Total............................................. $4,892 $5,036 $4,170
====== ====== ======
Revenue earning equipment and property and equipment
United States
Expenditures........................................... $5,723 $6,011 $5,413
Proceeds from sale..................................... (4,640) (4,360) (4,452)
------ ------ ------
Net expenditures.................................. $1,083 $1,651 $ 961
====== ====== ======
Foreign operations (substantially Europe)
Expenditures........................................... $2,026 $2,373 $2,021
Proceeds from sale..................................... (2,004) (2,130) (1,746)
------ ------ ------
Net expenditures.................................. $ 22 $ 243 $ 275
====== ====== ======
</TABLE>

NOTE 12 -- LITIGATION

Plaintiff has also filed suit in Travis county (Austin, TX) seeking to
upset the Consent Order entered into between the Company and the TDI. That suit
was dismissed by a trial court but will likely be appealed. The Company does not
expect either the appeal from the Consent Order or the appeal from the denial of
the class action, however decided, to have a material adverse effect on the
Company's consolidated financial position or results of operations or cash
flows.

52
<PAGE> 54
THE HERTZ CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

these claims, these could be long and difficult litigations. Nevertheless, the
Company believes that an adverse outcome would not have a material effect on the
Company's consolidated financial position or results of operations or cash
flows.

NOTE 13 -- QUARTERLY FINANCIAL INFORMATION (UNAUDITED)

A summary of the quarterly operating results during 1997 and 1996 were as
follows (in thousands):

<TABLE>
<CAPTION>
EARNINGS
OPERATING INCOME INCOME PER SHARE
(PRETAX INCOME BEFORE INCOME NET ----------------
REVENUES BEFORE INTEREST) TAXES INCOME BASIC DILUTED
---------- ---------------- ------------- -------- ----- -------
<S> <C> <C> <C> <C> <C> <C>
1997
First quarter....... $ 878,352 $107,222 $ 33,911 $ 19,719 $ .18 $ .18
Second quarter...... 976,316 171,389 93,105 53,901 .50 .50
Third quarter....... 1,102,142 242,525 161,696 93,434 .86 .86
Fourth quarter...... 934,510 124,346 54,558 34,564 .32 .32
---------- -------- -------- -------- ----- -----
Total
Year...... $3,891,320 $645,482 $343,270 $201,618 $1.86 $1.86
========== ======== ======== ======== ===== =====
1996
First quarter....... $ 803,142 $ 82,487 $ 15,172 $ 8,788 $ .08 $ .08
Second quarter...... 911,401 144,260 69,284 39,545 .37 .37
Third quarter....... 1,060,028 219,943 138,249 74,208 .69 .68
Fourth quarter...... 893,812 108,679 33,864 36,078 .33 .33
---------- -------- -------- -------- ----- -----
Total
Year...... $3,668,383 $555,369 $256,569 $158,619 $1.47 $1.46
========== ======== ======== ======== ===== =====
</TABLE>

The tax provision in the fourth quarter of 1996 includes credits of $13.9
million resulting from adjustments made to tax accruals in connection with tax
audit evaluations and the effects of prior years' tax sharing arrangements
between the Company and its former parent companies, UAL and RCA.

53
<PAGE> 55
THE HERTZ CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Effective January 1, 1997, certain 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 when the equipment is sold. As a
result of the change, 1997 Operating Income and Income Before Income Taxes
include credit adjustments in the first, second, third and fourth quarters (in
millions) of $2.4, $2.4, $2.4 and $3.2, respectively.

NOTE 14 -- FINANCIAL INSTRUMENTS

Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of cash equivalents and trade
receivables. The Company places its cash equivalents with financial institutions
and limits the amount of credit exposure to any one financial institution.
Concentrations of credit risk with respect to trade receivables are limited due
to the large number of customers comprising the Company's customer base, and
their dispersion across different businesses and geographic areas. All
borrowings by foreign operations are either in the foreign operation's local
currency or, if in non-local currency, on a fully hedged basis to minimize
foreign exchange exposure. As of December 31, 1997, the Company had no
significant concentration of credit risk.

Cash and Equivalents

Fair value approximates cost indicated on the balance sheet at December 31,
1997, because of the short-term maturity of these instruments.

Debt

Fair value is estimated based on quoted market rates as well as borrowing
rates currently available to the Company for loans with similar terms and
average maturities. Carrying value was used as fair value for borrowings with an
initial maturity of 93 days or less. The fair value of all debt at December 31,
1997 approximated $4.76 billion compared to carrying value of $4.72 billion.

Public Liability and Property Damage

Provisions for public liability and property damage on self-insured
domestic claims and foreign claims are made by charges to expense based upon
evaluations of estimated ultimate liabilities on reported and unreported claims.
These liabilities are anticipated to be paid in the future which range between
one and five years. The fair value of these liabilities at December 31, 1997
approximates $282 million compared to carrying value of $310.5 million. The fair
value was estimated using a 6.6% interest rate, which represents the long-term
borrowing rate available to the Company at December 31, 1997.

