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FORM 10-Q

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

For the quarterly period ended September 30, 2003

OR

Commission file number 1-7541

THE HERTZ CORPORATION

225 Brae Boulevard, Park Ridge, New Jersey 07656-0713

(201) 307-2000

Not Applicable

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

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

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

Indicate the number of shares outstanding of each of the Registrant’s classes of common stock, as of September 30, 2003: Common Stock, $0.01 par value - 100 shares.

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THE HERTZ CORPORATION AND SUBSIDIARIES
INDEX

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PART I - FINANCIAL INFORMATION

ITEM 1. Condensed Consolidated Financial Statements

REPORT OF INDEPENDENT ACCOUNTANTS

To The Hertz Corporation:

We have reviewed the accompanying condensed consolidated balance sheet of The Hertz Corporation (a wholly owned subsidiary of Ford Motor Company) and its subsidiaries as of September 30, 2003, the related condensed consolidated statement of operations for each of the three-month and nine-month periods ended September 30, 2003 and 2002, and the condensed consolidated statement of cash flows for each of the nine-month periods ended September 30, 2003 and 2002. These financial statements are the responsibility of the Company’s management.

We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

Based on our review, we are not aware of any material modifications that should be made to the accompanying condensed consolidated interim financial statements for them to be in conformity with accounting principles generally accepted in the United States of America.

As discussed in Note 2 to the accompanying condensed consolidated interim financial statements, on January 1, 2003, the Company adopted Statement of Financial Accounting Standards No. 148, “Accounting for Stock-Based Compensation – Transition and Disclosure,” which changed the method for accounting for stock-based employee compensation.

We previously audited in accordance with auditing standards generally accepted in the United States of America, the consolidated balance sheet as of December 31, 2002, and the related consolidated statements of operations, stockholder’s equity and cash flows for the year then ended (not presented herein), and in our report dated January 17, 2003, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying consolidated balance sheet as of December 31, 2002, is fairly stated in all material respects in relation to the consolidated balance sheet from which it has been derived.

PRICEWATERHOUSECOOPERS LLP
Florham Park, New Jersey
October 10, 2003

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THE HERTZ CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(In Thousands of Dollars)
Unaudited

The accompanying notes are an integral part of this statement.

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THE HERTZ CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(In Thousands of Dollars)
Unaudited

The accompanying notes are an integral part of this statement.

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THE HERTZ CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(In Thousands of Dollars)
Unaudited

The accompanying notes are an integral part of this statement.

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THE HERTZ CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(In Thousands of Dollars)
Unaudited

The accompanying notes are an integral part of this statement.

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THE HERTZ CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Unaudited

Note 1 – Basis of Presentation

     The Hertz Corporation (together with its subsidiaries, referred to herein as “Hertz” or the “Company”) is a wholly owned subsidiary of Ford Motor Company (“Ford”).

     The summary of accounting policies set forth in Note 1 to the consolidated financial statements contained in the Form 10-K for the fiscal year ended December 31, 2002, filed by the Company with the Securities and Exchange Commission on March 18, 2003, has been followed in preparing the accompanying condensed consolidated financial statements.

     The condensed consolidated financial statements for interim periods included herein have been reviewed, but not audited, by the Company’s independent accountants. In the Company’s opinion, all adjustments (which include only normal recurring adjustments) necessary for a fair statement of the results of operations for the interim periods have been made. Results for interim periods are not necessarily indicative of results for a full year.

Note 2 – Recently Adopted Pronouncements

     In June 2001, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 143, “Accounting for Asset Retirement Obligations.” SFAS No. 143 addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. This statement applies to legal obligations associated with the retirement of long-lived assets that result from the acquisition, construction, development and (or) the normal operation of a long-lived asset, except for certain obligations of lessees. The Company adopted this statement, effective January 1, 2003. The adoption of SFAS No. 143 did not have a material effect on the Company’s financial position, results of operations or cash flows.