Financial Instruments

The Company and its subsidiaries have entered into arrangements to manage
exposure to fluctuations in interest rates. These arrangements consist of
interest-rate swap agreements ("swaps"). The differential paid or received on
these agreements is recognized as an adjustment to interest expense. These
agreements are not entered into for trading purposes. The effect of these
agreements is to make the Company less susceptible to changes in interest rates
by effectively converting certain variable rate debt to fixed rate debt. Because
of the relationship of current market rates to historical fixed rates, the
effect at December 31, 1997 of the swap agreements is to give the Company an
overall effective weighted-average rate on debt of 6.74%, with 38% of debt
effectively subject to variable interest rates, compared to a weighted-average
interest rate on debt of 6.68%, with 41% of debt subject to variable interest
rates when not considering the swap agreements. At December 31, 1997, these
agreements expressed in notional amounts aggregated $127.7 million swaps.
Notional amounts are not reflective of the Company's obligations under these
agreements because the Company is only obligated to pay the net amount of
interest rate differential between the fixed and variable rates specified in the
contracts. The Company's exposure to any credit loss in the event of non-
performance by the counterparties is further mitigated by the fact that all of
these financial instruments are with
54
<PAGE> 56
THE HERTZ CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

significant financial institutions that are rated "A" or better by the major
credit rating agencies. At December 31, 1997, the fair value of all outstanding
contracts, which is representative of the Company's obligations under these
contracts, assuming the contracts were terminated at that date, was
approximately a net payable of $2.3 million.

The Company and its subsidiaries have entered into arrangements to manage
exposure to fluctuations in foreign exchange rates for certain foreign currency
loans and selected marketing programs. These arrangements consist of foreign
exchange forward contracts and the purchase of foreign exchange options. At
December 31, 1997 the total notional amount of these instruments was $37.3
million and the fair value of all outstanding contracts, which is representative
of the Company's obligations under these contracts, assuming the contracts were
terminated at that date, was approximately a net receivable of $.3 million.

The fair value of the interest rate and foreign currency instruments were
estimated using market prices provided by financial institutions. The following
is the estimated fair value and notional amount of the outstanding instruments
at December 31, 1997 and their maturity dates (in millions):

<TABLE>
<CAPTION>
FAIR NOTIONAL
MATURITY VALUE(A) AMOUNT(B)
-------- -------- -----------
<S> <C> <C> <C>
Interest Rate Instruments
1998 $ 62.8
- Assets............................................... $ --
- Liabilities.......................................... .3
1999 43.2
- Assets............................................... --
- Liabilities.......................................... 1.5
2000 19.1
- Assets............................................... --
- Liabilities.......................................... .5
2001 2.5
- Assets............................................... --
- Liabilities.......................................... --
2002 .1
- Assets............................................... --
- Liabilities.......................................... --
----- ------
Total............................................. $(2.3) $127.7
===== ======
Foreign Currency Instruments(c)
1998 $ 28.1
- Assets............................................... $ .3
- Liabilities.......................................... --
1999 9.2
- Assets............................................... --
- Liabilities.......................................... --
----- ------
Total............................................. $ .3 $ 37.3
===== ======
</TABLE>

(a) Fair value is representative of the Company's obligation under the
contracts, assuming the contracts were terminated at December 31, 1997.

(b) The notional amount represents the contract amount and does not represent
the amount at risk.

(c) As of December 31, 1997, no one currency represented the majority of the
outstanding foreign currency instruments, except for a forward contract to
sell French Francs and buy Belgium Francs in the notional amount of $19.2
million, and options to sell British Pounds in the notional amount of $12.0
million.

55
<PAGE> 57

SCHEDULE II

THE HERTZ CORPORATION AND SUBSIDIARIES

VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995

<TABLE>
<CAPTION>
ADDITIONS DEDUCTIONS
BALANCE AT ---------- ----------------------
BEGINNING OF CHARGED TO TRANSLATION BALANCE AT
YEAR INCOME ADJUSTMENTS OTHER END OF YEAR
------------ ---------- ----------- -------- -----------
DOLLARS IN THOUSANDS
<S> <C> <C> <C> <C> <C>
1997
Allowance for doubtful accounts....... $ 12,268 $ 9,623 $ 978 $ 6,986(a) $ 13,927
======== ======== ===== ======== ========
Public liability and property
damage............................. $321,118 $122,540 $ 376 $132,807(b) $310,475
======== ======== ===== ======== ========
1996
Allowance for doubtful accounts....... $ 7,985 $ 9,912 $ 59 $ 5,570(a) $ 12,268
======== ======== ===== ======== ========
Public liability and property
damage............................. $311,669 $133,417 $ 40 $123,928(b) $321,118
======== ======== ===== ======== ========
1995
Allowance for doubtful accounts....... $ 10,026 $ 4,926 $(319) $ 7,286(a) $ 7,985
======== ======== ===== ======== ========
Public liability and property
damage............................. $304,328 $134,926 $(229) $127,814(b) $311,669
======== ======== ===== ======== ========
</TABLE>

- - ---------------
(a) Amounts written off, net of recoveries. The year 1995 includes $2 million,
which represents the balance at December 31, 1994 relating to the European
Car Leasing and Car Dealership operations sold by the Company effective
January 1, 1995.

(b) Payments of claims and expenses.

56
<PAGE> 58

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.

None.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

The information called for by Item 10 is incorporated by reference from the
information under the caption "Election of Directors" and "Executive Officers
and Compensation" in the Company's Proxy Statement for its 1998 annual meeting
of stockholders.

For information concerning the Executive Officers of the Company, see
"Executive Officers of the Registrant" under Part I of this report.

ITEM 11. EXECUTIVE COMPENSATION.

The information called for by Item 11 is incorporated by reference from the
information under the caption "Executive Officers and Compensation" in the
Company's Proxy Statement for its 1998 annual meeting of stockholders.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

The information called for by Item 12 is incorporated by reference from the
information under the caption "Security Ownership" in the Company's Proxy
Statement for its 1998 annual meeting of stockholders.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

The information called for by Item 13 is incorporated by reference from the
information under the caption "Certain Relationships and Related Transactions"
in the Company's Proxy Statement for its 1998 annual meeting of stockholders.

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.

<TABLE>
<CAPTION>
PAGE
-----
<S> <C> <C> <C>
(a) 1. Financial Statements:
The Hertz Corporation and Subsidiaries --
Report of Independent Accountants...................... 29
Consolidated Balance Sheet at December 31, 1997 and
1996.................................................. 30
Consolidated Statement of Income for the years ended
December 31, 1997, 1996 and 1995...................... 31
Consolidated Statement of Stockholders' Equity for the
years ended December 31, 1997, 1996 and 1995.......... 32
Consolidated Statement of Cash Flows for the years
ended December 31, 1997, 1996 and 1995................ 33-34
Notes to Consolidated Financial Statements............. 35-55

2. Financial Statement Schedules:
The Hertz Corporation and Subsidiaries --
Schedule II -- Valuation and Qualifying Accounts for
the years ended December 31, 1997, 1996 and 1995...... 56
</TABLE>

57
<PAGE> 59

3. Exhibits:

(3) Articles of Incorporation and By-Laws

(a) Restated Certificate of Incorporation of the Company.*

(b) By-Laws of the Company adopted by its Board of Directors on
April 22, 1997.*

(4) Instruments defining the rights of security holders, including
indentures

(a) At December 31, 1997, 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.*

(d) The Hertz Corporation Benefit Equalization Plan.*

(e) The Hertz Corporation Supplemental Retirement and Savings Plan,
as amended.*

(f) The Hertz Corporation Executive Incentive Compensation Plan.*

(g) The Hertz Corporation Long Term Incentive Plan.*

(h) Form of The Hertz Corporation Special Supplemental Executive
Pension Benefit for Frank A. Olson and William Sider.*

(i) Employment Agreement between the Company and Frank A. Olson.*

(j) Employment Agreement between the Company and Craig R. Koch.*

(k) Employment Agreement between the Company and William Sider
(incorporated herein by reference from the Company's Annual
Report on Form 10-K for the year ended December 31, 1992)

(l) Employment Agreement between Hertz International, Ltd. and
Antoine E. Cau.*

(m) Employment Agreement between the Company and Brian J. Kennedy.*

(n) Employment Agreement between the Company and Joseph R.
Nothwang.

(o) Employment Agreement between the Company and Gerald A. Plescia.

(p) Employment Agreement between the Company and Paul J. Siracusa.

(12) Computation of Consolidated Ratio of Earnings to Fixed Charges for
each of the five years in the period ended December 31, 1997

(21) Subsidiaries of the Company

(23) Consent of Coopers & Lybrand L.L.P.

(27) Consolidated Financial Data Schedule for the year ended December 31,
1997
- - ---------------
* Incorporated herein by reference from the Company's Registration Statement No.
333-22517 on Form S-1.

(b) Reports on Form 8-K:

The Company filed a Form 8-K dated October 15, 1997 reporting the issuance
of a press release with respect to its third quarter 1997 earnings.

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

58
<PAGE> 60

SIGNATURES

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

THE HERTZ CORPORATION
(Registrant)

By: /s/ PAUL J. SIRACUSA
------------------------------------
Paul J. Siracusa
Executive Vice President and
Chief Financial Officer
March 20, 1998

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

<TABLE>
<C> <S>
/s/ FRANK A. OLSON Chairman of the Board, Chief Executive Officer
- - --------------------------------------------------- and Director (Principal Executive Officer)
Frank A. Olson

/s/ CRAIG R. KOCH President, Chief Operating Officer and Director
- - ---------------------------------------------------
Craig R. Koch

/s/ LOUIS C. BURNETT Director
- - ---------------------------------------------------
Louis C. Burnett

/s/ JOHN M. DEVINE Director
- - ---------------------------------------------------
John M. Devine

/s/ EDWARD E. HAGENLOCKER Director
- - ---------------------------------------------------
Edward E. Hagenlocker

/s/ MICHAEL T. MONAHAN Director
- - ---------------------------------------------------
Michael T. Monahan

/s/ PETER J. PESTILLO Director
- - ---------------------------------------------------
Peter J. Pestillo

/s/ JOHN M. THOMPSON Director
- - ---------------------------------------------------
John M. Thompson

/s/ JOSEPH A. WALKER Director
- - ---------------------------------------------------
Joseph A. Walker

/s/ PAUL J. SIRACUSA Executive Vice President and Chief Financial
- - --------------------------------------------------- Officer
Paul J. Siracusa (Principal Financial Officer)

/s/ RICHARD J. FOTI Staff Vice President and Controller
- - --------------------------------------------------- (Principal Accounting Officer)
Richard J. Foti
</TABLE>

59
<PAGE> 61

EXHIBIT INDEX

(10) Material Contracts

(n) Employment Agreement between the Company and Joseph R. Nothwang.

(o) Employment Agreement between the Company and Gerald A. Plescia.

(p) Employment Agreement between the Company and Paul J. Siracusa.

(12) Computation of Consolidated Ratio of Earnings to Fixed Charges for each of
the five years in the period ended December 31, 1997

(21) Subsidiaries of the Company

(23) Consent of Coopers & Lybrand L.L.P.