     In June 2002, the FASB issued SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities.” SFAS No. 146 addresses financial accounting and recognition of liabilities for costs associated with exit or disposal activities, requiring that such liabilities be recognized and measured initially at fair value only when a liability is incurred. SFAS No. 146 is effective for disposal activities that are initiated after December 31, 2002. The Company adopted SFAS No. 146 as of January 1, 2003. The adoption of SFAS No. 146 did not have a material effect on the Company’s financial position, results of operations or cash flows.

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

     In December 2002, the FASB issued SFAS No. 148, “Accounting for Stock-Based Compensation – Transition and Disclosure.” SFAS No. 148 amends SFAS No. 123, “Accounting for Stock-Based Compensation” to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, this statement amends the disclosure requirements of SFAS No. 123 to require more prominent and more frequent disclosures in both annual and interim financial statements about the effects of stock-based compensation. The annual and interim disclosure guidance of SFAS No. 148 is effective for fiscal years ending after December 15, 2002. The Company adopted the fair value recognition provisions of SFAS No. 123, effective January 1, 2003. Under the modified prospective method of adoption selected by the Company, stock-based employee compensation cost recognized in 2003 is the same as that which would have been recognized had the fair value recognition provisions of SFAS No. 123 been applied from its original effective date. The following table illustrates the effect on net income (loss) as if the fair value based method had been applied to all outstanding and unvested awards in each period.

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THE HERTZ CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Unaudited

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

     The Company has franchise agreements with approximately 500 independent franchisees who are principally engaged in the vehicle rental business in the United States and in many foreign countries. The operations of all franchisees, including the purchase and ownership of vehicles, are financed independently by the franchisee with the Company having no investment interest in the franchisee or in the franchisee’s fleet. Under these franchise agreements, the franchisees generally pay fees based on the number of cars they operate and/or revenues. The Company is currently in the process of determining whether or not these franchisees are VIEs. In either case, the Company believes it is not the primary beneficiary and, accordingly, these franchisees should not be consolidated in the Company’s financial statements. The Company’s maximum potential exposure is limited to the receivables due from the franchisees, which were approximately $12 million at September 30, 2003. Subject to further implementation guidance issued by the FASB, the Company does not expect the adoption of FIN 46 to have a material impact on the Company’s financial position, results of operations or cash flows.

Note 3 – Cash Equivalents and Short-term Investments

     Cash and equivalents included investments with related parties of $182 million and $424 million at September 30, 2003 and December 31, 2002, respectively. At September 30, 2003, short-term investments consisted of $850 million of investments with a related party investment fund that pools and invests excess cash balances of Ford and certain Ford subsidiaries.

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THE HERTZ CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Unaudited

Note 4 – Goodwill and Other Intangible Assets

     The Company accounts for its goodwill under SFAS No. 142 “Goodwill and Other Intangible Assets.” Under SFAS No. 142, goodwill is no longer amortized, but instead must be tested for impairment at least annually. Other intangible assets continue to be amortized over their useful lives.

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

     The goodwill impairment charge represented a portion of the goodwill of the industrial and construction equipment rental segment. The goodwill write-off was the result of a reduction in projected cash flows used to determine fair value due to the unfavorable economic conditions as of the date of adoption, which reduced demand for industrial and construction equipment in North America. The Company conducted the required annual goodwill impairment test in the second quarter of 2003, and determined that there was no additional impairment.

     The following summarizes the changes in the Company’s goodwill, by segment, and other intangible assets (in thousands of dollars):

(1)  Consists of changes resulting from the translation of foreign currencies at different exchange rates on December 31, 2002 and September 30, 2003 and amortization of certain intangible assets.

Note 5 – Income Taxes

     The provision for income taxes is based upon the expected effective tax rate applicable to the full year. The effective tax rate is lower than the U.S. statutory rate of 35% primarily due to the mix of pretax operating results between countries with different tax rates.

Note 6 – Depreciation of Revenue Earning Equipment

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

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THE HERTZ CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Unaudited

     The adjustment of depreciation upon disposal of revenue earning equipment for the three months ended September 30, 2003 and 2002 included net gains of $2.1 million and $1.3 million, respectively, on the sale of equipment in the Company’s industrial and construction equipment rental operations and net gains of $5.6 million and $4.3 million, respectively, in the car rental operations.