(27) Consolidated Financial Data Schedule for the year ended December 31, 1997

<PAGE> 1
EXHIBIT 10(n)

EMPLOYMENT AGREEMENT

AGREEMENT, dated as of February 12, 1998, between The Hertz
Corporation, a Delaware corporation (the "Corporation"), and Joseph R. Nothwang,
(the "Executive").

WHEREAS, the Corporation currently employs the Executive in the
capacity of Executive Vice President of The Hertz Corporation and General
Manager of the U.S. Rent A Car Division, and the Executive is a key executive
officer of the Corporation; and

WHEREAS, the Corporation desires that the Executive continue in the
employ of the Corporation in his present position, or other senior executive
position, and the Executive desires to continue to be so employed, and both
parties are willing to make a commitment to continue this employment
relationship for the term of this Agreement, as set forth in Section 2 hereof
(the "Term");

NOW, THEREFORE, in consideration of the mutual promises contained
herein and other good and valuable consideration, the parties hereby agree as
follows:

1. Employment.

The Corporation hereby agrees to continue to employ and engage the
services of the Executive during the Term as an executive officer of the
Corporation and the Executive agrees to serve the Corporation in such capacity
and position during the Term.

2. Term.

The Term shall consist of a period commencing on the date hereof and
ending on February 12, 2001, unless terminated earlier pursuant to Section 5
hereof; provided however, that in no event shall the term of this Agreement
extend beyond the Executive's normal retirement date under the Corporation's
retirement policies existing on the date hereof or under any policy established
for the Executive with his consent.

3. Position and Duties.

(a) At the present time, Executive is Executive Vice President of The
Hertz Corporation and General Manager of the U.S. Rent A Car Division, of the
Corporation. During the Term, the Executive's
<PAGE> 2
2

position, duties and responsibilities shall be those of a senior executive of
the Corporation, recognizing that, notwithstanding any provision of the
Agreement to the contrary, the Corporation shall have the absolute right to
modify or change the position, duties, responsibilities and title of the
Executive in any respect; provided, however, that the Executive shall continue
to be employed in a senior executive capacity during the Term.

(b) The Executive agrees to devote his full business time during normal
business hours to the business and affairs of the Corporation and to use his
best efforts to promote the interests of the Corporation and to perform
faithfully and efficiently the responsibilities assigned to him in accordance
with the terms of this Agreement, to the extent necessary to discharge such
responsibilities, except for (i) services on corporate, civic or charitable
boards or committees not significantly interfering with the performance of such
responsibilities and (ii) periods of vacation and sick leave to which he is
entitled. It is expressly understood and agreed that the Executive's continuing
service on any boards and committees with which he shall be connected, as a
member or otherwise, as of the date hereof, or any such service approved by the
Corporation during the term of employment, shall not be deemed to interfere with
the performance of the Executive's services for the Corporation pursuant to this
paragraph (b).

(c) During the Term and so long as any payments are being made under
Section 4 hereof, the Executive shall refrain from engaging in any activity that
is directly or indirectly in competition with any activity, or is inimical to
the best interests, of the Corporation or any of its subsidiaries or affiliates.

4. Compensation and Other Terms of Employment.

(a) Base Salary. During the Term, the Executive shall receive an annual
base salary ("Base Salary"), payable in equal installments not less frequently
than twice per month, at an annual rate at least equal to the aggregate annual
base salary payable to the Executive by the Corporation and any of its
affiliated companies as of the date hereof. The Base Salary shall be reviewed
and may be increased at any time and from time to time in accordance with the
Corporation's regular practices. Any increase in the Base Salary shall not serve
to limit or reduce any other obligation of the Corporation hereunder, and after
any such increase the Base Salary shall not be reduced from such increased level
during the Term. As used in this Agreement, the term "affiliated companies"
shall mean any company (or other business entity) controlling, controlled by, or
under common control with the Corporation.
<PAGE> 3
3

(b) Incentive Compensation. As further compensation, the Executive will
be eligible for awards ("Incentive Compensation") under the Corporation's bonus
and incentive compensation plans determined on no less favorable a basis than
those provided to the Executive under such plans as in effect as of the date
hereof.

(c) Retirement, Savings and Stock Option Plans. In addition to the Base
Salary and Incentive Compensation payable as hereinabove provided, during the
Term the Executive shall be entitled to participate in all savings, stock
option, retirement and employee welfare and benefit plans and programs, and
fringe benefit, vacation, sick leave, insurance and prerequisite policies, on a
basis providing him with the opportunity to receive aggregate compensation and
benefits, on a before-tax basis, not less favorable than those provided by the
Corporation and its affiliated companies to the Executive under such plans,
programs and policies as in effect as of the date hereof. Nothing herein shall
be construed to prevent the Corporation or such affiliated companies from
amending or altering any such plans or programs so long as the Executive
continues to have the opportunity to receive aggregate compensation and
benefits, on a before tax basis, at a level not less favorable than those
currently provided. All existing agreements between the Corporation and the
Executive providing for special pension, retirement or similar benefits are
automatically continued for the Term. Any rights to benefits which become vested
under the terms of such plans, programs, policies and agreements but which are
to be paid or provided in future periods shall continue to be so vested
notwithstanding the prior termination of this Agreement.

(d) Expenses. During the Term the Executive shall be entitled to
receive prompt reimbursement for all reasonable expenses incurred by the
Executive in accordance with the policies and procedures of the Corporation in
effect as of the date hereof or as they may be amended from time to time.