     The adjustment of depreciation upon disposal of revenue earning equipment for the nine months ended September 30, 2003 and 2002 included net gains of $8.3 million and $5.8 million, respectively, on the sale of equipment in the Company’s industrial and construction equipment rental operations and a net loss of $.8 million and a net gain of $11.4 million, respectively, in the car rental operations.

     During the nine months ended September 30, 2003, the Company purchased Ford vehicles at a cost of approximately $3.8 billion, and sold Ford vehicles to Ford or its affiliates under various repurchase programs for approximately $2.6 billion.

Note 7 - Debt

     Debt at September 30, 2003 and December 31, 2002 consisted of the following (in thousands of dollars):

     The aggregate amounts of maturities of debt for each of the twelve-month periods ending September 30, are as follows (in millions): 2004, $4,151.5 (including $3,249.4 of commercial paper and short-term borrowings); 2005, $506.1; 2006, $350.6; 2007, $1,007.5; 2008, $200.6, after 2008, $1,941.2.

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

     At September 30, 2003, approximately $1,028 million of the Company’s consolidated stockholder’s equity was free of dividend limitations pursuant to its existing debt agreements.

     During 2002, the Company established an Asset Backed Securitization (“ABS”) program to reduce its borrowing costs and enhance financing resources for its domestic car rental fleet. The ABS program provides for the initial issuance of up to $1 billion of asset backed commercial paper and subsequent issuance of asset backed medium-term notes. These notes are issued by wholly owned and consolidated special purpose entities and are included in debt in the balance sheet. All debt issued under the ABS program is collateralized by the assets of the special purpose entities consisting of revenue earning vehicles used by the Company in its daily rental business, restricted cash and investments and certain receivables related to revenue earning vehicles.

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THE HERTZ CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Unaudited

     At September 30, 2003, $933.9 million of asset backed commercial paper was outstanding under the ABS program. The average interest rate as of September 30, 2003 was 1.1%. The secured commercial paper has a maximum term of 58 days when issued. At September 30, 2003, the outstanding commercial paper was secured by $909.7 million net book value of revenue earning vehicles, $44.1 million of receivables and $8.8 million of restricted cash. (Restricted cash is included in “prepaid expenses and other assets” in the consolidated balance sheet.)

Note 8 - Segment Information

     The Company’s business principally consists of two significant segments: rental of cars and light trucks (“car rental”); and rental of industrial, construction and materials handling equipment (“industrial and construction equipment rental”). The contributions of these segments, as well as “corporate and other,” to revenues and income (loss) before income taxes for the three and nine months ended September 30, 2003 and 2002 are summarized below (in millions of dollars). Corporate and other includes general corporate expenses, and certain interest expense, as well as other business activities such as claim management services.

(a)

Includes a gain of $8.0 million from the condemnation of a car rental and support facility in Florida.

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THE HERTZ CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Unaudited

Note 9 - Comprehensive Income (Loss)

     Accumulated other comprehensive income (loss) at September 30, 2003 and December 31, 2002 includes an accumulated translation gain and an accumulated translation loss (in thousands of dollars) of $65,872 and $9,439 respectively. Comprehensive income (loss) for the three and nine months ended September 30, 2003 and 2002 was as follows (in thousands of dollars):

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ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Certain statements appearing below, including, without limitation, those concerning (i) the Company’s outlook and (ii) the Company’s liquidity and capital expenditures, contain forward-looking statements concerning the Company’s operations, economic performance and financial condition. Because such statements involve risks and uncertainties, actual results may differ materially from those expressed or implied by such forward-looking statements. Factors that could cause such differences include, but are not limited to, economic downturn; competition; the Company’s dependence on air travel; terrorist attacks, acts of war, epidemic diseases, or measures taken by governments in response thereto that negatively affect the travel industry; limitations upon the Company’s liquidity and capital raising ability; increases in the cost of cars and limitations on the supply of competitively priced cars; seasonality in the Company’s businesses; and Ford’s continued control of the Company.