5. Termination.

(a) Death. Except for the obligations of the Corporation set forth in
Section 4(c) hereof, this Agreement shall terminate automatically upon the
Executive's death. All benefits and compensation then accrued hereunder, and
under any plans provided for under Section 4(c) hereof, shall be paid to the
Executive's beneficiaries, legal representatives, or heirs as appropriate.

six (6) consecutive months, and within thirty (30) days after written notice of
termination is given the Executive shall not have returned to the full-time
performance of his duties, the Executive's employment may be terminated for
disability. During such period of absence, the Executive shall continue to
receive the benefits provided in Section 4 hereof and thereafter the Executive's
benefits shall be determined under the Corporation's disability insurance plans
and policies provided under Section 4(c) hereof.

(c) Cause. The Corporation may terminate the Executive's employment for
Cause. For purposes of this Agreement, "Cause" shall mean (i) an act or acts of
dishonesty on the Executive's part which are intended to result in his
substantial personal enrichment at the expense of the Corporation or the
Executive's conviction of a felony; (ii) any material violation by the Executive
of his responsibilities set forth in Section 3 hereof; or (iii) any material
breach of any provision of this agreement by Executive. If the Executive's
employment is terminated for Cause, the Corporation shall pay the Executive his
full accrued Base Salary through the date of such termination at the rate in
effect at the time of such termination, and the Corporation shall have no
further obligations to the Executive under this Agreement. The Executive's
employment shall not be terminated for Cause unless there shall have been
delivered to the Executive a resolution duly adopted by the Board of Directors
of the Corporation at a meeting of the Board which the Executive, together with
his counsel, has an opportunity upon reasonable notice to attend and to address
the Board, such resolution setting forth with particularity the basis for
terminating the Executive for Cause.

(d) Retirement. The Executive may terminate his employment hereunder by
retirement, including early retirement, during the Term of the Agreement, under
the Corporation's retirement policies existing on the date hereof or under any
policy established for the Executive with his consent, provided that the
Corporation consents to such retirement action.

6. Non-exclusivity of Rights.

Nothing in this Agreement shall prevent or limit the Executive's
continuing or future participation in any benefit, bonus, incentive or other
plan or program provided by the Corporation or any of its affiliated companies
and for which the Executive may qualify, nor shall anything herein limit or
otherwise affect such rights as the Executive may have under any stock option or
other agreements with the Corporation or any of its affiliated companies, unless
this Agreement is terminated for breach of the provisions contained in Section
3(c) hereof. Amounts which are vested benefits under any plan or
<PAGE> 5
5

program of the Corporation or any of its affiliated companies shall be payable
in accordance with the terms of such plan or program.

7. No Set-Off; Legal Fees.

The Corporation's obligation to make the payments provided for herein
and otherwise to perform its obligations hereunder shall not be affected by any
circumstances, including without limitation any set-off, counterclaim,
recoupment, defense or other right which the Corporation may have against the
Executive or others unless this Agreement is terminated for cause for breach of
the conditions set forth in Section 3(c) hereof. Unless it is finally determined
by a court of competent jurisdiction that the Corporation has validly terminated
the Executive's employment for Cause, the Corporation agrees to pay, to the full
extent permitted by law, all legal fees and expenses which the Executive may
reasonably incur in defending any contest by the Corporation or others of the
validity or enforceability of, or liability under, any provision of this
Agreement, plus interest on the total unpaid amount determined to be payable
hereunder, for the period commencing on the date of such contest and ending on
the date on which the Corporation shall pay such total amount, provided
Executive prevails in such contest.

8. Receipt of Certain Benefits.

It is the mutual intention of the Corporation and the Executive that
the Executive shall receive the full benefit of those compensation plans and
programs of the Corporation, including its retirement and pension plans and
programs, being provided pursuant to Section 4 hereof which provide for benefits
payable over periods beyond the particular year of employment ("Long-Term
Plans"). Accordingly, the parties intend that, in the event of any breach by the
Corporation of the terms hereof, damages for such breach shall include
consequential damages for the loss of any benefits under such Long-Term Plans,
which benefits would have become payable under such plans had the Executive
completed the Term remaining at the time of such breach but which are not
payable under such plans by reason of such breach.

9. Confidential Information.

not be public knowledge. During and after the end of the term of employment, the
Executive shall not, without the prior written consent of the Corporation,
communicate or divulge any such information, knowledge or data to anyone other
than the Corporation and those designated by it.

10. No Assignment; Assumption.

This Agreement is personal to the Executive and without the prior
written consent of the Corporation shall not be assignable by the Executive
other than by will or the laws of descent and distribution. This Agreement shall
inure to the benefit of and be enforceable by the Executive's legal
representatives. This Agreement shall be binding upon any successor to the
business or assets of the Corporation which assumes this Agreement expressly, by
operation of law or otherwise.

11. Miscellaneous.

(a) This Agreement shall be governed by and construed in accordance
with the laws of the State of Delaware, without reference to principles of
conflict of laws. The captions of this Agreement are not part of the provisions
hereof and shall have no force or effect. This Agreement may not be amended or
modified other than by a written agreement executed by the parties hereto or
their respective successors and legal representatives.

(b) All notices and other communications hereunder shall be in writing
and shall be given by hand delivery to the other party or by registered or
certified mail, return receipt requested, postage prepaid, addressed as follows:

If to the Executive:
7 Dansfield Court
Upper Saddle River, NJ 07458

If to the Corporation:
225 Brae Boulevard
Park Ridge, New Jersey 07656
Attention: General Counsel
<PAGE> 7
7

or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice and communications shall be effective
when actually received by the addressee.

(c) The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement.

(d) The Corporation may withhold from any amounts payable under this
Agreement such federal, state or local taxes as shall be required to be withheld
pursuant to any applicable law or regulation.

(e) This Agreement contains the entire understanding of the parties
hereto with respect to the subject matter hereof.

IN WITNESS WHEREOF, the Corporation has caused this Agreement
to be signed in its corporate name and its corporate seal to be hereunto affixed
and to be attested by its Secretary or one of its Assistant Secretaries, and the
Executive has hereunto set his hand, all as of the day and year first above
written.

/s/ Joseph R. Nothwang
-------------------------
Executive

THE HERTZ CORPORATION

By /s/ Donald F. Steele
-------------------------
Its Senior Vice President, Employee Relations

ATTEST:

/s/ Paul M. Tschirhart
- - -----------------------
Secretary
(Seal)

<PAGE> 1
EXHIBIT 10(o)

EMPLOYMENT AGREEMENT

AGREEMENT, dated as of February 12, 1998 between The Hertz
Corporation, a Delaware Corporation (the "Corporation"), and Gerald A. Plescia,
(the "Executive").

WHEREAS, the Corporation currently employs the Executive in the
capacity of Executive Vice President of The Hertz Corporation and President of
HERC, and the Executive is a key executive officer of the Corporation; and

NOW, THEREFORE, in consideration of the mutual promises contained
herein and other good and valuable consideration, the parties hereby agree as
follows:

1. Employment.

2. Term.

3. Position and Duties.
<PAGE> 2
2

(a) At the present time, Executive is Executive Vice President of The
Hertz Corporation and President, HERC, of the Corporation. During the Term, the
Executive's position, duties and responsibilities shall be those of a senior
executive of the Corporation, recognizing that, notwithstanding any provision of
the Agreement to the contrary, the Corporation shall have the absolute right to
modify or change the position, duties, responsibilities and title of the
Executive in any respect; provided, however, that the Executive shall continue
to be employed in a senior executive capacity during the Term.

(b) The Executive agrees to devote his full business time during
normal business hours to the business and affairs of the Corporation and to use
his best efforts to promote the interests of the Corporation and to perform
faithfully and efficiently the responsibilities assigned to him in accordance
with the terms of this Agreement, to the extent necessary to discharge such
responsibilities, except for (I) services on corporate, civic or charitable
boards or committees not significantly interfering with the performance of such
responsibilities and (ii) periods of vacation and sick leave to which he is
entitled. It is expressly understood and agreed that the Executive's continuing
service on any boards and committees with which he shall be connected, as a
member or otherwise, as of the date hereof, or any such service approved by the
Corporation during the term of employment, shall not be deemed to interfere with
the performance of the Executive's services for the Corporation pursuant to this
paragraph (b).

4. Compensation and Other Terms of Employment.

(a) Base Salary. During the Term, the Executive shall receive an
annual base salary ("Base Salary"), payable in equal installments not less
frequently than twice per month, at an annual rate at least equal to the
aggregate annual base salary payable to the Executive by the Corporation and any
of its affiliated companies as of the date hereof. The Base Salary shall be
reviewed and may be increased at any time and from time to time in accordance
with the Corporation's regular practices. Any increase in the Base Salary shall
not serve to limit or reduce any other obligation of the Corporation hereunder,
and after any such increase the Base Salary shall not be reduced from such
increased level during the Term.
<PAGE> 3
3

As used in this Agreement, the term "affiliated companies" shall mean any
company (or other business entity) controlling, controlled by, or under common
control with the Corporation.

(b) Incentive Compensation. As further compensation, the Executive
will be eligible for awards ("Incentive Compensation") under the Corporation's
bonus and incentive compensation plans determined on no less favorable a basis
than those provided to the Executive under such plans as in effect as of the
date hereof.

(c) Retirement, Savings and Stock Option Plans. In addition to the
Base Salary and Incentive Compensation payable as hereinabove provided, during
the Term the Executive shall be entitled to participate in all savings, stock
option, retirement and employee welfare and benefit plans and programs, and
fringe benefit, vacation, sick leave, insurance and prerequisite policies, on a
basis providing him with the opportunity to receive aggregate compensation and
benefits, on a before-tax basis, not less favorable than those provided by the
Corporation and its affiliated companies to the Executive under such plans,
programs and policies as in effect as of the date hereof. Nothing herein shall
be construed to prevent the Corporation or such affiliated companies from
amending or altering any such plans or programs so long as the Executive
continues to have the opportunity to receive aggregate compensation and
benefits, on a before tax basis, at a level not less favorable than those
currently provided. All existing agreements between the Corporation and the
Executive providing for special pension, retirement or similar benefits are
automatically continued for the Term. Any rights to benefits which become vested
under the terms of such plans, programs, policies and agreements but which are
to be paid or provided in future periods shall continue to be so vested
notwithstanding the prior termination of this Agreement.

5. Termination.

accrued hereunder, and under any plans provided for under Section 4(C) hereof,
shall be paid to the Executive's beneficiaries, legal representatives, or heirs
as appropriate.

(b) Disability. If, as a result of the Executive's incapacity due to
physical or mental illness the Executive shall have been absent from the
full-time performance of his duties with the Corporation for six (6) consecutive
months, and within thirty (30) days after written notice of termination is given
the Executive shall not have returned to the full-time performance of his
duties, the Executive's employment may be terminated for disability. During such
period of absence, the Executive shall continue to receive the benefits provided
in Section 4 hereof and thereafter the Executive's benefits shall be determined
under the Corporation's disability insurance plans and policies provided under
Section 4(C) hereof.