Three Months ended September 30, 2003 Compared with Three Months ended September 30, 2002

Summary

     The following table sets forth for the three months ended September 30, 2003 and 2002 the percentage of operating revenues represented by certain items in the Company’s consolidated statement of operations:

Revenues

     Total revenues in the third quarter of 2003 of $1,489.5 million increased by 5.1% from $1,416.6 million in the third quarter of 2002. Revenues from car rental operations of $1,225.4 million in the third quarter of 2003 increased by $71.9 million, or 6.2% from $1,153.5 million in the third quarter of 2002. The increase was primarily the result of the effects of foreign currency translation of approximately $40.9 million and higher rental volume worldwide, partly offset by a 2.3% decrease in pricing worldwide.

     Revenues from industrial and construction equipment rental operations of $246.0 million in the third quarter of 2003 increased by $2.5 million, or 1.0% from $243.5 million in the third quarter of 2002. The increase was due to the effects of foreign currency translation, partly offset by a decrease in rental volume, which was the result of depressed capital spending for new construction and its impact on the equipment rental industry.

     Revenues from all other sources of $18.2 million in the third quarter of 2003 decreased by $1.5 million, or 7.6% from $19.7 million in the third quarter of 2002, primarily due to a decrease in license and management fees earned from Axus International, Inc. (“Axus”). Axus was a wholly owned, vehicle leasing subsidiary of Ford Motor Credit Company (“Ford Credit”) to which the Company had licensed the Hertz name and provided management services prior to the completion of the sale of Axus by Ford Credit and termination of the Hertz license in the first quarter of 2003.

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ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)

Expenses

     Total expenses of $1,302.0 million in 2003 increased by 3.8% from $1,254.2 million in 2002, and total expenses as a percentage of revenues decreased to 87.4% in the third quarter of 2003 as compared to 88.5% in 2002.

     Direct operating expenses of $690.7 million in 2003 increased by 7.1% from $645.0 million in 2002. The increase was primarily the result of the effects of foreign currency translation, an increase in wages and benefits, and self-insurance costs, partly offset by decreases in concession fees and vehicle damage costs in car rental operations.

     Depreciation of revenue earning equipment for the car rental operations of $333.8 million in the third quarter of 2003, increased by 1.4%, from $329.1 million in 2002. The increase was primarily due to the effects of foreign currency translation partly offset by higher net proceeds received in excess of book value on the disposal of used vehicles in the United States. Depreciation of revenue earning equipment for the industrial and construction equipment rental operations of $63.0 million in 2003 decreased by 5.5% from $66.7 million in 2002 due to a decrease in the size of the equipment rental fleet.

     Selling, general and administrative expenses of $125.5 million in 2003 increased by 9.4% from $114.7 million in 2002. The increase was primarily due to the effects of foreign currency translation and increases in administrative expenses. Administrative expenses in 2003 included $1.3 million of stock-based compensation expense which resulted from the adoption of the fair value recognition provisions of SFAS No. 123, effective January 1, 2003. See Note 2 to the Notes to the Company’s condensed consolidated financial statements.

     Interest expense of $89.0 million in 2003 decreased 9.9% from $98.7 million in 2002, primarily due to a decrease in the weighted-average interest rate and an increase in interest income, partly offset by higher average debt levels in the third quarter of 2003.

     The provision for income taxes of $60.9 million in 2003 increased by 12.0% from $54.3 million in 2002, primarily due to a higher income before income taxes in 2003, partly offset by a decrease in the effective tax rate. The effective tax rate in the third quarter of 2003 was 32.5% as compared to 33.5% the in third quarter of 2002. The decrease in the effective tax rate is due primarily to the projected mix of pretax operating results between countries with different tax rates. The final effective tax rate for 2002 was 33.4%. See Note 5 to the Notes to the Company’s condensed consolidated financial statements.

Net Income

     The Company had net income of $126.7 million in the third quarter of 2003, representing an increase of 17.2% from $108.1 million in 2002. The increase was primarily due to higher volume in the Company’s worldwide car rental business and improved cost performance, partly offset by lower pricing in the Company’s U.S. car rental business as well as the net effect of other contributing factors noted above.

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ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)

Nine Months ended September 30, 2003 Compared with Nine Months ended September 30, 2002

Summary

     The following table sets forth for the nine months ended September 30, 2003 and 2002 the percentage of operating revenues represented by certain items in the Company’s consolidated statement of operations:

Revenues

     Total revenues in the first nine months of 2003 of $3,907.0 million increased by 3.7% from $3,767.9 million in the first nine months of 2002. Revenues from car rental operations of $3,197.9 million in the first nine months of 2003 increased by $145.2 million, or 4.8% from $3,052.7 million in the first nine months of 2002. The increase was primarily the result of the effects of foreign currency translation of approximately $123.2 million and higher rental volume worldwide, partly offset by a 2.5% decrease in pricing in the United States.

     Revenues from industrial and construction equipment rental operations of $660.8 million in the first nine months of 2003 decreased by $2.2 million, or 0.3% from $663.0 million in the first nine months of 2002. The decrease was due to a decrease in pricing and rental volume, which was the result of depressed capital spending for new non-residential construction and its impact on the equipment rental industry, mostly offset by the effects of foreign currency translation.

     Revenues from all other sources of $48.3 million in the first nine months of 2003 decreased by 7.4% from $52.2 million in the first nine months of 2002, primarily due to the termination of the license and management agreement with Axus and Ford Credit in the first quarter of 2003.

Expenses

     Total expenses of $3,716.6 million in 2003 increased by 3.8% from $3,580.7 million in 2002, and total expenses as a percentage of revenues increased to 95.1% in the first nine months of 2003 as compared to 95.0% in 2002.

     Direct operating expenses of $1,937.6 million in 2003 increased by 5.4% from $1,838.2 million in 2002. The increase was primarily the result of the effects of foreign currency translation, increases in wages and benefits, self-insurance and gasoline costs, partly offset by decreases in concessions, commissions and vehicle damage in car rental operations and a gain of $8.0 million from the condemnation of a car rental and support facility in Florida.

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ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)

     Depreciation of revenue earning equipment for the car rental operations of $944.5 million in 2003, increased by 3.5%, from $912.7 million in 2002. The increase was primarily due to the effects of foreign currency translation and lower net proceeds received in excess of book value on the disposal of used vehicles. Depreciation of revenue earning equipment for the industrial and construction equipment rental operations of $188.4 million in 2003 decreased by 6.0% from $200.5 million in 2002 due to a decrease in the size of the equipment rental fleet.

     Selling, general and administrative expenses of $378.9 million in 2003 increased by 6.3% from $356.3 million in 2002. The increase was primarily due to the effects of foreign currency translation, increases in administrative and sales promotion expenses, partly offset by a decrease in advertising expense. Administrative expenses in 2003 included $4.7 million of stock-based compensation expense which resulted from the adoption of the fair value recognition provisions of SFAS No. 123, effective January 1, 2003. See Note 2 to the Notes to the Company’s condensed consolidated financial statements.

     Interest expense of $267.3 million in 2003 decreased by 2.1% from $273.0 million in 2002, primarily due to a decrease in the weighted-average interest rate and an increase in interest income in 2003, partly offset by higher average debt levels.

     The provision for income taxes of $61.8 million in 2003 was unchanged from 2002. The projected effective tax rate in 2003 is 32.5% as compared to 33.0% in 2002. The decrease in the effective tax rate is due primarily to the projected mix of pretax operating results between countries with different tax rates. See Note 5 to the Notes to the Company’s condensed consolidated financial statements.

Income before cumulative effect of change in accounting principle

     The Company had income before cumulative effect of change in accounting principle of $128.6 million in the first nine months of 2003, compared to $125.5 million in 2002. The increase reflects improved car rental volume worldwide mostly offset by lower pricing in the Company’s U.S. car rental business as well as the net effect of other contributing factors noted above.