(c) Cause. The Corporation may terminate the Executive's employment
for Cause. For purposes of this Agreement, "Cause" shall mean (i) an act or acts
of dishonesty on the Executive's part which are intended to result in his
substantial personal enrichment at the expense of the Corporation or the
Executive's conviction of a felony; (ii) any material violation by the Executive
of his responsibilities set forth in Section 3 hereof; or (iii) any material
breach of any provision of this agreement by Executive. If the Executive's
employment is terminated for Cause, the Corporation shall pay the Executive his
full accrued Base Salary through the date of such termination at the rate in
effect at the time of such termination, and the Corporation shall have no
further obligations to the Executive under this Agreement. The Executive's
employment shall not be terminated for Cause unless there shall have been
delivered to the Executive a resolution duly adopted by the Board of Directors
of the Corporation at a meeting of the Board which the Executive, together with
his counsel, has an opportunity upon reasonable notice to attend and to address
the Board, such resolution setting forth with particularity the basis for
terminating the Executive for Cause.

(d) Retirement. The Executive may terminate his employment hereunder
by retirement, including early retirement, during the Term of the Agreement,
under the Corporation's retirement policies existing on the date hereof or under
any policy established for the Executive with his consent, provided that the
Corporation consents to such retirement action.

6. Non-exclusivity of Rights.
<PAGE> 5
5

7. No Set-Off; Legal Fees.

The Corporation's obligation to make the payments provided for herein
and otherwise to perform its obligations hereunder shall not be affected by any
circumstances, including without limitation any set-off, counterclaim,
recoupment, defense or other right which the Corporation may have against the
Executive or others unless this Agreement is terminated for cause for breach of
the conditions set forth in Section 3(C) hereof. Unless it is finally determined
by a court of competent jurisdiction that the Corporation has validly terminated
the Executive's employment for Cause, the Corporation agrees to pay, to the full
extent permitted by law, all legal fees and expenses which the Executive may
reasonably incur in defending any contest by the Corporation or others of the
validity or enforceability of, or liability under, any provision of this
Agreement, plus interest on the total unpaid amount determined to be payable
hereunder, for the period commencing on the date of such contest and ending on
the date on which the Corporation shall pay such total amount, provided
Executive prevails in such contest.

8. Receipt of Certain Benefits.

remaining at the time of such breach but which are not payable under such plans
by reason of such breach.

9. Confidential Information.

The Executive shall hold in a fiduciary capacity for the benefit of
the Corporation all secret or confidential information, knowledge or data
relating to the Corporation, Ford Motor Company, or any of their subsidiaries or
affiliates, and their respective businesses, which shall have been obtained by
the Executive during his employment by the Corporation or any of its affiliated
companies and which shall not be public knowledge. During and after the end of
the term of employment, the Executive shall not, without the prior written
consent of the Corporation, communicate or divulge any such information,
knowledge or data to anyone other than the Corporation and those designated by
it.

10. No Assignment; Assumption.

11. Miscellaneous.

(b) All notices and other communications hereunder shall be in
writing and shall be given by hand delivery to the other party or by registered
or certified mail, return receipt requested, postage prepaid, addressed as
follows:
<PAGE> 7
7

If to the Executive:
7 Copperfield Court
Freehold, NJ 07728

If to the Corporation:
225 Brae Boulevard
Park Ridge, New Jersey 07656
Attention: General Counsel

or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice and communications shall be effective
when actually received by the addressee.

(c) The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement.

(d) The Corporation may withhold from any amounts payable under this
Agreement such federal, state or local taxes as shall be required to be withheld
pursuant to any applicable law or regulation.

(e) This Agreement contains the entire understanding of the parties
hereto with respect to the subject matter hereof.

IN WITNESS WHEREOF, the Corporation has caused this Agreement to be
signed in its corporate name and its corporate seal to be hereunto affixed and
to be attested by its Secretary or one of its Assistant Secretaries, and the
Executive has hereunto set his hand, all as of the day and year first above
written.
<PAGE> 8
8

/s/ Gerald A. Plescia
------------------------
Executive

THE HERTZ CORPORATION

By /s/ Donald F. Steele
------------------------
Its Senior Vice President, Employee Relations

ATTEST:

/s/ Paul M. Tschirhart
- - ----------------------
Secretary
(SEAL)

<PAGE> 1
EXHIBIT 10(p)

EMPLOYMENT AGREEMENT

AGREEMENT, dated as of February 12, 1998, between The Hertz
Corporation, a Delaware corporation (the "Corporation"), and Paul J. Siracusa,
(the "Executive").

WHEREAS, the Corporation currently employs the Executive in the
capacity of Executive Vice President and Chief Financial Officer of The Hertz
Corporation, and the Executive is a key executive officer of the Corporation;
and

NOW, THEREFORE, in consideration of the mutual promises contained
herein and other good and valuable consideration, the parties hereby agree as
follows:

1. Employment.

2. Term.

3. Position and Duties.

(a) At the present time, Executive is Executive Vice President and
Chief Financial Officer of the
<PAGE> 2
2

Corporation. During the Term, the Executive's position, duties and
responsibilities shall be those of a senior executive of the Corporation,
recognizing that, notwithstanding any provision of the Agreement to the
contrary, the Corporation shall have the absolute right to modify or change the
position, duties, responsibilities and title of the Executive in any respect;
provided, however, that the Executive shall continue to be employed in a senior
executive capacity during the Term.