Cumulative effect of change in accounting principle

     The Company recorded a non-cash charge of $294 million upon the adoption of SFAS No. 142 effective January 1, 2002. The charge related to the industrial and construction equipment rental segment. The goodwill write-off was the result of a reduction in projected cash flows used to determine fair value due to the unfavorable economic conditions as of the date of adoption, which reduced demand for industrial and construction equipment in North America. See Note 4 to the Notes to the Company’s condensed consolidated financial statements.

Outlook

     The Company expects full year 2003 income before income taxes to approximate 2002 levels, reflecting continued weak global economic conditions in the travel and equipment rental industries.

Liquidity and Capital Resources

     At September 30, 2003, the Company had cash and cash equivalents of $680 million, an increase of $79 million from December 31, 2002. The balance at September 30, 2003 included $182 million of investments with related parties which earn market rates of return. In the third quarter of 2003, the Company made short-term investments with a related party investment fund that pools and invests excess cash balances of certain Ford subsidiaries to maximize returns. These short-term investments totaled $850 million as of September 30, 2003. The cash equivalents and short-term investments are being held until the funds are required for operating purposes or to reduce indebtedness.

     The Company’s domestic and foreign operations are funded by cash provided by operating activities, and by extensive financing arrangements maintained by the Company in the United States, Europe, Australia, New Zealand, Canada and Brazil. The Company’s primary use of funds is for the acquisition of revenue earning equipment, which consists of cars and industrial and construction equipment. Net cash provided by operating activities during the first nine months of 2003 increased approximately $69 million from the first nine months of 2002 primarily due to a decrease in net revenue earning equipment expenditures. For the nine months ended September 30, 2003, the Company’s expenditures for revenue earning equipment were $6.9 billion (partially offset by proceeds from the sale of such equipment of $5.4 billion). These assets are purchased by the Company in accordance with the terms of programs negotiated with automobile and equipment manufacturers. For the nine months ended September 30, 2003, the Company’s capital expenditures for property and non-revenue earning equipment were $162 million.

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ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)

     To finance its domestic operations, the Company maintains active unsecured and secured commercial paper programs. The Company is also active in the domestic unsecured medium-term and long-term debt markets.

     During the third quarter of 2002, the Company established an Asset Backed Securitization (“ABS”) program for its domestic car rental fleet to reduce its borrowing costs and enhance its financing resources. The ABS program provides for the initial issuance of up to $1 billion of asset backed commercial paper and subsequent issuance of asset backed medium-term notes. These notes are issued by wholly owned and consolidated special purpose entities and are classified as debt on the Company’s consolidated balance sheet. The commercial paper notes have ratings of A-1 by Standard & Poors Rating Services, Prime-1 by Moody’s Investors Service, Inc. and F1 by Fitch Ratings. Under certain conditions, the commercial paper notes may be repaid by draws under a related bank liquidity facility ($814 million), which expires in September 2004, or a related letter of credit issued under a letter of credit facility ($215 million), which expires in September 2004. All debt issued under the ABS program is collateralized by the assets of the special purpose entities, consisting of revenue earning vehicles used by the Company in its car rental business, restricted cash and investments, and certain receivables related to the revenue earning vehicles. As of September 30, 2003, $933.9 million of asset backed commercial paper was outstanding.

     As the need arises, it is the Company’s intention to issue either unsecured senior, senior subordinated, junior subordinated or asset backed securities on terms to be determined at the time the securities are offered for sale. The total amount of unsecured medium-term and long-term debt outstanding as of September 30, 2003 was $4.9 billion with maturities ranging from 2004 to 2028. At September 30, 2003, there was no secured medium-term or long-term debt outstanding. The Company expects to issue medium-term notes under the ABS program in the fourth quarter of 2003.

     Borrowing for the Company’s international operations consists mainly of loans obtained from local and international banks and commercial paper programs established in Australia, Canada, Belgium, Ireland and the Netherlands. The Company guarantees only the borrowings under these commercial paper programs and certain credit facilities extended by local banks to the Company’s subsidiaries in Canada and Australia. All borrowings by international operations are either in the international operation’s local currency or, if in non-local currency, hedged to minimize foreign exchange exposure. At September 30, 2003, the total debt for the foreign operations was $1,802 million, of which $1,793 million was short-term (original maturity of less than one year) and $9 million was long-term. At September 30, 2003, the total amounts outstanding (in millions of U.S. dollars) under the commercial paper programs in Ireland, Canada, Belgium, Australia and the Netherlands were $599, $442, $124, $53 and $47, respectively.

     At September 30, 2003, the Company had committed credit facilities totaling $2.8 billion. Currently $1.2 billion of the committed credit facilities are represented by a combination of multi-year and 364-day global committed credit facilities provided by 22 participating banks. In addition to direct borrowings by the Company, these facilities allow any subsidiary of the Company to borrow on the basis of a guarantee by the Company. The multi-year facilities were re-negotiated effective July 1, 2003 and currently total $1,065 million with expirations as follows (in millions of dollars): $43 on June 30, 2004, $69 on June 30, 2005, $35 on June 30, 2006, $108 on June 30, 2007 and $810 on June 30, 2008. The multi-year facilities that expire in 2008 have an evergreen feature, which provides for the automatic extension of the expiration date one year forward unless the bank provides timely notice. Effective June 19, 2003, the 364-day facilities were renegotiated and currently $115 million expires on June 17, 2004. Under the terms of the 364-day facilities, the Company is permitted to convert any amount outstanding prior to expiration into a two-year loan.

     Effective September 18, 2002, as part of the ABS program, the Company transferred $928 million of its 364-day global committed credit facilities to the ABS program. In accordance with the agreement to transfer these commitments, the Company has waived any right to transfer these commitments back to the 364-day global committed credit facilities without the consent of the participating banks. As of September 30, 2003, $814 million is currently available. In addition to the transfer of the 364-day commitments, the Company raised $215 million of committed credit support through an ABS letter of credit from banks that participate in the Company’s multi-year global committed credit facilities. In exchange for this credit support, the Company agreed to reduce the banks’ multi-year facility commitment by one half of the amount of their ABS letter of credit participation.

     In addition to these bank credit facilities, in February 1997, Ford extended to the Company a credit facility for $500 million that currently expires on June 30, 2005. This line of credit has an evergreen feature that provides on an annual basis for automatic one-year extensions of the expiration date, unless 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 0.2% per annum is payable on the unused available credit.

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ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)

     On November 12, 2003, Standard & Poor’s Ratings Services (“S&P”) downgraded the long-term corporate credit ratings of Ford, Ford Credit and the Company to “BBB-” with a stable outlook from “BBB” with a negative outlook. S&P also downgraded the short-term ratings of Ford, Ford Credit and the Company to “A-3” from “A-2”. Lower ratings generally result in higher borrowing costs and reduced access to capital markets. We expect that this downgrade will substantially reduce the Company’s ability to issue unsecured commercial paper. It is too early, however, to determine the impact of the downgrade on the Company’s funding mix for 2004. The Company’s funding strategy continues to be focused on maintaining liquidity and diverse and competitive funding sources. The Company believes that its funding strategy will allow it to continue to fund its operations in the future.

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

     Car rental and equipment rental operations are seasonal businesses, with decreased levels of business in the winter months and heightened activity during the spring and summer. To accommodate increased demand, the Company increases its available fleet and staff during the second and third quarters. As business demand declines, fleet and staff are decreased accordingly. However, certain operating expenses, including rent, insurance, and administrative overhead, remain fixed and cannot be adjusted for seasonal demand.

Other Financial Information

     The interim financial information included in this quarterly report on Form 10-Q has not been audited by PricewaterhouseCoopers LLP (“PwC”). In reviewing such information, PwC has applied limited procedures in accordance with professional standards for reviews of interim financial information. Accordingly, reliance on their reports on such information should be restricted. PwC is not subject to the liability provisions of Section 11 of the Securities Act of 1933 for its reports on the interim financial information because such reports do not constitute “reports” or “parts” of the registration statements prepared or certified by PwC within the meaning of Sections 7 and 11 of the Securities Act of 1933.