4. Compensation and Other Terms of Employment.

5. Termination.

6. Non-exclusivity of Rights.

program of the Corporation or any of its affiliated companies shall be payable
in accordance with the terms of such plan or program.

7. No Set-Off; Legal Fees.

8. Receipt of Certain Benefits.

9. Confidential Information.

10. No Assignment; Assumption.

11. Miscellaneous.

If to the Executive:
22 South Middletown Road
Montvale, NJ 07645

If to the Corporation:
225 Brae Boulevard
Park Ridge, New Jersey 07656
Attention: General Counsel

or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice and communications shall be effective
when actually received by the addressee.
<PAGE> 7
7
(c) The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement.

(d) The Corporation may withhold from any amounts payable under this
Agreement such federal, state or local taxes as shall be required to be withheld
pursuant to any applicable law or regulation.

(e) This Agreement contains the entire understanding of the parties
hereto with respect to the subject matter hereof.

/s/ Paul J. Siracusa
-------------------------
Executive

THE HERTZ CORPORATION

By /s/ Donald F. Steele
-------------------------
Its Senior Vice President, Employee Relations

ATTEST:

/s/ Paul M. Tschirhart
- - -----------------------
Secretary
(Seal)

<PAGE> 1

EXHIBIT 12

THE HERTZ CORPORATION AND SUBSIDIARIES

COMPUTATION OF CONSOLIDATED RATIO OF EARNINGS TO FIXED CHARGES (UNAUDITED)
(IN THOUSANDS OF DOLLARS EXCEPT RATIOS)

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------------
1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Income before income taxes.................. $343,270 $256,569 $172,344 $162,831 $102,450
Interest expense............................ 316,038 309,249 323,871 284,438 256,718
Portion of rent estimated to represent the
interest factor........................... 72,752 69,188 75,874 88,219 76,298
-------- -------- -------- -------- --------
Earnings before income taxes and fixed
charges................................... $732,060 $635,006 $572,089 $535,488 $435,466
======== ======== ======== ======== ========
Interest expense (including capitalized
interest)................................. $316,536 $309,843 $325,021 $284,855 $256,866
Portion of rent estimated to represent the
interest factor........................... 72,752 69,188 75,874 88,219 76,298
-------- -------- -------- -------- --------
Fixed charges............................... $389,288 $379,031 $400,895 $373,074 $333,164
======== ======== ======== ======== ========
Ratio of earnings to fixed charges.......... 1.9 1.7 1.4 1.4 1.3
======== ======== ======== ======== ========
</TABLE>

<PAGE> 1

EXHIBIT 21

SUBSIDIARIES OF THE COMPANY*
DECEMBER 31, 1997

<TABLE>
<CAPTION>
STATE OR NUMBER OF SUBSIDIARIES
JURISDICTION OF NATURE OF PRINCIPAL ------------------------
NAME OF SUBSIDIARY INCORPORATION BUSINESS CONDUCTED UNITED STATES FOREIGN
------------------ --------------- ------------------- ------------- -------
<S> <C> <C> <C> <C>
Hertz International, Ltd. ....... Delaware Through its subsidiaries, 1 53
rents and leases vehicles, and
rents industrial and
construction equipment. Also
issues licenses for the
renting and leasing of
vehicles
Hertz Equipment Rental
Corporation.................... Delaware Renting industrial and -- --
construction equipment
Hertz International RE Limited... Ireland Reinsurer -- 1
</TABLE>

* Certain subsidiaries have been omitted, as they do not in the aggregate
constitute a significant subsidiary.

<PAGE> 1

EXHIBIT 23

CONSENT OF INDEPENDENT ACCOUNTANTS

We consent to the incorporation by reference in the Registration Statement
of The Hertz Corporation on Form S-3 (File No. 333-34501) of our report dated
January 22, 1998, on our audits of the consolidated financial statements and
financial statement schedule of The Hertz Corporation as of December 31, 1997
and 1996, and for the years ended December 31, 1997, 1996 and 1995 which report
is included in this Annual Report on Form 10-K.

COOPERS & LYBRAND L.L.P.

Parsippany, New Jersey
March 20, 1998

<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<EXCHANGE-RATE> 1
<CASH> 6,761
<SECURITIES> 145,859
<RECEIVABLES> 777,072
<ALLOWANCES> (13,927)
<INVENTORY> 17,941
<CURRENT-ASSETS> 0
<PP&E> 6,647,953
<DEPRECIATION> (1,171,321)
<TOTAL-ASSETS> 7,435,521
<CURRENT-LIABILITIES> 0
<BONDS> 4,715,668
0
0
<COMMON> 1,083
<OTHER-SE> 1,135,114
<TOTAL-LIABILITY-AND-EQUITY> 7,435,521
<SALES> 0
<TOTAL-REVENUES> 3,891,320
<CGS> 0
<TOTAL-COSTS> 3,236,215
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 9,623
<INTEREST-EXPENSE> 302,212
<INCOME-PRETAX> 343,270
<INCOME-TAX> 141,652
<INCOME-CONTINUING> 201,618
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 201,618
<EPS-PRIMARY> 1.86<F1>
<EPS-DILUTED> 1.86
<FN>
<F1>THE AMOUNT IS REPORTED AS EPS BASIC AND NOT FOR EPS PRIMARY.
</FN>

</TABLE>