ITEM 4. Controls and Procedures

     Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in company reports filed or submitted under the Securities Exchange Act of 1934 (the “Exchange Act”) is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in company reports filed under the Exchange Act is accumulated and communicated to management, including the Company’s President and Chief Executive Officer and Executive Vice President and Chief Financial Officer (the “Certifying Officers”), as appropriate to allow timely decisions regarding required disclosure.

     As required by Rules 13a-15 and 15d-15 under the Exchange Act, the Certifying Officers carried out an evaluation of the effectiveness of the design and operation of the Company’s disclosure controls and procedures as of September 30, 2003. Their evaluation was carried out with the participation of other members of the Company’s management. Based upon their evaluation, the Certifying Officers concluded that the Company’s disclosure controls and procedures were effective.

     The Company’s internal control over financial reporting is a process designed by, or under the supervision of, the Certifying Officers and effected by the Company’s Board of Directors, management and other personnel, to provide reasonable assurance regarding the reliability of the Company’s financial reporting and the preparation of the Company’s financial statements for external purposes in accordance with generally accepted accounting principles. Internal control over financial reporting includes policies and procedures that pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the Company’s assets; provide reasonable assurance that transactions are recorded as necessary to permit preparation of the Company’s financial statements in accordance with generally accepted accounting principles, and that the Company’s receipts and expenditures are being made only in accordance with the authorization of the Company’s Board of Directors and management; and provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on its financial statements. There has been no change in the Company’s internal control over financial reporting that occurred in the quarter ended September 30, 2003, that has materially affected, or is reasonably likely to affect, the Company’s internal control over financial reporting.

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PART II - OTHER INFORMATION

ITEM 1. Legal Proceedings

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

     The Company notes the following recent developments pertaining to legal proceedings described in the Company’s Form 10-K for the fiscal year ended December 31, 2002 and its Form 10-Q for the quarterly period ended June 30, 2003: (1) In Shannon Leonard, Theresa Moore and Coley Whetstone, Jr. v. Enterprise Rent A Car, The Hertz Corporation, et. al., the Circuit Court of Coosa County, Alabama has granted a motion to dismiss as to the Company and the other non-bankrupt defendants. An order of dismissal has now been entered. (2) In James Han, individually and on behalf of all other similarly situated, v. The Hertz Corporation, Hertz’s motion for summary judgment was granted on July 29, 2003 and an order of dismissal has since been entered. The plaintiff has filed a notice of appeal of the order of dismissal. (3) In Wide World Tours of Mission Valley, Inc., Travel Support Systems, Inc., Vacation Marketing Group of Hawaii, Inc., Cecilia Pedroza, and International Travel Bureau, Inc. v. Avis Rent A Car System, Inc., Budget Rent A Car System, Inc., Dollar Rent A Car, Inc., Enterprise Rent-A-Car Company, The Hertz Corporation and Thrifty Rent-A-Car System, Inc., after the defendants filed misjoinder motions, an amended complaint was filed against the Company with separate new lawsuits commenced against other defendant rental car companies.

     An additional legal proceeding, Naomi R. Henderson, individually and on behalf of all others similarly situated, v. The Hertz Corporation, was commenced in the Superior Court of New Jersey, Essex County on August 28, 2003. Henderson purports to be a class action on behalf of all persons who purchased optional insurance products in the State of New Jersey or in other states from or through the Company at times that the Company did not have required licenses to sell such insurance. The Company has not yet filed an answer to the complaint.

ITEM 6. Exhibits and Reports on Form 8-K

(a)

Exhibits:

	(b)		Reports on Form 8-K:
			The Company filed a Form 8-K dated September 30, 2003, reporting under Item 5 thereof, instruments defining the rights of security holders, in connection with the Registration Statement on Form S-3 (File No. 333-57138) filed by the Company with the Securities and Exchange Commission covering $500,000,000 principal amount of 4.7% notes due October 2, 2006.

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SIGNATURES

     Pursuant to the requirements 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.